STATEMENT OF ADDITIONAL INFORMATION

MEMBERS Mutual Funds
CUNA Mutual Group
5910 Mineral Point Road
Madison, Wisconsin 53705

This is not a prospectus. This statement of additional information should be read in conjunction with the prospectus for the MEMBERS Mutual Funds, which is referred to herein. The prospectus concisely sets forth information that a prospective investor should know before investing. For a copy of the prospectus, dated February 1999, call 1-800-877-6089 or write MEMBERS Mutual Funds, P.O. Box 60569, King of Prussia, PA 19406-0569.

February 24, 1999

TABLE OF CONTENTS Page

GENERAL INFORMATION........................................................1

INVESTMENT PRACTICES.......................................................1
         Lending Portfolio Securities......................................1
         Restricted and Illiquid Securities................................1
         Options on Securities and Securities Indices......................2
         Futures Contracts and Options on Futures Contracts................5
         Foreign Transactions..............................................8
         Certain Bond Fund Practices......................................14
         Lower-Rated Corporate Debt Securities............................14
         Other Debt Securities............................................15
         Convertible Securities...........................................17
         Repurchase Agreements............................................18
         Reverse Repurchase Agreements....................................18
         Government Securities............................................19
         Forward Commitment and When-Issued Securities....................19
         Mortgage-Backed and Asset-Backed Securities......................19
         Other Securities Related to Mortgages............................20
         Real Estate Investment Trusts....................................23
         Practices that are Authorized but not Presently Employed.........24
         Types of Investment Risk.........................................24
         Higher-Risk Securities and Practices.............................26

INVESTMENT LIMITATIONS....................................................30

TEMPORARY DEFENSIVE POSITIONS.............................................31

PORTFOLIO TURNOVER........................................................31

MANAGEMENT OF THE TRUST...................................................31
         Trustees and Officers............................................32
         Trustee Compensation.............................................33

Sales Load Waivers for Certain Affiliated Persons of the Trust............33

Control Persons and Principal Holders of the Trust's Securities...........34

PORTFOLIO MANAGEMENT......................................................35
         The Management Agreement with CIMCO Inc..........................35
         CIMCO Inc........................................................36
         The Management Agreements with Subadvisers.......................37
         The Subadviser for the High Income Fund..........................37
         The Subadvisers for the International Stock Fund.................38

DISTRIBUTION (12b-1) PLANS AND AGREEMENT..................................38

TRANSFER AGENT............................................................39

CUSTODIAN.................................................................40

INDEPENDENT AUDITORS......................................................40

BROKERAGE.................................................................40

HOW SECURITIES ARE OFFERED................................................42
         Shares of Beneficial Interest....................................42
         Voting Rights....................................................42
         Limitation of Shareholder Liability..............................43
         Limitation of Trustee and Officer Liability......................43
         Limitation of Interseries Liability..............................43

MORE ABOUT PURCHASING AND SELLING SHARES..................................44
         Offering Price...................................................44
         Initial Sales Charge on Class A Shares...........................44
         Deferred Sales Charge on Class B Shares..........................45
         Special Redemptions..............................................47

NET ASSET VALUE OF SHARES.................................................47
         Cash Reserves Fund...............................................48
         Valuation Procedures.............................................49

ADDITIONAL INVESTOR SERVICES AND PROGRAMS.................................49
         Systematic Investment Program....................................49
         Systematic Withdrawal Program....................................50
         Exchange Privilege and Systematic Exchange Program...............50
         Reinstatement or Reinvestment Privilege..........................51

DIVIDENDS, DISTRIBUTIONS AND TAXES........................................51
         Options and Futures Transactions.................................53
         Straddles........................................................54
         Distributor......................................................55

CALCULATION OF YIELDS AND TOTAL RETURNS...................................55
         Cash Reserves Fund Yields........................................55
         Other Fund Yields................................................56
         Average Annual Total Returns.....................................57
         Other Total Returns..............................................58

LEGAL COUNSEL.............................................................58

FINANCIAL STATEMENTS......................................................58

GENERAL INFORMATION

The MEMBERS Mutual Funds (the "Trust") is an investment company consisting of seven separate investment portfolios or funds (each, a "fund") each of which has a different investment objective(s). Each fund is a diversified, open-end management investment company, commonly known as a mutual fund. The seven funds are: Cash Reserves, Bond, Balanced, High Income, Growth and Income, Capital Appreciation and International Stock.

The Trust was formed as a business trust under the laws of the State of Delaware on May 21, 1997. As a Delaware business trust, the Trust's operations are governed by its Declaration of Trust dated May 16, 1997 (the "Declaration") and Certificate of Trust, dated May 16, 1997 (the "Certificate"). The Certificate is on file with the Office of the Secretary of State in Delaware. Each shareholder agrees to be bound by the Declaration, as amended from time to time, upon such shareholder's initial purchase of shares of beneficial interest in any one of the funds.

INVESTMENT PRACTICES

MEMBERS Mutual Funds is a diversified open-end management investment company consisting of seven individual investment portfolio or funds, each with its own investment objective and policies. The prospectus describes the investment objective and policies of each of the seven funds. The following information is provided for those investors wishing to have more comprehensive information than that contained in the prospectus.

Lending Portfolio Securities

All funds, except the Cash Reserves Fund, may lend portfolio securities. Such loans will be made only in accordance with guidelines established by the Trustees and on the request of broker-dealers or institutional investors deemed qualified, and only when the borrower agrees to maintain cash or other liquid assets as collateral with the fund equal at all times to at least 100% of the value of the securities. The fund will continue to receive interest or dividends on the securities loaned and will, at the same time, earn an agreed-upon amount of interest on the collateral which will be invested in readily marketable obligations of high quality. The fund will retain the right to call the loaned securities and intends to call loaned voting securities if important shareholder meetings are imminent. Such security loans will not be made if, as a result, the aggregate of such loans exceeds 30% of the value of the fund's assets. The fund may terminate such loans at any time. The primary risk involved in lending securities is that the borrower will fail financially and not return the loaned securities at a time when the collateral is sufficient to replace the full amount of the loaned securities. To mitigate this risk, loans will be made only to firms deemed by the funds' investment adviser, CIMCO Inc. ("CIMCO"), to be creditworthy and will not be made unless, in CIMCO's judgment, the consideration to be earned from such loans would justify the risk.

Restricted and Illiquid Securities

Each fund may invest in illiquid securities up to the percentage limits described on page 25 (Higher risk securities and practice table). CIMCO or the fund's subadviser (collectively referred to herein as the "Investment Adviser") is responsible for determining the value and liquidity of investments held by each fund. Investments may be illiquid because of the absence of a trading market, making it difficult to value them or dispose of them promptly at an acceptable price.

Illiquid investments include most repurchase agreements maturing in more than seven days, currency swaps, time deposits with a notice or demand period of more than seven days, certain over-the-counter option contracts (and assets used to cover such options), participation interests in loans, and restricted securities. A restricted security is one that has a contractual restriction on resale or cannot be resold publicly until it is registered under the Securities Act of 1933 (the "1933 Act").

Each fund may invest in restricted securities. Restricted securities are not, however, considered illiquid if they are eligible for sale to qualified institutional purchasers in reliance upon Rule 144A under the 1933 Act and that are determined to be liquid by the Trust's board of trustees or by the Investment Adviser under board-approved procedures. Such guidelines would take into account trading activity for such securities and the availability of reliable pricing information, among other factors. To the extent that qualified institutional buyers become for a time uninterested in purchasing these restricted securities, a fund's holdings of those securities may become illiquid. Purchases by the International Stock Fund and the High Income Fund of securities of foreign issuers offered and sold outside the U.S., in reliance upon the exemption from registration provided by Regulation S under the 1933 Act, also may be liquid even though they are restricted.

Options on Securities and Securities Indices

Writing Options. All of the funds (except the Cash Reserves Fund) may write
(sell) covered call and put options on any securities in which it may invest. A call option written by a fund obligates such fund to sell specified securities to the holder of the option at a specified price if the option is exercised at any time before the expiration date. All call options written by a fund are covered, which means that such fund will own the securities subject to the option so long as the option is outstanding. A fund's purpose in writing covered call options is to realize greater income than would be realized on portfolio securities transactions alone. However, a fund may forego the opportunity to profit from an increase in the market price of the underlying security.

A put option written by a fund would obligate such fund to purchase specified securities from the option holder at a specified price if the option is exercised at any time before the expiration date. All put options written by a fund would be covered, which means that such fund would have deposited with its custodian cash or liquid high grade debt securities with a value at least equal to the exercise price of the put option. The purpose of writing such options is to generate additional income for the fund. However, in return for the option premium, a fund accepts the risk that it will be required to purchase the underlying securities at a price in excess of the securities' market value at the time of purchase.

In addition, a written call option or put option may be covered by maintaining cash or liquid, high grade debt securities (either of which may be denominated in any currency) in a segregated account with its custodian, by entering into an offsetting forward contract and/or by purchasing an offsetting option which, by virtue of its exercise price or otherwise, reduces a fund's net exposure on its written option position.

The funds (other than the Cash Reserves Fund) may also write and sell covered call and put options on any securities index composed of securities in which it may invest. Options on securities indices are similar to options on securities, except that the exercise of securities index options requires cash payments and does not involve the actual purchase or sale of securities. In addition, securities index options are designed to reflect price fluctuations in a group of securities or segment of the securities market rather than price fluctuations in a single security.

A fund may cover call options on a securities index by owning securities whose price changes are expected to be similar to those of the underlying index, or by having an absolute and immediate right to acquire such securities without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities in its portfolio. A fund may cover call and put options on a securities index by maintaining cash or liquid high-grade debt securities with a value equal to the exercise price in a segregated account with its custodian.

A fund may terminate its obligations under an exchange traded call or put option by purchasing an option identical to the one it has written. Obligations under over-the-counter options may be terminated only by entering into an offsetting transaction with the counterparty to such option. Such purchases are referred to as "closing purchase" transactions.

Purchasing Options. The funds (other than the Cash Reserves Fund) may purchase put and call options on any securities in which it may invest or options on any securities index based on securities in which it may invest. A fund would also be able to enter into closing sale transactions in order to realize gains or minimize losses on options it had purchased.

A fund would normally purchase call options in anticipation of an increase in the market value of securities of the type in which it may invest. The purchase of a call option would entitle a fund, in return for the premium paid, to purchase specified securities at a specified price during the option period. A fund would ordinarily realize a gain if, during the option period, the value of such securities exceeded the sum of the exercise price, the premium paid and transaction costs; otherwise such a fund would realize a loss on the purchase of the call option.

A fund would normally purchase put options in anticipation of a decline in the market value of securities in its portfolio ("protective puts") or in securities in which it may invest. The purchase of a put option would entitle a fund, in exchange for the premium paid, to sell specified securities at a specified price during the option period. The purchase of protective puts is designed to offset or hedge against a decline in the market value of a fund's securities. Put options may also be purchased by a fund for the purpose of affirmatively benefiting from a decline in the price of securities which it does not own. A fund would ordinarily realize a gain if, during the option period, the value of the underlying securities decreased below the exercise price sufficiently to cover the premium and transaction costs; otherwise such a fund would realize no gain or loss on the purchase of the put option. Gains and losses on the purchase of protective put options would tend to be offset by countervailing changes in the value of the underlying portfolio securities.

The fund would purchase put and call options on securities indices for the same purposes as it would purchase options on individual securities.

Yield Curve Options. The Bond, Balanced, and High Income Funds may enter into options on the yield "spread," or yield differential between two securities. Such transactions are referred to as "yield curve" options. In contrast to other types of options, a yield curve option is based on the difference between the yields of designated securities, rather than the prices of the individual securities, and is settled through cash payments. Accordingly, a yield curve option is profitable to the holder if this differential widens (in the case of a call) or narrows (in the case of a put), regardless of whether the yields of the underlying securities increase or decrease.

These three funds may purchase or write yield curve options for the same purposes as other options on securities. For example, the fund may purchase a call option on the yield spread between two securities if it owns one of the securities and anticipates purchasing the other security and wants to hedge against an adverse change in the yield between the two securities. The fund may also purchase or write yield curve options in an effort to increase its current income if, in the judgment of the Investment Adviser, the fund will be able to profit from movements in the spread between the yields of the underlying securities. The trading of yield curve options is subject to all of the risks associated with the trading of other types of options. In addition, however, such options present risk of loss even if the yield of one of the underlying securities remains constant, if the spread moves in a direction or to an extent which was not anticipated.

Yield curve options written by the Bond, Balanced, or High Income Funds will be "covered." A call (or put) option is covered if the fund holds another call (or put) option on the spread between the same two securities and maintains in a segregated account with its custodian cash or liquid, high grade debt securities sufficient to cover the fund's net liability under the two options. Therefore, the fund's liability for such a covered option is generally limited to the difference between the amount of the fund's liability under the option written by the fund less the value of the option held by the fund. Yield curve options may also be covered in such other manner as may be in accordance with the requirements of the counterparty with which the option is traded and applicable laws and regulations. Yield curve options are traded over-the-counter, and because they have been only recently introduced, established trading markets for these options have not yet developed.

Risks Associated with Options Transactions. There is no assurance that a liquid secondary market on an options exchange will exist for any particular exchange-traded option or at any particular time. If a fund is unable to effect a closing purchase transaction with respect to covered options it has written, the fund will not be able to sell the underlying securities or dispose of assets held in a segregated account until the options expire or are exercised. Similarly, if a fund is unable to effect a closing sale transaction with respect to options it has purchased, it will have to exercise the options in order to realize any profit and will incur transaction costs upon the purchase or sale of underlying securities.

Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.

The funds (other than the Cash Reserves Fund) may purchase and sell both options that are traded on U.S. and foreign exchanges and options traded over-the-counter with broker-dealers who make markets in these options. The ability to terminate over-the-counter options is more limited than with exchange-traded options and may involve the risk that broker-dealers participating in such transactions will not fulfill their obligations. Until such time as the staff of the Securities and Exchange Commission (the "Commission") changes its position, the funds will treat purchased over-the counter options and all assets used to cover written over-the-counter options as illiquid securities, except that with respect to options written with primary dealers in U.S. Government securities pursuant to an agreement requiring a closing purchase transaction at a formula price, the amount of illiquid securities may be calculated with reference to the formula.

Transactions by a fund in options on securities and stock indices will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities governing the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert. Thus, the number of options which a fund may write or purchase may be affected by options written or purchased by other investment advisory clients of the Investment Adviser. An exchange, board of trade or other trading facility may order the liquidations of positions found to be in excess of these limits, and it may impose certain other sanctions.

The writing and purchase of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The successful use of protective puts for hedging purposes depends in part on the Investment Adviser's ability to predict future price fluctuations and the degree of correlation between the options and securities markets.

Futures Contracts and Options on Futures Contracts

The funds (other than the Cash Reserves Fund) may purchase and sell futures contracts and purchase and write options on futures contracts. These funds may purchase and sell futures contracts based on various securities (such as U.S. Government securities), securities indices, foreign currencies and other financial instruments and indices. A fund will engage in futures or related options transactions only for bona fide hedging purposes as defined below or for purposes of seeking to increase total returns to the extent permitted by regulations of the Commodity Futures Trading Commission ("CFTC"). All futures contracts entered into by a fund are traded on U.S. exchanges or boards of trade that are licensed and regulated by the CFTC or on foreign exchanges.

Futures Contracts. A futures contract may generally be described as an agreement between two parties to buy and sell particular financial instruments for an agreed price during a designated month (or to deliver the final cash settlement price, in the case of a contract relating to an index or otherwise not calling for physical delivery at the end of trading in the contract).

When interest rates are rising or securities prices are falling, a fund can seek through the sale of futures contracts to offset a decline in the value of its current portfolio securities. When rates are falling or prices are rising, a fund, through the purchase of futures contracts, can attempt to secure better rates or prices than might later be available in the market when it effects anticipated purchases. Similarly, a fund (other than the Cash Reserves Fund) can sell futures contracts on a specified currency to protect against a decline in the value of such currency and its portfolio securities which are denominated in such currency. These funds can purchase futures contracts on foreign currency to fix the price in U.S. dollars of a security denominated in such currency that such fund has acquired or expects to acquire.

Positions taken in the futures markets are not normally held to maturity, but are instead liquidated through offsetting transactions which may result in a profit or a loss. While a fund's futures contracts on securities or currency will usually be liquidated in this manner, it may instead make or take delivery of the underlying securities or currency whenever it appears economically advantageous for the fund to do so. A clearing corporation (associated with the exchange on which futures on a security or currency are traded) guarantees that, if still open, the sale or purchase will be performed on the settlement date.

Hedging Strategies. Hedging by use of futures contracts seeks to establish more certainly than would otherwise be possible the effective price, rate of return or currency exchange rate on portfolio securities or securities that a fund owns or proposes to acquire. A fund may, for example, take a "short" position in the futures market by selling futures contracts in order to hedge against an anticipated rise in interest rates or a decline in market prices or foreign currency rates that would adversely affect the U.S. dollar value of the fund's portfolio securities. Such futures contracts may include contracts for the future delivery of securities held by the fund or securities with characteristics similar to those of a fund's portfolio securities. Similarly, a fund may sell futures contracts on a currency in which its portfolio securities are denominated or in one currency to hedge against fluctuations in the value of securities denominated in a different currency if there is an established historical pattern of correlation between the two currencies.

If, in the opinion of the Investment Adviser, there is a sufficient degree of correlation between price trends for a fund's portfolio securities and futures contracts based on other financial instruments, securities indices or other indices, the fund may also enter into such futures contracts as part of its hedging strategy. Although under some circumstances prices of securities in a fund's portfolio may be more or less volatile than prices of such futures contracts, the Investment Adviser will attempt to estimate the extent of this difference in volatility based on historical patterns and to compensate for it by having the fund enter into a greater or lesser number of futures contracts or by attempting to achieve only a partial hedge against price changes affecting the fund's securities portfolio. When hedging of this character is successful, any depreciation in the value of portfolio securities will substantially be offset by appreciation in the value of the futures position. On the other hand, any unanticipated appreciation in the value of the fund's portfolio securities would be substantially offset by a decline in the value of the futures position.

On other occasions, a fund may take a "long" position by purchasing such futures contracts. This would be done, for example, when a fund anticipates the subsequent purchase of particular securities when it has the necessary cash, but expects the prices or currency exchange rates than available in the applicable market to be less favorable than prices or rates that are currently available.

Options on Futures Contracts. The acquisition of put and call options on futures contracts will give a fund the right (but not the obligation), for a specified price, to sell or to purchase, respectively, the underlying futures contract at any time during the option period. As the purchaser of an option on a futures contract, a fund obtains the benefit of the futures position if prices move in a favorable direction but limits its risk of loss in the event of an unfavorable price movement to the loss of the premium and transaction costs.

The writing of a call option on a futures contract generates a premium which may partially offset a decline in the value of a fund's assets. By writing a call option, a fund becomes obligated, in exchange for the premium, to sell a futures contract which may have a value higher then the exercise price. Conversely, the writing of a put option on a futures contract generates a premium, which may partially offset an increase in the price of securities that the fund intends to purchase. However, a fund becomes obligated to purchase a futures contract, which may have a value lower than the exercise price. Thus, the loss incurred by the fund in writing options on futures is potentially unlimited and may exceed the amount of the premium received. A fund will incur transaction costs in connection with the writing of options on futures.

The holder or writer of an option on a futures contract may terminate its position by selling or purchasing an offsetting option on the same series. There is no guarantee that such closing transactions can be effected. A fund's ability to establish and close out positions on such options will be subject to the development and maintenance of a liquid market.

Other Considerations. Where permitted a fund will engage in futures transactions and in related options transactions only for bona fide hedging or to seek to increase total return to the extent permitted by CFTC regulations. A fund will determine that the price fluctuations in the futures contracts and options on futures used for hedging purposes are substantially related to price fluctuations in securities held by the fund or which it expects to purchase. Except as stated below, each fund's futures transactions will be entered into for traditional hedging purposes, i.e., futures contracts will be used to protect against a decline in the price of securities (or the currency in which they are denominated) that the fund owns, or futures contracts will be purchased to protect the fund against an increase in the price of securities (or the currency in which they are denominated) it intends to purchase. As evidence of this hedging intent, each fund expects that on 75% or more of the occasions on which it takes a long futures or option position (involving the purchase of a futures contract), the fund will have purchased, or will be in the process of purchasing equivalent amounts of related securities (or assets denominated in the related currency) in the cash market at the time when the futures or option position is closed out. However, in particular cases, when it is economically advantageous for a fund to do so, a long futures position may be terminated or an option may expire without the corresponding purchase of securities or other assets.

As an alternative to literal compliance with the bona fide hedging definition, a CFTC regulation permits a fund to elect to comply with a different test, under which the aggregate initial margin and premiums required to establish positions in futures contracts and options on futures for the purpose of seeking to increase total return will not exceed 5 percent of the net asset value of the fund's portfolio, after taking into account unrealized profits and losses on any such positions and excluding the amount by which such options were in-the-money at the time of purchase. As permitted, each fund will engage in transactions in futures contracts and in related options transactions only to the extent such transactions are consistent with the requirements of the Internal Revenue Code of 1986, as amended (the "Code") for maintaining its qualification as a regulated investment company for federal income tax purposes (see "Dividends, Distributions, and Taxes" below).

Transactions in futures contracts and options on futures involve brokerage costs, require margin deposits and, in the case of contracts and options obligating a fund to purchase securities or currencies, require the fund to segregate with its custodian liquid high grade debt securities in an amount equal to the underlying value of such contracts and options.

While transactions in futures contracts and options on futures may reduce certain risks, such transactions themselves entail certain other risks. Thus, unanticipated changes in interest rates, securities prices or currency exchange rates may result in a poorer overall performance for a fund than if it had not entered into any futures contracts or options transactions. In the event of an imperfect correlation between a futures position and portfolio position which is intended to be protected, the desired protection may not be obtained and a fund may be exposed to risk of loss.

Perfect correlation between a fund's futures positions and portfolio positions may be difficult to achieve because no futures contracts based on individual equity securities are currently available. The only futures contracts available to hedge a fund's portfolio are various futures on U.S. Government securities, securities indices and foreign currencies. In addition, it is not possible for a fund to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in foreign currencies because the value of such securities is likely to fluctuate as a result of independent factors not related to currency fluctuations.

Foreign Transactions

Foreign Securities. Each fund may invest in foreign securities (as defined below), although the Cash Reserves Fund is limited to U.S. dollar-denominated foreign money market securities (as defined below). The percentage limitations on each fund's investment on foreign securities is set forth in the prospectus.

Foreign securities means securities that are: (1) issued by companies organized outside the U.S. or whose principal operations are outside the U.S. ("foreign issuers"), (2) issued by foreign governments or their agencies or instrumentalities (also "foreign issuers"), (3) principally traded outside of the U.S., or (4) quoted or denominated in a foreign currency ("non-dollar securities"). Foreign securities include ADRs, EDRs, GDRs, and foreign money market securities.

Foreign securities may offer potential benefits that are not available from investments exclusively in securities of domestic issuers or dollar denominated securities. Such benefits may include the opportunity to invest in foreign issuers that appear to offer better opportunity for long-term capital appreciation or current earnings than investments in domestic issuers, the opportunity to invest in foreign countries with economic policies or business cycles different from those of the U.S. and the opportunity to invest in foreign securities markets that do not necessarily move in a manner parallel to U.S. markets.

Investing in foreign securities involves significant risks that are not typically associated with investing in U.S. dollar denominated securities or in securities of domestic issuers. Such investments may be affected by changes in currency exchange rates, changes in foreign or U.S. laws or restrictions applicable to such investments and in exchange control regulations (e.g., currency blockage). Some foreign stock markets may have substantially less volume than, for example, the New York Stock Exchange and securities of some foreign issuers may be less liquid than securities of comparable domestic issuers. Commissions and dealer mark-ups on transactions in foreign investments may be higher than for similar transactions in the U.S. In addition, clearance and settlement procedures may be different in foreign countries and, in certain markets, on certain occasions, such procedures have been unable to keep pace with the volume of securities transactions, thus making it difficult to conduct such transactions.

Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to domestic companies. There may be less publicly available information about a foreign issuer than about a domestic one. In addition, there is generally less government regulation of stock exchanges, brokers, and listed and unlisted issuers in foreign countries than in the U.S. Furthermore, with respect to certain foreign countries, there is a possibility of expropriation or confiscatory taxation, imposition of withholding taxes on dividend or interest payments, limitations on the removal of funds or other assets of the fund making the investment, or political or social instability or diplomatic developments which could affect investments in those countries.

Investments in short-term debt obligations issued either by foreign issuers or foreign financial institutions or by foreign branches of U.S. financial institutions (collectively, "foreign money market securities") present many of the same risks as other foreign investments. In addition, foreign money market securities present interest rate risks similar to those attendant to an investment in domestic money market securities.

Investments in ADRs, EDRs and GDRs. Many securities of foreign issuers are represented by American depository receipts ("ADRs"), European depository receipts ("EDRs") and global depository receipts ("GDRs"). Each of the funds may invest in ADRs, and each of the funds other than the Cash Reserves Fund may invest in GDRs and EDRs.

ADRs are receipts typically issued by a U.S. financial institution or trust company which represent the right to receive securities of foreign issuers deposited in a domestic bank or a foreign correspondent bank. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. on exchanges or over-the-counter and are sponsored and issued by domestic banks. In general, there is a large, liquid market in the U.S. for ADRs quoted on a national securities exchange or the NASD's national market system. The information available for ADRs is subject to the accounting, auditing and financial reporting standards of the domestic market or exchange on which they are traded, which standards are more uniform and more exacting than those to which many foreign issuers may be subject.

EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank similar to that for ADRs and are designed for use in non-U.S. securities markets. EDRs are typically issued in bearer form and are designed for trading in the European markets. GDRs, issued either in bearer or registered form, are designed for trading on a global basis. EDRs and GDRs are not necessarily quoted in the same currency as the underlying security.

Depository receipts do not eliminate all the risk inherent in investing in the securities of foreign issuers. To the extent that a fund acquires depository receipts through banks which do not have a contractual relationship with the foreign issuer of the security underlying the receipt to issue and service such depository receipts, there may be an increased possibility that the fund would not become aware of and be able to respond to corporate actions such as stock splits or rights offerings involving the foreign issuer in a timely manner. The market value of depository receipts is dependent upon the market value of the underlying securities and fluctuations in the relative value of the currencies in which the receipts and the underlying are quoted. In addition, the lack of information may result in inefficiencies in the valuation of such instruments. However, by investing in depository receipts rather than directly in the stock of foreign issuers, a fund will avoid currency risks during the settlement period for either purchases or sales.

Investments in Emerging Markets. The High Income and International Stock Funds may invest in securities of issuers located in countries with emerging economies and/or securities markets. These countries are located in the Asia Pacific region, Eastern Europe, Central and South America and Africa. Political and economic structures in many of these countries may be undergoing significant evolution and rapid development, and such countries may lack the social, political and economic stability characteristic of more developed countries. Certain of these countries may have in the past failed to recognize private property rights and have at times nationalized or expropriated the assets of private companies. As a result, the risks of foreign investment generally, including the risks of nationalization or expropriation of assets, may be heightened. In addition, unanticipated political or social developments may affect the values of a fund's investments in those countries and the availability to the fund of additional investments in those countries.

The small size and inexperience of the securities markets in certain of these countries and the limited volume of trading in securities in those countries may also make the High Income and International Stock Funds' investments in such countries illiquid and more volatile than investments in Japan or most Western European countries, and these funds may be required to establish special custody or other arrangements before making certain investments in those countries. There may be little financial or accounting information available with respect to issuers located in certain of such countries, and it may be difficult as a result to assess the value or prospects of an investment in such issuers.

A fund's purchase or sale of portfolio securities in certain emerging markets may be constrained by limitations as to daily changes in the prices of listed securities, periodic trading or settlement volume and/or limitations on aggregate holdings of foreign investors. Such limitations may be computed based on aggregate trading volume by or holdings of a fund, CIMCO and its affiliates, a subadviser and its affiliates, and each such person's respective clients and other service providers. A fund may not be able to sell securities in circumstances where price, trading or settlement volume limitations have been reached.

Foreign investment in certain emerging securities markets is restricted or controlled to varying degrees that may limit investment in such countries or increase the administrative cost of such investments. For example, certain Asian countries require government approval prior to investments by foreign persons or limit investment by foreign persons to a specified percentage of an issuer's outstanding securities or a specific class of securities which may have less advantageous terms (including price) than securities of such company available for purchase by nationals. In addition, certain countries may restrict or prohibit investment opportunities in issuers or industries important to national interests. Such restrictions may affect the market price, liquidity and rights of securities that may be purchased by a fund.

Settlement procedures in emerging markets are frequently less developed and reliable than those in the U.S. and may involve a fund's delivery of securities before receipt of payment for their sale. In addition, significant delays are common in certain markets in registering the transfer of securities. Settlement or registration problems may make it more difficult for a fund to value its portfolio assets and could cause a fund to miss attractive investment opportunities, to have its assets uninvested or to incur losses due to the failure of a counterparty to pay for securities that the fund has delivered or due to the fund's inability to complete its contractual obligations.

Currently, there is no market or only a limited market for many management techniques and instruments with respect to the currencies and securities markets of emerging market countries. Consequently, there can be no assurance that suitable instruments for hedging currency and market related risks will be available at the times when the Investment Adviser of the fund wishes to use them.

Foreign Currency Transactions Generally. Because investment in foreign issuers will usually involve currencies of foreign countries, and because the High Income and International Stock Funds may have currency exposure independent of their securities positions, the value of the assets of these funds, as measured in U.S. dollars, will be affected by changes in foreign currency exchange rates.

An issuer of securities purchased by a fund may be domiciled in a country other than the country in whose currency the instrument is denominated or quoted. The High Income and International Stock Funds may also invest in securities quoted or denominated in the European Currency Unit ("ECU"), which is a "basket" consisting of specified amounts of the currencies of certain of the twelve member states of the European Economic Community. The specific amounts of currencies comprising the ECU may be adjusted by the Council of Ministers of the European Economic Community from time to time to reflect changes in relative values of the underlying currencies. In addition, these two funds may invest in securities quoted or denominated in other currency "baskets."

Currency exchange rates may fluctuate significantly over short periods of time causing, along with other factors, a fund's NAV to fluctuate as well. They generally are determined by the forces of supply and demand in the foreign exchange markets and the relative merits of investments in different countries, actual or anticipated changes in interest rates and other complex factors, as seen from an international perspective. Currency exchange rates also can be affected unpredictably by intervention by U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the U.S. or abroad. The market in forward foreign currency exchange contracts, currency swaps and other privately negotiated currency instruments offers less protection against defaults by the other party to such instruments than is available for currency instruments traded on an exchange. To the extent that a substantial portion of a fund's total assets, adjusted to reflect the fund's net position after giving effect to currency transactions, is denominated or quoted in the currencies of foreign countries, the fund will be more susceptible to the risk of adverse economic and political developments within those countries.

In addition to investing in securities denominated or quoted in a foreign currency, certain of the funds may engage in a variety of foreign currency management techniques. These funds may hold foreign currency received in connection with investments in foreign securities when, in the judgment of the fund's Investment Adviser, it would be beneficial to convert such currency into U.S. dollars at a later date, based on anticipated changes in the relevant exchange rate. The funds will incur costs in connection with conversions between various currencies.

Forward Foreign Currency Exchange Contracts. The High Income and International Stock Funds may each purchase or sell forward foreign currency exchange contracts for defensive or hedging purposes when the fund's Investment Adviser anticipates that the foreign currency will appreciate or depreciate in value, but securities denominated or quoted in that currency do not present attractive investment opportunities and are not held in the fund's portfolio. In addition, these two funds may enter into forward foreign currency exchange contracts in order to protect against anticipated changes in future foreign currency exchange rates and may engage in cross-hedging by using forward contracts in a currency different from that in which the hedged security is denominated or quoted if the fund's Investment Adviser determines that there is a pattern of correlation between the two currencies.

These two funds may enter into contracts to purchase foreign currencies to protect against an anticipated rise in the U.S. dollar price of securities it intends to purchase. They may enter into contracts to sell foreign currencies to protect against the decline in value of its foreign currency denominated or quoted portfolio securities, or a decline in the value of anticipated dividends from such securities, due to a decline in the value of foreign currencies against the U.S. dollar. Contracts to sell foreign currency could limit any potential gain which might be realized by a fund if the value of the hedged currency increased.

If a fund enters into a forward foreign currency exchange contract to buy foreign currency for any purpose, the fund will be required to place cash or liquid high grade debt securities in a segregated account with the fund's custodian in an amount equal to the value of the fund's total assets committed to the consummation of the forward contract. If the value of the securities placed in the segregated account declines, additional cash or securities will be placed in the segregated account so that the value of the account will equal the amount of the fund's commitment with respect to the contract.

Forward contracts are subject to the risk that the counterparty to such contract will default on its obligations. Since a forward foreign currency exchange contract is not guaranteed by an exchange or clearinghouse, a default on the contract would deprive a fund of unrealized profits, transaction costs or the benefits of a currency hedge or force the fund to cover its purchase or sale commitments, if any, at the current market price. A fund will not enter into such transactions unless the credit quality of the unsecured senior debt or the claims-paying ability of the counterparty is considered to be investment grade by the fund's Investment Adviser.

Options on Foreign Currencies. The High Income and International Stock Funds may also purchase and sell (write) put and call options on foreign currencies for the purpose of protecting against declines in the U.S. dollar value of foreign portfolio securities and anticipated dividends on such securities and against increases in the U.S. dollar cost of foreign securities to be acquired. These funds may use options on currency to cross-hedge, which involves writing or purchasing options on one currency to hedge against changes in exchange rates for a different currency, if there is a pattern of correlation between the two currencies. As with other kinds of option transactions, however, the writing of an option on foreign currency will constitute only a partial hedge, up to the amount of the premium received. A fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may constitute an effective hedge against exchange rate fluctuations; however, in the event of exchange rate movements adverse to a fund's position, the fund may forfeit the entire amount of the premium plus related transaction costs. In addition, these funds may purchase call or put options on currency to seek to increase total return when the fund's Investment Adviser anticipates that the currency will appreciate or depreciate in value, but the securities quoted or denominated in that currency do not present attractive investment opportunities and are not held in the fund's portfolio. When purchased or sold to increase total return, options on currencies are considered speculative. Options on foreign currencies to be written or purchased by these funds will be traded on U.S. and foreign exchanges or over-the-counter. See "Stock Index Futures and Related Options" above for a discussion of the liquidity risks associated with options transactions.

Special Risks Associated With Options on Currency. An exchange traded options position may be closed out only on an options exchange which provides a secondary market for an option of the same series. Although a fund will generally purchase or write only those options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option, or at any particular time. For some options no secondary market on an exchange may exist. In such event, it might not be possible to effect closing transactions in particular options, with the result that a fund would have to exercise its options in order to realize any profit and would incur transaction costs upon the sale of underlying securities pursuant to the exercise of put options. If a fund as a covered call option writer is unable to effect a closing purchase transaction in a secondary market, it will not be able to see the underlying currency (or security quoted or denominated in that currency) until the option expires or it delivers the underlying currency upon exercise.

There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain of the facilities of the Options Clearing Corporation inadequate, and thereby result in the institution by an exchange of special procedures which may interfere with the timely execution of customers' orders.

The High Income Fund and International Stock Fund may each purchase and write over-the-counter options to the extent consistent with its limitation on investments in restricted securities. See the "Higher Risk Securities and Practices" chart for each fund's limitations on investments in restricted securities. Trading in over-the-counter options is subject to the risk that the other party will be unable or unwilling to close-out options purchased or written by the fund.

The amount of the premiums which a fund may pay or receive may be adversely affected as new or existing institutions, including other investment companies, engage in or increase their option purchasing and writing activities.

Interest Rate Swaps, Currency Swaps and Interest Rate Caps, Floors and Collars. The High Income Fund and International Stock Fund may each enter into interest rate and currency swaps for hedging purposes and to seek to increase total return. The High Income Fund may also enter into special interest rate swap arrangements such as caps, floors and collars for both hedging purposes and to seek to increase total return. The High Income Fund typically uses interest rate swaps to shorten the effective duration of its portfolio. Interest rate swaps involve the exchange by the High Income Fund with another party of their respective commitments to pay or receive interest, such as an exchange of fixed rate payments for floating rate payments. Currency swaps involve the exchange by the funds with another party of their respective rights to make or receive payments in specified currencies. The purchase of an interest rate cap entitles the purchaser to receive from the seller of the cap payments of interest on a notional amount equal to the amount by which a specified index exceeds a stated interest rate. The purchase of an interest rate floor entitles the purchaser to receive from the seller of the floor payments of interest on a notional amount equal to the amount by which a specified index falls below a stated interest rate. An interest rate collar is the combination of a cap and a floor that preserves a certain return within a stated range of interest rates. Since interest rate swaps, currency swaps and interest rate caps, floors and collars are individually negotiated, these two funds expect to achieve an acceptable degree of correlation between their portfolio investments and their interest rate or currency swap positions entered into for hedging purposes.

The High Income Fund only enters into interest rate swaps on a net basis, which means the two payment streams are netted out, with the fund receiving or paying, as the case may be, only the net amount of the two payments. Interest rate swaps do not involve the delivery of securities, or underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount of interest payments that the fund is contractually obligated to make. If the other party to an interest rate swap defaults, the fund's risk of loss consists of the net amount of interest payments that the fund is contractually entitled to receive. In contrast, currency swaps usually involve the delivery of the entire principal value of one designated currency in exchange for the other designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. The Trust maintains in a segregated account with its custodian, cash or liquid securities equal to the net amount, if any, of the excess of each fund's obligations over its entitlements with respect to swap transactions. Neither fund enters into swap transactions unless the unsecured commercial paper, senior debt or claims paying ability of the other party is considered investment grade by such fund's Investment Adviser.

The use of interest rate and currency swaps (including caps, floors and collars) is a highly specialized activity which involves investment techniques and risks different from those associated with traditional portfolio securities activities. If the fund's Investment Adviser is incorrect in its forecasts of market values, interest rates and currency exchange rates, the investment performance of the High Income Fund or International Stock Fund would be less favorable than it would have been if this investment technique were not used.

Inasmuch as swaps are entered into for good faith hedging purposes or are offset by a segregated account as described below, neither fund's Investment Adviser believe that swaps constitute senior securities as defined in the Act and, accordingly, will not treat swaps as being subject to such fund's borrowing restrictions. An amount of cash or liquid, high grade debt securities having an aggregate net asset value at least equal to the entire amount of the payment stream payable by the fund will be maintained in a sewed account by the fund's custodian. A fund will not enter into any interest rate swap (including caps, floors and collars) or currency swap unless the credit quality of the unsecured senior debt or the claim paying ability of the other party thereto is considered to be investment grade by the fund's Investment Adviser. If there is a default by the other party to such a transaction, the fund will have contractual remedies pursuant to the agreement, related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid comparison with the markets for other similar instruments which are traded in the interbank market. Nevertheless, the staff of the Commission takes the position that currency swaps are illiquid investments subject to these funds' 15% limitation on such investments.

Certain Bond Fund Practices

The Bond, High Income and Balanced Funds (collectively, the "Bond Funds") invest a significant portion of their assets in debt securities. As stated in the prospectus, the Bond Fund and Balanced Fund will emphasize investment grade, primarily intermediate term securities. If an investment grade security is downgraded by the rating agencies or otherwise falls below the investment quality standards stated in the prospectus, management will retain that instrument only if management believes it is in the best interest of the fund. Management does not currently intend to invest more than ten percent (10%) of the total assets of either the Bond Fund or Balanced Fund in corporate debt securities which are not in the four highest ratings by Standard & Poor's Rating Group ("Standard & Poor's") or by Moody's Investors Service, Inc. ("Moody's") ("non-investment grade" or "junk" securities), but, on occasion, each fund may do so. The High Income Fund may invest all of its assets in non-investment grade securities. See "Non-Investment Grade Securities" below for a description of these securities and their attendant risks and "Ratings" below for a description of the rating categories.

All three Bond Funds may also invest in debt options, interest rate futures contracts, and options on interest rate futures contracts, and may utilize interest rate futures and options to manage the risk of fluctuating interest rates. These instruments will be used to control risk or obtain additional income and not with a view toward speculation. The Bond Fund and Balanced Fund will invest only in futures and options which are traded on U.S. exchanges or boards of trade. The High Income Fund may invest in non-U.S. futures and options.

In the debt securities market, purchases of some issues are occasionally made under firm (forward) commitment agreements. Purchases of securities under such agreements can involve risk of loss due to changes in the market rate of interest between the commitment date and the settlement date. As a matter of operating policy, no Bond Fund will commit itself to forward commitment agreements in an amount in excess of 25% of total assets and will not engage in such agreements for leveraging purposes. For purposes of this limitation, forward commitment agreements are defined as those agreements involving more than five business days between the commitment date and the settlement date.

Lower-Rated Corporate Debt Securities

As described in the prospectus, each fund, other than the Cash Reserves Fund, may make certain investments including corporate debt obligations that are unrated or rated in the lower rating categories (i.e., ratings of BB or lower by Standard & Poor's or Ba or lower by Moody's). Bonds rated BB or Ba or below by Standard & Poors or Moody's (or comparable unrated securities) are commonly referred to as "lower-rated" securities or as "junk bonds" and are considered speculative and may be questionable as to principal and interest payments. In some cases, such bonds may be highly speculative, have poor prospects for reaching investment standing and be in default. As a result, investment in such bonds will entail greater speculative risks than those associated with investment in investment-grade bonds (i.e., bonds rated AAA, AA, A or BBB by Standard & Poor's or Aaa, Aa, A or Baa by Moody's). (See "Ratings" below for a description of the rating categories.)

An economic downturn could severely affect the ability of highly leveraged issuers of junk bonds to service their debt obligations or to repay their obligations upon maturity. Factors having an adverse impact on the market value of lower rated securities will have an adverse effect on a fund's net asset value to the extent it invests in such securities. In addition, a fund may incur additional expenses to the extent it is required to seek recovery upon a default in payment of principal or interest on its portfolio holdings.

The secondary market for junk bond securities, which is concentrated in relatively few market makers, may not be as liquid as the secondary market for more highly rated securities, a factor which may have an adverse effect on a fund's ability to dispose of a particular security when necessary to meet its liquidity needs. Under adverse market or economic conditions, the secondary market for junk bond securities could contract further, independent of any specific adverse changes in the condition of a particular issuer. As a result, the Investment Adviser could find it more difficult to sell these securities or may be able to sell the securities only at prices lower than if such securities were widely traded. Prices realized upon the sale of such lower rated or unrated securities, under these circumstances, may be less than the prices used in calculating a fund's net asset value.

Since investors generally perceive that there are greater risks associated with lower-rated debt securities, the yields and prices of such securities may tend to fluctuate more than those for higher rated securities. In the lower quality segments of the fixed-income securities market, changes in perceptions of issuers' creditworthiness tend to occur more frequently and in a more pronounced manner than do changes in higher quality segments of the fixed-income securities market resulting in greater yield and price volatility.

Another factor which causes fluctuations in the prices of fixed-income securities is the supply and demand for similarly rated securities. In addition, the prices of fixed-income securities fluctuate in response to the general level of interest rates. Fluctuations in the prices of portfolio securities subsequent to their acquisition will not affect cash income from such securities but will be reflected in a fund's net asset value.

Lower-rated (and comparable non-rated) securities tend to offer higher yields than higher-rated securities with the same maturities because the historical financial condition of the issuers of such securities may not have been as strong as that of other issuers. Since lower rated securities generally involve greater risks of loss of income and principal than higher-rated securities, investors should consider carefully the relative risks associated with investment in securities which carry lower ratings and in comparable non-rated securities. In addition to the risk of default, there are the related costs of recovery on defaulted issues. The Investment Adviser will attempt to reduce these risks through diversification of these funds' portfolios and by analysis of each issuer and its ability to make timely payments of income and principal, as well as broad economic trends in corporate developments.

Other Debt Securities

U.S. Government Securities. All of the funds may purchase U.S. Government Securities. U.S. Government Securities are obligations issued or guaranteed by the U.S. Government, its agencies, authorities or instrumentalities. Some U.S. Government Securities, such as Treasury bills, notes and bonds, which differ only in their interest rates, maturities and times of issuance, are supported by the full faith and credit of the United States. Others, such as obligations issued or guaranteed by U.S. Government agencies, authorities or instrumentalities are supported either by (a) the full faith and credit of the U.S. Government (such as securities of the Small Business Administration), (b) the right of the issuer to borrow from the Treasury (such as securities of the Federal Home Loan Banks), (c) the discretionary authority of the U.S. Government to purchase the agency's obligations (such as securities of the Federal National Mortgage Association), or (d) only the credit of the issuer. No assurance can be given that the U.S. Government will provide financial support to U.S. Government agencies, authorities or instrumentalities in the future. U.S. Government Securities may also include zero coupon bonds.

Each fund may also invest in separately traded principal and interest components of securities guaranteed or issued by the U.S. Treasury if such components are traded independently under the Separate Trading of Registered Interest and Principal of Securities program ("STRIPS").

Custody Receipts. All of the funds may also acquire securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies, authorities or instrumentalities in the form of custody receipts. Such receipts evidence ownership of future interest payments, principal payments or both on certain notes or bonds issued by the U.S. Government, its agencies, authorities or instrumentalities. For certain securities law purposes, custody receipts are not considered obligations of the U.S.
Government.

Zero Coupon, Deferred Interest, Pay-in-Kind and Capital Appreciation Bonds. The High Income Fund may invest in zero coupon bonds as well as in deferred interest, pay-in-kind and capital appreciation bonds. Zero coupon, deferred interest, pay-in-kind and capital appreciation bonds are debt obligations which are issued at a significant discount from face value. The original discount approximates the total amount of interest the bonds will accrue and compound over the period until maturity or the first interest accrual date at a rate of interest reflecting the market rate of the security at the time of issuance.

Zero coupon bonds are debt obligations that do not entitle the holder to any periodic payments of interest prior to maturity or provide for a specified cash payment date when the bonds begin paying current interest. As a result, zero coupon bonds are generally issued and traded at a significant discount from their face value. The discount approximates the present value amount of interest the bonds would have accrued and compounded over the period until matured.

Zero coupon bonds benefit the issuer by mitigating its initial need for cash to meet debt service, but generally provide a higher rate of return to compensate investors for the deferment of cash interest or principal payments. Such securities are often issued by companies that may not have the capacity to pay current interest and so may be considered to have more risk than current interest-bearing securities. In addition, the market price of zero coupon bonds generally is more volatile than the market prices of securities that provide for the periodic payment of interest. The market prices of zero coupon bonds are likely to fluctuate more in response to changes in interest rates than those of interest-bearing securities having similar maturities and credit quality.

Zero coupon bonds carry the additional risk that, unlike securities that provide for the periodic payment of interest to maturity, the High Income Fund will realize no cash until a specified future payment date unless a portion of such securities is sold. If the issuer of such securities defaults, the fund may obtain no return at all on their investment. In addition, the fund's investment in zero coupon bonds may require it to sell certain of its portfolio securities to generate sufficient cash to satisfy certain income distribution requirements. See "Taxation" below.

While zero coupon bonds do not require the periodic payment of interest, deferred interest bonds generally provide for a period of delay before the regular payment of interest begins. Although this period of delay is different for each deferred interest bond, a typical period is approximately one-third of the bond's terms to maturity. Pay-in-kind securities are securities that have interest payable by the delivery of additional securities. Such investments benefit the issuer by mitigating its initial need for cash to meet debt service, but some also provide a higher rate of return to attract investors who are willing to defer receipt of such cash. Such investments experience greater volatility in market value due to changes in interest rates than debt obligations which provide for regular payments of interest. The fund will accrue income on such investments for tax and accounting purposes, as required, which is distributable to shareholders and which, because no cash is received at the time of accrual, may require the liquidation of other portfolio securities to satisfy the fund's distribution obligations.

Foreign Government Securities. All of the funds may invest in debt obligations of foreign governments and governmental agencies, including those of emerging countries. Investment in sovereign debt obligations involves special risks not present in debt obligations of corporate issuers. The issuer of the debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due in accordance with the terms of such debt, and the funds may have limited recourse in the event of a default. Periods of economic uncertainty may result in the volatility of market prices of sovereign debt, and in turn the fund's net asset value, to a greater extent than the volatility inherent in debt obligations of U.S. issuers. A sovereign debtor's willingness or ability to repay principal and pay interest in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign currency reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor's policy toward principal international lenders and the political constraints to which a sovereign debtor may be subject.

Structured Securities. The High Income Fund may invest in structured securities. The value of the principal of and/or interest on such securities is determined by reference to changes in the value of specific currencies, interest rates, commodities, indices or other financial indicators (the "Reference") or the relative change in two or more References. The interest rate or the principal amount payable upon maturity or redemption may be increased or decreased depending upon changes in the applicable Reference. The terms of the structured securities may provide that in certain circumstances no principal is due at maturity and, therefore, may result in the loss of the fund's investment. Structured securities may be positively or negatively indexed, so that appreciation of the Reference may produce an increase or decrease in the interest rate or value of the security at maturity. In addition, changes in interest rates or the value of the security at maturity may be a multiple of changes in the value of the Reference. Consequently, structured securities may entail a greater degree of market risk than other types of fixed-income securities. Structured securities may also be more volatile, less liquid and more difficult to accurately price than less complex fixed-income investments.

Convertible Securities

The Balanced, High Income, Growth and Income, Capital Appreciation and International Stock Funds may each invest in convertible securities. Convertible securities may include corporate notes or preferred stock but are ordinarily a long-term debt obligation of the issuer convertible at a stated conversion rate into common stock of the issuer. As with all debt and income-bearing securities, the market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. However, when the market price of the common stock underlying a convertible security exceeds the conversion price, the price of the convertible security tends to reflect the value of the underlying common stock. As the market price of the underlying common stock declines, the convertible security tends to trade increasingly on a yield basis, and thus may not decline in price to the same extent as the underlying common stock. Convertible securities rank senior to common stocks in an issuer's capital structure and are consequently of higher quality and entail less risk than the issuer's common stock. In evaluating a convertible security, the fund's Investment Adviser gives primary emphasis to the attractiveness of the underlying common stock. The convertible securities in which the High Income Fund invests are not subject to any minimum rating criteria. The convertible debt securities in which the other funds may invest are subject to the same rating criteria as that fund's investments in non-convertible debt securities. Convertible debt securities, the market yields of which are substantially below prevailing yields on non-convertible debt securities of comparable quality and maturity, are treated as equity securities for the purposes of a fund's investment policies or restrictions.

Repurchase Agreements

Each fund may enter into repurchase agreements. In a repurchase agreement, a security is purchased for a relatively short period (usually not more than 7 days) subject to the obligation to sell it back to the issuer at a fixed time and price plus accrued interest. The funds will enter into repurchase agreements only with member banks of the Federal Reserve System and with "primary dealers" in U.S. Government securities. The Investment Adviser will continuously monitor the creditworthiness of the parties with whom the funds enter into repurchase agreements.

The Trust has established a procedure providing that the securities serving as collateral for each repurchase agreement must be delivered to the Trust's custodian either physically or in book-entry form and that the collateral must be marked to market daily to ensure that each repurchase agreement is fully collateralized at all times. In the event of bankruptcy or other default by a seller of a repurchase agreement, a fund could experience delays in liquidating the underlying securities during the period in which the fund seeks to enforce its rights thereto, possible subnormal levels of income, declines in value of the underlying securities or lack of access to income during this period and the expense of enforcing its rights.

Reverse Repurchase Agreements

Each fund may also enter into reverse repurchase agreements which involve the sale of U.S. Government securities held in its portfolio to a bank with an agreement that the fund will buy back the securities at a fixed future date at a fixed price plus an agreed amount of "interest" which may be reflected in the repurchase price. Reverse repurchase agreements are considered to be borrowings by the fund entering into them. Reverse repurchase agreements involve the risk that the market value of securities purchased by the fund with proceeds of the transaction may decline below the repurchase price of the securities sold by the fund which it is obligated to repurchase. A fund that has entered into a reverse repurchase agreement will also continue to be subject to the risk of a decline in the market value of the securities sold under the agreements because it will reacquire those securities upon effecting their repurchase. To minimize various risks associated with reverse repurchase agreements, each fund will establish and maintain with the Trust's custodian a separate account consisting of liquid securities, of any type or maturity, in an amount at least equal to the repurchase prices of the securities (plus any accrued interest thereon) under such agreements. No fund will enter into reverse repurchase agreements and other borrowings (except from banks as a temporary measure for extraordinary emergency purposes) in amounts in excess of 30% of the fund's total assets (including the amount borrowed) taken at market value. No fund will use leverage to attempt to increase income. No fund will purchase securities while outstanding borrowings exceed 5% of the fund's total assets. Each fund will enter into reverse repurchase agreements only with federally insured banks which are approved in advance as being creditworthy by the Trustees. Under procedures established by the Trustees, the Investment Adviser will monitor the creditworthiness of the banks involved.

Government Securities

Certain U.S. Government securities, including U.S. Treasury bills, notes and bonds, and Government National Mortgage Association certificates ("Ginnie Maes"), are supported by the full faith and credit of the U.S. Certain other U.S. Government securities, issued or guaranteed by Federal agencies or government sponsored enterprises, are not supported by the full faith and credit of the U.S., but may be supported by the right of the issuer to borrow from the U.S. Treasury. These securities include obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit of the instrumentality, such as Federal National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given that the U.S. Government will provide financial support to such Federal agencies, authorities, instrumentalities and government sponsored enterprises in the future.

Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities which provide monthly payments which are, in effect, a "pass-through" of the monthly interest and principal payments (including any prepayments) made by individual borrowers on the pooled mortgage loans. Collateralized mortgage obligations ("CMOs") in which the fund may invest are securities issued by a corporation or a U.S. Government instrumentality that are collateralized by a portfolio of mortgages or mortgage-backed securities. Mortgage-backed securities may be less effective than traditional debt obligations of similar maturity at maintaining yields during periods of declining interest rates. (See "Mortgage-Backed and Asset-Backed Securities.")

Forward Commitment and When-Issued Securities

Each fund may purchase securities on a when-issued or forward commitment basis. "When-issued" refers to securities whose terms are available and for which a market exists, but which have not been issued. Each fund will engage in when-issued transactions with respect to securities purchased for its portfolio in order to obtain what is considered to be an advantageous price and yield at the time of the transaction. For when-issued transactions, no payment is made until delivery is due, often a month or more after the purchase. In a forward commitment transaction, a fund contracts to purchase securities for a fixed price at a future date beyond customary settlement time.

When a fund engages in forward commitment and when-issued transactions, it relies on the seller to consummate the transaction. The failure of the issuer or seller to consummate the transaction may result in the fund's losing the opportunity to obtain a price and yield considered to be advantageous. The purchase of securities on a when-issued or forward commitment basis also involves a risk of loss if the value of the security to be purchased declines prior to the settlement date.

On the date a fund enters into an agreement to purchase securities on a when-issued or forward commitment basis, the fund will segregate in a separate account cash or liquid securities, of any type or maturity, equal in value to the fund's commitment. These assets will be valued daily at market, and additional cash or securities will be segregated in a separate account to the extent that the total value of the assets in the account declines below the amount of the when-issued commitments. Alternatively, a fund may enter into offsetting contracts for the forward sale of other securities that it owns.

Mortgage-Backed and Asset-Backed Securities

The Bond, Balanced, High Income and Growth and Income Funds may invest in mortgage-backed securities, which represent direct or indirect participation in, or are collateralized by and payable from, mortgage loans secured by real property. These funds may also invest in asset-backed securities, which represent participation in, or are secured by and payable from, assets such as motor vehicle installment sales, installment loan contracts, leases of various types of real and personal property, receivables from revolving credit (i.e., credit card) agreements and other categories of receivables. Such assets are securitized though the use of trusts and special purpose corporations. Payments or distributions of principal and interest may be guaranteed up to certain amounts and for a certain time period by a letter of credit or a pool insurance policy issued by a credit union or other financial institution unaffiliated with the Trust, or other credit enhancements may be present.

Mortgage-backed and asset-backed securities are often subject to more rapid repayment than their stated maturity date would indicate as a result of the pass-through of prepayments of principal on the underlying loans. A fund's ability to maintain positions in such securities will be affected by reductions in the principal amount of such securities resulting from prepayments, and its ability to reinvest the returns of principal at comparable yields is subject to generally prevailing interest rates at that time. To the extent that a fund invests in mortgage-backed and asset-backed securities, the values of its portfolio securities will vary with changes in market interest rates generally and the differentials in yields among various kinds of U.S. Government securities and other mortgage-backed and asset-backed securities.

Asset-backed securities present certain additional risks that are not presented by mortgage backed securities because asset-backed securities generally do not have the benefit of a security interest in collateral that is comparable to mortgage assets. Credit card receivables are generally unsecured and the debtors on such receivables are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set-off certain amounts owed on the credit cards, thereby reducing the balance due. Automobile receivables generally are secured, but by automobiles rather than residential real property. Most issuers of automobile receivables permit the loan servicers to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would secure an interest superior to that of the holders of the asset-backed securities. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in the underlying automobiles. Therefore, there is the possibility that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities.

The Cash Reserves Fund and Bond Fund may invest in mortgage-backed and asset-backed securities that represent mortgage, commercial or consumer loans originated by credit unions or other financial institutions. To the extent permitted by law and available in the market, such investments may constitute a significant portion of each fund's investments. Subject to the appropriate regulatory approvals, the Cash Reserves Fund and Bond Fund may purchase securities issued by pools that are structured, serviced, or otherwise supported by CIMCO or its affiliates.

Other Securities Related to Mortgages

Mortgage Pass-Through Securities. The High Income Fund may invest in mortgage pass-through securities. Mortgage pass-through securities are securities representing interests in "pools" of mortgage loans. Monthly payments of interest and principal by the individual borrowers on mortgages are passed through to the holders of the securities (net of fees paid to the issue or guarantor of the securities) as the mortgages in the underlying mortgage pools are paid off. The average lives of mortgage pass-through securities are variable when issued because their average lives depend on prepayment rates. The average life of these securities is likely to be substantially shorter than their stated final maturity as a result of unscheduled principal prepayment. Prepayments on underlying mortgages result in a loss of anticipated interest, and all or part of a premium if any has been paid, and the actual yield (or total return) to the holder of a pass-through security may be different than the quoted yield on such security. Mortgage prepayments generally increase with falling interest rates and decrease with rising interest rates. Like other fixed income securities, when interest rates rise the value of a mortgage pass-though security generally will decline; however, when interest rates are declining, the value of mortgage pass-through securities with prepayment features may not increase as much as that of other fixed income securities. Interests in pools or mortgage-related securities differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these securities provide a monthly payment which consists of both interest and principal payments. In effect, these payments are a "pass-through" of the monthly payments made by the individual borrowers on their mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by prepayments of principal resulting from the sale, refinancing or foreclosure of the underlying property, net of fees or costs which may be incurred. Some mortgage pass-through securities (such as securities issued by the Government National Mortgage Association ("GNMA"), are described as "modified pass-through." These securities entitle the holder to receive all interests and principal payments owned on the mortgages in the mortgage pool, net of certain fees, at the scheduled payment dates regardless of whether the mortgagor actually makes the payment.

The principal governmental guarantor of mortgage pass-through securities is GNMA. GNMA is a wholly owned U.S. Government corporation within the Department of Housing and Urban Development. GNMA is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of Federal Housing Administration-insured or Veteran's Administration ("VA")-guaranteed mortgages. These guarantees, however, do not apply to the market value or yield of mortgage pass-through securities. GNMA securities are often purchased at a premium over the maturity value of the underlying mortgages. This premium is not guaranteed and will be lost if prepayment occurs.

Government-related guarantors (i.e., whose guarantees are not backed by the full faith and credit of the U.S. Government) include the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a government-sponsored corporation owned entirely by private stockholders. It is subject to general regulation by the Secretary of Housing and Urban Development. FNMA purchases conventional residential mortgages (i.e., mortgages not insured or guaranteed by any governmental agency) from a list of approved seller/services which include state and federally-chartered savings and loan associations, mutual savings banks, commercial banks, credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment by FNMA of principal and interest.

FHLMC was created by Congress in 1970 as a corporate instrumentality of the U.S. Government for the purpose of increasing the availability of mortgage credit for residential housing. FHLMC issues Participation Certificates ("PCS") which represent interest in conventional mortgages (i.e., not federally insured or guaranteed) from FHLMC's national portfolio. FHLMC guarantees timely payment of interest and ultimate collection of principal regardless of the status of the underlying mortgage loans.

Credit unions, commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of mortgage loans. Such issuers may also be the originators and/or servicers of the underlying mortgage-related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government or agency guarantees of payments in the former pools. However, timely payment of interest and principal of mortgage loans in these pools may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit. The insurance and guarantees are issued by governmental entities, private insurers and the mortgage poolers. There can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. The High Income Fund may also buy mortgage-related securities without insurance or guarantees.

Collateralized Mortgage Obligations and Multiclass Pass-Through Securities. The High Income Fund may invest a portion of its assets in collateralized mortgage obligations or "CMOs", which are debt obligations collateralized by mortgage loans or mortgage pass-through securities. Typically, CMOs are collateralized by certificates issued by GNMA, FNMA or FHLMC, but also may be collateralized by whole loans or private mortgage pass-through securities (such collateral collectively hereinafter referred to as "Mortgage Assets"). The High Income Fund may also invest a portion of its assets in multiclass pass-through securities which are equity interests in a trust composed of Mortgage Assets. Unless the context indicates otherwise, all references herein to CMOs include multiclass pass-through securities. Payments of principal of and interest on the Mortgage Assets, and any reinvestment income thereon, provide the funds to pay debt service on the CMOs or make scheduled distributions on the multiclass pass-through securities. CMOs may be issued by agencies or instrumentalities of the United States government or by private originators of, or investors in, mortgage loans, including credit unions, savings and loan associations, mortgage banks, commercial banks, investment banks and special purpose subsidiaries of the foregoing. The issuer of a series of CMOs may elect to be treated as a Real Estate Mortgage Investment Conduit (a "REMIC").

In a CMO, a series of bonds or certificates are usually issued in multiple classes with different maturities. Each class of CMOs, often referred to as a "tranch", is issued at a specific fixed or floating coupon rate and has a stated maturity or final distribution date. Principal prepayments on the Mortgage Assets may cause the CMOs to be retired substantially earlier than their stated maturities or final distribution dates, resulting in a loss of all or a part of the premium if any has been paid. Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly or semiannual basis. The principal of and interest on the Mortgage Assets may be allocated among the several classes of a series of a CMO in innumerable ways. In a common structure, payments of principal, including any principal pre-payments, on the Mortgage Assets are applied to the classes of the series of a CMO in the order of their respective stated maturities or final distribution dates, so that no payment of principal will be made on any class of CMOs until all other classes having an earlier stated maturity or final distribution date have been paid in full. Certain CMOs may be stripped (securities which provide only the principal or interest factor of the underlying security). See "Stripped Mortgage-Backed Securities" below for a discussion of the risks of investing in these stripped securities and of investing in classes consisting primarily of interest payments or principal payments.

The High Income Fund may also invest in parallel pay CMOs and Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of principal on each payment date to more than one class. These simultaneous payments are taken into account in calculating the stated maturity date or final distribution date of each class, which, as with other CMO structures, must be retired by its stated maturity date or final distribution date, but may be retired earlier. PAC Bonds generally require payments of a specified amount of principal on each payment date. PAC Bonds are always parallel pay CMOs with the required principal payment on such securities having the highest priority after interest has been paid to all classes.

Stripped Mortgage-Backed Securities. The High Income Fund may invest a portion of its assets in stripped mortgage-backed securities ("SMBS") which are derivative multiclass mortgage securities issued by agencies or instrumentalities of the United States government or by private originators of, or investors in, mortgage loans, including savings and loan associations, mortgage banks, commercial banks and investment banks.

SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions from a pool of Mortgage Assets. A common type of SMBS will have one class receiving some of the interest and most of the principal from the Mortgage Assets, while another class receives most of the interest and the remainder of the principal. In the most extreme case, one class will receive an "IO" (the right to receive all of the interest) while the other class will receive a "PO" (the right to receive all of the principal). The yield to maturity on an IO is extremely sensitive to the rate of principal payments (including prepayments) on the related underlying Mortgage Assets, and a rapid rate of principal payments may have a material adverse effect on such security's yield to maturity. If the underlying Mortgage Assets experience greater than anticipated prepayments of principal, the High Income Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting primarily or entirely of principal payments generally is unusually volatile in response to changes in interest rates. Because SMBS were only recently introduced, established trading markets for these securities have not yet developed, although the securities are traded among institutional investors and investment banking firms.

Mortgage Dollar Rolls. The High Income Fund may enter into mortgage "dollar rolls" in which the fund sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase substantially similar (same type, coupon and maturity) but not identical securities on a specified future date. During the roll period, the fund loses the right to receive principal and interest paid on the securities sold. However, the fund would benefit to the extent of any difference between the price received for the securities sold and the lower forward price for the future purchase or fee income plus the interest earned on the cash proceeds of the securities sold until the settlement date for the forward purchase. Unless such benefits exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the mortgage dollar roll, the use of this technique will diminish the investment performance of the fund. Successful use of mortgage dollar rolls depends upon the Investment Adviser's ability to predict correctly interest rates and mortgage prepayments. There is no assurance that mortgage dollar rolls can be successfully employed. The fund will hold and maintain in a segregated account until the settlement date cash or liquid assets in an amount equal to the forward purchase price. For financial reporting and tax purposes, each fund treats mortgage dollar rolls as two separate transactions; one involving the purchase of a security and a separate transaction involving a sale. The fund does not currently intend to enter into mortgage dollar rolls that are accounted for as a financing.

Real Estate Investment Trusts

The Bond, Balanced, High Income and Growth and Income Funds may invest in shares of real estate investment trusts ("REITs"). REITs are pooled investment vehicles that invest primarily in income producing real estate or real estate related loans or interests. REITs are generally classified as equity REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity REITs invest the majority of their assets directly in real property and derive income primarily from the collection of rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive income from the collection of interest payments. REITs are not taxed on income distributed to shareholders provided they comply with several requirements of the Code. A fund will indirectly bear its proportionate share of any expenses paid by REITs in which it invests in addition to the expenses paid by a fund.

Investing in REITs involves certain unique risks. Equity REITs may be affected by changes in the value of the underlying property owned by such REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified (except to the extent the Code requires), and are subject to the risks of financing projects. REITs are subject to heavy cash flow dependency, default by borrowers, self-liquidation, and the possibilities of failing to qualify for the exemption from tax for distributed income under the Code and failing to maintain their exemptions from the Investment Company Act of 1940, as amended (the "1940 Act"). REITs (especially mortgage REITS) are also subject to interest rate risks.

Practices that are Authorized but not Presently Employed

No fund (other than the International Stock Fund) has a current intention of investing in options, financial futures, stock index futures and related options in the foreseeable future. No fund has a current intention of engaging in the lending of portfolio securities in the foreseeable future. If any fund uses one of these practices in the foreseeable future, no more than 10% of the fund's total assets will be at risk thereby.

All of the funds may invest in foreign securities, although only the International Stock Fund and the High Income Fund are expected to do so with any regularity. However, all of the funds may, and are expected to, invest in American Depository Receipts ("ADRs") traded on U.S. exchanges. ADRs represent shares of foreign issues traded on foreign exchanges and may have many of the risks associated with foreign securities.

If a fund enters into futures contracts or call options thereon, reverse repurchase agreements, firm commitment agreements or standby commitment agreements, the fund will obtain approval from the Board of Trustees to establish a segregated account with the fund's custodian. The segregated account will hold liquid assets and the cash value of the segregated account will be not less than the market value of the futures contracts and call options thereon, reverse repurchase agreements, firm commitment agreements and standby commitment agreements.

Higher-Risk Securities and Practices

-------------------------------- ---------------------------------------------------- ------------------------------

Security or Practice             Description                                          Related Risks
-------------------------------- ---------------------------------------------------- ------------------------------

American Depository Receipts     ADRs are receipts typically issued by a U.S.         Market, currency,
(ADRs)                           financial institution which evidence ownership of    information, natural event,
                                 underlying securities of foreign corporate           and political risks (i.e.,
                                 issuers.  Generally, ADRs are in registered form     the risks of foreign
                                 and are designed for trading in U.S. markets.        securities).
-------------------------------- ---------------------------------------------------- ------------------------------
Asset-Backed Securities          Securities backed by pools of commercial and/or      Credit, extension,
                                 consumer loans such as motor vehicle installment     prepayment, and interest
                                 sales, installment loan contracts, leases of         rate risks.
                                 various types of real and personal property,
                                 receivables from revolving credit (i.e., credit
                                 card) agreements and other categories of
                                 receivables.
-------------------------------- ---------------------------------------------------- ------------------------------
Borrowing                        The borrowing of money from financial institutions   Leverage and credit risks.
                                 or through reverse repurchase agreements.
-------------------------------- ---------------------------------------------------- ------------------------------
Emerging Market   Securities     Any  foreign   securities primarily traded on        Credit,  market,  currency,
                                 exchanges  located  in or issued  by  companies      information,  liquidity,
                                 organized or primarily operating in countries that   interest  rate, valuation,
                                 are considered lesser developed than countries       natural event, and political
                                 like the U.S., Australia, Japan, or those of         risks.
                                 Western Europe.
-------------------------------- ---------------------------------------------------- ------------------------------
European and Global Depository   EDRs and GDRs are receipts evidencing an             Market, currency,
Receipts (EDRs and GDRs)         arrangement with a non-U.S. financial institution    information, natural event,
                                 similar to that for ADRs and are designed for use    and political risks (i.e.,
                                 in non-U.S. securities markets.  EDRs and GDRs are   the risks of foreign
                                 not necessarily quoted in the same currency as the   securities).
                                 underlying security.
-------------------------------- ---------------------------------------------------- ------------------------------
Foreign Money Market Securities  Short-term debt obligations issued either by         Market, currency,
                                 foreign financial institutions or by foreign         information, interest rate,
                                 branches of U.S. financial institutions or foreign   natural event, and political
                                 issuers.                                             risks.
-------------------------------- ---------------------------------------------------- ------------------------------
Foreign Securities               Securities issued by companies organized or whose    Market, currency,
                                 principal operations  are outside the U.S.,          information, natural event,
                                 securities  issued by companies whose securities     and political risks.
                                 are principally traded outside the U.S., or
                                 securities denominated or quoted in foreign
                                 currency.  The term "foreign securities" includes
                                 ADRs,  EDRs,  GDRs,  and foreign  money  market
                                 securities.
-------------------------------- ---------------------------------------------------- ------------------------------
Forward Foreign Currency         Contracts involving the right or obligation to buy   Currency, liquidity, and
Exchange Contracts               or sell a given amount of foreign currency at a      leverage risks.  When used
                                 specified price and future date.                     for hedging, also has
                                                                                      hedging, correlation, and
                                                                                      opportunity risks.  When
                                                                                      used speculatively, also has
                                                                                      speculation risks.
-------------------------------- ---------------------------------------------------- ------------------------------
Futures Contracts (including     In general, an agreement to buy or sell a specific   Interest rate, currency,
financial futures contracts)     amount of a commodity, financial instrument, or      market, hedging or
                                 index at a particular price on a stipulated future   speculation, leverage,
                                 date. Financial futures contracts include interest   correlation, liquidity,
                                 rate futures contracts, securities index futures     credit, and opportunity
                                 contracts,   and  currency  futures  contracts.
                                 Unlike  risks.  an option,  a futures  contract
                                 obligates  the  buyer to buy and the  seller to
                                 sell  the  underlying  commodity  or  financial
                                 instrument at the agreed-upon price and date or
                                 to pay or receive  money in an amount  equal to
                                 such price.
-------------------------------- ---------------------------------------------------- ------------------------------
Illiquid Securities              Any investment that may be difficult or impossible   Liquidity,  valuation and
                                 to sell at the time the fund would like to sell it   market risks.
                                 for the price at which the fund values it.
-------------------------------- ---------------------------------------------------- ------------------------------
Mortgage-Backed Securities       Securities backed by pools of mortgages, including   Credit, extension,
                                 passthrough certificates, PACs, TACs,                prepayment, and interest
                                 collateralized mortgage obligations (CMOs), and      rate risks.
                                 when available, pools of mortgage loans generated
                                 by credit unions.
-------------------------------- ---------------------------------------------------- ------------------------------
Non-Investment Grade Securities  Investing in debt securities rated below BBB/Baa     Credit, market, interest
                                 (i.e., "junk" bonds).                                rate, liquidity, valuation,
                                                                                      and information risks.
-------------------------------- ---------------------------------------------------- ------------------------------
Options (including options       In general, an option is the right to buy (called    Interest rate, currency,
on financial futures contracts)  a "call") or sell (called a "put") property for an   market, hedging or
                                 agreed-upon price at any time prior to an            speculation, leverage,
                                 expiration date. Both call and put options may be    correlation, liquidity,
                                 either written (i.e., sold) or purchased on          credit, and opportunity
                                 securities, indices, interest rate futures           risks.
                                 contracts, index futures contracts, or currency
                                 futures contracts.
-------------------------------- ---------------------------------------------------- ------------------------------
Repurchase Agreements            The purchase of a security that the issuer agrees    Credit risk.
                                 to buy back later at the same price plus interest.
-------------------------------- ---------------------------------------------------- ------------------------------
Restricted Securities            Securities originally issued in a private            Liquidity, valuation, and
                                 placement rather than a public offering.  These      market risks.
                                 securities often cannot be freely traded on the
                                 open market.
-------------------------------- ---------------------------------------------------- ------------------------------
Reverse Repurchase Agreements    The lending of short-term debt securities; often     Leverage and credit risks.
                                 used to facilitate borrowing.
-------------------------------- ---------------------------------------------------- ------------------------------
Securities Lending               The lending of securities to financial               Credit risk.
                                 institutions, which provide cash or government
                                 securities as collateral.
-------------------------------- ---------------------------------------------------- ------------------------------
Shares of Other Investment       The purchase of shares issued by other investment    Market risks and the
Companies                        companies.  These investments are subject to the     layering of fees and
                                 fees and expenses of both the MEMBERS Mutual Funds   expenses.
                                 and the other investment company.
-------------------------------- ---------------------------------------------------- ------------------------------
Short-Term Trading               Selling a security soon after purchase or            Market risk.
                                 purchasing  it soon  after  it was sold (a fund
                                 engaging  in short-term  trading  will  have
                                 higher turnover and transaction expenses).
-------------------------------- ---------------------------------------------------- ------------------------------
Smaller Capitalization           The purchase of securities issued by a company       Market risk.
Companies                        with a market capitalization (i.e., the price per
                                 share of its common stock multiplied by the number
                                 of shares of common stock outstanding) of less
                                 than $1 billion.
-------------------------------- ---------------------------------------------------- ------------------------------
When-Issued  Securities  and      The purchase or sale of securities for delivery at  Market,  opportunity,  and
Forward  Commitments              a future date;  market value may change before      leverage risks.
                                  delivery.
-------------------------------- ---------------------------------------------------- ------------------------------

-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
                                                                                                Growth     Capital
                                                      Cash                            High        and       Appre-    Int'l
                                                    Reserves     Bond    Balanced    Income      Income    ciation    Stock
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Investment Practices
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Borrowing; Reverse Repurchase Agreements              30         30         30        30         30         30         30
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Repurchase Agreements                                  *          *         *          *          *          *          *
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Securities Lending                                     X         30         30        30         30         30         30
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Short-term Trading                                     *          *         *          *          *          *          *
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
When-Issued Securities; Forward Commitments           25         25         25        25         25         25         25
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Conventional Securities
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Shares of Other Investment Companies                   X        10**       10**      10**       10**       10**       10**
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Non-Investment Grade Securities                        X         20         10         *          5          5          5
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Foreign Securities                                   25(1)       20         25        50         25         25          *
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Emerging Market Securities                             X         10         10        25          X          X         25
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Illiquid Securities(2)                                10         15         15        15         10         10         15
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Restricted Securities                                25**        15         15       30**        10         10         15
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Mortgage-backed Securities; REITs                      X         30         15        30         10          X          X
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Derivative Securities and Contracts
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Options and Futures Contracts
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
o  Options on Securities or Indices                    X        10**       10**      10**       10**       10**        10
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
o  Futures Contracts(3)                                X         5**       5**        5**        5**        5**         5
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
o  Options on Futures Contracts(3)                     X        10**       10**      10**       10**       10**        10
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Forward Foreign Currency Exchange Contracts            X          X         X         10          X          X         10
-------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
     (1) U.S.  Dollar-denominated  foreign  money market  securities  only.
     (2) Numbers in this row refer to net, rather than total,  assets.
     (3) Financial futures contracts and related options only.

Cash Reserves Fund         25%, but limited to U.S. dollar denominated
                                foreign money market securities
Bond Fund                  20%
Balanced Fund              25%
High Income Fund           50%
Growth and Income Fund     25%
Capital Appreciation Fund  25%
International Stock Fund   100%

Trustees and Officers

  Name, Address                       Position(s) Held            Principal Occupation
  and Age                             with the Fund               During Past Five Years

Michael S. Daubs*                     Trustee (Chairman)         CIMCO Inc.
5910 Mineral Point Road               1997 - Present             President, 1982 - Present
Madison, WI 53705
Age - 55                                                         CUNA Mutual Insurance Society
                                                                 Chief Officer - Investments
                                                                 1990 - Present

                                                                 CUNA Mutual Life Insurance Company
                                                                 Chief Officer - Investments
                                                                 1973 - Present

Lawrence R. Halverson*                Trustee, President and     CIMCO Inc.
5910 Mineral Point Road               Principal Executive        Senior Vice President, 1996 - Present
Madison, WI 53705                     Officer                    Vice President, 1987 - 1996
Age - 53                              1997 - Present             Secretary, 1992 - Present

                                                                 CUNA Brokerage Services, Inc.
                                                                 President
                                                                 1996 - 1998

Scott R. Powell*                      Vice President and         CIMCO Inc.
5910 Mineral Point Road               Secretary                  Vice President - Sales, Marketing, & Client Services
Madison, WI 53705                     1998 - Present             1998 - Present
Age - 36                                                         Investment Officer - Mutual Funds, 1997 - 1998
                                      Secretary and Treasurer    Investment Officer - Marketing, 1993 - 1996
                                      1997 - 1998
                                                                 T. Rowe Price
                                                                 Vice President, 1996 - 1997

Mary E. Hoffmann*                     Treasurer                  CIMCO Inc.
5910 Mineral Point Road               1998 - Present             Product Operations and Finance Manager
Madison, WI  53705                                               1998 - Present
Age - 29
                                                                 CUNA Mutual Insurance Society
                                                                 Investment Accounting Supervisor
                                                                 1996 - 1998

                                                                 McGladrey and Pullen, LLP
                                                                 (Madison, Wisconsin)
                                                                 Financial Auditor
                                                                 1993 - 1996

Gwendolyn M. Boeke                    Trustee                    Evangelical Lutheran Church in America
2000 Heritage Way                     1997 - Present             (Chicago, Illinois)
Waverly, IA 50677                                                Regional Director, ECLA Foundation
Age - 64                                                         1990 - Present

Alfred L. Disrud                      Trustee                    Planned Giving Services
2000 Heritage Way                     1997 - Present             (Waverly, Iowa)
Waverly, IA 50677                                                Owner
Age - 77                                                         1986 - Present

Keith S. Noah                         Trustee                    Noah, Smith, & Schuknecht, L.L.C.
2000 Heritage Way                     1997 - Present             (Charles City, Iowa)
Waverly, IA 50677                                                Partner
Age - 78                                                         1948 - Present

Thomas C. Watt                        Trustee                    MidAmerica Energy Company (Waterloo, Iowa)
2000 Heritage Way                     1997 - Present             Manager, Business Initiatives
Waverly, IA 50677                                                1987 - Present
Age - 62
                                                                 Midwest Power Systems, Inc. (Waterloo, Iowa)
                                                                 District Manager
                                                                 1992 - 1997

*  "Interested person" as defined in the 1940 Act.

Trustee Compensation
                          Aggregate Compensation    Total Compensation from
Name of Person, Position      from Trust(1)       Trust and Fund Complex(1)(2)
Michael S. Daubs(3)           None                           None
Lawrence R. Halverson(3)      None                           None
Gwendolyn M. Boeke           $4,000                         $8,000
Alfred L. Disrud             $4,000                         $8,000
Keith S. Noah                $4,000                         $8,000
Thomas C. Watt               $4,000                         $8,000

                                                                                     Growth      Capital
                                      Cash                                High        and         Appre       Int'l
           Shareholder              Reserves      Bond      Balanced     Income      Income     ciation*      Stock

---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

CUNA Mutual Insurance Society
5910 Mineral Point Road             37.286%     26.589%     30.613%                                         18.606%
Madison, WI  53705

---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

CUNA Mutual Life Insurance Co.
5910 Mineral Point Road             37.311%     26.606%     29.619%     71.586%                             11.166%
Madison, WI 53705

---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

CUMIS Insurance Society, Inc.
5910 Mineral Point Road                                     18.955%                                         66.473%
Madison, WI  53705

---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

Donald N. Bottolfson
1037 Apple River Ct                              6.768%
Amery WI 54001-5243

---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

Jerald R. Hinrichs
148 Weeburn Drive                                                                    6.235%
New Canaan CT  06840

---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

R. Kent Russell
Rt #3 Box 23B                       13.290%*
Clinchport  VA  24244-9310

---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

Sandra N. Powers
514 Emory Church Road               13.064%*
Kingsport  TN  37664-5006

---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

Jimmy P. Larkin
426 Spruce Street                   8.389%*
Mount Carmel, TN  37645-3329

---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

Alvan C. Moore
6428 State Route 405                7.871%*
Owensboro  KY  42303-9751

---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

Olga Hernandez
3361 SW 17th Street                 6.607%*
Fort Lauderdale, FL  33312-3642

---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

Albert C. Maxfield
504 Cody Street                     6.566%*
Sulphur  LA  70663-4710

---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

Julia S. Madyun
13675 Old Greensboro Road           5.907%*
Tuscaloosa  AL  35405-9014

---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

  *  Class B Shares
 **  As of January 31, 1999 Capital  Appreciation  Fund did not have any
     ownership over 5%.

                                                    Total Advisory Fees
                                             Paid during the Fiscal Year Ended
Fund                      Management Fee             October 31, 1998
----                      --------------             ----------------
Cash Reserves                0.40%                          $13,907
Bond                        0.50%*                           18,516
Balanced                     0.65%                           43,515
High Income                  0.55%                           34,493
Growth and Income            0.55%                           60,851
Capital Appreciation         0.75%                           54,599
International Stock          1.05%                          203,368
                                                            -------
                                          Total            $429,249

Fund                            Other Expense "Cap"
----                            -------------------
Cash Reserves                          0.15%
Bond                                   0.15%
Balanced                               0.20%
High Income                            0.20%
Growth and Income                      0.20%
Capital Appreciation                   0.20%
International Stock                    0.30%

Joyce A. Harris           Director and Chair
James C. Hickman          Director
Michael B. Kitchen        Director
Michael S. Daubs          Director and President
George A. Nelson          Director and Vice Chair
Lawrence R. Halverson     Senior Vice President and Secretary
Jeffrey B. Pantages       Senior Vice President
Daniel J. Larson          Vice President
Thomas J. Merfeld         Vice President
Scott R. Powell           Vice President

Percentage                Net Assets Managed by MFS
----------                -------------------------
0.400%                    First $10,000,000
0.375%                    Next $90,000,000
0.350%                    Next $150,000,000
0.325%                    Next $250,000,000
0.300%                    Over $500,000,000

Percentage                Net Assets Managed by IAI
0.75%                     First $25,000,000
0.60%                     Next $25,000,000
0.50%                     Over $50,000,000

                         ERISA Plans                                  Non-ERISA Plans
--------------------- ------------------ ------------------ ------------------ ------------------ ------------------
                      401(a) Plan,
Type of Distribution  401(k) Plan or     Supplemental                          IRA or             Non-Retirement
                      403(b) Plan        403(b) Plan        457 Plan           IRA Rollover       Plan
--------------------- ------------------ ------------------ ------------------ ------------------ ------------------
Death or Disability   Waived             Waived             Waived             Waived             Waived
--------------------- ------------------ ------------------ ------------------ ------------------ ------------------
Over 70 1/2           Waived             Waived             Waived             Waived for         Waived for up to
                                                                               mandatory          12% of account
                                                                               distributions or   value annually
                                                                               up to 12% of       in periodic
                                                                               account value      payments
                                                                               annually in
                                                                               periodic payments
--------------------- ------------------ ------------------ ------------------ ------------------ ------------------
Between               Waived             Waived             Waived             Waived for Life    Waived for up to
59 1/2and 70 1/2                                                               Expectancy or up   12% of account
                                                                               to 12% of          value annually
                                                                               account value      in periodic
                                                                               annually in        payments
                                                                               periodic payments
--------------------- ------------------ ------------------ ------------------ ------------------ ------------------
Under 59 1/2          Waived             Waived for         Waived for         Waived for         Waived for up to
                                         annuity payments   annuity payments   annuity payments   12% of account
                                         (72t) or up to     (72t) or up to     (72t) or up to     value annually
                                         12% of account     12% of account     12% of account     in periodic
                                         value annually     value annually     value annually     payments
                                         in periodic        in periodic        in periodic
                                         payments           payments           payments
--------------------- ------------------ ------------------ ------------------ ------------------ ------------------
Loans                 Waived             Waived             N/A                N/A                N/A
--------------------- ------------------ ------------------ ------------------ ------------------ ------------------
Termination of Plan   Not Waived         Not Waived         Not Waived         Not Waived         N/A
--------------------- ------------------ ------------------ ------------------ ------------------ ------------------
Hardships             Waived             Waived             Waived             N/A                N/A
--------------------- ------------------ ------------------ ------------------ ------------------ ------------------
Return of Excess      Waived             Waived             Waived             Waived             N/A
--------------------- ------------------ ------------------ ------------------ ------------------ ------------------

Cash Reserves Fund                      -0.96%
Bond Fund                                2.22%
Balanced Fund                            8.38%
High Income Fund                        -4.45%
Growth and Income Fund                  10.57%
Capital Appreciation Fund               13.86%
International Stock Fund                 1.17%

TR     =   the average annual total return net of any fund recurring charges.

ERV    =   the ending redeemable value of the hypothetical account at the end of
           the period.

P      =   a hypothetical initial payment of $1,000.

N      =   the number of years in the period.

                                                         Value
   Par Value                                          (Note 2)
COMMERCIAL PAPER (A) - 71.22%

           Finance - 50.03%
$ 200,000  American Express Credit Corp.
           5.210%, 11/30/98                         $  199,169
  200,000  American General Finance Co.
           5.030%, 01/27/99                            197,569
  200,000  Associates Corp. of North America
           5.150%, 01/06/99                            198,112
  200,000  Caterpillar Financial Services
           5.351%, 01/04/99                            198,098
  260,000  CIT Group Holdings, Inc.
           5.160%, 12/08/98                            258,621
  161,000  Ford Motor Credit Corp.
           5.120%, 01/08/99                            159,443
  100,000  Ford Motor Credit Corp.
           5.090%, 01/27/99                             98,752
  260,000  G.E. Capital Corp.
           5.450%, 11/09/98                            259,685
  280,000  General Motors Acceptance Corp.
           5.440%, 11/10/98                            279,619
  225,000  Goldman Sachs Group LP
           5.320%, 12/14/98                            223,570
  100,000  Household Finance Corp.
           5.049%, 01/05/99                             99,088
  200,000  Merrill Lynch & Co., Inc.
           5.411%, 11/18/98                            199,489
  250,000  Norwest Financial, Inc.
           5.220%, 01/21/99                            247,064

                                                     2,618,279


           Durable Goods - 5.07%
  268,000  Deere & Co.
           5.430%, 01/11/99                            265,130


           Consumer Staples - 4.75%
  250,000  Procter & Gamble Co.
           5.330%, 12/16/98                            248,334


           Media - 3.80%
  200,000  Disney (Walt) Co.
           5.130%, 12/08/98                            198,946


           Technology - 3.79%
  200,000  Motorola, Inc.
           5.171%, 12/22/98                            198,535


           Chemicals - 3.78%
  200,000  du Pont (E.I.) de Nemours & Co.
           5.000%, 01/14/99                            197,946

           Total Commercial Paper                    3,727,170

$ 100,000  5.249%, 12/17/98                        $    99,329
  250,000  5.180%, 01/15/99                            247,302
  200,000  5.050%, 01/19/99                            197,784

                                                       544,415


           U.S. Treasury Bill - 8.11%
  425,000  5.040%, 11/12/98                            424,345


           Federal Home Loan Bank - 5.57%
  194,000  5.360%, 11/27/98                            193,249
  100,000  4.950%, 03/17/99                             98,130

                                                       291,379

100,000  4.570%, 03/23/99                             98,197

         Total U.S. Government and Agency
              Obligations                          1,358,336
         ( Cost $1,358,336 )

  150,985  State Street Eurodollar
           4.750%, 11/02/98                            150,985

           Total Certificate of Deposit                150,985

           ( Cost $150,985 )

TOTAL INVESTMENTS - 100.07%                          5,236,491

( Cost 5,236,491** )
NET OTHER ASSETS AND LIABILITIES - (0.07)%              (3,410)

TOTAL NET ASSETS - 100.00%                           $5,233,081

                                                        Value
   Par Value                                          (Note 2)

CORPORATE NOTES AND BONDS - 64.60%

           Finance - 14.20%
 $ 200,000 Aetna Services, Inc.
           6.970%, 08/15/36                       $    208,049
  100,000  Caterpillar Financial Services,
                 Series F, MTN
           6.400%, 04/16/01                            102,751
  250,000  Carramerica Realty Corp.
           6.625%, 10/01/00                            248,111
  150,000  General Motors Acceptance Corp., MTN
           6.050%, 10/04/99                            151,398
  300,000  Kimco Realty Corp., MTN
           6.960%, 07/16/07                            286,560

                                                       996,869


           Asset - Backed Securities - 11.43%
 200,000   Chase Commercial  Mortgage
           Securities Corp.
           Series 1997-2, Class C, CMO
           6.600%, 12/19/07                            199,382
  200,000  Citibank Credit Card Master Trust I,
           Series 1998-6 Class A, ABS
           5.850%, 04/10/03                            204,220
  200,000  Deutsche Mortgage and
           Asset Receiving Corp.,1998, Class C, CMO
           6.861%, 03/15/08                            196,942
  200,000  Residential  Funding  Mortgage
           Securities II Series  1998-HI2,  Step
           Coupon, Class A2, ABS (F) 6.290%, 07/25/13  201,906

                                                       802,450


           Industrials - 7.23% 350,000 Motorola, Inc.
           5.800%, 10/15/08                            350,992
  150,000  WMX Technologies, Inc.
           7.000%, 05/15/05                            156,425

                                                       507,417


           Brokerage Services - 5.88%
  200,000  Goldman Sachs LP 144A, MTN (C)
           6.250%, 02/01/03                            202,571
  200,000  Travelers Group, Inc.
           7.200%, 02/01/04                            210,157

                                                       412,728


           Utilities - 4.44%
$ 150,000  Cincinnati Gas & Electric Co.
           6.450%, 02/15/04                        $   157,427
  150,000  GTE North, Inc., Series A, Debenture
           6.000%, 01/15/04                            154,485

                                                       311,912


           Communication - 4.39%
  100,000  Cox Communication, Inc.
           6.500%, 11/15/02                            103,556
  200,000  Worldcom, Inc.
           6.125%, 8/15/01                             204,760

                                                       308,316


           Consumer Staples - 4.30%
  300,000  Nabisco, Inc.
           6.700%, 06/15/02                            302,109


           Consumer Products - 3.04%
  100,000  Carter Holt Harvey, Ltd.,Yankee
           8.875%, 12/01/04                            107,456
  100,000  International Paper Co.
           7.500%, 05/15/04                            106,254

                                                       213,710


           Defense - 2.23%
  150,000  Martin Marietta Technologies, Inc.
           6.500%, 04/15/03                            156,703


           Energy - 2.16%
  150,000  Transcontinental Gas Pipeline Corp.
           6.125%, 01/15/05                            151,345


           Health Services - 2.12%
  150,000  Columbia/HCA Healthcare Corp.
           6.125%, 12/15/00                            148,889


           Metals and Mining - 1.61%
  100,000  MAGMA Copper Co.
           8.700%, 05/15/05                            113,019


           Retail - 1.57%
  100,000  American Stores Co.
           9.125%, 04/01/02                            110,381

           Total Corporate Notes and Bonds           4,535,848

           U.S. Treasury Notes - 20.62%
$ 700,000  5.625%, 04/30/00                        $   712,688
  400,000  5.500%, 03/31/03                            418,625
  300,000  5.750%, 04/30/03                            316,875

                                                     1,448,188


           Federal Home Loan Mortgage Corp. - 4.31%
  298,127  6.500%, 10/15/13                            302,435


           Federal National Mortgage
           Association  - 3.01%
  200,000  6.000%, 05/15/08                            211,670

           Total U.S. Government and Agency
           Obligations                               1,962,293

           ( Cost $1,919,509 )

150,000  United Mexican States, Global
         9.875%, 01/15/07                            141,750

         Total U.S. Denominated Government
            Foreign Bond                             141,750

   38,124  State Street Eurodollar
            4.750%, 11/02/98                            38,124

           Total Certificate of Deposit                 38,124

           ( Cost $38,124 )


  Shares                                               Value
                                                      (Note 2)
INVESTMENT COMPANY - 2.85%

  200,000  State Street Prime Money Market
           5.48%                                   $   200,000

           Total Investment Company                    200,000

           ( Cost $200,000 )

TOTAL INVESTMENTS - 97.95%                           6,878,015

( Cost $6,815,769** )
NET OTHER ASSETS AND LIABILITIES - 2.05%               144,282

TOTAL NET ASSETS - 100.00%                          $7,022,297

 5,500  American Home Products Corp.                268,125
 2,300  Bristol-Myers Squibb Co.                    254,294
 3,500  Centocor, Inc.*                             155,750
 2,500  Glaxo Wellcome PLC, ADR                     155,625
 3,900  Pharmacia & Upjohn, Inc.                    206,456

                                                  1,040,250


        Consumer Staples - 3.98%
 4,100  Kimberly-Clark Corp.                        197,825
 2,000  General Mills, Inc.                         147,000
 6,300  Nabisco Holdings Corp., Class A             237,825
 2,700  Sara Lee Corp.                              161,156
 7,600  Tyson Foods, Inc., Class A                  174,800

                                                    918,606


        Consumer Cyclical - 3.96%
 3,400  Cox Communications, Inc., Class A       $   186,575
 2,900  Crown Cork & Seal Co., Inc.                  92,438
 7,600  MediaOne Group, Inc.*                       321,575
 6,500  Owens-Illinois, Inc.*                       198,656
10,800  Primedia, Inc.*                             116,775

                                                    916,019


        Energy - 3.95%
 2,500  Amoco Corp.                                 140,313
 2,000  Exxon Corp.                                 142,500
 3,200  Kerr-McGee Corp.                            127,600
 3,400  Schlumberger Ltd.                           178,500
 4,500  Unocal Corp.                                152,719
 5,200  USX-Marathon Group                          169,975

                                                    911,607


        Communication - 3.54%
 4,900  AirTouch Communications, Inc.*              274,400
 2,800  Ameritech Corp.                             151,025
 2,600  Bell Atlantic Corp.                         138,125
 2,700  GTE Corp.                                   158,456
 1,800  Telefonos de Mexico SA, Class L, ADR         95,063

                                                    817,069


        Basic Materials - 3.36%
 2,000  Dow Chemical, Inc.                          187,250
 5,400  Pall Corp.                                  136,350
 3,300  Praxair, Inc.                               132,825
 5,000  Rohm & Haas Co.                             168,750
 4,900  Willamette Industries, Inc.                 151,900

                                                    777,075


        Durable Goods - 2.58%
 1,400  General Motors Corp.                         88,288
 3,600  Raychem Corp.                               110,025
 3,000  Rockwell International Corp.                123,188
 1,500  United Technologies, Inc.                   142,875
 2,942  Waste Management, Inc.                      132,758

                                                    597,134


        Health Services - 2.28%
 3,500  Aetna, Inc.                                 261,188
 6,900  Columbia\ HCA Healthcare Corp.              144,900
 1,800  IMS Health, Inc.                            119,700

                                                    525,788

           Utilities - 1.48%
    3,400  Northern States Power Co.                    91,800
    2,700  PG & E Corp.                                 82,181
    6,100  Williams Companies, Inc.                    167,369

                                                       341,350

           Total Common Stocks                      11,917,217

           ( Cost $11,589,250 )

   Par Value

CORPORATE NOTES AND BONDS - 21.68%

           Finance - 9.44%
$ 200,000  Aetna Services, Inc.
           6.970%, 08/15/36                            208,049
1,000,000  Associates Corp. of North America
           5.750%, 11/01/03                          1,000,420
   50,000  Caterpillar Financial Services,
           Series F, MTN
           6.400%, 04/16/01                             51,376
   50,000  General Motors Acceptance Corp., MTN
           6.050%, 10/04/99                             50,466
  700,000  Kimco Realty Corp., MTN
           6.960%, 07/16/07                            668,640
  200,000  Residential Funding Mortgage
           Securities II, Series 1998-HI2, Step
           Coupon, Class A2, ABS (F)
           6.290%, 07/25/13                            201,906

                                                     2,180,857


           Consumer Staples - 3.05%
  700,000  Nabisco, Inc.
           6.700%, 06/15/02                            704,921


           Asset-Backed Securities - 2.60%
  200,000  Chase Commercial Mortgage Securities
           Corp. Series 1997-2, Class C, CMO
           6.600%, 12/19/07                            199,382
  200,000  Citibank Credit Card Master Trust I,
           Series 1998-6 Class A, ABS
           5.850%, 04/10/03                            204,220
  200,000  Deutsche Mortgage and
           Asset Receiving Corp., 1998, Class C,
           CMO
           6.861%, 03/15/08                            196,942

                                                       600,544


           Brokerage Services - 1.79%
 $ 200,000 Goldman Sachs LP 144A, MTN (C)
           6.250%, 02/01/03                      $     202,571
  200,000  Travelers Group, Inc.
           7.200%, 02/01/04                            210,157

                                                       412,728


           Communication - 1.12%
   50,000  Cox Communication, Inc.
           6.500%, 11/15/02                             51,778
  200,000  Worldcom, Inc.
           6.400%, 08/15/05                            207,887

                                                       259,665


           Consumer Products - 0.92%
  100,000  Carter Holt Harvey, Ltd.,Yankee
           8.875%, 12/01/04                            107,456
  100,000  International Paper Co.
           7.500%, 05/15/04                            106,254

                                                       213,710


           Utilities - 0.92%
   50,000  Cincinnati Gas & Electric Co.
           6.450%, 02/15/04                             52,476
  100,000  GTE Hawaiian Telephone Co., Debenture
           7.375%, 09/01/06                            109,120
   50,000  GTE North, Inc., Series A, Debenture
           6.000%, 01/15/04                             51,495

                                                       213,091


           Energy - 0.68%
  100,000  Coastal Corp., Senior Note
           8.125%, 09/15/02                            107,376
   50,000  Transcontinental Gas Pipeline Corp.
           6.125%, 01/15/05                             50,448

                                                       157,824


           Metals and Mining - 0.49%
  100,000  MAGMA Copper Co.
           8.700%, 05/15/05                            113,019


           Defense - 0.23%
   50,000  Martin Marietta Technologies, Inc.
           6.500%, 04/15/03                             52,234


           Industrials - 0.23%
    50,000 WMX Technologies, Inc.
           7.000%, 05/15/05                             52,142

         Health Services - 0.21%
$ 50,000 Columbia/HCA Healthcare Corp.
         6.125%, 12/15/00                        $    49,630

         Total Corporate Notes and Bonds           5,010,365

           U.S. Treasury Notes - 16.53%
1,000,000  4.500%, 09/30/00                          1,005,000
1,000,000  5.500%, 03/31/03                          1,046,563
  700,000  5.625%, 04/30/00                            712,688
1,000,000  5.750%, 04/30/03                          1,056,250

                                                     3,820,501

722,956   6.500%, 06/01/13                           733,402

         Total U.S. Government and Agency
         Obligations                               4,553,903

         ( Cost $4,489,916 )

50,000  United Mexican States, Global
         9.875%, 01/15/07                            47,250

        Total U.S. Denominated Government
           Foreign Bond                              47,250

 4.750%, 11/02/98                            68,625

Total Certificate of Deposit                 68,625

( Cost $68,625 )

1,000,000  State Street Prime Money Market
           5.48%                                   $  1,000,000

           Total Investment Company                  1,000,000

           ( Cost $1,000,000 )

TOTAL INVESTMENTS - 97.78%                          22,597,360

(Cost $22,189,804**)
NET OTHER ASSETS AND LIABILITIES - 2.22%               512,487

TOTAL NET ASSETS - 100.00%                         $23,109,847

                                                        Value
   Par Value                                          (Note 2)


CORPORATE NOTES AND BONDS - 90.95%

           Communication - 19.41%
$ 135,000  Allegiance Telecom, Inc., 144A, Step
           Coupon With Warrants (B)(C)
           11.750%, 02/15/08                    $       55,355
   25,000  American Cellular, 144A (C)
           Senior Note
           10.500%, 05/15/08                            23,500
   95,000  Charter Communication South East, L.P.
           Series B, Senior Note
           11.250%, 03/15/06                           101,887
   30,000  Convergent Communication, 144A (C)
           With Warrants
           13.000%, 04/01/08                            20,100
  130,000  Dolphin Telecom PLC, Step Coupon, 144A
           Senior Discount Note (B)(C)(D)
           11.500%, 06/01/08                            41,275
   60,000  Esprit Telecom Group PLC, Yankee (D)
           Senior Note
           10.875%, 06/15/08                            52,200
   90,000  Exodus Communications, Inc., 144A (C)
           Senior Note
           11.250%, 07/01/08                            80,325
   25,000  Flag, Ltd., 144A, Senior Note (C)(D)
            8.250%, 01/30/08                            23,125
   60,000  Intelcom Group (USA), Inc.
           StepCoupon (B)
           12.500%, 05/01/06                            40,200
   55,000  Intermedia Communication,
           Step Coupon, Series B  (B)
           11.250%, 07/15/07                            36,575
   50,000  ITC Deltacom, 144A (C)
           Senior Note
           9.750%, 11/15/08                             50,000
   10,000  Lenfest Communications
           8.375%, 11/01/05                             10,450
   50,000  Lenfest Communications, 144A (C)
           Senior Subordinate Note
           8.250%, 02/15/08                             49,750
   35,000  Lenfest Communications
            Senior Subordinate Note
           10.500%, 06/15/06                            39,288
  175,000  Metronet Communications, Yankee,
           Step Coupon Senior Discount Note (B)(D)
           9.950%, 06/15/08                             95,813
   45,000  Metronet Communications, Yankee,
           Step Coupon Senior Discount Note (B)(D)
           10.750%, 11/01/07                            26,550
  100,000  Millicom International Cellular, Yankee
           Senior Discount Note, Step Coupon (B)(D)
           13.500%, 06/01/06                            60,000
   55,000  MJD Communications, 144A (C)
           Senior Subordinate Note
            9.500%, 05/01/08                            53,350

           Communication (continued)
$  50,000  Mobile Telecommunication Technology
           Senior Note
           13.500%, 12/15/02                       $    54,375
   90,000  Nextel Communications, Step Coupon (B)
           9.950%, 02/15/08                             48,600
  100,000  Nextel Communications, Step Coupon
           Senior Discount Note (B)
            9.750%, 10/31/07                            55,500
   45,000  Nextel International, Inc., 144A, Step
           Coupon Senior Discount Note (B) (C)
           12.125%, 04/15/08                            16,650
   50,000  Nextlink Communications
           Senior Note
            9.625%, 10/01/07                            46,250
   70,000  Pagemart Wireless, Inc., Step Coupon, 144A
           Senior Discount Note (B) (C)
           11.250%, 02/01/08                            36,400
   50,000  Paging Network
           Senior Subordinate Note
           8.875%, 02/01/06                             46,500
    3,000  Pathnet, Inc., 144A (C)
           With Warrants
           12.250%, 04/15/08                             2,175
   55,000  PSINET, Inc., 144A, Senior Note (C)
           10.000%, 02/15/05                            53,213
   65,000  Rural Cellular Corp. Series B
           Senior Subordinate Note
           9.625%, 05/15/08                             61,263
   31,000  Rural Cellular Corp., Series B, PIK
           11.375%, 05/15/10                            26,505
   25,000  Qwest Communications International,
           Step Coupon Senior Discount Note (B)
           9.470%, 10/15/07                             19,625
   75,000  Qwest Communications International,
           144A (C) Senior Note
           7.500%, 11/01/08                             74,685
   15,000  RCN Corp., Step Coupon
           Senior Discount Note (B)
           11.125%, 10/15/07                             7,800
   30,000  Telesystem International, Yankee, Step
           Coupon Senior Discount Note (B)(D)
           13.250%, 06/30/07                            12,000
   25,000  Telesystem International, Yankee, Step
           Coupon Senior Discount Note (B)(D)
           10.500%, 11/01/07                             8,000
   25,000  Telewest Communications PLC, Yankee (D)
           Debenture
           9.625%, 10/01/06                             24,500
  170,000  Triton Communications, 144A, Step Coupon
           Senior Discount Note (B)(C)
           11.000%, 05/01/08                            65,450
   50,000  Versatel Telecom BV, 144A (D)(E)
           With Warrants
           Senior Note
           13.250%, 05/15/08                            46,500

           Communication (continued)
$      89  Viatel, Inc.,Series A, PIK
           10.000%, 04/15/10                       $        53
   20,000  Viatel, Inc.,144A, Senior Note (C)
           11.250, 04/15/08                             17,600
  160,000  Viatel, Inc.,Step Coupon, 144A (B) (C)
           Senior Discount Note
           12.500%, 04/15/08                            78,400
  220,000  United International Holdings, Step Coupon,
           Series B Senior Discount Note (B)
           10.750%, 02/15/08                           103,400
  110,000  Western Wireless
           Senior Subordinate Note
           10.500%, 02/01/07                           113,300

                                                     1,878,487


           Telecommunications - 12.12%
  110,000  Chancellor Media Corp., Series B
           8.750%, 06/15/07                            108,350
   90,000  Classic Cable, Inc., 144A (C)
           Senior Subordinate Note
           9.875%, 08/01/08                             89,550
   60,000  Cumulus Media, Inc.
           10.375%, 07/01/08                            61,200
  110,000  Fox/Liberty Networks
           Senior Note
           8.875%, 08/15/07                            106,425
   50,000  Frontiervision
           Senior Subordinate Note
           11.000%, 10/15/06                            55,000
   40,000  Frontiervision Holdings LP, Step Coupon
           Senior Discount Note  (B)
           11.875%, 09/15/07                            32,000
   90,000  Granite Broadcasting Corp.
           10.375%, 05/15/05                            85,500
   50,000  Intermedia Capital Partners
           Senior Note
           11.250%, 08/01/06                            54,750
   50,000  LIN Television Corp.
           8.375%, 03/01/08                             47,500
   40,000  Northeast Optic Network
           Senior Note
           12.750%, 08/15/08                            35,200
   40,000  NTL, Inc., 144A, Step Coupon
           Senior Note (B) (C)
           9.750%, 04/01/08                             21,850
  100,000  NTL, Inc., 144A, Step Coupon
           Senior Note (B) (C)
           12.375%, 10/01/08                            55,505
  110,000  Rogers Cablesystem, Yankee (D)
            9.625%, 08/01/02                           117,425


           Telecommunications (continued)
$ 100,000  Spectrasite Holdings, Inc., 144A,
           Step Coupon Senior Discount Note (B)(C)
           12.000%, 07/15/08                      $     39,000
  150,000  Telemundo Holdings, Inc., 144A, Step
           Coupon Senior Discount Note  (B) (C)
           11.500%, 08/15/08                            73,500
   85,000  Time Warner, Inc., LLC
           Senior Note
           9.750%, 07/15/08                             85,638
   50,000  Verio, Inc.
           Senior Note
           10.375%, 04/01/05                            47,500
   60,000  Young Broadcasting, Inc., Series B
           8.750%, 06/15/07                             57,000

                                                     1,172,893


           Retail - 5.56%
   25,000  Chiles Offshore
           10.000%, 05/01/08                            20,000
   50,000  Cole National Group
           Senior Subordinate Note
            8.625%, 08/15/07                            48,000
  110,000  Friendly Ice Cream Corp.
           10.500%, 12/01/07                           100,100
   60,000  Jitney-Jungle Stores
           12.000%, 03/01/06                            64,800
   25,000  Musicland Group, 144A (C)
           Senior Note
            9.875%, 03/15/08                            23,500
  100,000  Pathmark Stores
           Senior Subordinate Note
            11.625%, 06/15/02                           95,000
   25,000  Planet Hollywood, 144A (C)
           Senior Subordinate Note
           12.000%, 04/01/05                            11,750
  100,000  Red Roof Inns, Senior Note
            9.625%, 12/15/03                            98,500
   75,000  Williams Scotsman, Inc.
            9.875%, 06/01/07                            75,750

                                                       537,400


           Technology - 5.43%
   110,000 Argo-Tech Corp.
           Senior Subordinate Note
           8.625%, 10/01/07                            101,750
   50,000  Be Aerospace, Inc., 144A (C)
           Senior Note
           9.500%, 11/01/08                             51,250
   75,000  Be Aerospace, Inc., Series B, 144A (C)
           Senior Note
           8.000%, 03/01/08                             70,125
   75,000  Level 3 Communications, Inc., 144A (C)
           Senior Note
           9.1250%, 05/01/08                            70,500

           Technology (continued)
$ 150,000  K & F Industries, Series B
           Senior Subordinate Note
           9.250%, 10/15/07                       $    142,500
   80,000  Unisys Corp., Series B
           Senior Discount Note
           12.000%, 04/15/03                            88,900

                                                       525,025


           Metals and Mining - 4.87%
   45,000  AK Steel Corp., Senior Note
            9.125%, 12/15/06                            46,463
  100,000  Commonwealth Aluminum
           Senior Subordinate Note
           10.750%, 10/01/06                            92,000
  100,000  CSC Holdings, Inc., Senior Note
           9.250%, 11/01/05                            105,000
   75,000  Doe Run Resources Corp., Series B
           11.250%, 03/15/05                            56,250
   50,000  Fibermark, Inc.
           Senior Note
           9.375%, 10/15/06                             49,125
   25,000  Keystone Consolidated Industries
           Senior Note
            9.625%, 08/01/07                            23,000
   50,000  Metal Management, Inc., 144A (C)
           Senior Subordinate Note
           10.000%, 05/15/08                            29,000
   30,000  Schuff Steel Company
           10.500%, 06/01/08                            23,700
   50,000  WCI Steel, Inc., Series B
           Senior Note
           10.000%, 12/01/04                            47,000

                                                       471,538


           Finance - 4.70%
   30,000  AMSC Acquisition Co., Inc., Series B
           With Warrants
           12.250%, 04/01/08                            13,800
   65,000  DTI Holdings, 144A
           Step Coupon (B)(C)
           With Warrants
           12.500%, 03/01/08                            21,450
   50,000  Global Crossing Holding LTD, 144A (C)
           Senior Note
           9.625%, 05/15/08                             48,375
  125,000  Grove Holdings LLC, 144A, Step Coupon
           Debenture (B)(C)
           11.625%, 05/01/09                            46,250
  105,000  Pinnacle Holdings, Step Coupon
           Senior Discount Note  (B)
           10.000%, 03/15/08                            48,300
   75,000  P & L Coal Holdings Corp., 144A (C)
           Senior Subordinate Note
           9.625%, 05/15/08                             74,250

           Finance (continued)
$  60,000  Silgan Holdings, Inc.
           Senior Subordinate Note
           9.000%, 06/01/09                      $      56,850
   80,000  Thermadyne Holdings Corp.
           9.875%, 06/01/08                             72,800
  160,000  Thermadyne Holdings Corp., Step
           Coupon (B) Debenture
           12.500%, 06/01/08                            72,400

                                                       454,475


           Energy - 4.41%
   110,000 Anacomp, Inc.
           Senior Subordinate Note
           10.875%, 04/01/04                           107,525
   70,000  Chesapeake Energy, 144A (C)
           Senior Note
            9.625%, 05/01/05                            59,500
   75,000  Clark R&M, Inc., 144A (C)
           Senior Note
           8.625%, 08/15/08                             70,125
   45,000  Continental Resources, 144A (C)
           Senior Subordinate Note
           10.250%, 08/01/08                            36,225
   75,000  Ocean Energy, Inc., Series B
           8.875%, 07/15/07                             73,875
   50,000  Pride International, Inc.
           Senior Note
           9.375%, 05/01/07                             45,500
   25,000  Petsec Energy, Series B
           Senior Subordinate Note
           9.500%, 06/15/07                             20,000
   15,000  Pool Energy Services, 144A (C)
           Senior Subordinate Note
           8.375%, 04/01/08                             14,325

                                                       427,075


           Basic Materials - 4.19%
   65,000  Buckeye Cellulos
           Senior Subordinate Note
            9.250%, 09/15/08                            64,838
   50,000  Florida Coast Paper LLC
           12.750%, 06/01/03                            32,500
   25,000  Galey & Lord, Inc.
           9.125%, 03/01/08                             22,250
  100,000  Polymer Group, Inc.
           9.000%, 07/01/07                             93,000
  100,000  Repap New Brunswick, Yankee (D)
           Senior Note
           10.625%, 04/15/05                            65,500

           Basic Materials (continued)
$  25,000  Synthetic Industries, Inc., Series B
           Senior Subordinate Note
           9.250%, 02/15/07                        $    24,125
  110,000  US Timberlands Co.
           Senior Note
            9.625%, 11/15/07                           103,400

                                                       405,613

           Consumer Staples - 3.51%
   15,000  Finlay Enterprises, Inc.
           Debentures
           9.000%, 05/01/08                             11,325
   20,000  Globe Manufacturing Corp., 144A (C)
           Senior Subordinate Note
           10.000%, 08/01/08                            15,600
   25,000  International Utility Structures, Yankee,
           144A (C)(D)
           Senior Subordinate Note
           10.750%, 02/01/08                            20,750
  115,000  Pierce Leahy Corp.
           Senior Subordinate Note
           11.125%, 07/15/06                           124,200
   75,000  Remington Products Co. LLC, Series B
           Senior Subordinate Note
           11.000%, 05/15/06                            52,500
   35,000  Samsonite Corp.
           Senior Subordinate Note
           10.750%, 06/15/08                            24,675
  100,000  Revlon Consumer Products, 144A (C)
           Senior Subordinate Note
            8.625%, 02/01/08                            90,250

                                                       339,300


           Media - 3.50%
   50,000  Albritton Communications, Series B
           Senior Subordinate Debenture Bond
           9.750%, 11/30/07                             51,000
  110,000  AMC Entertainment
           Senior Subordinate Note
           9.500%, 03/15/09                            102,300
  100,000  Cinemark USA, Series B
           Senior Subordinate Note
           9.625%, 08/01/08                             99,000
   60,000  HMV Media Group PLC, 144A (C)(D)
           Senior Subordinate Note
           10.250%, 05/15/08                            49,200
   60,000  Satelites Mexicanos SA, 144A (C)(D)
           10.125%, 11/01/04                            37,200

                                                       338,700



           Chemicals and Drugs - 3.04%
$ 110,000  Acetex Corp.
           Senior Note
            9.750%, 10/01/03                      $    102,300
  120,000  NL Industries
           Senior Note
           11.750%, 10/15/03                           124,800
   25,000  PCI Chemical Canada, Inc., Yankee (D)
           9.250%, 10/15/07                             18,750
   65,000  Sterling Chemicals, Inc., Series A
           Senior Subordinate Note
           11.250%, 04/01/07                            48,750

                                                       294,600

           Durable Goods - 2.88%
  110,000  Hayes Wheels International, Inc.
           Senior Subordinate Note
           11.000%, 07/15/06                           118,938
   25,000  International Knife & Saw
           Senior Subordinate Note
           11.375%, 11/15/06                            24,500
   75,000  Oxford Automotive, Inc.
           10.125%, 06/15/07                            69,000
   65,000  Simonds Industries, 144A (C)
           Senior Subordinate Note
           10.250%, 07/01/08                            61,750
    5,000  Talon Automotive, 144A (C)
           Senior Subordinate Note
           9.625%, 05/01/08                              4,400

                                                       278,588


           Consumer Services - 2.17%
   75,000  Eldorado Resorts
           Senior Subordinate Note
           10.500%, 08/15/06                            78,000
   40,000  Iron Mountain, Inc.
           10.125%, 10/01/06                            41,800
   50,000  Iron Mountain, Inc.
           8.750%, 09/30/09                             49,500
   50,000  Specialty Foods Acquisition, Series B
           Senior Note
           10.250%, 08/15/01                            41,000

                                                       210,300


           Recreation - 2.06%
  150,000  Boyd Gaming Corp.
           Senior Subordinate Note
           9.500%, 07/15/07                            145,500
   50,000  Casino America, Inc.
           Senior Note
           12.500%, 08/01/03                            53,375

                                                       198,875

    Building & Construction - 1.89%
 $ 25,000  American Standard Companies, Inc.
           7.375%, 02/01/08                        $    24,563
   50,000  American Standard Companies, Inc.
           7.625%, 02/15/10                             49,688
   50,000  Building Material Corp., Series B
           Senior Note
           8.625%, 12/15/06                             49,625
   60,000  Nortek, Inc., Series B
           Senior Note
            9.250%, 03/15/07                            59,400

                                                       183,276


           Health Care Services - 1.78%
   35,000  Alaris Medical, Inc., Step Coupon, 144A
           Senior Discount Note (B)(C)
           11.125%, 08/01/08                            15,925
   30,000  Oxford Health Plans, 144A (C)
           Senior Note
           11.000%, 05/15/05                            24,300
   25,000  Pharmerica, Inc., 144A (C)
           Senior Note
           8.375%, 04/01/08                             21,500
   30,000  Prime Medical Services, 144A(C)
           Senior Note
           8.750%, 04/01/08                             27,300
   80,000  Tenet Healthcare Corp.
           Senior Subordinate Note
           8.625%, 01/15/07                             83,200

                                                       172,225


           Capital Goods - 1.70%
   50,000  Agco Corp., Senior Subordinate Note
            8.500%, 03/15/06                            47,500
   20,000  Johnstown America Industries, Inc., Series C
           Senior Note
           11.750%, 08/15/05                            20,675
   20,000  Johnstown America Industries, Inc.
           Senior Subordinate Note
           11.750%, 08/15/05                            20,675
   90,000  Newcor, Inc., 144A (C)
           Senior Subordinate Note
            9.875%, 03/01/08                            75,600

                                                       164,450


           Printing - 1.63%
  110,000  Big Flower Press, Inc.
           Senior Subordinate Note
            8.875%, 07/01/07                           105,870
   50,000  Hollinger International, Inc.
            9.250%, 03/15/07                            52,125

                                                       157,995


           Defense Electronics - 1.38%
$ 125,000  L-3 Communications Corp., Series B
           Senior Subordinate Note
           10.375%, 05/01/07                       $   133,438


           Transportation - 1.37%
   35,000  Gulfmark Offshore
           8.750%, 06/01/08                             31,850
  110,000  Mark IV Industrial
           Senior Subordinate Note
           7.500%, 09/01/07                            101,013

                                                       132,863

           Industrial - 1.13%
   65,000  GCI, Inc., Senior Note
           9.750%, 08/01/07                             60,938
   55,000  Numatics, Inc., 144A (C)
           Senior Subordinate Note
           9.625%, 04/01/08                             48,400

                                                       109,338


           Schools - 1.09%
  110,000  Kindercare Learning Centers, Inc.
           Senior Subordinate Note
            9.500%, 02/15/09                           105,875


           Containers / Packaging - 1.04%
   15,000  Ball Corp., 144A (C)
           Senior Subordinate Note
           8.250%, 08/01/08                             15,544
   85,000  Gaylord Container, Corp., 144A (C)
           Senior Subordinate Note
            9.875%, 02/15/08                            37,400
   50,000  Graham Packaging Co., 144A (C)
           Senior Subordinate Note
            8.750%, 01/15/08                            47,500

                                                       100,444


           Machinery - 0.09%
   10,000  Grove Worldwide, 144A (C)
           Senior Subordinate Note
           9.250%, 05/01/08                              8,500

           Total Corporate Notes and Bonds           8,801,273

           ( Cost $9,887,440 )

  Shares
PREFERRED STOCK - 0.23%

           Media - 0.23%
      250  Primedia, Inc., Series H                     22,500

           Total Preferred Stock                        22,500

$ 804,779  State Street Eurodollar
            4.750%, 11/02/98                       $   804,779

           Total Certificate of Deposit                804,779

           ( Cost $804,779 )

TOTAL INVESTMENTS - 99.50%                           9,628,552

( Cost $10,717,069** )
NET OTHER ASSETS AND LIABILITIES - 0.50%                48,702

TOTAL NET ASSETS 100.00%                            $9,677,254

-------------------------------

        Security                  Par         Date Acquired      Cost Basis

Versatel Telecom BV, 144A
Senior Note, With Warrants
13.250%, 05/15/08            $    25,000       05/21/98         $   25,000
Versatel Telecom BV, 144A
Senior Note, With Warrants
13.250%, 05/15/08                 25,000       07/01/98             26,375

S&P Ratings:        % of Portfolio
BBB                         1.14%
BB                         16.09
B                          66.89
CCC                         6.17
NOTRATED                    9.71

                          100.00%

                                                        Value
   Shares                                             (Note 2)


COMMON STOCKS - 94.36%

           Technology - 16.30%
   14,400  Computer Associates International, Inc.   $ 567,000
   13,500  EMC Corp.*                                  869,062
   10,600  Harris Corp.                                371,662
    7,400  Hewlett-Packard Co.                         445,386
    4,600  International Business Machines Corp.       682,812
    7,300  Motorola, Inc.                              379,600
    6,600  Philips Electronics N.V.                    362,173
    7,700  Texas Instruments, Inc.                     492,317

                                                     4,170,012


           Finance - 12.72%
   11,700  Allstate Corp.                              503,831
   11,470  Banc One Corp.                              560,596
   10,692  BankAmerica Corp.                           614,122
    5,000  Bankers Trust Corp.                         314,063
   10,200  Citigroup, Inc.                             480,038
    6,500  Edwards (A.G.), Inc.                        224,656
    7,100  Everest Reinsurance Holdings, Inc.          244,506
    4,800  Morgan Stanley Dean Witter & Co.            310,800

                                                     3,252,612


           Consumer Staples - 8.44%
    6,700  General Mills, Inc.                         492,450
   10,800  Kimberly-Clark Corp.                        521,100
   12,400  Nabisco Holdings Corp., Class A             468,100
    6,000  Sara Lee Corp.                              358,125
   13,900  Tyson Foods, Inc., Class A                  319,700

                                                     2,159,475


           Drugs - 8.31%
   14,400  American Home Products Corp.                702,000
    5,500  Bristol-Myers Squibb Co.                    608,094
    6,900  Glaxo Wellcome PLC, ADR                     429,525
    7,300  Pharmacia & Upjohn, Inc.                    386,444

                                                     2,126,063


           Energy - 8.10%
    5,900  Amoco Corp.                                 331,138
    4,500  Exxon Corp.                                 320,625
    7,000  Schlumberger Ltd.                           367,500
    5,400  Texaco, Inc.                                320,288
    9,500  Unocal Corp.                                322,406
   12,500  USX-Marathon Group                          408,594

                                                     2,070,551


           Communication - 7.01%
    7,100  AirTouch Communications, Inc.*              397,600
    7,400  Ameritech Corp.                             399,138
    4,700  Bell Atlantic Corp.                         249,688

           Communication (continued)
    5,900  GTE Corp.                               $   346,256
    5,200  Sprint Corp.                                399,100

                                                     1,791,782


           Consumer Cyclical - 6.67%
    4,700  Cox Communications, Inc., Class A*          257,913
   11,000  Crown Cork & Seal Co., Inc.                 350,625
   18,000  MediaOne Group, Inc.*                       761,625
   11,000  Owens-Illinois, Inc.*                       336,188

                                                     1,706,351


           Durable Goods - 6.62%
    7,538  Dana Corp.                                  315,183
    4,100  General Motors Corp.                        258,556
    8,400  Rockwell International Corp.                344,925
    2,252  SPX Corp.*                                  122,593
    3,600  United Technologies, Inc.                   342,900
    6,852  Waste Management, Inc.                      309,197

                                                     1,693,354


           Retail - 6.14%
   10,300  CVS Corp.                                   470,581
   10,800  Sears Roebuck & Co.                         485,325
    8,900  Wal-Mart Stores, Inc.                       614,100

                                                     1,570,006


           Basic Materials - 3.96%
    4,900  Dow Chemical, Inc.                          458,763
    9,700  Dexter Corp.                                283,725
    5,200  Georgia Pacific Co.                         269,100

                                                     1,011,588


           Utility - 3.77%
    2,800  Duke Energy Corp.                           181,125
    8,400  Northern States Power Co.                   226,800
    7,000  PG & E Corp.                                213,063
   12,500  Williams Companies, Inc.                    342,969

                                                       963,957


           Health Services - 3.68%
    6,700  Aetna, Inc.                                 499,988
   15,800  Tenet Healthcare Corp.*                     441,413

                                                       941,401


           Transportation - 2.64%
    7,000  Burlington Northern Santa Fe Corp.          216,125
    2,200  Delta Air Lines, Inc.                       232,238
    6,900  Norfolk Southern Corp.                      227,269

                                                       675,632

           Total Common Stocks                      24,132,784
            ( Cost $24,092,593 )

TOTAL INVESTMENTS - 99.88%                          25,545,575

( Cost $25,505,384** )
NET OTHER ASSETS AND LIABILITIES - 0.12%                31,454

TOTAL NET ASSETS - 100.00%                         $25,577,029
------------------------------

        Technology - 17.07%
 7,100  3Com Corp.*                           $     256,044
 7,500  Dallas Semiconductor Corp.                  277,500
10,600  EMC Corp. *                                 682,375
 6,100  Gateway, Inc.                               340,456
16,400  Interim Services, Inc.*                     348,500
 2,200  International Business Machines Corp.       326,563
 6,600  Micron Technology, Inc.*                    250,800
 9,500  Seagate Technology, Inc*                    250,563
 5,600  Texas Instruments, Inc.                     358,050
18,600  Wang Laboratories, Inc.*                    397,575

                                                  3,488,426


        Finance - 12.83%
 8,300  Allstate Corp.                              357,419
 6,370  Banc One Corp.                              311,334
 3,300  Bankers Trust Corp.                         207,281
10,800  Citigroup, Inc.                             508,275
 7,700  Edwards (A.G.), Inc.                        266,131
 7,200  Everest Reinsurance Holdings, Inc.          247,950
 3,700  Morgan Stanley Dean Witter & Co.            239,575
14,300  Mutual Risk Management Ltd.                 483,519

                                                  2,621,484


        Retail - 12.20%
 7,500  Consolidated Stores Corp.*                  123,281
13,800  Dayton Hudson Corp.                         584,775
11,600  Rite Aid Corp.                              460,375
13,400  Safeway, Inc.*                              640,688
 8,100  Tiffany & Co.                               261,731
12,500  TJX Companies, Inc.                         236,719
 2,700  Wal-Mart Stores, Inc.                       186,300

                                                  2,493,869


        Consumer Cyclical - 9.48%
 8,200  Cox Communications, Inc., Class A*          449,975
15,100  MediaOne Group, Inc.*                       638,919
18,200  Owens-Illinois, Inc.*                       556,238
27,100  Primedia, Inc.*                             293,019

                                                  1,938,151


        Drugs - 9.18%
 7,000  ALZA Corp.*                                 335,125
 2,400  Biogen, Inc.*                               166,800
 2,300  Bristol-Myers Squibb Co.                    254,294
 5,600  Centocor, Inc.*                             249,200
 4,200  Elan Corp., PLC, ADR*                       294,263
 3,900  Glaxo Wellcome PLC, ADR                     242,775
 6,300  Pharmacia & Upjohn, Inc.                    333,506

                                                  1,875,963


        Basic Materials - 6.31%
 2,500  Dow Chemical, Inc.                      $   234,063
 8,900  Pall Corp.                                  224,725
 7,100  Praxair, Inc.                               285,775
 7,600  Rohm & Haas Co.                             256,500
 9,300  Willamette Industries, Inc.                 288,300

                                                  1,289,363


        Energy - 5.27%
 5,000  Kerr-McGee Corp.                            199,375
 7,300  Unocal Corp.                                247,744
11,300  USX-Marathon Group                          369,369
 9,600  Weatherford International, Inc.*            261,000

                                                  1,077,488


        Health Services - 5.01%
 6,100  Aetna, Inc.                                 455,213
11,900  Columbia\ HCA Healthcare Corp.              249,900
 4,800  IMS Health, Inc.                            319,200

                                                  1,024,313


        Communication - 4.72%
12,700  AirTouch Communications, Inc.*              711,200
 4,800  Telefonos de Mexico SA, Class L, ADR        253,500

                                                    964,700


        Consumer Staples - 4.61%
 8,400  Nabisco Holdings Corp., Class A             317,100
 4,700  Sara Lee Corp.                              280,531
15,000  Tyson Foods, Inc., Class A                  345,000

                                                    942,631


        Durable Goods - 3.75%
 9,300  Raychem Corp.                               284,231
 5,000  Rockwell International Corp.                205,313
 6,110  Waste Management, Inc.                      275,714

                                                    765,258


        Transportation - 2.94%
 1,600  Delta Air Lines, Inc.                       168,900
 4,300  FDX Corp.*                                  226,012
 6,500  Midwest Express Holdings, Inc.*             205,563

                                                    600,475

        Utilities - 2.85%
 5,400  PG & E Corp.                                164,363
 6,000  Sonat, Inc.                                 181,875
 8,600  Williams Companies., Inc.                   235,963

                                                    582,201

        Total Common Stocks                      19,664,322

     Par Value                                        Value
                                                     (Note 2)
CERTIFICATE OF DEPOSIT - 0.02%

$   3,227  State Street Eurodollar
           4.750%, 11/02/98                        $     3,227

           Total Certificate of Deposit                  3,227

           ( Cost $3,227 )

     Shares

INVESTMENT COMPANY - 2.45%

  500,000  State Street Prime Money Market
           5.48%                                       500,000

           Total Investment Company                    500,000

           ( Cost $500,000 )


TOTAL INVESTMENTS - 98.69%                          20,167,549

( Cost $19,785,532** )
NET OTHER ASSETS AND LIABILITIES - 1.31%               267,839

TOTAL NET ASSETS - 100.00%                         $20,435,388

                                                        Value
   Shares                                             (Note 2)

COMMON STOCKS - 89.51%

           Argentina - 1.17%
    3,300  Telefonica de Argentina S.A., ADR       $   109,106
    4,400  YPF S.A., ADR                               127,325
   11,100  Quilmes Industrial SA, ADR                  101,981

                                                       338,412


           Austria - 0.22%
      736  Eybl International AG*                       17,054
      700  KTM Motorradholding AG*                      48,359

                                                        65,413


           Australia - 5.28%
  126,770  Boral, Ltd.                                 206,151
   63,196  Broken Hill Proprietary Co., Ltd.           537,553
   24,300  Cochlear, Ltd.                              123,199
   31,882  Commonwealth Bank of Australia              396,618
  547,916  M.I.M. Holdings, Ltd.                       267,301

                                                     1,530,822


           Belgium - 0.36%
    2,020  Compagnie Maritime Belge S.A.               103,984


           Brazil - 2.50%
   14,200  Banco Bradesco S.A., ADR                     80,947
    5,700  Comanhia Brasileira de Distribuicao
             Grupo Pao de Acucar, ADR                   91,913
    9,700  Companhia Cervejaria Brahma, ADR             93,363
    3,358  Companhia Enegetica de Minaas
               Gerais S.A., ADR                         65,309
   10,000  Companhia Paranaense de Energia-Copel, ADR   77,500
  162,800  Companhia Riograndense de Telecomunicacoes   47,766
1,230,000  Eletropaulo Metropolitana*                   41,450
   16,500  Souza Cruz S.A., ADR                        112,038
    1,500  Telecomunicacoes Brasileiras S.A., ADR      113,906

                                                       724,192


           Canada - 0.26%
    5,900  Club Monaco, Inc.*                           12,427
    3,300  Maple Leaf Foods, Inc.                       27,803
    2,100  Queensway Financial Holdings, Ltd.*          36,066

                                                        76,296


           China - 0.18%
  232,000  Shenzhen Expressway Co., Ltd.                52,421


           Chile - 0.70%
    6,700  Administradora de Fondos de Pensiones
              Provida, ADR                              95,056
    2,100  Banco BHIF, ADR                              23,100
    7,500  Quinenco S.A., ADR*                          54,375
    5,200  Santa Isabel S.A., ADR                       30,225

                                                       202,756

           Columbia - 0.15%
    5,900  Banco Ganadero S.A., ADR                $    42,406


           Czech Republic - 0.22%
    2,900  Czeske Energeticke Zavody *                  65,643


           Denmark - 0.11%
      400  Falck A/S                                    31,123


           Finland - 2.75%
    4,900  Amer Group, Ltd.*                            55,439
    2,560  Asko Oyj, Class A                            42,430
      305  Orion-YHTYMA Oy, Class B*                     7,261
    3,300  Rocla Oyj                                    28,166
    1,600  Sampo Insurance Co.,Ltd, Class A             49,861
    3,500  Santasalo-Jot Oyj                            29,873
   22,670  UPM-Kymmene Oyj                             542,226
      600  Vaisala Oy, Class A                          42,517

                                                       797,773


           France - 12.62%
    1,100  Carbone Lorraine*                            63,364
      429  C.E.A. Industries                            47,879
    1,100  Cie des Signaux S.A.*                        75,225
    9,946  CNP Assurances*                             338,206
      340  Compagnie Plastic Omnium S.A.*               32,193
    4,462  Dexia France                                657,830
    3,354  Eridania Beghin-Say S.A.                    603,759
    2,544  Groupe Danone                               672,728
   10,694  Michelin, Class B                           440,835
      900  Scor, ADR                                    51,525
    3,781  Suez Lyonnaise des Eaux                     677,220

                                                     3,660,764


           Germany - 6.22%
    4,790  BASF AG                                     202,101
   11,067  Bayer AG                                    445,900
    6,730  BHF-Bank AG                                 259,580
      600  Data Modul AG                                21,187
    2,040  Deutche Bank AG*                            131,817
    6,034  Deutsche Telekom AG                         163,170
      300  DIS Deutscher Industrie Service AG           14,684
      800  Hawesko Holdings AG*                         40,080
      400  Kamps AG*                                    18,106
      210  KSB AG Vorzug                                33,970
    7,500  Marseille-Kliniken AG*                      122,230
    6,430  Veba AG*                                    352,800

                                                     1,805,625


           Greece - 0.30%
    3,811  Hellenic Telecommunication
           Organization S.A.                            86,607

         Hong Kong - 1.89%
132,000  CDL Hotels International, Ltd.          $    33,746
154,000  Esprit Holdings, Ltd.                        57,166
 69,000  Giordano International, Ltd.                  8,285
  7,000  Guangshen Railway Co., Ltd.                  52,500
185,310  Jardine Strategic Holdings, Ltd.            296,496
 75,000  Peregrine Investments Holdings, Ltd* (A)          0
 30,000  Shaw Brothers, Ltd.                          12,395
 49,000  Yue Yuen Industrial Holdings                 87,308

                                                     547,896


         India - 0.96%
 10,600  Larsen & Toubro, Ltd. GDR                    72,369
  4,400  Hindalco Industries Ltd. GDR                 51,590
  9,400  State Bank of India GDR, 144A(C)             75,200
  7,300  Mahanagar Tele Nigam GDR                     78,475

                                                     277,634


         Italy - 3.76%
  5,600  Banca Popolare di Brescia                   131,857
  1,154  Banca Popolare di Milano                      9,130
  2,700  Industrie Natuzzi SpA, ADR*                  49,106
  6,900  Interpump Group SpA*                         27,863
 18,300  Manuli Rubber Industries SpA                 55,647
 49,300  Premafin Finanziaria SpA*                    27,216
157,050  Telecom Italia SpA                          791,309

                                                   1,092,128


         Ireland - 0.40%
  7,800  Adare Printing Group PLC                     73,833
 19,100  Anglo Irish Bank Corp. PLC                   41,612

                                                     115,445


         Israel - 0.72%
  3,700  ECI Telecommunications, Ltd.                122,563
  6,800  Supersol, Ltd., ADR*                         86,700

                                                     209,263


         Japan - 11.99%
  3,000  ADERANS Co., Ltd.                            84,942
 43,000  Eisai Co., Ltd.                             674,423
109,000  Hitachi, Ltd.                               554,586
  1,000  Honma Golf Co., Ltd.*                         4,033
  1,000  Kawasumi Laboratories                        16,731
  3,000  Laox                                         18,816
109,000  Mazda Motor Corp.*                          406,821
 13,000  Namco, Ltd.                                 286,100
     44  Nippon Telegraph & Telephone Corp.          344,299

         Japan (contined)
148,000  Nippon Yusen Kabushiki Kaisha           $   490,159
  3,600  Paris Miki, Inc.*                            60,448
 98,460  Sekisui Chemical Co., Ltd.                  536,440

                                                   3,477,798


         Korea - 0.89%
  4,456  Samsung Electronics, GDR                    101,263
 15,300  SK Telecom Co., Ltd., ADR*                  157,781

                                                     259,044


         Malaysia - 0.08%
 31,000  Jaya Tiasa Holdings Berhad*                  23,576


         Mexico - 2.51%
 33,880  Cemex S.A. de C.V., CPO                      80,611
  1,800  Fomento Economico Mexicano, ADR              46,913
 15,200  Fomento Economico Mexicano,
           S.A. de C.V., Class B, ADR*                39,098
 66,000  Grupo Financiero Banamex Accival,
           S.A. de C.V., Class B*                     68,560
  3,300  Grupo Televisa SA, GDR*                      89,513
 10,800  Grupo Industrial Maseca S.A. de C.V., ADR   133,650
 32,100  Kimberly-Clark de Mexico, Class A            93,366
  3,200  Panamerican Beverage, Class A                64,800
  8,500  Pepsi-Gemex S.A., ADR                        55,250
  6,700  Tubos de Acero de Mexico S.A., ADR           56,950

                                                     728,711


         Norway - 0.27%
    730  Electric Farm ASA*                                0
 19,000  P4 Radio Hele Norge ASA*                     77,414

                                                      77,414


         Netherlands - 1.74%
 11,000  KLM-Konin Luchtvaart Mij N.V.*              332,058
  3,900  N.V. Holdingmaatschappij de Telegraaf        98,525
 11,700  Scala Business Solutions N.V.*               75,306

                                                     505,889


         New Zealand - 0.54%
191,337  Carter Holt Harvey, Ltd.                    156,037


         Portugal - 2.69%
 21,732  Banco Pinto and Sotto Mayor                 416,440
      4  Banco Totta & Acores, S.A., Registered          111
  1,278  Brisa-Auto Estradas de Portugal,S.A.,
           Registered                                 59,419

         Portugal (continued)
  4,156  Brisa-Auto Estradas de Portugal,
           S.A., Private Placement*             $    201,300
  2,900  Companhia de Seguros Mundial
           Confianca, S.A.*                           78,510
    500  Portugal Telecom S.A., ADR                   23,625

                                                     779,405


         Phillipines - 0.22%
466,000  Benpres Holdings Corp.*                      50,238
  5,600  Benpres Holdings Corp., ADR*                 12,074
    900  Benpres Holdings Corp., GDR*                  1,440

                                                      63,752


         Poland - 0.32%
  8,000  Bank Handlowly W. Warszawie, 144A (C)        91,600


         Peru - 0.35%
  2,700  Credicorp, Ltd.*                             18,225
  6,500  Telefonica del Peru S.A., ADR                84,500

                                                     102,725


         Russia - 0.03%
  4,200  A.O. Tatneft, ADR                             8,138


         South Africa - 1.47%
 17,600  ABSA Group, Ltd.                             95,900
 15,671  Barlow, Ltd.                                 74,191
 13,300  JD Group, Ltd.                               61,778
 12,900  Rembrandt Group, Ltd.                        85,962
  5,600  South African Breweries, Ltd.*              108,849

                                                     426,680


         Singapore - 3.72%
 75,959  Singapore Airlines, Ltd.,
            Foreign Registered                       466,722
119,597  United Overseas Bank, Ltd.,
            Foreign Registered                       562,161
 43,000  Want Want Holdings, Ltd.*                    51,170

                                                   1,080,053


         Spain - 3.73%
  1,800  Banco Pastor, S.A.                           96,223
 42,575  Fuerzas Electricas de Cataluna,
            S.A., Class A                            429,196
 34,438  Iberdrola, S.A.                             556,201

                                                   1,081,620


         Sweden - 0.91%
  5,800  Caran AB, Class B                            44,607
  3,100  Elanders AB, Class B                         56,822
  4,700  Getinge Industrier AB, Class B               72,294
  3,900  IFS AB, Class B*                             36,993
  9,100  Monark Stiga AB                              43,158
  1,372  Ortivus AB, Class B*                          9,321

                                                     263,195

         Switzerland - 4.63%
    340  Edipresse, S.A.*                        $    92,814
    100  Eichhof Holding AG, Registered              113,620
    780  Gretag Imaging Group*                        70,784
     80  Liechtenstein Global Trust AG                99,336
     55  Moevenpick Holding AG                        24,185
    130  SAIA-Burgess Electronics AG*                 31,459
    993  The Swatch Group                            547,271
    934  Swisscom AG, Registered*                    316,295
    520  Swisslog Holdings AG, Registered             47,381

                                                   1,343,145


         Thailand - 0.12%
 43,000  Bangkok Expressway Public Co., Ltd.,
           Foreign Registered*                        33,937


         United Kingdom - 12.12%
 15,800  Ashtead Group PLC                            51,844
 71,490  Blue Circle Industries PLC                  390,161
230,030  BTR PLC                                     402,422
  8,700  Carpetright PLC                              26,653
 29,269  Cookson Group PLC                            60,759
 20,400  Corporate Services Group PLC                 51,227
  3,100  Denison International PLC, ADR*              45,725
 12,100  Devro PLC                                    57,124
 24,700  Dialog Corp. PLC*                            64,610
 35,800  Enterprise Oil PLC*                         244,526
  1,947  Euromoney Publications PLC                   47,262
  5,100  Games Workshop Group PLC                     47,385
  5,200  Goode Durrant PLC*                           27,248
 43,215  Greenalls Group PLC                         235,125
 20,600  Hogg Robinson PLC                            76,905
  8,500  Hozelock Group PLC                           29,527
 31,864  Imperial Tobacco Group PLC                  328,063
 13,900  JBA Holdings PLC                             67,483
  2,400  Manganese Bronze Holdings PLC*                8,699
 15,100  Man (Ed&F) Group PLC*                        83,168
126,720  Rolls-Royce PLC                             467,773
  9,088  Seton Healthcare Group PLC                  115,628
  5,700  Signet Group PLC, ADR*                       91,913
 78,542  Tomkins PLC                                 363,562
 11,926  United Biscuits Holdings PLC*                46,918
 19,700  Victrex PLC                                  46,831
  8,800  Westminster Health Care Holdings PLC         38,156

                                                   3,516,697


         Venezuela - 0.41%
  3,500  Compania Anonima Nacional Telefonos
           de Venezuela, ADR                          54,250
 16,000  Mavesa, S.A., ADR                            64,000

                                                     118,250

         Total Common Stocks                      25,964,269

           Brazil - 0.85%
  180,000  Banco Itau S.A.                         $    87,519
  410,000  Companhia Cimento Portland Itau              54,992
  437,169  Telecomunicacoes de Sao Paulo S.A.*          73,295
  580,000  Telecomunicacoes de Sao Paulo
             Celular S.A., Class B                      28,686

                                                       244,492


           Germany - 0.77%
    2,900  Fielmann AG                                 129,535
    1,900  ProSbien Media AG                            94,616

                                                       224,151

           Total Preferred Stocks                      468,643

           ( Cost $488,695 )

  Par Value
CERTIFICATE OF DEPOSIT - 13.05%

$3,785,761 State Street Eurodollar
           4.750%, 11/02/98                        $ 3,785,761

           Total Certificate of Deposit              3,785,761

           ( Cost $3,785,761 )

TOTAL INVESTMENTS - 104.18%                         30,218,673

( Cost $31,174,744** )
NET OTHER ASSETS AND LIABILITIES - (4.18)%          1,212,905)

TOTAL NET ASSETS - 100.00%                         $29,005,768

----------------------------------

                                                                                  Net Unrealized
                                                                                   Appreciation
 Contracts to Deliver            In Exchange For         Settlement Date          (Depreciation)

Japanese Yen 109,158,283      U.S. Dollars  946,325          12/02/98              $     (4,320)
Singapore Dollars538,497      U.S.Dollars   311,000          03/19/99                    22,912

                                                                                   $     18,592

                         % of Net Assets                         % of Net Assets
Finance                        17.66%        Basic Materials            4.44%
Certificate of Deposit         13.05         Chemicals & Drugs          4.11
Consumer Staples                8.82         Health                     4.04
Communication                   8.60         Metals & Mining            3.99
Transportation                  7.57         Agriculture                2.08
Energy                          7.01         Technology                 1.87
Building & Construction         6.21         Media                      1.73
Industrial                      5.92         Business Services          1.16
Consumer Cyclical               5.92         Net Other Assets
                                               and Liabilities        (4.18)

                                                                     100.00%

------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Cash Reserves                  Bond
                                                                                           Fund                      Fund
------------------------------------------------------------------------------------------------------------------------------------

ASSETS:
   Investments (Note 2):
     Investments at cost                                                            $       5,236,491         $       6,815,769
     Net unrealized appreciation (depreciation)                                                    --                    62,246
                                                                                    -----------------         -----------------
       Total investments at value                                                           5,236,491                 6,878,015
   Cash                                                                                            --                        --
   Foreign currency (Cost $1,235,539)(Note 2)                                                      --                        --
Receivables:
   Investments sold                                                                                --                        --
   Fund shares sold                                                                                71                    35,329
   Dividends and interest                                                                          40                   103,141
   Dividend tax reclaim                                                                            --                        --
   Due from Adviser, net                                                                       12,794                    14,399
Net unrealized appreciation on forward currency contracts                                          --                        --
Deferred organization and offering costs                                                       39,060                    39,060
Prepaid insurance                                                                                 121                       121
                                                                                    -----------------         -----------------
       Total Assets                                                                         5,288,577                 7,070,065
                                                                                    -----------------         -----------------

Liabilities:
Payables:
   Investments purchased                                                                           --                        --
   Fund shares repurchased                                                                     12,000                     1,566
   Due to custodian                                                                               210                       205
   Administration and transfer agent fees                                                       7,673                     8,145
   Trustees' fees                                                                                 171                       221
   Distribution fees - Class B                                                                    568                     1,324
   Shareholder servicing fees                                                                      --                     1,423
Accrued expenses and other payables                                                            34,874                    34,884
                                                                                    -----------------         -----------------
       Total Liabilities                                                                       55,496                    47,768
                                                                                    -----------------         -----------------
Net Assets                                                                          $       5,233,081         $       7,022,297
                                                                                    =================         =================

Net Assets consist of
   Paid-in capital                                                                  $       5,209,323         $       6,926,107
   Accumulated undistributed (distribution in excess of) net investment income                 23,338                    23,446
   Accumulated net realized gain (loss) on investments sold,
     foreign currency related transactions and futures contracts                                  420                    10,498
   Net unrealized appreciation (depreciation) of investments (including
     appreciation of foreign currency related transactions of $31,501 in
     the International Stock Fund)                                                                 --                    62,246
                                                                                    -----------------         -----------------
Total Net Assets                                                                    $       5,233,081         $       7,022,297
                                                                                    =================         =================

Class A Shares:
   Net Assets                                                                       $       4,338,718         $       4,797,089
   Shares of beneficial interest outstanding                                                4,338,098                   472,995
   Net Asset Value and redemption price per share                                   $            1.00         $           10.14
   Sales charge of offering price*                                                               0.06                      0.46
                                                                                    -----------------         -----------------
   Maximum offering price per share                                                 $            1.06         $           10.60
                                                                                    =================         =================

Class B Shares:
   Net Assets                                                                       $         894,363         $       2,225,208
   Shares of beneficial interest outstanding                                                  894,343                   219,351
   Net Asset Value and offering price per share**                                   $            1.00         $           10.14
                                                                                    =================         =================

------------------------------------------------------------------------------------------------------------------------------------

  *  Sales charge of offering price is 5.3% for the Cash Reserves Fund, 4.3% for
     the Bond Fund,  5.3% for the Balanced  Fund,  4.3% for the High Income Fund
     and 5.3% for the Growth  and Income  Fund,  Capital  Appreciation  Fund and
     International Stock Fund.
 **  Redemption  price per share is equal to the Net Asset  Value per share less
     any applicable deferred sales charge.

                See accompanying Notes to Financial Statements.


------------------------------------------------------------------------------------------------------------------------------------
        Balanced                 High Income           Growth and Income          Capital Appreciation      International Stock
          Fund                       Fund                     Fund                        Fund                     Fund
------------------------------------------------------------------------------------------------------------------------------------




  $       22,189,804         $      10,717,069         $       25,505,384        $       19,785,532         $      31,174,744
             407,556                (1,088,517)                    40,191                   382,017                  (956,071)
  ------------------        ------------------         ------------------        ------------------         -----------------
          22,597,360                 9,628,552                 25,545,575                20,167,549                30,218,673
                  --                        --                         36                        --                    13,673
                  --                        --                         --                        --                 1,238,210

             112,843                    33,090                     15,010                   129,780                   277,565
             280,312                    91,342                    326,435                   131,324                    13,731
             131,966                   210,259                     21,345                    11,368                    52,186
                  --                        --                         --                        --                     7,890
               7,017                    11,795                      4,345                     5,508                        67
                  --                        --                         --                        --                    18,592
              39,060                    39,060                     39,060                    39,060                    39,060
                 121                       203                        121                       121                       813
  ------------------        ------------------         ------------------        ------------------         -----------------
          23,168,679                10,014,301                 25,951,927                20,484,710                31,880,460
  ------------------        ------------------         ------------------        ------------------         -----------------


                  --                   281,262                    314,670                        --                 2,809,373
               2,150                        --                      4,782                     1,456                       504
                 133                       875                         --                        75                        --
               9,244                     9,850                      9,892                     8,849                    12,076
                 479                       306                        757                       470                       763
               4,233                     2,208                      8,204                     3,994                       789
               3,090                     1,975                      4,882                     3,028                     4,917
              39,503                    40,571                     31,711                    31,450                    46,270
  ------------------        ------------------         ------------------        ------------------         -----------------
              58,832                   337,047                    374,898                    49,322                 2,874,692
  ------------------        ------------------         ------------------        ------------------         -----------------
  $       23,109,847         $       9,677,254         $       25,577,029        $       20,435,388         $      29,005,768
  ==================        ==================         ==================        ==================         =================

  $       22,676,985         $      10,808,901         $       25,519,363        $       25,045,308         $      28,401,933
              22,711                    23,986                     19,303                    10,070                   321,481

               2,595                   (67,116)                    (1,828)                   (2,007)                1,206,924

             407,556                (1,088,517)                    40,191                   382,017                  (924,570)
  ------------------        ------------------         ------------------        ------------------         -----------------
  $       23,109,847         $       9,677,254         $       25,577,029        $       20,435,388         $      29,005,768
  ==================        ==================         ==================        ==================         =================

  $       15,670,183         $       6,044,667         $       11,169,102        $       13,410,216         $      27,656,348
           1,467,763                   682,660                  1,026,186                 1,214,721                 2,674,063
  $            10.68         $            8.85         $            10.88        $            11.04         $           10.34
                0.60                      0.40                       0.61                      0.62                      0.58
  ------------------        ------------------         ------------------        ------------------         -----------------
  $            11.28         $            9.25         $            11.49        $            11.66         $           10.92
  ==================        ==================         ==================        ==================         =================

  $        7,439,664         $       3,632,587         $       14,407,927        $        7,025,172         $       1,349,420
             696,605                   410,272                  1,324,848                   639,902                   131,268
  $            10.68         $            8.85         $            10.88        $            10.98         $           10.28
  ==================        ==================         ==================        ==================         =================



                            Statements of Operations
------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Cash Reserves                  Bond
                                                                                       Fund(1)                    Fund(1)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                For the Period Ended       For the Period Ended
                                                                                  October 31, 1998           October 31, 1998
------------------------------------------------------------------------------------------------------------------------------------

 INVESTMENT INCOME:
   Dividends                                                                        $              --         $              --
   Interest                                                                                   188,747                   221,039
     Less: Foreign taxes withheld                                                                  --                        --
                                                                                    -----------------         -----------------
     Total investment income                                                                  188,747                   221,039
                                                                                    -----------------         -----------------

 EXPENSES:
   Management fees (Note 3)                                                                    13,907                    18,516
   Administration and transfer agent fees (Note 3)                                             75,502                    77,720
   Registration expenses                                                                       28,218                    27,178
   Custodian fees                                                                               4,301                     2,088
   Professional fees                                                                           11,248                    11,373
   Reports to shareholder expense                                                               1,023                     1,216
   Trustees' fees (Note 3)                                                                      1,033                     1,084
   Distribution fees -  Class B (Note 3)                                                        1,858                     4,966
   Shareholder servicing fees - Class A (Note 3)                                                   --                     7,603
   Shareholder servicing fees - Class B (Note 3)                                                   --                     1,655
   Amortization of organization and offering costs (Note 2)                                    28,717                    28,717
   Other expenses                                                                               1,455                     1,644
                                                                                    -----------------         -----------------
     Total expenses before reimbursement                                                      167,262                   183,760
     Less reimbursement (Note 3)                                                             (146,288)                 (145,479)
     Less Management fee waiver (Note 3)                                                           --                   (11,294)
                                                                                    -----------------         -----------------
     Total expenses net of reimbursement/waiver                                                20,974                    26,987
                                                                                    -----------------         -----------------
 net investment income (loss)                                                                 167,773                   194,052
                                                                                    -----------------         -----------------

 net realized and unrealized gain (loss) on investments (Note 2):
   Net realized gain (loss) on investments (including a net realized gain on
     foreign currency transactions of $92,467 in the International Stock Fund)                    420                    10,498
   Net realized gain (loss) on futures contracts                                                   --                        --
   Net change in unrealized appreciation (depreciation) on investments
     (including a net unrealized appreciation on foreign currency related
     transactions of $31,501 in the International Stock Fund)                                      --                    62,246
                                                                                    -----------------         -----------------

   NET realized and unrealized GAIN (LOSS) ONINVESTMENTS                                           420                   72,744
                                                                                    -----------------         -----------------

 NET INCREASE (DECREASE)IN NET ASSETS FROM OPERATIONS                                $         168,193        $         266,796
                                                                                    ==================        =================

------------------------------------------------------------------------------------------------------------------------------------
(1) Funds commenced operations on December 29, 1997.

                See accompanying Notes to Financial Statements.


------------------------------------------------------------------------------------------------------------------------------------
          Balanced              High Income            Growth and Income        Capital Appreciation       International Stock
           Fund(1)                 Fund(1)                   Fund(1)                   Fund(1)                   Fund(1)
------------------------------------------------------------------------------------------------------------------------------------
    For the Period Ended    For the Period Ended      For the Period Ended      For the Period Ended      For the Period Ended
      October 31, 1998        October 31, 1998          October 31, 1998          October 31, 1998          October 31, 1998
------------------------------------------------------------------------------------------------------------------------------------


  $           42,716         $           1,418         $          156,852        $           61,570         $         458,903
             200,044                   530,054                     44,058                    33,622                   123,750
                  --                        --                         --                        --                   (50,892)
  ------------------         -----------------         ------------------        ------------------         -----------------
             242,760                   531,472                    200,910                    95,192                   531,761
  ------------------         -----------------         ------------------        ------------------         -----------------


              43,515                    34,493                     60,851                    54,599                   203,368
              83,366                    89,844                     86,233                    81,355                   114,723
              28,188                    28,557                     29,347                    28,047                    28,642
               8,025                     4,855                     10,141                     7,887                    69,130
              12,530                    12,512                     14,296                    12,821                    18,988
               2,344                     1,868                      3,824                     2,475                     5,624
               1,798                     1,844                      2,852                     1,951                     6,157
              17,148                    11,472                     38,574                    18,777                     3,781
              11,020                    11,855                     14,802                    11,940                    47,161
               5,716                     3,823                     12,859                     6,260                     1,260
              28,717                    28,717                     28,717                    28,717                    28,717
               2,385                     2,637                      3,203                     2,635                     9,861
  ------------------         -----------------         ------------------        ------------------         -----------------
             244,752                   232,477                    305,699                   257,464                   537,412
            (153,963)                 (158,311)                  (156,486)                 (151,327)                 (223,725)
                  --                        --                         --                        --                        --
  ------------------         -----------------         ------------------        ------------------         -----------------
              90,789                    74,166                    149,213                   106,137                   313,687
  ------------------         -----------------         ------------------        ------------------         -----------------
             151,971                   457,306                     51,697                   (10,945)                  218,074
  ------------------         -----------------         ------------------        ------------------         -----------------



              11,081                   (67,321)                   (40,804)                  (46,187)                1,306,953
              (8,486)                       --                     38,976                    44,180                        --

             407,556                (1,088,517)                    40,191                   382,017                  (924,570)
  ------------------         -----------------         ------------------        ------------------         -----------------

             410,151                (1,155,838)                    38,363                   380,010                   382,383
  ------------------         -----------------         ------------------        ------------------         -----------------

  $          562,122         $        (698,532)        $           90,060        $          369,065         $         600,457
  ==================         =================         ==================        ==================         =================


                      Statements of Changes in Net Assets
------------------------------------------------------------------------------------------------------------------------------------
                                                                           Cash Reserves                           Bond
                                                                              Fund(1)                             Fund(1)
------------------------------------------------------------------------------------------------------------------------------------
                                                                        For the Period Ended               For the Period Ended
                                                                          October 31, 1998                   October 31, 1998
------------------------------------------------------------------------------------------------------------------------------------

NET ASSETS at beginning of period                                          $      50,000                      $         50,000
                                                                       -----------------                      ----------------
Increase in net assets from operations:
   Net investment income                                                         167,773                               194,052
   Net realized gain (loss)                                                          420                                10,498
   Net change in unrealized appreciation (depreciation)                               --                                62,246
                                                                       -----------------                      ----------------
   Net increase (decrease) in net assets from operations                         168,193                               266,796
                                                                       -----------------                      ----------------

Distributions to shareholders from:
   Net investment income
     Class A                                                                    (157,807)                             (163,646)
     Class B                                                                      (9,966)                              (30,406)
   Distributions in excess of net investment income
     Class A                                                                          --                                    --
     Class B                                                                          --                                    --
                                                                        -----------------                     ----------------
     Total distributions                                                        (167,773)                             (194,052)
                                                                        -----------------                     ----------------

Capital Stock transactions:
   Class A Shares
     Shares sold                                                               5,496,824                             4,702,204
     Issued to shareholders in reinvestment of distributions                     157,329                               163,461
     Shares redeemed                                                          (1,364,778)                             (174,114)
                                                                        -----------------                     ----------------
     Net increase from capital stock transactions                              4,289,375                             4,691,551
                                                                        -----------------                     ----------------
   Class B Shares
     Shares sold                                                               1,315,996                             2,223,002
     Issued to shareholders in reinvestment of distributions                       9,489                                28,634
     Shares redeemed                                                            (432,199)                              (43,634)
                                                                        -----------------                     ----------------
     Net increase from capital stock transactions                                893,286                             2,208,002
                                                                        -----------------                     ----------------
Total increase in net assets                                                   5,183,081                             6,972,297
                                                                        -----------------                     ----------------

NETASSETS at end of period (including line A)                              $   5,233,081                      $      7,022,297
                                                                        =================                     ================

(A) Undistributed (distribution in excess of) net investment income          $    23,338                      $         23,446
                                                                        =================                     ================

OTHER INFORMATION:
Capital Share transactions:
   Class A Shares
     Shares sold                                                               5,496,384                               469,093
     Issued to shareholders in reinvestment of distributions                     157,376                                16,269
     Shares redeemed                                                          (1,364,662)                              (17,267)
                                                                       -----------------                      ----------------
     Net increase in shares outstanding                                        4,289,098                               468,095
                                                                       -----------------                      ----------------
   Class B Shares
     Shares sold                                                               1,314,093                               220,718
     Issued to shareholders in reinvestment of distributions                       9,643                                 2,834
     Shares redeemed                                                            (430,393)                               (4,301)
                                                                       -----------------                      ----------------
     Net increase in shares outstanding                                          893,343                               219,251
                                                                       -----------------                      ----------------

------------------------------------------------------------------------------------------------------------------------------------
(1)  Funds commenced operations on December 29, 1997.
(2)  Represents less than 1/2 of a share.

                See accompanying Notes to Financial Statements.


------------------------------------------------------------------------------------------------------------------------------------
          Balanced              High Income          Growth and Income     Capital Appreciation      International Stock
           Fund(1)                 Fund(1)                 Fund(1)                Fund(1)                  Fund(1)
------------------------------------------------------------------------------------------------------------------------------------
    For the Period Ended    For the Period Ended    For the Period Ended   For the Period Ended     For the Period Ended
      October 31, 1998        October 31, 1998        October 31, 1998       October 31, 1998         October 31, 1998
------------------------------------------------------------------------------------------------------------------------------------

     $          50,000       $          50,000       $           50,000      $           50,000      $           50,000


               151,971                 457,306                   51,697                 (10,945)                218,074
                 2,595                 (67,321)                  (1,828)                 (2,007)              1,306,953
               407,556              (1,088,517)                  40,191                 382,017                (924,570)

               562,122                (698,532)                  90,060                 369,065                 600,457



              (114,070)               (352,444)                 (48,609)                     --                 (19,999)
               (37,901)               (104,862)                  (3,088)                     --                      (1)

                  (590)                     --                   (3,054)                 (2,999)                     --
                  (306)                     --                   (2,653)                     (1)                     --

              (152,867)               (457,306)                 (57,404)                 (3,000)                (20,000)



            15,586,877               6,528,079               11,287,655              13,061,416              26,957,663
               114,515                 350,011                   51,706                   2,999                  19,999
              (458,280)               (149,760)                (439,612)               (198,712)                (66,752)

            15,243,112               6,728,330               10,899,749              12,865,703              26,910,910


             7,559,659               4,060,617               15,004,465               7,326,656               1,487,111
                37,560                  92,006                    5,698                       1                       1
              (189,739)                (97,861)                (415,539)               (173,037)                (22,711)

             7,407,480               4,054,762               14,594,624               7,153,620               1,464,401

            23,059,847               9,627,254               25,527,029              20,385,388              28,955,768


     $      23,109,847       $       9,677,254       $       25,577,029      $       20,435,388      $       29,005,768

     $          22,711       $          23,986       $           19,303      $           10,070      $          321,481






             1,494,109                 657,540                1,057,206               1,227,548               2,672,922
                10,884                  36,216                    4,825                     293                   1,949
               (42,130)                (15,996)                 (40,745)                (18,020)                 (5,708)

             1,462,863                 677,760                1,021,286               1,209,821               2,669,163


               710,854                 410,828                1,363,973                 656,474                 133,396
                 3,588                   9,755                      557                     --(2)                   --(2)
               (17,937)                (10,411)                 (39,782)                (16,672)                 (2,228)

               696,505                 410,172                1,324,748                 639,802                 131,168


          Financial Highlights for a Share Outstanding during the period ended October 31, 1998
                                                                                                       Cash Reserves Fund
                                                                                                --------------------------------
                                                                                                 Class A                 Class B
                                                                                               ----------              ----------
                                                                                                 Period                  Period
                                                                                                  Ended                   Ended
                                                                                               10/31/98(a)            10/31/98(a)
                                                                                             ------------            ------------

Net Asset Value, Beginning of Period                                                           $       1.00          $       1.00
   Income from Investment Operations:
     Net investment income                                                                             0.04                  0.03
                                                                                                  ---------             ---------
       Total from investment operations                                                                0.04                  0.03
                                                                                                  ---------             ---------

   Less Distributions:
     Distributions from net investment income                                                         (0.04)                (0.03)
                                                                                                   ---------             ---------
       Total distributions                                                                            (0.04)                (0.03)
                                                                                                   ---------             ---------
Net increase in net asset value                                                                         --                    --
                                                                                                   ---------             ---------
Net Asset Value, End of Period                                                                  $      1.00          $       1.00
                                                                                                   =========             =========

Total Return2+                                                                                         4.21%                 3.50%

Ratios/Supplemental Data:
Net Assets, End of Period (in 000's)                                                              $   4,339              $    894
Ratios of expenses to average net assets:
   Before reimbursement of expenses  by Adviser1                                                       4.76%                 5.51%
   After reimbursement of expenses by Adviser1                                                         0.55%                 1.30%
Ratios of net investment income to average net assets:
   Before reimbursement of expenses by Adviser1                                                        0.67%                (0.08)%
   After reimbursement of expenses by Adviser1                                                         4.88%                 4.13%

------------------------------------------------------------------------------------------------------------------------------------
1      Annualized.
2      Not annualized.
+      Total return without applicable sales charge.
(a)    Cash  Reserves  Fund  Class A and  Cash  Reserves  Fund  Class B  commenced investment operations on December 29, 1997.
                See accompanying Notes to Financial Statements.


     Financial Highlights for a Share Outstanding during the period ended October 31, 1998
                                                                                                          Bond Fund
                                                                                              --------------------------------
                                                                                                   Class A               Class B
                                                                                                ----------            ----------
                                                                                                   Period               Period
                                                                                                    Ended                Ended
                                                                                                 10/31/98(a)          10/31/98(a)
                                                                                               ------------          ------------

Net Asset Value, Beginning of Period                                                           $      10.00          $      10.00
   Income from Investment Operations:
     Net investment income                                                                             0.45                  0.39
     Net realized and unrealized gain on investments                                                   0.14                  0.14
                                                                                                  ---------             ---------
       Total from investment operations                                                                0.59                  0.53
                                                                                                  ---------             ---------

   Less Distributions:
     Distributions from net investment income                                                         (0.45)                (0.39)
                                                                                                  ---------             ---------
       Total distributions                                                                            (0.45)                (0.39)
                                                                                                  ---------             ---------
Net increase in net asset value                                                                        0.14                  0.14
                                                                                                  ---------             ---------
Net Asset Value, End of Period                                                                 $      10.14          $      10.14
                                                                                                  =========             =========

Total Return2+                                                                                         6.08%                 5.36%

Ratios/Supplemental Data:
Net Assets, End of Period (in 000's)                                                           $      4,797             $   2,225
Ratios of expenses to average net assets:
   Before reimbursement of expenses  by Adviser1                                                       4.83%                 5.58%
   After reimbursement of expenses by Adviser1                                                         0.60%                 1.35%
Ratios of net investment income to average net assets:
   Before reimbursement of expenses by Adviser1                                                        1.14%                 0.39%
   After reimbursement of expenses by Adviser1                                                         5.37%                 4.62%
Portfolio Turnover                                                                                       95%                   95%

------------------------------------------------------------------------------------------------------------------------------------
1      Annualized.
2      Not annualized.
+      Total return without applicable sales charge.
(a)    Bond Fund Class A and Bond Fund Class B commenced  investment  operations on December 29, 1997.

     Financial Highlights for a Share Outstanding during the period ended October 31, 1998

                                                                                                        Balanced Fund
                                                                                              --------------------------------
                                                                                                 Class A               Class B
                                                                                              ----------            ----------
                                                                                                 Period               Period
                                                                                                  Ended                Ended
                                                                                               10/31/98(a)          10/31/98(a)
                                                                                             ------------          ------------

Net Asset Value, Beginning of Period                                                           $      10.00          $      10.00
   Income from Investment Operations:
     Net investment income                                                                             0.21                  0.14
     Net realized and unrealized gain on investments                                                   0.68                  0.68
                                                                                                  ---------             ---------
       Total from investment operations                                                                0.89                  0.82
                                                                                                  ---------             ---------

   Less Distributions:
     Distributions from net investment income                                                         (0.21)                (0.14)
                                                                                                  ---------             ---------
       Total distributions                                                                            (0.21)                (0.14)
                                                                                                  ---------             ---------
Net increase in net asset value                                                                        0.68                  0.68
                                                                                                  ---------             ---------
Net Asset Value, End of Period                                                                 $      10.68          $      10.68
                                                                                                  =========             =========

Total Return2+                                                                                         8.92%                 8.24%

Ratios/Supplemental Data:
Net Assets, End of Period (in 000's)                                                              $  15,670             $   7,440
Ratios of expenses to average net assets:
   Before reimbursement of expenses  by Adviser1                                                       3.40%                 4.15%
   After reimbursement of expenses by Adviser1                                                         1.10%                 1.85%
Ratios of net investment income to average net assets:
   Before reimbursement of expenses by Adviser1                                                        0.23%                (0.52)%
   After reimbursement of expenses by Adviser1                                                         2.53%                 1.78%
Portfolio Turnover                                                                                       60%                   60%

------------------------------------------------------------------------------------------------------------------------------------
1      Annualized.
2      Not annualized.
+      Total return without applicable sales charge.
(a)    Balanced  Fund  Class A and  Balanced  Fund  Class B  commenced  investment operations on December 29, 1997.

                See accompanying Notes to Financial Statements.

     Financial Highlights for a Share Outstanding during the period ended October 31, 1998

                                                                                                      High Income Fund
                                                                                              --------------------------------
                                                                                                   Class A               Class B
                                                                                                ----------            ----------
                                                                                                   Period               Period
                                                                                                   Ended                Ended
                                                                                                10/31/98(a)          10/31/98(a)
                                                                                               ------------          ------------

Net Asset Value, Beginning of Period                                                           $      10.00          $      10.00
   Income from Investment Operations:
     Net investment income                                                                             0.61                  0.55
     Net realized and unrealized (loss) on investments                                                (1.15)                (1.15)
                                                                                                  ---------             ---------
       Total from investment operations                                                               (0.54)                (0.60)
                                                                                                  ---------             ---------

   Less Distributions:
     Distributions from net investment income                                                         (0.61)                (0.55)
                                                                                                  ---------             ---------
       Total distributions                                                                            (0.61)                (0.55)
                                                                                                  ---------             ---------
Net decrease in net asset value                                                                       (1.15)                (1.15)
                                                                                                  ---------             ---------
Net Asset Value, End of Period                                                                 $       8.85          $       8.85
                                                                                                  =========             =========

Total Return2+                                                                                        (5.78)%               (6.39)%

Ratios/Supplemental Data:
Net Assets, End of Period (in 000's)                                                              $   6,045             $   3,632
Ratios of expenses to average net assets:
   Before reimbursement of expenses  by Adviser1                                                       3.52%                 4.27%
   After reimbursement of expenses by Adviser1                                                         1.00%                 1.75%
Ratios of net investment income to average net assets:
   Before reimbursement of expenses by Adviser1                                                        4.95%                 4.20%
   After reimbursement of expenses by Adviser1                                                         7.47%                 6.72%
Portfolio Turnover                                                                                       56%                   56%

------------------------------------------------------------------------------------------------------------------------------------
1      Annualized.
2      Not annualized.
+      Total return without applicable sales charge.
(a)    High Income  Fund Class A and High Income Fund Class B commenced  investment operations on December 29, 1997.

                See accompanying Notes to Financial Statements.

     Financial Highlights for a Share Outstanding during the period ended October 31, 1998

                                                                                                      Growth and Income Fund
                                                                                                --------------------------------
                                                                                                   Class A               Class B
                                                                                                ----------            ----------
                                                                                                   Period               Period
                                                                                                    Ended                Ended
                                                                                                 10/31/98(a)          10/31/98(a)
                                                                                               ------------          ------------

Net Asset Value, Beginning of Period                                                           $      10.00          $      10.00
   Income from Investment Operations:
     Net investment income                                                                             0.07                  0.01
     Net realized and unrealized gain on investments                                                   0.89                  0.89
                                                                                                  ---------             ---------
       Total from investment operations                                                                0.96                  0.90
                                                                                                  ---------             ---------

   Less Distributions:
     Distributions from net investment income                                                         (0.07)                (0.01)
     Distributions in excess of net investment income                                                 (0.01)                (0.01)
                                                                                                  ---------             ---------
       Total distributions                                                                            (0.08)                (0.02)
                                                                                                  ---------             ---------
Net increase in net asset value                                                                        0.88                  0.88
                                                                                                  ---------             ---------
Net Asset Value, End of Period                                                                 $      10.88          $      10.88
                                                                                                  =========             =========

Total Return2+                                                                                         9.57%                 8.97%

Ratios/Supplemental Data:
Net Assets, End of Period (in 000's)                                                              $  11,169             $  14,408
Ratios of expenses to average net assets:
   Before reimbursement of expenses  by Adviser1                                                       2.41%                 3.16%
   After reimbursement of expenses by Adviser1                                                         1.00%                 1.75%
Ratios of net investment income to average net assets:
   Before reimbursement of expenses by Adviser1                                                       (0.60)%               (1.35)%
   After reimbursement of expenses by Adviser1                                                         0.81%                 0.06%
Portfolio Turnover                                                                                        5%                    5%

------------------------------------------------------------------------------------------------------------------------------------
1      Annualized.
2      Not annualized.
+      Total return without applicable sales charge.
(a)    Growth and Income  Fund Class A and Growth and Income Fund Class B commenced investment operations on December 29, 1997.

                See accompanying Notes to Financial Statements.

     Financial Highlights for a Share Outstanding during the period ended October 31, 1998

                                                                                                  Capital Appreciation Fund
                                                                                              --------------------------------
                                                                                                 Class A               Class B
                                                                                              ----------            ----------
                                                                                                 Period               Period
                                                                                                  Ended                Ended
                                                                                               10/31/98(a)          10/31/98(a)
                                                                                             ------------          ------------

Net Asset Value, Beginning of Period                                                           $      10.00          $      10.00
   Income from Investment Operations:
     Net investment income (loss)                                                                      0.01                 (0.02)
     Net realized and unrealized gain on investments                                                   1.04                  1.01
                                                                                                  ---------             ---------
       Total from investment operations                                                                1.05                  0.99
                                                                                                  ---------             ---------

   Less Distributions:
     Distributions in excess of net investment income                                                 (0.01)                (0.01)
                                                                                                  ---------             ---------
       Total distributions                                                                            (0.01)                (0.01)
                                                                                                  ---------             ---------
Net increase in net asset value                                                                        1.04                  0.98
                                                                                                  ---------             ---------
Net Asset Value, End of Period                                                                 $      11.04          $      10.98
                                                                                                  =========             =========

Total Return2+                                                                                        10.51%                 9.91%

Ratios/Supplemental Data:
Net Assets, End of Period (in 000's)                                                              $  13,410             $   7,025
Ratios of expenses to average net assets:
   Before reimbursement of expenses  by Adviser1                                                       3.28%                 4.03%
   After reimbursement of expenses by Adviser1                                                         1.20%                 1.95%
Ratios of net investment income to average net assets:
   Before reimbursement of expenses by Adviser1                                                       (1.97)%               (2.72)%
   After reimbursement of expenses by Adviser1                                                         0.11%                (0.64)%
Portfolio Turnover                                                                                       10%                   10%

------------------------------------------------------------------------------------------------------------------------------------
1      Annualized.
2      Not annualized.
+      Total return without applicable sales charge.
(a)    Capital Appreciation Fund Class A and Capital Appreciation Fund Class B commenced investment operations on December 29, 1997.

                See accompanying Notes to Financial Statements.

     Financial Highlights for a Share Outstanding during the period ended October 31, 1998

                                                                                                   International Stock Fund
                                                                                              --------------------------------
                                                                                                 Class A               Class B
                                                                                              ----------            ----------
                                                                                                 Period               Period
                                                                                                  Ended                Ended
                                                                                               10/31/98(a)          10/31/98(a)
                                                                                             ------------          ------------

Net Asset Value, Beginning of Period                                                           $      10.00          $      10.00
   Income from Investment Operations:
     Net investment income                                                                             0.08                  0.03
     Net realized and unrealized gain on investments                                                   0.27                  0.26
                                                                                                  ---------             ---------
       Total from investment operations                                                                0.35                  0.29
                                                                                                  ---------             ---------

   Less Distributions:
     Distributions from net investment income                                                         (0.01)                (0.01)
                                                                                                  ---------             ---------
       Total distributions                                                                            (0.01)                (0.01)
                                                                                                  ---------             ---------
Net increase in net asset value                                                                        0.34                  0.28
                                                                                                  ---------             ---------
Net Asset Value, End of Period                                                                 $      10.34          $      10.28
                                                                                                  =========             =========

Total Return2+                                                                                         3.60%                 2.90%

Ratios/Supplemental Data:
Net Assets, End of Period (in 000's)                                                              $  27,656             $   1,350
Ratios of expenses to average net assets:
   Before reimbursement of expenses  by Adviser1                                                       2.76%                 3.51%
   After reimbursement of expenses by Adviser1                                                         1.60%                 2.35%
Ratios of net investment income to average net assets:
   Before reimbursement of expenses by Adviser1                                                       (0.01)%               (0.76)%
   After reimbursement of expenses by Adviser1                                                         1.15%                 0.40%
Portfolio Turnover                                                                                       60%                   60%

------------------------------------------------------------------------------------------------------------------------------------
1      Annualized.
2      Not annualized.
+      Total return without applicable sales charge.
(a)    International Stock Fund Class A and International Stock Fund Fund Class B commenced investment operations on
       December 29, 1997.

                            Decrease             Increase            Accumulated
                             Paid-in         Undistributed Net         Realized
Fund                        capital          Investment Income           Gain
Cash Reserves            $   (23,338)        $     23,338                  --
Bond                         (23,446)              23,446                  --
Balanced                     (23,607)              23,607                  --
High Income                  (24,191)              23,986                 205
Growth & Income              (25,010)              25,010                  --
Capital Appreciation         (24,015)              24,015                  --
International Stock          (23,378)             123,407            (100,029)

Fund                         Class A          Class B
Cash Reserves Fund            0.55%            1.30%
Bond Fund*                    0.90%            1.65%
Balanced Fund                 1.10%            1.85%
High Income Fund              1.00%            1.75%
Growth and Income Fund        1.00%            1.75%
Capital Appreciation Fund     1.20%            1.95%
International Stock Fund      1.60%            2.35%

Cash Reserves         $    71,116
Bond                      141,066
Balanced                  477,159
High Income               205,263
Growth & Income           895,319
Capital Appreciation      467,163
International Stock        90,775

                                U.S. Government                    Other Investment
                                  Securities                          Securities
                        ------------------------------       -----------------------------
Fund                       Purchases          Sales             Purchases        Sales
Bond                     $ 3,534,211     $  1,817,023         $ 6,407,956    $ 1,548,557
Balanced                   6,709,484        3,542,248          18,701,027        750,544
High Income                       --               --          13,320,723      3,362,220
Growth & Income                   --               --          24,654,126        520,707
Capital Appreciation              --               --          20,141,463        812,924
International Stock               --               --          37,601,699     11,426,887

Fund                     Appreciation    (Depreciation)          Net
Bond                 $        91,278    $     (29,032)   $      62,246
Balanced                   1,009,195         (601,639)         407,556
High Income                   11,880       (1,101,737)      (1,089,857)
Growth & Income            1,972,371       (1,932,575)          39,796
Capital Appreciation       1,672,448       (1,292,219)         380,229
International Stock        2,398,432       (3,380,847)        (982,415)

                                        CUNA Mutual             CUNA Mutual                   CUMIS
  Fund                 Class      Life Insurance Company     Insurance Society      Insurance Society, Inc.

Cash Reserves            A               $  1,563,090           $  1,562,048        $              --
                         B                         --                  1,035                       --
Bond                     A                  1,569,535              1,568,489                       --
                         B                         --                  1,039                       --
Balanced                 A                  3,004,118              3,061,604                5,006,869
                         B                         --                  1,014                       --
High Income              A                  5,313,073                     --                       --
                         B                      1,056                     --                       --
Growth and Income        A                         --              1,510,512                1,511,519
                         B                         --                  1,002                       --
Capital Appreciation     A                         --              1,500,499                6,501,500
                         B                         --                  1,001                       --
International Stock      A                  3,003,000              5,003,999               18,012,000
                         B                         --                  1,001                       --
Total Investments                         $14,453,872            $14,213,243              $31,031,888