As filed with the Securities and Exchange Commission on December 22, 2006
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File No. 811-08261
MEMBERS Mutual Funds
5910 Mineral Point Road
Madison, WI 53705
(608) 238-5851
(Registrant's Exact Name, Address and Telephone Number)
Steve Suleski
Vice President, Deputy General Counsel
CUNA Mutual Group
5910 Mineral Point Road
Madison, WI 53705
(Name and Address of Agent for Service)
Copy to:
Stephen E. Roth, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D. C. 20004-2404
ITEM 1. REPORTS TO STOCKHOLDERS
A copy of the report transmitted to stockholders pursuant to Rule 30e-1 under
the Investment Company Act of 1940 (the "1940 Act") appears beginning on the
following page.
(MEMBERS LOGO)
MEMBERS MUTUAL FUNDS
Annual Report
October 31, 2006
CONSERVATIVE ALLOCATION FUND
MODERATE ALLOCATION FUND
AGGRESSIVE ALLOCATION FUND
CASH RESERVES FUND
BOND FUND
HIGH INCOME FUND
BALANCED FUND
LARGE CAP VALUE FUND
LARGE CAP GROWTH FUND
MID CAP VALUE FUND
MID CAP GROWTH FUND
INTERNATIONAL STOCK FUND
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
(MARKS PHOTO)
DAVID P. MARKS
- --------------------------------------------------------------------------------
Dear Fellow Shareholder:
In my first letter to shareholders, I commented on the changes in our processes
and people, and focused on strengthening our near-term and longer-term
performance. In this, my second letter, I am pleased to report that competitive
results have been achieved essentially across all portfolios over the last three
months and on a year-to-date basis. MEMBERS Capital Advisors has also added
several research analysts to the team, and we are pleased that the team is
working effectively toward our objectives of consistent long-term performance
versus our benchmarks.
At the November 30, 2006 Board of Trustees meeting, we said good bye to a long
time Trustee, Gwendolyn M. Boeke, upon her retirement from the Board. Since the
Funds' inception in 1997, she has contributed sound judgment and maintained the
highest integrity in her role as an advocate for her fellow shareholders. We
will miss Gwen and we wish her the very best in the future.
We are pleased to announce the Board's election of Linda S. Foltz to the Board
to succeed Gwen. Linda has a strong financial background and has been in
executive leadership positions throughout her career. This appointment reflects
the Board's commitment to providing capable and effective representation of
shareholders of the Funds by each of the Board Trustees.
The attached report provides summaries of the activities and performance of each
of the MEMBERS Funds, as well as the investments within each fund.
We remain committed to your long-term investment success and appreciate the
opportunity to serve not only MEMBERS Mutual Funds customers, but the entire
credit union system. Please do not hesitate to contact me directly if you have
any questions.
Sincerely,
/s/ DAVID P. MARKS
David P. Marks, CFA
President
Not part of the Annual Report.
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SUMMARY OF ECONOMIC AND FINANCIAL MARKET CONDITIONS
U.S. ECONOMY
The U.S. economy expanded in the twelve months ended October 31, 2006. Growth
was depressed in late 2005 by the after-effects of the Gulf hurricanes but then
reaccelerated in the first quarter of 2006. Hurricanes Katrina and Rita provided
the most powerful shock to the U.S. economy since the 9/11 attacks in 2001. The
hurricanes disrupted transportation, drove up the prices of commodities, and
shut down economic activity all along the Gulf Coast. Gasoline prices soared
after the hurricanes devastated a huge swath of energy-related infrastructure,
and the resulting direct hit to household budgets curbed consumer spending.
However, both the industrial and service sectors proved resilient. Wage growth
picked up, job creation resumed and holiday retail sales were solid. Another
surge in energy and commodity prices dampened growth in the second quarter of
2006, and growth slowed further in the third quarter as a rapidly cooling
housing market began to detract significantly from economic growth. Late in the
period the U.S. Federal Reserve revised its estimate of the long-term potential
growth rate of the U.S. economy down from around 3.5% to around 2.75%. On this
basis, the economy probably grew at about its potential during the period.
Economists are divided about whether the housing slowdown will cause further
economic weakening in 2007.
U.S. STOCKS
U.S. stocks posted solid gains over the period, which began during a downdraft
in equity markets as market participants realized that the Gulf hurricanes had a
significant negative impact on the U.S. economy. Market participants were
reassured after corporate earnings growth remained robust despite the
hurricanes. Smaller stocks continued to out-perform large-cap stocks as hedge
funds continued to focus on smaller companies, but the performance differential
narrowed and even reversed near the end of the period. Larger companies' more
diverse end-markets and greater competitive strengths may help their relative
performance in a slowing U.S. economy. The Russell 2000(R) Index of small-cap
stocks returned 19.98% during the period, and the S&P 500 Index of large-cap
stocks returned 16.34%.
U.S. BONDS
U.S. bonds posted positive returns overall, roughly in line with their coupons.
The U.S. Federal Reserve increased short-term interest rates six times during
the period in 25 basis-point increments, taking the benchmark Federal Funds rate
from 3.75% to 5.25%. U.S. Treasury bonds at longer durations modestly
out-performed as the yield curve inverted and inflation expectations declined
after rising sharply during the spring and summer. Investment-grade and
high-yield corporate bond spreads remained historically tight, with high-yield
corporates out-performing other types of domestic bonds during the period.
Investors remain confident about the financial health and cash flow generation
of corporate America, but there are concerns about "event risk" as merger and
acquisition activity affects individual bond issues amidst heavy activity by
private equity investors seeking larger and larger deals.
INTERNATIONAL ECONOMIES AND FINANCIAL MARKETS
Economic growth was solid in the euro-zone, surprising economists, and remained
very strong in Asia, with China continuing to post 9%+ real GDP growth and
consumer spending picking up in Japan and the developing economies of southeast
Asia. Convinced that the Japanese expansion has strong momentum, the Bank of
Japan raised interest rates for the first time in years. This, along with the
Fed's ongoing campaign of monetary tightening, caused some jitters in emerging
markets, but emerging markets stocks continued to out-perform other
international stocks during the period. Both European and Japanese stocks also
out-performed U.S. stocks in U.S. dollar-denominated terms as the dollar
weakened against the euro and remained steady versus the yen. The MSCI Emerging
Markets Free Index rose 35.42% during the period, while the MSCI EAFE Index of
developed markets stocks rose 28.04%. The overall pace of global economic growth
was steady during the period.
Not part of the Annual Report.
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TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
FUND PERFORMANCE REVIEWS
Conservative, Moderate and Aggressive Allocation
Funds............................................ 2
Bond Fund.......................................... 6
High Income Fund................................... 8
Balanced Fund...................................... 10
Large Cap Value Fund............................... 12
Large Cap Growth Fund.............................. 14
Mid Cap Value Fund................................. 16
Mid Cap Growth Fund................................ 18
International Stock Fund........................... 20
PORTFOLIOS OF INVESTMENTS
Conservative Allocation Fund....................... 22
Moderate Allocation Fund........................... 23
Aggressive Allocation Fund......................... 24
Cash Reserves Fund................................. 25
Bond Fund.......................................... 26
High Income Fund................................... 31
Balanced Fund...................................... 38
Large Cap Value Fund............................... 44
Large Cap Growth Fund.............................. 46
Mid Cap Value Fund................................. 48
Mid Cap Growth Fund................................ 52
International Stock Fund........................... 54
FINANCIAL STATEMENTS
Statements of Assets and Liabilities............... 60
Statements of Operations........................... 64
Statements of Changes in Net Assets................ 68
Financial Highlights............................... 73
NOTES TO FINANCIAL STATEMENTS............................... 87
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..... 96
OTHER INFORMATION........................................... 97
TRUSTEES AND OFFICERS....................................... 103
</Table>
NONDEPOSIT INVESTMENT PRODUCTS ARE NOT FEDERALLY INSURED, INVOLVE INVESTMENT
RISK, MAY LOSE VALUE AND ARE NOT OBLIGATIONS OF OR GUARANTEED BY THE CREDIT
UNION. For more complete information about MEMBERS Mutual Funds, including
charges and expenses, request a prospectus from your registered representative
or from MEMBERS Mutual Funds, P.O. Box 8390, Boston, MA 02266-8390. Consider the
investment objectives, risks, and charges and expenses of the investment
carefully before investing. The prospectus contains this and other information
about the investment company. For more current performance information, please
call 1-800-877-6089 or visit our website at www.membersfunds.com. Current
performance may be lower or higher than the performance data quoted within. Past
performance does not guarantee future results.
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1
CONSERVATIVE, MODERATE AND AGGRESSIVE ALLOCATION FUNDS
- --------------------------------------------------------------------------------
UNIQUELY DIVERSIFIED FUNDS
The three MEMBERS Allocation Funds - Conservative, Moderate, and
Aggressive - were launched June 30, 2006. Each fund provides diversified
exposure to several different investment categories by investing in various
mutual funds, each of which typically is focused on one investment category.
Some of these funds are other MEMBERS Mutual Funds managed by MEMBERS Capital
Advisors or by an unaffiliated subadviser, and some are sponsored and managed by
unaffiliated organizations. And, each of the allocation funds primarily uses
institutional share classes or ETF's (Exchange Traded Funds) to minimize the
expenses of the funds.
The MEMBERS Allocation Funds were among the first in the nation and are still
one of the very few to offer investors both internally managed funds and other
mutual funds selected to complement or supplement the internally managed funds.
The resulting diversity of investment exposures, careful monitoring of managers
by MEMBERS Capital Advisors, and regular rebalancing to maintain each allocation
fund's target allocation is rarely available in a single mutual fund.
INVESTMENT OBJECTIVE
- - The CONSERVATIVE ALLOCATION FUND seeks income, capital appreciation and
relative stability of value.
- - The MODERATE ALLOCATION FUND seeks capital appreciation, income and moderated
market risk.
- - The AGGRESSIVE ALLOCATION FUND seeks capital appreciation.
PORTFOLIO MANAGEMENT
Scott D. Opsal, CFA, at MEMBERS Capital Advisors is the lead portfolio manager
and is responsible for deciding which securities are purchased or sold in the
Allocation Funds. He is supported by a team of sector specialists and analysts.
PRINCIPAL INVESTMENT STRATEGIES
The Allocation Funds invest primarily in shares of underlying funds. The funds
will be diversified among a number of asset classes and its allocation among
underlying funds will be based on an asset allocation model developed by
MEMBERS Capital Advisors, the fund's investment adviser. Under normal
circumstances, the fund's total net assets will be allocated among asset
classes and underlying funds, including those whose shares trade on a stock
exchange ("exchange traded funds" or ETFs) in approximately the following
proportions:
<Table>
<Caption>
CONS. MOD. AGG.
ALLOCATION ALLOCATION ALLOCATION
FUND FUND FUND
------------------------------------
Money Market Funds 0-20% 0-15% 0-10%
Debt Securities 40-80% 20-60% 0-50%*
Below Invest. Grade Debt Securities 0-20% 0-30% *
Equity Securities 0-40% 30-70% 50-100%
Foreign Securities 0-20% 0-30% 0-40%
Alternative Assets 0-20% 0-20% 0-20%
</Table>
*Entire percentage could be invested in below investment grade debt securities.
- --------------------------------------------------------------------------------
MEMBERS CONSERVATIVE ALLOCATION FUND
The Conservative Allocation Fund returned 5.30% (Class A shares at net asset
value) since its June 30, 2006 inception date, which compared to the
Conservative Allocation Fund Custom Index(1) return of 5.48% for the same
period. Although all of the investments in the portfolio generated positive
returns, the portfolio was particularly helped by the equity portion of the
portfolio as it generated positive returns in excess of 7.5%, while the fixed
income portion generated returns of over 4% for the same period. Generally, the
real estate, large cap and mid cap funds performed better than the fixed income
funds during this period, while the high income fund posted slightly better
returns than the more conservative high grade fixed income funds. Since the
majority of the underlying assets are in the fixed income market, the fund
maintained its lower risk structure while still providing shareholders with some
exposure to the stronger equity returns.
The fund was comprised of only MEMBERS Funds until July 2006 when investments in
Cohen & Steers Institutional Realty Shares, Western Asset Core Bond
Institutional Shares and the Dodge and Cox Income Fund were added to the
portfolio.
MEMBERS MODERATE ALLOCATION FUND
The Moderate Allocation Fund returned 6.50% (Class A shares at net asset value)
since its June 30, 2006 inception date, which compared to the Moderate
Allocation Fund Custom Index(2) return of 7.02% for the same period. Although
all of the investments in the portfolio generated positive returns, the
portfolio was particularly helped by the equity portion of the portfolio as it
generated positive returns in excess of 7.5%, while the fixed income portion
generated returns of over 4% for the same period. Generally, the real estate,
international, large cap and mid cap funds performed better than the fixed
income funds during this period. Because the fund holds the majority of its
assets in equity funds, shareholders benefited from the stronger equity results
while the roughly 35% allocation to the fixed income funds served to add some
stability to the fund. The fund was comprised of only MEMBERS Funds until July,
2006 when investments in Cohen & Steers Institutional Realty Shares, Western
Asset Core Bond Institutional Shares, Dodge and Cox Income Fund and the Vanguard
Emerging Markets ETF were added to the portfolio.
MEMBERS AGGRESSIVE ALLOCATION FUND
The Aggressive Allocation Fund returned 7.60% (Class A shares at net asset
value) since its June 30, 2006 inception date, which compared to the Aggressive
Allocation Fund Custom Index(3) return of 9.53% for the same period. The
Aggressive Allocation Fund was helped by its 100% allocation to equity
investments during the period as equity investments significantly out-performed
fixed income. Generally, the real estate, international, large cap value and mid
cap growth funds performed better than the large cap growth and mid cap value
funds. The fund was comprised of only MEMBERS Funds until July 2006 when
investments in Cohen & Steers Institutional Realty Shares, and the Vanguard
Emerging Markets ETF were added to the portfolio.
The attached statement shows the fund investments that make up the portfolios of
each of the MEMBERS Allocation Funds. They include the MEMBERS Funds described
elsewhere in this annual report.
MEMBERS Capital Advisors, Inc. - Adviser
(1)The Conservative Allocation Fund Custom Index consists of 55% Merrill Lynch
U.S. Domestic Master Index, 30% Russell 1000(R) Index, and 15% 90-Day U.S.
Treasury Bills.
(2)The Moderate Allocation Fund Custom Index consists of 50% Russell 3000(R)
Index, 30% Merrill Lynch U.S. Domestic Master Index, 10% MSCI EAFE Index, and
10% 90-Day U.S. Treasury Bills.
(3)The Aggressive Allocation Fund Custom Index consists of 55% Russell 1000(R)
Index, 22% MSCI EAFE Index, 15% Russell 2000(R) Index and 8% MSCI Emerging
Markets Index.
- --------------------------------------------------------------------------------
2
CONSERVATIVE ALLOCATION FUND
CUMULATIVE PERFORMANCE OF $10,000 SINCE INCEPTION(1)
(LINEGRAPH)
<Table>
<Caption>
CLASS A SHARES (INCLUDES CLASS B SHARES (INCLUDES
MAXIMUM SALES MAXIMUM APPLICABLE MERRILL LYNCH U.S. CONSERVATIVE ALLOCATION
CHARGE)(2) CDSC)(3) DOMESTIC MASTER INDEX FUND CUSTOM INDEX(6)
------------------------ ------------------------ --------------------- -----------------------
6/30/06 $ 9,425 $ 10,000 $ 10,000 $ 10,000
10/31/06 $ 9,925 $ 10,060 $ 10,493 $ 10,548
</Table>
(1)This chart compares a $10,000 investment made in the fund on its inception
date to a $10,000 investment made in the Index. All dividends and capital
gains are reinvested. Further information relating to the fund's performance,
including expense reimbursements, is contained in the Prospectus and
elsewhere in this report. Past performance is not indicative of future
performance. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than when
purchased. Indices are unmanaged and investors cannot invest in them. Index
returns do not reflect expenses or sales charges. The graph above and the
table below do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
SECTOR ALLOCATION AS
A PERCENTAGE OF NET ASSETS
(PIE CHART)
<Table>
Debt Securities 53%
Foreign Securities 5%
Alternative Asset Classes 6%
Money Market Securities and Other Net Assets 13%
Equity Securities 23%
</Table>
PORTFOLIO HOLDINGS AS
A PERCENTAGE OF NET ASSETS
<Table>
MEMBERS Bond Fund Class Y 29%
MEMBERS Cash Reserves Fund Class Y 12%
MEMBERS Large Cap Growth Fund Class Y 11%
Western Asset Intermediate Bond Portfolio 10%
Dodge & Cox Income Fund 10%
MEMBERS Large Cap Value Fund Class Y 8%
Cohen & Steers Institutional Realty Shares, Inc. 6%
MEMBERS International Stock Fund Class Y 5%
MEMBERS High Income Fund Class Y 5%
MEMBERS Mid Cap Growth Fund Class Y 4%
</Table>
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 2006
<Table>
<Caption>
% RETURN WITHOUT SALES CHARGE % RETURN WITH SALES CHARGE(4)
Since Inception(5) Since Inception(5)
----------------------------- -----------------------------
Class A Shares(2) 5.30 -0.75
Class B Shares(3) 5.10 0.60
Merrill Lynch U.S. Domestic Master
Index 4.93 --
Conservative Allocation Fund Custom
Index(6) 5.48 --
</Table>
(2) Maximum Sales Charge is 5.75% for A Shares.
(3) Maximum Contingent Deferred Sales Charge is 4.5% for B Shares; reduced after
12 months and eliminated after six years.
(4) Assuming Maximum Applicable Sales Charge.
(5) Fund commenced investment operations on June 30, 2006.
(6) The Conservative Allocation Fund Custom Index consists of 55% Merrill Lynch
U.S. Domestic Master Index, 30% Russell 1000(R) Index, and 15% 90-Day U.S.
Treasury Bills.
- --------------------------------------------------------------------------------
3
MODERATE ALLOCATION FUND
CUMULATIVE PERFORMANCE OF $10,000 SINCE INCEPTION(1)
(LINEGRAPH)
<Table>
<Caption>
CLASS A SHARES (INCLUDES CLASS B SHARES (INCLUDES
MAXIMUM SALES MAXIMUM APPLICABLE MODERATE ALLOCATION
CHARGE)(2) CDSC)(3) RUSSELL 1000(R) INDEX FUND CUSTOM INDEX(6)
------------------------ ------------------------ --------------------- --------------------
6/30/06 $ 9,425 $ 10,000 $ 10,000 $ 10,000
10/31/06 $ 10,038 $ 10,180 $ 10,843 $ 10,702
</Table>
(1)This chart compares a $10,000 investment made in the fund on its inception
date to a $10,000 investment made in the Index. All dividends and capital
gains are reinvested. Further information relating to the fund's performance,
including expense reimbursements, is contained in the Prospectus and
elsewhere in this report. Past performance is not indicative of future
performance. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than when
purchased. Indices are unmanaged and investors cannot invest in them. Index
returns do not reflect expenses or sales charges. The graph above and the
table below do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
SECTOR ALLOCATION AS
A PERCENTAGE OF NET ASSETS
(PIE CHART)
<Table>
Equity Securities 49%
Alternative Asset Classes 5%
Money Market Securities and Other Net Assets 5%
Foreign Securities 13%
Debt Securities 28%
</Table>
PORTFOLIO HOLDINGS AS
A PERCENTAGE OF NET ASSETS
<Table>
MEMBERS Large Cap Growth Fund Class Y 16%
MEMBERS International Stock Fund Class Y 13%
MEMBERS Mid Cap Growth Fund Class Y 13%
Western Asset Intermediate Bond Portfolio 12%
MEMBERS Large Cap Value Fund Class Y 11%
MEMBERS Bond Fund Class Y 10%
MEMBERS Mid Cap Value Fund Class Y 8%
MEMBERS High Income Fund Class Y 6%
Cohen & Steers Institutional Realty Shares, Inc. 5%
MEMBERS Cash Reserves Fund Class Y 5%
Vanguard Emerging Markets ETF 1%
</Table>
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 2006
<Table>
<Caption>
% RETURN WITHOUT SALES CHARGE % RETURN WITH SALES CHARGE(4)
Since Inception(5) Since Inception(5)
----------------------------- -----------------------------
Class A Shares(2) 6.50 0.38
Class B Shares(3) 6.30 1.80
Russell 1000(R) Index 8.43 --
Moderate Allocation Fund Custom Index(6) 7.02 --
</Table>
(2) Maximum Sales Charge is 5.75% for A Shares.
(3) Maximum Contingent Deferred Sales Charge is 4.5% for B Shares; reduced after
12 months and eliminated after six years.
(4) Assuming Maximum Applicable Sales Charge.
(5) Fund commenced investment operations on June 30, 2006.
(6) The Moderate Allocation Fund Custom Index consists of 50% Russell 3000(R)
Index, 30% Merrill Lynch U.S. Domestic Master Index, 10% MSCI EAFE Index,
and 10% 90-Day U.S. Treasury Bills.
- --------------------------------------------------------------------------------
4
AGGRESSIVE ALLOCATION FUND
CUMULATIVE PERFORMANCE OF $10,000 SINCE INCEPTION(1)
(LINEGRAPH)
<Table>
<Caption>
CLASS A SHARES (INCLUDES CLASS B SHARES (INCLUDES
MAXIMUM SALES MAXIMUM APPLICABLE AGGRESSIVE ALLOCATION
CHARGE)(2) CDSC)(3) RUSSELL 3000(R) INDEX FUND CUSTOM INDEX(6)
------------------------ ------------------------ --------------------- ---------------------
6/30/06 $ 9,425 $ 10,000 $ 10,000 $ 10,000
10/31/06 $ 10,141 $ 10,290 $ 10,838 $ 10,953
</Table>
(1)This chart compares a $10,000 investment made in the fund on its inception
date to a $10,000 investment made in the Index. All dividends and capital
gains are reinvested. Further information relating to the fund's performance,
including expense reimbursements, is contained in the Prospectus and
elsewhere in this report. Past performance is not indicative of future
performance. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than when
purchased. Indices are unmanaged and investors cannot invest in them. Index
returns do not reflect expenses or sales charges. The graph above and the
table below do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
SECTOR ALLOCATION AS
A PERCENTAGE OF NET ASSETS
(PIE CHART)
<Table>
Equity Securities 71%
Money Market Securities and Other Net Assets 1%
Alternative Asset Classes 4%
Foreign Securities 24%
</Table>
LARGEST HOLDINGS AS
A PERCENTAGE OF NET ASSETS
<Table>
MEMBERS International Stock Fund Class Y 24%
MEMBERS Large Cap Growth Fund Class Y 20%
MEMBERS Mid Cap Growth Fund Class Y 18%
MEMBERS Mid Cap Value Fund Class Y 16%
MEMBERS Large Cap Value Fund Class Y 14%
Cohen & Steers Institutional Realty Shares, Inc. 4%
Vanguard Emerging Markets ETF 3%
</Table>
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 2006
<Table>
<Caption>
% RETURN WITHOUT SALES CHARGE % RETURN WITH SALES CHARGE(4)
Since Inception(5) Since Inception(5)
----------------------------- -----------------------------
Class A Shares(2) 7.60 1.41
Class B Shares(3) 7.40 2.90
Russell 3000(R) Index 8.38 --
Aggressive Allocation Fund Custom
Index(6) 9.53 --
</Table>
(2) Maximum Sales Charge is 5.75% for A Shares.
(3) Maximum Contingent Deferred Sales Charge is 4.5% for B Shares; reduced after
12 months and eliminated after six years.
(4) Assuming Maximum Applicable Sales Charge.
(5) Fund commenced investment operations on June 30, 2006.
(6) The Aggressive Allocation Fund Custom Index consists of 55% Russell 1000(R)
Index, 22% MSCI EAFE Index, 15% Russell 2000(R) Index and 8% MSCI Emerging
Markets Index.
- --------------------------------------------------------------------------------
5
BOND FUND PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Bond Fund seeks to generate a high level of current income, consistent with
the prudent limitation of investment risk.
PORTFOLIO MANAGEMENT
Dean "Jack" Call, CFA, at MEMBERS Capital Advisors is the lead portfolio
manager and is responsible for deciding which securities are purchased or sold
in the Bond Fund. He is supported by a team of sector specialists and analysts.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the fund invests at least 80% of its assets in
bonds. To keep current income relatively stable and to limit share price
volatility, the Bond Fund emphasizes investment grade securities and maintains
an intermediate (typically 3-6 year) average portfolio duration. Duration is a
measure of a security's price sensitivity to changes in interest rates. The
fund may invest in the following instruments:
- - CORPORATE DEBT SECURITIES: securities issued by domestic and foreign
corporations which have a rating within the four highest categories and, to a
limited extent (up to 20% of its assets), in securities not rated within the
four highest categories;
- - U.S. GOVERNMENT DEBT SECURITIES: securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities;
- - FOREIGN GOVERNMENT DEBT SECURITIES: securities issued or guaranteed by a
foreign government or its agencies or instrumentalities, payable in U.S.
dollars, which have a rating within the four highest categories;
- - ASSET-BACKED AND MORTGAGE-BACKED SECURITIES: including those representing
mortgage, commercial or consumer loans originated by credit unions to the
extent permitted by law and available in the market; and
- - NON-RATED DEBT SECURITIES: securities issued or guaranteed by corporations,
financial institutions, and others which, although not rated by a national
rating service, are considered by the fund's investment adviser to have an
investment quality equivalent to the four highest categories.
- --------------------------------------------------------------------------------
The MEMBERS Bond Fund returned 4.70% (Class A shares at net asset value) during
the twelve-month period ended October 31, 2006, lagging the Merrill Lynch U.S.
Domestic Master Index, which returned 5.20%. The fund matched the average peer
return and was in the top 45% of its Morningstar-ranked peer group for the
period(1). Performance was helped by management's strategic decision to maintain
a portion of the "barbell" structure (it was reduced toward the end of 2005)
that benefits when the yield curve flattens. The spread between 2-year U.S.
Treasury Notes and 10-year U.S. Treasury Bonds continued to narrow through the
end of 2005 and into 2006 with the difference narrowing from 18 to negative 10
basis points over the reporting period. Performance was also helped by a general
overweight to spread sectors such as mortgage-backed (MBS), commercial
mortgage-backed (CMBS), asset-backed (ABS) and corporate securities. Performance
was hurt by an underweight in lower-quality investment grade and high yield
bonds as these sectors outperformed as investors searched for yield in this
low-yielding environment. Performance was also hampered by the decision to
overweight ABS at the expense of adding to MBS and corporate bonds which both
outperformed ABS.
At the tactical level, security selection was neither a positive nor negative
for performance. Months of strong performance at the security level were roughly
balanced by months of poor security-specific performance. In the corporate
portion of the portfolio, performance was helped by overweighting firms in the
basic industry, electric and rail industries and underweighting the energy
sector. Performance was hurt by underweighting exposure to sectors such as
communication and finance (including banks and brokers) and overweighting
consumer non-cyclical companies. The portfolio's lack of exposure to airline and
tobacco bonds also detracted from performance.
The period can be characterized as a time of great liquidity in capital markets
and the corresponding "event risk." We positioned the portfolio for such an
environment by reducing exposure in the corporate sector and diversifying risk
by adding more names with an up-in-quality bias. However, we were still bit by
the "event risk" bug suffering from a management led buy-out at Kinder Morgan
and an announced leveraged buy-out of Harrahs leading to losses in both
positions, hurting performance. We continue to monitor these holdings as well as
the other portfolio holdings very closely to reduce and manage risk. Management
maintains a cautious stance towards seeking excess return via reaching for yield
as spreads are tight and most sectors of the fixed-income market appear to be
fully or richly valued.
MEMBERS Capital Advisors, Inc. - Adviser
(1)Morningstar, Inc., an investment research and reporting company, compiles and
analyzes stock, mutual funds and variable annuity data, including performance
ratings and rankings. The Morningstar data for the Bond Fund is based on
total returns, without the inclusion of sales charges, of 1076
intermediate-term bond funds for the 12-month period ended 10/31/2006. Past
performance is no guarantee of future results.
- --------------------------------------------------------------------------------
6
BOND FUND PERFORMANCE REVIEW
CUMULATIVE PERFORMANCE OF $10,000 SINCE INCEPTION(1)
(LINEGRAPH)
<Table>
<Caption>
CLASS A SHARES (INCLUDES CLASS B SHARES (INCLUDES MERRILL LYNCH U.S. DOMESTIC
MAXIMUM SALES CHARGE)(2) MAXIMUM APPLICABLE CDSC)(3) MASTER INDEX
------------------------ --------------------------- ---------------------------
12/29/97 $ 9,550 $ 10,000 $ 10,000
10/98 $ 10,132 $ 10,086 $ 10,803
10/99 $ 10,294 $ 10,235 $ 10,840
10/00 $ 10,797 $ 10,721 $ 11,634
10/01 $ 12,208 $ 12,225 $ 13,331
10/02 $ 12,723 $ 12,852 $ 14,129
10/03 $ 13,169 $ 13,091 $ 14,825
10/04 $ 13,756 $ 13,676 $ 15,648
10/05 $ 13,858 $ 13,675 $ 15,845
10/06 $ 14,509 $ 14,210 $ 16,669
</Table>
(1)This chart compares a $10,000 investment made in the fund on its inception
date to a $10,000 investment made in the Index. All dividends and capital
gains are reinvested. Further information relating to the fund's performance,
including expense reimbursements, is contained in the Prospectus and
elsewhere in this report. Past performance is not indicative of future
performance. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than when
purchased. Indices are unmanaged and investors cannot invest in them. Index
returns do not reflect expenses or sales charges. The graph above and the
table below do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS
(PIE CHART)
<Table>
Commercial Mortgage Backed 10%
Corporate Notes and Bonds 23%
U.S. Government and Agency Obligations 22%
Cash and Other Net Assets 6%
Mortgage Backed 29%
Private Label Mortgage Backed 3%
Asset Backed 7%
</Table>
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 2006
<Table>
<Caption>
% RETURN WITHOUT SALES CHARGE % RETURN AFTER SALES CHARGE(4)
Since Since
1 Year 3 Years 5 Years Inception(5) 1 Year 3 Years 5 Years Inception(5)
----------------------------------------- -----------------------------------------
Class A Shares(2) 4.70% 3.28% 3.51% 4.84% 0.03% 1.70% 2.57% 4.30%
Class B Shares(3) 3.91 2.51 2.72 4.05 -0.59 1.42 2.37 4.05
Class Y Shares(6) -- -- -- 4.39 -- -- -- --
Merrill Lynch U.S.
Domestic Master
Index 5.20 3.98 4.57 5.95 -- -- -- --
</Table>
(2) Maximum Sales Charge is 4.50% for A Shares.
(3) Maximum Contingent Deferred Sales Charge is 4.5% for B Shares; reduced after
12 months and eliminated after six years.
(4) Assuming Maximum Applicable Sales Charge.
(5) Class A and B Shares commenced investment operations on December 29, 1997;
Class Y Shares commenced investment operations on June 30, 2006.
(6) Only available for purchase by MEMBERS Funds and other affiliated asset
allocation funds.
- --------------------------------------------------------------------------------
7
HIGH INCOME FUND PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The High Income Fund seeks high current income. The fund also seeks capital
appreciation, but only when consistent with its primary goal.
PORTFOLIO MANAGEMENT
MEMBERS Capital Advisors as adviser may use one or more subadvisers with any of
the MEMBERS Funds under a "manager or managers" approach. Shenkman Capital
Management, Inc. ("SCM") is currently the only subadviser for the High Income
Fund. Mark R. Shenkman; Frank X. Whitley; Mark R. Flanagan, CPA, CFA; Robert
Stricker, CFA; and Steve Schweitzer are the funds co-primary portfolio managers
responsible for deciding which securities are purchased or sold in the High
Income Fund.
PRINCIPAL INVESTMENT STRATEGIES
The High Income Fund invests primarily in lower-rated, higher-yielding income
bearing securities, such as "junk" bonds. Because the performance of these
securities has historically been strongly influenced by economic conditions,
the fund may rotate securities selection by business sector according to the
economic outlook. Under normal market conditions, the fund invests at least 80%
of its assets in bonds rated lower than investment grade (BBB/Baa) and their
unrated equivalents or other high-yielding securities. Types of bonds and other
securities include, but are not limited to, domestic and foreign corporate
bonds, debentures, notes, convertible securities, preferred stocks, municipal
obligations and government obligations. The fund may invest in mortgage-backed
securities
- --------------------------------------------------------------------------------
During the twelve month period ended October 31, 2006 the MEMBERS High Income
Fund returned 8.33% (Class A shares at net asset value), an attractive return
among bond funds in general, but underperforming the Merrill Lynch U.S. High
Yield Master II Index, which returned 10.34% for the same period.
During this reporting period, the fund's return represented broad-based gains in
all industry sectors for the period. The performance lag relative to the
benchmark was primarily due to the fund's higher credit quality focus and
underweighting in the airline and automotive sectors which recovered somewhat
from earlier large losses. Further, Charter Communications, the telecom sector's
largest issuer and a strong performer in this period, was avoided due to our
concerns about its excessive leverage and failure of the company to meet the
fund manager's stringent credit-quality standards. Also during the period, the
bonds of HCA, the largest constituent in the healthcare sector, were impacted
negatively after the announcement of a leveraged buy-out (LBO) proposal by
several private equity sponsors.
Overall, the high yield market generated solid returns for the twelve-month
period ending October 31, 2006, representing a combination of low defaults, a
relatively benign interest rate environment, and slight spread compression. This
performance was significantly better than many other fixed income sectors, as
the Merrill Lynch Corporate Master Index returned +5.44% and the Merrill Lynch
Treasury Index returned +4.59%. There were many events that impacted high yield
during the reporting period; three key developments were the Fed's decision to
stop raising rates after 17 consecutive increases, the correction in the U.S.
housing market, and investors' continuing appetite for risk in the high yield
market.
The tone of the high yield market remains surprisingly favorable. At the end of
a disappointing 2005, few strategists would have predicted that high yield bonds
would earn more than their coupon rates in 2006 through increases in the bonds'
prices. However, stable interest rates, strong corporate profits, a robust stock
market, easy credit, and ample liquidity have allowed high yield bonds to exceed
expectations. If these same factors persist, the market should continue to gain
in 2007. Our expectation, however, is for a more difficult economic environment
in the months ahead, in which case high yield bonds may suffer price declines.
In this environment, we would expect our higher quality focus to serve investors
well, at least dampening any price declines and thereby aiding total returns
relative to the typical, more risky high yield bond fund.
MEMBERS Capital Advisors, Inc. - Adviser
Shenkman Capital Management, Inc - Subadviser
- --------------------------------------------------------------------------------
8
HIGH INCOME FUND PERFORMANCE REVIEW
CUMULATIVE PERFORMANCE OF $10,000 SINCE INCEPTION(1)
(linegraph)
<Table>
<Caption>
CLASS A SHARES (INCLUDES CLASS B SHARES (INCLUDES MERRILL LYNCH HIGH YIELD
MAXIMUM SALES CHARGE)(2) MAXIMUM APPLICABLE CDSC)(3) MASTER II INDEX
------------------------ --------------------------- ------------------------
12/29/97 $ 9,550 $ 10,000 $ 10,000
10/98 $ 8,999 $ 8,962 $ 9,809
10/99 $ 9,870 $ 9,805 $ 10,359
10/00 $ 9,790 $ 9,698 $ 10,185
10/01 $ 9,600 $ 9,571 $ 10,191
10/02 $ 9,632 $ 9,745 $ 9,525
10/03 $ 11,663 $ 11,617 $ 12,678
10/04 $ 12,914 $ 12,862 $ 14,223
10/05 $ 13,282 $ 13,127 $ 14,780
10/06 $ 14,388 $ 14,131 $ 16,309
</Table>
(1)This chart compares a $10,000 investment made in the fund on its inception
date to a $10,000 investment made in the Index. All dividends and capital
gains are reinvested. Further information relating to the fund's performance,
including expense reimbursements, is contained in the Prospectus and
elsewhere in this report. Past performance is not indicative of future
performance. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than when
purchased. Indices are unmanaged and investors cannot invest in them. Index
returns do not reflect expenses or sales charges. The graph above and the
table below do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS
<Table>
Telecommunications 9% Health Care 4% Environmental 2%
Support Services 8% Media - Diversified and Services 4% Food and Drug Retailers 2%
Gaming 6% Technology 4% Metals and Mining 2%
Media - Cable 6% Aerospace/Defense 3% Apparel/Textiles 1%
Chemicals 5% Building Materials 3% General Industrial and 1%
Manufacturing
Forestry/Paper 5% Cash and Other Net Assets 3% Hotels 1%
Oil and Gas 5% Media - Broadcasting 3% Packaging 1%
Utilities 5% Non Food and Drug Retailers 3% Transportation 1%
Automotive 4% Printing and Publishing 3% Steel 0%*
Consumer Products 4% Beverage/Food 2%
</Table>
*Rounds to 0%
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 2006
<Table>
<Caption>
% RETURN WITHOUT SALES CHARGE % RETURN AFTER SALES CHARGE(4)
Since Since
1 Year 3 Years 5 Years Inception(5) 1 Year 3 Years 5 Years Inception(5)
----------------------------------------- -----------------------------------------
Class A Shares(2) 8.33% 7.25% 8.43% 4.74% 3.50% 5.60% 7.42% 4.20%
Class B Shares(3) 7.64 6.52 7.66 3.99 3.14 5.48 7.36 3.99
Class Y Shares(6) -- -- -- 4.59 -- -- -- --
Merrill Lynch U.S.
High Yield Master II
Index 10.34 8.75 9.86 5.69 -- -- -- --
</Table>
(2) Maximum Sales Charge is 4.50% for A Shares.
(3) Maximum Contingent Deferred Sales Charge is 4.5% for B Shares; reduced after
12 months and eliminated after six years.
(4) Assuming Maximum Applicable Sales Charge.
(5) Class A and B Shares commenced investment operations on December 29, 1997;
Class Y Shares commenced investment operations on June 30, 2006.
(6) Only available for purchase by MEMBERS Funds and other affiliated asset
allocation funds.
- --------------------------------------------------------------------------------
9
BALANCED FUND PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Balanced Fund seeks a high total return through the combination of income
and capital appreciation.
PORTFOLIO MANAGEMENT
John H. Brown, CFA, and Dean "Jack" Call, CFA, at MEMBERS Capital Advisors are
co-lead portfolio managers and are responsible for deciding which securities
are purchased or sold in the Balanced Fund. They are supported by a team of
sector specialists and analysts.
PRINCIPAL INVESTMENT STRATEGIES
The Balanced Fund invests in a broadly diversified array of securities
including common stocks, bonds and money market instruments. Stock, bond and
cash components will vary reflecting the relative availability of attractively
priced stocks and bonds. Generally, however, common stocks will constitute 30%
to 70% of the fund's assets, bonds will constitute 25% to 50% of the fund's
assets and money market instruments may constitute up to 25% of the fund's
assets. The Balanced Fund typically invests in equity or bond securities which
are similar to those in which the Large Cap Growth, Large Cap Value and Bond
Funds invest.
- --------------------------------------------------------------------------------
The highly variable investment environment of the past twelve months provided a
good example of how a diversified fund often can provide solid results in what
appears to be a difficult market environment. In spite of the challenges in both
the bond and stock markets, the MEMBERS Balanced Fund provided investors with a
return of 9.97% (Class A shares at net asset value) for the year ended October
31, 2006.
The Merrill Lynch U.S. Domestic Master Index returned 5.20% for the period,
while the Russell 1000(R) Index returned 16.02%. In the stock portion of the
portfolio, results were aided by an overweighting in energy stocks and strong
outperformance from materials stocks. Marathon Oil and Schlumberger both
advanced in excess of 40% on higher energy prices while nickel producer Inco
Ltd. gained more than 70% in response to a takeover proposal. Information
technology was the most difficult sector during this period as many of the
industry leaders declined 10% (EMC Corp.) to 20% (Dell) to 30% (eBay) to 40%
(Yahoo!). In virtually all instances, these declines reflected reductions in
investors' expectations for future growth given the slowing economy.
The fixed income portion of the portfolio was helped by management's strategic
decision to maintain a portion of the "barbell" structure (it was reduced toward
the end of 2005) that benefits when the yield curve flattens. The spread between
2-year U.S. Treasury Notes and 10-year U.S. Treasury Bonds continued to narrow
through the end of 2005 and into 2006 with the difference narrowing from 18 to
negative 10 basis points over the reporting period. Performance was also helped
by a general overweight to spread sectors such as mortgage-backed (MBS),
commercial mortgage-backed (CMBS), asset-backed (ABS) and corporate securities.
Performance was hurt by an underweight in lower-quality investment grade and
high yield bonds as these sectors outperformed as investors searched for yield
in this low-yielding environment. Performance was also hampered by the decision
to overweight ABS at the expense of adding to MBS and corporate bonds which both
outperformed ABS.
MEMBERS Capital Advisors, Inc. - Adviser
- --------------------------------------------------------------------------------
10
BALANCED FUND PERFORMANCE REVIEW
CUMULATIVE PERFORMANCE OF $10,000 SINCE INCEPTION(1)
(LINEGRAPH)
<Table>
<Caption>
CLASS A SHARES (INCLUDES CLASS B SHARES (INCLUDES
MAXIMUM SALES MAXIMUM APPLICABLE MERRILL LYNCH U.S.
CHARGE)(2) CDSC)(3) DOMESTIC MASTER INDEX RUSSELL 1000(R) INDEX
------------------------ ------------------------ --------------------- ---------------------
12/29/97 $ 9,425 $ 10,000 $ 10,000 $ 10,000
10/98 $ 10,266 $ 10,374 $ 10,803 $ 11,459
10/99 $ 11,866 $ 11,922 $ 10,840 $ 14,391
10/00 $ 12,893 $ 13,053 $ 11,634 $ 15,694
10/01 $ 11,792 $ 11,867 $ 13,331 $ 11,608
10/02 $ 10,897 $ 11,161 $ 14,129 $ 9,913
10/03 $ 12,284 $ 12,385 $ 14,825 $ 12,125
10/04 $ 13,231 $ 13,347 $ 15,648 $ 13,256
10/05 $ 13,991 $ 14,006 $ 15,845 $ 14,644
10/06 $ 15,386 $ 15,299 $ 16,669 $ 16,991
</Table>
(1)This chart compares a $10,000 investment made in the fund on its inception
date to a $10,000 investment made in the Index. All dividends and capital
gains are reinvested. Further information relating to the fund's performance,
including expense reimbursements, is contained in the Prospectus and
elsewhere in this report. Past performance is not indicative of future
performance. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than when
purchased. Indices are unmanaged and investors cannot invest in them. Index
returns do not reflect expenses or sales charges. The graph above and the
table below do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS
(PIE CHART)
<Table>
Common Stocks 52%
Cash and Other Net Assets 8%
U.S. Government and Agency Obligations 15%
Mortgage Backed 11%
Corporate Notes and Bonds 8%
Private Label Mortgage Backed 1%
Commercial Mortgage Backed 3%
Asset Backed 2%
</Table>
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 2006
<Table>
<Caption>
% RETURN WITHOUT SALES CHARGE % RETURN AFTER SALES CHARGE(4)
Since Since
1 Year 3 Years 5 Years Inception(5) 1 Year 3 Years 5 Years Inception(5)
----------------------------------------- -----------------------------------------
Class A Shares(2) 9.97% 7.80% 5.46% 5.70% 3.63% 5.69% 4.22% 4.99%
Class B Shares(3) 9.23 7.01 4.69 4.93 4.73 5.98 4.35 4.93
Merril Lynch U.S.
Domestic Master
Index 5.20 3.98 4.57 5.95 -- -- -- --
Russell 1000(R) Index 16.02 11.90 7.92 6.38 -- -- -- --
</Table>
(2) Maximum Sales Charge is 5.75% for A Shares.
(3) Maximum Contingent Deferred Sales Charge is 4.5% for B Shares; reduced after
12 months and eliminated after six years.
(4) Assuming Maximum Applicable Sales Charge.
(5) Fund commenced investment operations on December 29, 1997.
- --------------------------------------------------------------------------------
11
LARGE CAP VALUE FUND PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Large Cap Value Fund seeks long-term capital growth with income as a
secondary consideration.
PORTFOLIO MANAGEMENT
Scott D. Opsal, CFA, at MEMBERS Capital Advisors is the lead portfolio manager
and is responsible for deciding which securities are purchased or sold in the
Large Cap Value Fund. He is supported by a team of sector specialists and
analysts.
PRINCIPAL INVESTMENT STRATEGIES
The Large Cap Value Fund will focus on stocks of companies with financial and
market strength and a long-term record of financial performance, and will,
under normal market conditions, maintain at least 80% of its assets in such
large cap stocks (generally a market capitalization of more than $10 billion or
the smallest companies in the Russell 1000(R) Value Index if smaller). The fund
generally follows what is known as a "value" approach which generally means
that the managers seek to invest in stocks at prices below their perceived
intrinsic value as estimated based on fundamental analysis of the issuing
company and its prospects. By investing in value stocks, the fund attempts to
limit the downside risk over time but may also produce smaller gains than other
stock funds if their intrinsic values are not realized by the market or if
growth-oriented investments are favored by investors.
- --------------------------------------------------------------------------------
U.S. stocks did well overall during the twelve-month period ended October 31,
2006, and large cap value stocks were among the leaders. The Russell 1000(R)
Value Index, for instance, gained 21.46% as several market sectors typically
associated with large cap value advanced strongly - financial stocks up about
20%, material stocks up 26%, and telecommunications stocks up 35%.
The MEMBERS Large Cap Value Fund (Class A shares at net asset value) provided
investors with a return of 18.75% for the period, modestly above Morningstar's
average for this fund category(1). The fund's performance versus the Russell
1000(R) Value Index was helped by management's decision to overweight health
care stocks, which benefited as pharmaceutical stocks rebounded, and underweight
utilities, a traditionally defensive area that proved to be the worst performing
area in the very bullish environment that prevailed for most of the year.
Also benefiting returns relative to the index were the fund's financial stocks,
particularly the capital markets firms Goldman Sachs (up more than 50%) and
Morgan Stanley (up more than 40%). Favorable stock selection in banks also
helped with Wells Fargo and AmSouth each gaining in excess of 24%. The fund's
exposure to energy stocks, especially to oil service through Cameron
International and Transocean, also aided returns as high energy prices spurred
oil and gas exploration and development.
Some of the stocks within the health care sector dampened relative returns,
including Glaxo Smith Kline, which reported disappointing earnings, and Watson
Pharmaceuticals due to its economically questionable acquisition of a
competitor. The fund's defensive posture within the technology sector also hurt
returns as traditionally more stable companies like Automatic Data Services,
Computer Sciences and Intel lagged in the period's generally buoyant economic
and market environment.
Looking ahead, we expect a fully invested but cautious stance will serve
investors well as the economy continues to slow. We are maintaining a modest
overweight in the energy services area and underweight in financial stocks,
especially those that are real estate related. The slowing economy should also
illustrate the benefits of the greater financial strength and breadth of markets
served of larger capitalization companies, a factor that is emphasized in the
fund's portfolio.
MEMBERS Capital Advisors, Inc. - Adviser
(1)Morningstar, Inc., an investment research and reporting company, compiles and
analyzes stock, mutual funds and variable annuity data, including performance
ratings and rankings. The Morningstar data for the Large Cap Value Fund is
based on total returns, without the inclusion of sales charges, of 1380 large
cap value funds for the 12-month period ended 10/31/2006. Past performance is
no guarantee of future results.
- --------------------------------------------------------------------------------
12
LARGE CAP VALUE FUND PERFORMANCE REVIEW
CUMULATIVE PERFORMANCE OF $10,000 SINCE INCEPTION(1)
(LINEGRAPH)
<Table>
<Caption>
CLASS A SHARES (INCLUDES CLASS B SHARES (INCLUDES
MAXIMUM SALES CHARGE)(2) MAXIMUM APPLICABLE CDSC)(3) RUSSELL 1000(R) VALUE INDEX
------------------------ --------------------------- ---------------------------
12/29/97 $ 9,425 $ 10,000 $ 10,000
10/98 $ 10,327 $ 10,447 $ 10,864
10/99 $ 12,634 $ 12,821 $ 12,659
10/00 $ 13,506 $ 13,682 $ 13,358
10/01 $ 10,748 $ 10,777 $ 11,773
10/02 $ 9,081 $ 9,295 $ 10,593
10/03 $ 10,801 $ 10,861 $ 13,017
10/04 $ 12,041 $ 12,134 $ 15,028
10/05 $ 13,193 $ 13,194 $ 16,811
10/06 $ 15,666 $ 15,550 $ 20,418
</Table>
(1)This chart compares a $10,000 investment made in the fund on its inception
date to a $10,000 investment made in the Index. All dividends and capital
gains are reinvested. Further information relating to the fund's performance,
including expense reimbursements, is contained in the Prospectus and
elsewhere in this report. Past performance is not indicative of future
performance. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than when
purchased. Indices are unmanaged and investors cannot invest in them. Index
returns do not reflect expenses or sales charges. The graph above and the
table below do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS
(PIE CHART)
<Table>
Consumer Discretionary 8%
Financials 34%
Cash and Other Net Assets 2%
Utilities 6%
Telecommunication Services 5%
Materials 4%
Information Technology 5%
Industrials 6%
Health Care 8%
Energy 15%
Consumer Staples 7%
</Table>
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 2006
<Table>
<Caption>
% RETURN WITHOUT SALES CHARGE % RETURN AFTER SALES CHARGE(4)
Since Since
1 Year 3 Years 5 Years Inception(5) 1 Year 3 Years 5 Years Inception(5)
----------------------------------------- -----------------------------------------
Class A Shares(2) 18.75% 13.20% 7.83% 5.92% 11.88% 11.00% 6.56% 5.21%
Class B Shares(3) 17.86 12.36 7.02 5.12 13.36 11.43 6.71 5.12
Class Y Shares(6) -- -- -- 10.02 -- -- -- --
Russell 1000(R) Value
Index 21.46 16.19 11.64 8.41 -- -- -- --
</Table>
(2) Maximum Sales Charge is 5.75% for A Shares.
(3) Maximum Contingent Deferred Sales Charge is 4.5% for B Shares; reduced after
12 months and eliminated after six years.
(4) Assuming Maximum Applicable Sales Charge.
(5) Class A and B Shares commenced investment operations on December 29, 1997;
Class Y Shares commenced investment operations on June 30, 2006.
(6) Only available for purchase by MEMBERS Funds and other affiliated asset
allocation funds.
- --------------------------------------------------------------------------------
13
LARGE CAP GROWTH FUND PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Large Cap Growth Fund seeks long-term capital appreciation.
PORTFOLIO MANAGEMENT
Bruce A. Ebel, CFA, at MEMBERS Capital Advisors is the lead portfolio manager
and is responsible for deciding which securities are purchased or sold in the
Large Cap Growth Fund. He is supported by a team of sector specialists and
analysts.
PRINCIPAL INVESTMENT STRATEGIES
The Large Cap Growth Fund invests primarily in common stocks, and will, under
normal market conditions, maintain at least 80% of its assets in such large cap
stocks (generally a market capitalization of more than $10 billion or the
smallest companies in the Russell 1000(R) Growth Index if smaller). The fund
seeks stocks that have low market prices relative to their perceived growth
capabilities as estimated based on fundamental analysis of the issuing
companies and their prospects. This is sometimes referred to as a "growth"
approach. Relative to the Large Cap Value Fund, the Large Cap Growth Fund will
seek more earnings growth capability in the stocks it purchases, and may
include some companies undergoing more significant changes in their operations
or experiencing significant changes in their markets. The fund will diversify
its holdings among various industries and among companies within those
industries.
- --------------------------------------------------------------------------------
The twelve-month period ended October 31, 2006 had a little something for
everyone - a strong economy and a slowing economy, rising interest rates and
flat to declining interest rates, a strongly advancing stock market and a
sharply falling stock market, and even periods of leadership by small-cap value
stocks and then by large-cap growth stocks. Periods like this are difficult for
investors, often masking what are actually reasonably attractive returns. This
was certainly the case this time.
The MEMBERS Large Cap Growth Fund (Class A shares at net asset value), provided
a return of 7.71% for the period ended October 31, 2006. The representative
market index - the Russell 1000(R) Growth Index - advanced 10.84%. Relative to
this Index, the fund's performance was helped primarily by its greater emphasis
on energy stocks, especially oil service company Weatherford, which advanced 31%
for the period on higher oil prices. Some materials stocks also advanced
strongly, including the fund's holding of Georgia Pacific, which gained 48% for
the fund before being acquired by privately held Koch Industries. Some consumer
staples stocks also were good contributors, including personal products company
Colgate-Palmolive, which was up 20% for the period and proved to be a timely
replacement for some of our Proctor & Gamble holding, which subsequently
under-performed.
Detractors from performance were led by an over-weighted position in information
technology stocks, which under-performed on average. Sizable gains in Cisco
(+48% for the period) and Apple Computer were diluted by declines in Dell and
EMC, both of which lost market share, and eBay and Yahoo! as investors moved
away from these high growth stocks to companies with slower but potentially
steadier growth prospects. Telecommunication services stocks also suffered,
especially the fund's holdings of Sprint as it failed to realize expected
economies of scale from its recent merger, and Neustar, which met fundamental
expectations, but still suffered price declines due to its increasingly
uncertain outlook. Performance was also hurt by the fund's under-weighted
position in consumer discretionary stocks, and by the underperformance of some
of its stocks like Cheesecake Factory and Chico's, both high quality companies
that reported modestly disappointing results and saw their stocks immediately
suffer declines in excess of 20%. At the same time, YUM! Brands gained in excess
of 20% as its KFC and Taco Bell brands reported strong growth.
Looking ahead, we believe we are at an inflection point where investors will
focus more and more on the larger, globally oriented growth stocks that now
comprise a significant portion of the fund. These stocks are attractively valued
based on historical relationships, yet should perform better in the expected
slowing domestic economy than less well established companies. With no major
market trend evidencing itself yet, however, we remain more diversified than
usual to minimize risk, but continue to seek those stocks that appear capable of
providing growth index-beating portfolio performance.
MEMBERS Capital Advisors, Inc. - Adviser
(1)Morningstar, Inc., an investment research and reporting company, compiles and
analyzes stock, mutual funds and variable annuity data, including performance
ratings and rankings. The Morningstar data for the Large Cap Growth Fund is
based on total returns, without the inclusion of sales charges, of 1380 large
cap growth funds for the 12-month period ended 10/31/2006. Past performance
is no guarantee of future results.
- --------------------------------------------------------------------------------
14
LARGE CAP GROWTH FUND PERFORMANCE REVIEW
CUMULATIVE PERFORMANCE OF $10,000 SINCE INCEPTION(1)
(LINEGRAPH)
<Table>
<Caption>
CLASS A SHARES (INCLUDES CLASS B SHARES (INCLUDES
MAXIMUM SALES MAXIMUM APPLICABLE RUSSELL 1000(R) GROWTH
CHARGE)(2) CDSC)(3) INDEX RUSSELL 1000(R) INDEX
------------------------ ------------------------ ---------------------- ---------------------
12/29/97 $ 9,425 $ 10,000 $ 10,000 $ 10,000
10/98 $ 10,415 $ 10,541 $ 12,318 $ 11,459
10/99 $ 12,945 $ 13,153 $ 16,537 $ 14,391
10/00 $ 15,550 $ 15,812 $ 18,080 $ 15,694
10/01 $ 12,116 $ 12,205 $ 10,858 $ 11,608
10/02 $ 9,142 $ 9,364 $ 8,728 $ 9,913
10/03 $ 11,278 $ 11,366 $ 10,632 $ 12,125
10/04 $ 12,218 $ 12,341 $ 10,991 $ 13,256
10/05 $ 13,026 $ 13,055 $ 11,960 $ 14,644
10/06 $ 14,031 $ 13,960 $ 13,256 $ 16,991
</Table>
(1)This chart compares a $10,000 investment made in the fund on its inception
date to a $10,000 investment made in the Index. All dividends and capital
gains are reinvested. Further information relating to the fund's performance,
including expense reimbursements, is contained in the Prospectus and
elsewhere in this report. Past performance is not indicative of future
performance. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than when
purchased. Indices are unmanaged and investors cannot invest in them. Index
returns do not reflect expenses or sales charges. The graph above and the
table below do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS
(PIE CHART)
<Table>
Consumer Discretionary 12%
Energy 5%
Financials 9%
Industrials 11%
Information Technology 27%
Cash and Other Net Assets 3%
Utilities 1%
Materials 2%
Telecommunication Services 2%
Health Care 18%
Consumer Staples 10%
</Table>
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 2006
<Table>
<Caption>
% RETURN WITHOUT SALES CHARGE % RETURN AFTER SALES CHARGE(4)
Since Since
1 Year 3 Years 5 Years Inception(5) 1 Year 3 Years 5 Years Inception(5)
----------------------------------------- -----------------------------------------
Class A Shares(2) 7.71% 7.55% 2.98% 4.60% 1.50% 5.46% 1.77% 3.90%
Class B Shares(3) 6.93 6.78 2.23 3.85 2.43 5.75 1.86 3.85
Class Y Shares(6) -- -- -- 7.37 -- -- -- --
Russell 1000(R) Index 16.02 11.90 7.92 6.18 -- -- -- --
Russell 1000(R) Growth
Index 10.84 7.63 4.07 3.24 -- -- -- --
</Table>
(2) Maximum Sales Charge is 5.75% for A Shares.
(3) Maximum Contingent Deferred Sales Charge is 4.5% for B Shares; reduced after
12 months and eliminated after six years.
(4) Assuming Maximum Applicable Sales Charge.
(5) Class A and B Shares commenced investment operations on December 29, 1997;
Class Y Shares commenced investment operations on June 30, 2006.
(6) Only available for purchase by MEMBERS Funds and other affiliated asset
allocation funds.
- --------------------------------------------------------------------------------
15
MID CAP VALUE FUND PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Mid Cap Value Fund seeks long-term capital appreciation.
PORTFOLIO MANAGEMENT
Livia S. Asher at MEMBERS Capital Advisors ("MCA") currently manages the
majority of the assets of the fund and is responsible for deciding which
securities are purchased or sold in the portion of the Mid Cap Value Fund MCA
manages. She is supported by a team of sector specialists and analysts. MCA as
adviser may use one or more subadvisers with any of the MEMBERS Funds under a
"manager of managers" approach. Wellington Management Company, LLP ("Wellington
Management") is currently the only subadviser for the Mid Cap Value Fund,
focusing on the smaller-cap portion of the fund. Stephen T. O'Brien, CFA, at
Wellington Management is the lead portfolio manager of this portion of the
fund. He is assisted by Timothy J. McCormack CFA, and Shaun F. Pedersen.
PRINCIPAL INVESTMENT STRATEGIES
The Mid Cap Value Fund invests primarily in common stocks of midsize and
smaller companies (generally a market capitalization of less than $15 billion
or the largest companies in the Russell 2500(TM) Value Index if greater), and
will under normal market conditions, maintain at least 80% of its assets in
such mid cap securities. However, the fund will not automatically sell a stock
just because its market capitalization has changed, and such positions may be
increased through additional purchases.
The fund seeks stocks in this midsize to smaller range that have a low market
price relative to their value as estimated based on fundamental analysis of the
issuing company and its prospects. This is sometimes referred to as a "value"
approach. The Mid Cap Value Fund includes smaller, less developed issuers,
which may have difficulty competing with larger companies, but the successful
ones tend to grow faster than larger companies, using profits to expand rather
than to pay dividends.
- --------------------------------------------------------------------------------
For the fiscal year ended October 31, 2006, the MEMBERS Mid Cap Value Fund
(Class A shares at net asset value) returned 17.93%, a return that modestly
exceeded that of the average mid cap value fund according to Morningstar(1). The
fund's representative market index, the Russell Midcap(R) Value Index(2),
returned 20.51% with the easing of investor concerns about rising interest rates
and the prospects for a "hard landing."
The fund's performance relative to the index was aided by its stock selection in
the consumer areas, particularly Archer Daniels Midland and Hain
Celestial - Archer Daniels being an alternative energy play and Hain providing
good exposure to the organic and health food areas. Being over-weighted in
energy helped early in the year, but had become a negative by the end of the
year, partially due to the underperformance of Pioneer Natural Resources as its
recent operating results disappointed investors.
The fund's underweight position in financials and over-weight in utilities aided
returns, as did our selection of utilities stocks. Within financials, our
unwillingness (after six years of outperformance by the group) to add REITs to
reach a full index weighting hurt our returns as REITs continued to outperform.
Fortunately, the issues we did own were the right ones - Kimco, ProLogis and
Vornado all outperformed the group.
Overall, the fund's results were further dampened by its lesser exposure to
large cap stocks compared with the Russell Midcap(R) Value Index (even though it
is identified as a "mid cap" index), and to lower beta (less volatile) stocks.
We will continue to focus on lower beta, mid cap stocks, and believe that this
will serve investors well as the economy continues to slow.
MEMBERS Capital Advisors, Inc. - Adviser
Wellington Management Company, LLP - Subadviser
(1)Morningstar, Inc., an investment research and reporting company, compiles and
analyzes stock, mutual funds and variable annuity data, including performance
ratings and rankings. The Morningstar data for the Mid Cap Value Fund is
based on total returns, without the inclusion of sales charges, of 469 mid
cap value funds for the 12-month period ended 10/31/2006. Past performance is
no guarantee of future results.
(2)Effective October 31, 2006, the Mid Cap Value Fund's representative market
index is being changed from the Russell 2500(TM) Value Index to the Russell
Midcap(R) Value Index. The Russell Midcap(R) Value Index will reflect the
fund's use of primarily mid-cap stocks as described in the prospectus. Also,
our analysis of the fund's representative Morningstar peer group - mid cap
value funds - shows a higher correlation with the Russell Midcap(R) Value
Index than with the Russell 2500(TM) Value Index. The fund's investment
objective has not changed, nor have the investment philosophies and
strategies with which the fund is managed.
- --------------------------------------------------------------------------------
16
MID CAP VALUE FUND PERFORMANCE REVIEW
CUMULATIVE PERFORMANCE OF $10,000 SINCE INCEPTION(1)
(LINEGRAPH)
<Table>
<Caption>
CLASS A SHARES (INCLUDES CLASS B SHARES (INCLUDES
MAXIMUM SALES MAXIMUM APPLICABLE RUSSELL MID-CAP(R) RUSSELL 2500(TM) VALUE
CHARGE)(2) CDSC)(3) VALUE INDEX INDEX
------------------------ ------------------------ ------------------ ----------------------
2/28/01 $ 9,425 $ 10,000 $ 10,000 $ 10,000
10/01 $ 8,935 $ 9,006 $ 9,255 $ 9,563
10/02 $ 8,149 $ 8,540 $ 8,980 $ 9,438
10/03 $ 10,488 $ 10,560 $ 11,986 $ 13,145
10/04 $ 11,733 $ 11,790 $ 14,352 $ 15,487
10/05 $ 13,370 $ 13,471 $ 17,151 $ 17,909
10/06 $ 15,768 $ 15,899 $ 20,670 $ 21,468
</Table>
(1)This chart compares a $10,000 investment made in the fund on its inception
date to a $10,000 investment made in the Index. All dividends and capital
gains are reinvested. Further information relating to the fund's performance,
including expense reimbursements, is contained in the Prospectus and
elsewhere in this report. Past performance is not indicative of future
performance. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than when
purchased. Indices are unmanaged and investors cannot invest in them. Index
returns do not reflect expenses or sales charges. The graph above and the
table below do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS
(PIE CHART)
<Table>
Consumer Discretionary 13%
Energy 5%
Financials 30%
Cash and Other Net Assets 4%
Telecommunication Services 2%
Utilities 13%
Materials 5%
Information Technology 7%
Industrials 9%
Health Care 4%
Consumer Staples 8%
</Table>
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 2006
<Table>
<Caption>
% RETURN WITHOUT SALES CHARGE % RETURN AFTER SALES CHARGE(4)
Since Since
1 Year 3 Years 5 Years Inception(5) 1 Year 3 Years 5 Years Inception(5)
----------------------------------------- -----------------------------------------
Class A Shares(2) 17.93% 14.56% 12.03% 9.49% 11.14% 12.31% 10.71% 8.36%
Class B Shares(3) 17.04 13.61 11.15 8.64 12.54 12.70 10.87 8.52
Class Y Shares(6) -- -- -- 6.95 -- -- -- --
Russell Midcap(R)
Value Index 20.51 19.92 17.43 13.65 -- -- -- --
Russell 2500(TM) Value
Index 19.87 17.76 17.56 14.41 -- -- -- --
</Table>
(2) Maximum Sales Charge is 5.75% for A Shares.
(3) Maximum Contingent Deferred Sales Charge is 4.5% for B Shares; reduced after
12 months and eliminated after six years.
(4) Assuming Maximum Applicable Sales Charge.
(5) Class A and B Shares commenced investment operations on February 28, 2001;
Class Y Shares commenced investment operations on June 30, 2006.
(6) Only available for purchase by MEMBERS Funds and other affiliated asset
allocation funds.
- --------------------------------------------------------------------------------
17
MID CAP GROWTH FUND PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Mid Cap Growth Fund seeks long-term capital appreciation.
PORTFOLIO MANAGEMENT
MEMBERS Capital Advisors as adviser may use one or more subadvisers with any of
the MEMBERS Funds under a "manager of managers" approach. Wellington Management
Company, LLP ("Wellington Management") is currently the only subadviser for the
Mid Cap Growth Fund. Francis J. Boggan, CFA, at Wellington Management is the
lead portfolio manager responsible for deciding which securities are purchased
or sold in the Mid Cap Growth Fund.
PRINCIPAL INVESTMENT STRATEGIES
The Mid Cap Growth Fund invests generally in common stocks, securities
convertible into common stocks and related equity securities of mid-size and
smaller companies (generally a market capitalization of less than $15 billion
or the largest companies in the Russell 2500(TM) Growth Index if greater).
Under normal market conditions, the fund will maintain at least 80% of its
assets in such mid cap securities. The fund seeks attractive long-term returns
through bottom-up security selection based on fundamental analysis in a
diversified portfolio of high-quality growth companies with attractive
valuations. These will typically be industry-leading companies in niches with
strong growth prospects. The fund seeks stocks of such companies at
price-earnings valuations approximately equal to the company's expected long-
term, sustainable growth rate.
- --------------------------------------------------------------------------------
The MEMBERS Mid Cap Growth Fund returned 16.98% (Class A shares at net asset
value) during the twelve month period ended October 31, 2006, outperforming the
Russell 2500(TM) Growth Index return of 15.56% and the Russell Midcap(R) Growth
Index of 14.51%(1).
Favorable stock selection produced positive benchmark-relative returns during
the twelve-month period. Stock selection was strongest within the information
technology, financials and health care sectors. The fund's overweight allocation
to the strong performing financials sector also contributed positively to
performance. Positive relative results were somewhat offset by weak stock
selection in telecommunication services, and our underweight to the materials
sector.
Key individual contributors to relative performance were Alliance Data Systems
(software & services), Michaels Stores (retailing), and First Marblehead
(diversified financials). Credit services provider, Alliance Data Systems,
gained momentum as new marketing business initiatives to accelerate growth
improved, in addition to a recent stock repurchase. Michaels Stores, an arts and
crafts retailer, had strong performance until two private equity investor groups
agreed to take the company private. First Marblehead, an industry leader in
educational loan servicing, advanced on news that a pending securitization of
student loans would generate higher than expected fee revenues. Positive results
were partially offset by poor performers D R Horton (consumer durables), Jos A
Bank Clothiers (retailing) and Omnicare (health care). D R Horton, a
homebuilding company, fell on weak earnings. Jos. A. Bank Clothiers, a uniquely
profitable designer and retailer of private label menswear, reported
disappointing comparable store sales in June led to aggressive selling in the
stock. Omnicare, a geriatric pharmaceutical services company, was adversely
impacted by new reimbursement changes under Medicare Part D.
A mid-cycle slowdown is underway and the housing correction is leading the way.
We expect further price and transaction weakness ahead. Consumers continue to
face headwinds and fading sources of stimulus. We will continue to apply a
bottom-up investment process in constructing a diversified portfolio. The fund
seeks to apply a combination of fundamental and quantitative research analysis
to build a portfolio diversifying across all sectors of the Russell 2500(TM)
Growth Index. As a result of the fund's investment approach, sector positioning
is in-line with the Russell 2500(TM) Growth Index, resulting in the greatest
exposure to information technology, consumer discretionary and health care
sectors.
MEMBERS Capital Advisors, Inc. - Adviser
Wellington Management Company, LLP - Subadviser
(1)The Mid Cap Growth Fund's representative market index is being changed from
the Russell 2500(TM) Growth Index to the Russell Midcap(R) Growth Index. The
Russell Midcap(R) Growth Index will reflect the fund's use of primarily
mid-cap stocks as described in the prospectus. Also, our analysis of the
fund's representative Morningstar peer group - mid cap growth funds - shows a
higher correlation with the Russell Midcap(R) Growth Index than with the
Russell 2500(TM) Growth Index. The fund's investment objective has not
changed, nor have the investment philosophies and strategies with which the
fund is managed.
- --------------------------------------------------------------------------------
18
MID CAP GROWTH FUND PERFORMANCE REVIEW
CUMULATIVE PERFORMANCE OF $10,000 SINCE INCEPTION(1)
(LINEGRAPH)
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES
(INCLUDES MAXIMUM (INCLUDES MAXIMUM RUSSELL 2500(TM) RUSSELL MIDCAP(R) RUSSELL 3000(R)
SALES CHARGE)(2) APPLICABLE CDSC)(3) GROWTH INDEX GROWTH INDEX GROWTH INDEX
----------------- ------------------- ---------------- ----------------- ---------------
2/29/00 $ 9,425 $ 10,000 $ 10,000 $ 10,000 $ 10,000
10/00 $ 7,417 $ 7,478 $ 8,097 $ 9,164 $ 9,222
10/01 $ 4,024 $ 4,051 $ 5,416 $ 5,244 $ 5,594
10/02 $ 3,289 $ 3,420 $ 4,298 $ 4,320 $ 4,491
10/03 $ 4,204 $ 4,210 $ 6,222 $ 6,018 $ 5,540
10/04 $ 4,552 $ 4,577 $ 6,603 $ 6,545 $ 5,736
10/05 $ 5,052 $ 5,089 $ 7,516 $ 7,587 $ 6,251
10/06 $ 5,910 $ 5,970 $ 8,686 $ 8,688 $ 6,963
</Table>
(1)This chart compares a $10,000 investment made in the fund on its inception
date to a $10,000 investment made in the Index. All dividends and capital
gains are reinvested. Further information relating to the fund's performance,
including expense reimbursements, is contained in the Prospectus and
elsewhere in this report. Past performance is not indicative of future
performance. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than when
purchased. Indices are unmanaged and investors cannot invest in them. Index
returns do not reflect expenses or sales charges. The graph above and the
table below do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS
(PIE CHART)
<Table>
Consumer Discretionary 18%
Financials 13%
Information Technology 25%
Cash and Other Net Assets 4%
Telecommunication Services 1%
Industrials 14%
Health Care 15%
Consumer Staples 1%
Energy 9%
</Table>
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 2006
<Table>
<Caption>
% RETURN WITHOUT SALES CHARGE % RETURN AFTER SALES CHARGE(4)
Since Since
1 Year 3 Years 5 Years Inception(5) 1 Year 3 Years 5 Years Inception(5)
----------------------------------------- -----------------------------------------
Class A Shares(2) 16.98% 12.02% 7.99% -6.76% 10.19% 9.85% 6.72% -7.58%
Class B Shares(3) 16.15 11.21 7.18 -7.44 11.65 10.26 6.88 -7.44
Class Y Shares(6) -- -- -- 7.53 -- -- -- --
Russell 3000(R) Growth
Index 11.39 7.92 4.48 -5.28 -- -- -- --
Russell 2500(TM)
Growth Index 15.56 11.76 9.91 -2.09 -- -- -- --
Russell Midcap(R)
Growth Index 14.51 13.02 10.62 -2.09 -- -- -- --
</Table>
(2) Maximum Sales Charge is 5.75% for A Shares.
(3) Maximum Contingent Deferred Sales Charge is 4.5% for B Shares; reduced after
12 months and eliminated after six years.
(4) Assuming Maximum Applicable Sales Charge.
(5) Class A and B Shares commenced investment operations on February 29, 2000;
Class Y Shares commenced investment operations on June 30, 2006.
(6) Only available for purchase by MEMBERS Funds and other affiliated asset
allocation funds.
- --------------------------------------------------------------------------------
19
INTERNATIONAL STOCK FUND PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The International Stock Fund seeks long-term growth of capital.
PORTFOLIO MANAGEMENT
MEMBERS Capital Advisors as adviser may use one or more subadvisers with any of
the MEMBERS Funds under a "manager of managers" approach. Lazard Asset
Management LLC is currently the only subadviser for the International Stock
Fund. Lazard manages the fund on team basis. John R. Reinsberg, CFA; Gabrielle
M. Boyle, CFA; Michael A. Bennett, CFA; Michael Powers, CFA; James Donald, CFA;
Brian Pessin, CFA; and Michael G. Fry, CFA, are the funds co-primary portfolio
managers responsible for deciding which securities are purchased or sold in the
International Stock Fund.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the International Stock Fund invests at least
80% of its assets in foreign equity securities. Foreign equity securities are
securities that are issued by companies organized or whose principal operations
are outside the U.S., are principally traded outside of the U.S., or are quoted
or denominated in a foreign currency. Equity securities include common stocks,
securities convertible into common stocks, preferred stocks, and other
securities representing equity interests such as American Depository Receipts
("ADRs" -- receipts typically issued by a U.S. financial institution which
evidence ownership of underlying securities of foreign corporate issuers),
European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs").
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. financial
institution similar to that for ADRs and are designed for use in non-U.S.
securities markets. The fund may also invest in debt securities, foreign money
market instruments, and other income bearing securities as well as forward
foreign currency exchange contracts and other derivative securities and
contracts. The fund always holds securities of issuers located in at least
three countries other than the U.S.
- --------------------------------------------------------------------------------
During the twelve month period ended October 31, 2006, the MEMBERS International
Stock Fund returned 25.11% (Class A Shares at net asset value), modestly
underperforming the MSCI EAFE Index return of 28.04% for the same period. The
MSCI EAFE Small Cap Index (World ex US) and MSCI Emerging Markets Free Index
returned 21.94% and 35.42% respectively.
International markets rebounded in the fourth quarter of 2005 following a mostly
lackluster year. This performance continued into the first quarter of 2006 as
continued strong profit growth coupled with merger and acquisition activity
fueled the rally. In May, following comments by Federal Reserve Chairman Ben
Bernanke about accelerating inflation and market concerns about continued Fed
Funds rate hikes, broad international markets sold off dramatically between May
and June. The traditionally more volatile emerging markets sector was impacted
most heavily by this activity. Following the sell-off, international markets
rebounded during the last four months of this period as Federal Reserve
Governors left the benchmark Fed Funds rate unchanged for three consecutive
meetings. Further helping returns was news of benign inflationary expectations
in Europe and Japan. Finally, a sharp retreat in oil prices due to easing
geopolitical concerns and continued corporate earnings strength aided the
recovery. During the period, stock selection in the consumer discretionary
sector benefited performance. An overweight position and stock selection in
financials also boosted returns, as did an underweight position and stock
selection in Japan. Conversely, stock selection in the telecom services and
health care sectors detracted from returns. Stock selection in Europe also hurt
returns. The fund's moderate exposure to emerging markets stock was a
significant contributor to the fund's performance while its small cap stock
exposure was a modest detractor.
In a departure from recent history, the fiscal year ended with a rebound in
larger, more developed companies and markets versus their less-developed,
smaller capitalization brethren. Due to its relative value approach, the
portfolio is well positioned for continued strength in larger, more developed
companies with stable, diverse earnings streams. While valuations in emerging
markets and small capitalization stocks have recovered substantially, we feel
that the portfolio will continue to benefit from exposure to these areas. Our
outlook is for the trend of moderating economic activity to favor larger,
diversified companies with multiple, global, and diversified earnings streams.
MEMBERS Capital Advisors, Inc. - Adviser
Lazard Asset Management LLC - Subadviser
- --------------------------------------------------------------------------------
20
INTERNATIONAL STOCK FUND PERFORMANCE REVIEW
CUMULATIVE PERFORMANCE OF $10,000 SINCE INCEPTION(1)
(LINEGRAPH)
<Table>
<Caption>
MORGAN STANLEY INTERNATIONAL
CLASS A SHARES (INCLUDES CLASS B SHARES (INCLUDES EUROPE, AUSTRALASIA & FAR EAST
MAXIMUM SALES CHARGE)(2) MAXIMUM APPLICABLE CDSC)(3) INDEX (MSCI EAFE INDEX)
------------------------ --------------------------- ------------------------------
12/29/97 $ 9,425 $ 10,000 $ 10,000
10/98 $ 9,764 $ 9,840 $ 11,090
10/99 $ 11,413 $ 11,545 $ 13,681
10/00 $ 10,353 $ 10,413 $ 13,317
10/01 $ 7,984 $ 8,017 $ 10,031
10/02 $ 7,646 $ 7,826 $ 8,734
10/03 $ 9,822 $ 9,885 $ 11,141
10/04 $ 11,743 $ 11,835 $ 13,288
10/05 $ 14,187 $ 14,202 $ 15,758
10/06 $ 17,750 $ 17,635 $ 20,177
</Table>
(1)This chart compares a $10,000 investment made in the fund on its inception
date to a $10,000 investment made in the Index. All dividends and capital
gains are reinvested. Further information relating to the fund's performance,
including expense reimbursements, is contained in the Prospectus and
elsewhere in this report. Past performance is not indicative of future
performance. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than when
purchased. Indices are unmanaged and investors cannot invest in them. Index
returns do not reflect expenses or sales charges. The graph above and the
table below do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
GEOGRAPHICAL ALLOCATION AS A PERCENTAGE OF NET ASSETS
(PIE CHART)
<Table>
Africa 2%
Europe (excluding United Kingdom) 42%
Pacific Basin 6%
Other Countries 3%
Cash and Other Net Assets 5%
United Kingdom 21%
Latin America 4%
Japan 17%
</Table>
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 2006
<Table>
<Caption>
% RETURN WITHOUT SALES CHARGE % RETURN AFTER SALES CHARGE(4)
Since Since
1 Year 3 Years 5 Years Inception(5) 1 Year 3 Years 5 Years Inception(5)
----------------------------------------- -----------------------------------------
Class A Shares(2) 25.11% 21.81% 17.33% 7.42% 17.94% 19.44% 15.93% 6.71%
Class B Shares(3) 24.18 20.93 16.45 6.63 19.68 20.12 16.23 6.63
Class Y Shares(6) -- -- -- 7.62 -- -- -- --
MSCI EAFE Index 28.04 21.89 15.00 8.26 -- -- -- --
</Table>
(2) Maximum Sales Charge is 5.75% for A Shares.
(3) Maximum Contingent Deferred Sales Charge is 4.5% for B Shares; reduced after
12 months and eliminated after six years.
(4) Assuming Maximum Applicable Sales Charge.
(5) Class A and B Shares commenced investment operations on December 29, 1997;
Class Y Shares commenced investment operations on June 30, 2006.
(6) Only available for purchase by MEMBERS Funds and other affiliated asset
allocation funds.
- --------------------------------------------------------------------------------
21
CONSERVATIVE ALLOCATION FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
INVESTMENT COMPANIES - 99.2%
- -------------------------------------------------------------------------------------------------------------
ALTERNATIVE ASSET CLASSES - 6.21%
3,847 Cohen & Steers Institutional Realty Shares, Inc. ............................... $ 226,775
-----------
DEBT SECURITIES - 53.30%
27,665 Dodge & Cox Income Fund......................................................... 348,308
109,293 MEMBERS Bond Fund Class Y....................................................... 1,079,813
22,968 MEMBERS High Income Fund Class Y................................................ 169,044
33,761 Western Asset Intermediate Bond Portfolio....................................... 349,760
-----------
1,946,925
-----------
EQUITY SECURITIES - 23.15%
27,263 MEMBERS Large Cap Growth Fund Class Y........................................... 401,310
20,266 MEMBERS Large Cap Value Fund Class Y............................................ 313,714
20,789 MEMBERS Mid Cap Growth Fund Class Y*............................................ 130,552
-----------
845,576
-----------
FOREIGN SECURITIES - 4.95%
11,545 MEMBERS International Stock Fund Class Y........................................ 181,025
-----------
MONEY MARKET SECURITIES - 11.59%
423,177 MEMBERS Cash Reserves Fund Class Y.............................................. 423,177
116 SSgA Prime Money Market Fund.................................................... 116
-----------
423,293
-----------
TOTAL INVESTMENT COMPANIES - 99.20%
( Cost $3,536,336** )........................................................... 3,623,594
NET OTHER ASSETS AND LIABILITIES - 0.80%
- -------------------------------------------------------------------------------------------------------------
29,307
TOTAL NET ASSETS - 100.00%
- -------------------------------------------------------------------------------------------------------------
$ 3,652,901
- -------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing.
** Aggregate cost for Federal tax purposes was
$3,536,993.
- --------------------------------------------------------------------------------
22
See accompanying Notes to Financial Statements.
MODERATE ALLOCATION FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
INVESTMENT COMPANIES - 99.41%
- -------------------------------------------------------------------------------------------------------------
ALTERNATIVE ASSET CLASSES - 4.93%
10,070 Cohen & Steers Institutional Realty Shares, Inc. ............................... $ 593,631
-----------
DEBT SECURITIES - 28.41%
121,238 MEMBERS Bond Fund Class Y....................................................... 1,197,836
109,168 MEMBERS High Income Fund Class Y................................................ 803,478
137,307 Western Asset Intermediate Bond Portfolio....................................... 1,422,503
-----------
3,423,817
-----------
EQUITY SECURITIES - 48.56%
128,062 MEMBERS Large Cap Growth Fund Class Y........................................... 1,885,076
87,713 MEMBERS Large Cap Value Fund Class Y............................................ 1,357,791
240,080 MEMBERS Mid Cap Growth Fund Class Y*............................................ 1,507,700
62,670 MEMBERS Mid Cap Value Fund Class Y.............................................. 974,522
1,800 Vanguard Emerging Markets ETF................................................... 126,990
-----------
5,852,079
-----------
FOREIGN SECURITIES - 12.57%
96,584 MEMBERS International Stock Fund Class Y........................................ 1,514,433
-----------
MONEY MARKET SECURITIES - 4.94%
587,248 MEMBERS Cash Reserves Fund Class Y.............................................. 587,248
8,300 SSgA Prime Money Market Fund.................................................... 8,300
-----------
595,548
-----------
TOTAL INVESTMENT COMPANIES - 99.41%
( Cost $11,601,748** ).......................................................... 11,979,508
NET OTHER ASSETS AND LIABILITIES - 0.59%
- -------------------------------------------------------------------------------------------------------------
71,281
TOTAL NET ASSETS - 100.00%
- -------------------------------------------------------------------------------------------------------------
$ 12,050,789
- -------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing.
** Aggregate cost for Federal tax purposes was was
$11,602,249.
ETF Exchange Traded Fund.
- --------------------------------------------------------------------------------
23
See accompanying Notes to Financial Statements.
AGGRESSIVE ALLOCATION FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
INVESTMENT COMPANIES - 99.19%
- -------------------------------------------------------------------------------------------------------------
ALTERNATIVE ASSET CLASSES - 4.00%
2,607 Cohen & Steers Institutional Realty Shares, Inc. ............................... $ 153,708
-----------
EQUITY SECURITIES - 71.29%
52,342 MEMBERS Large Cap Growth Fund Class Y........................................... 770,474
35,011 MEMBERS Large Cap Value Fund Class Y............................................ 541,972
111,744 MEMBERS Mid Cap Growth Fund Class Y*............................................ 701,753
38,321 MEMBERS Mid Cap Value Fund Class Y.............................................. 595,886
1,800 Vanguard Emerging Markets ETF................................................... 126,990
-----------
2,737,075
-----------
FOREIGN SECURITIES - 23.90%
58,513 MEMBERS International Stock Fund Class Y........................................ 917,484
-----------
MONEY MARKET SECURITIES - 0.03%
984 SSgA Prime Money Market Fund.................................................... 984
-----------
TOTAL INVESTMENT COMPANIES - 99.22%
( Cost $3,615,218** )........................................................... 3,809,251
NET OTHER ASSETS AND LIABILITIES - 0.78%
- -------------------------------------------------------------------------------------------------------------
30,026
TOTAL NET ASSETS - 100.00%
- -------------------------------------------------------------------------------------------------------------
$ 3,839,277
- -------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing.
** Aggregate cost for Federal tax purposes was
$3,615,721.
ETF Exchange Traded Fund.
- --------------------------------------------------------------------------------
24
See accompanying Notes to Financial Statements.
CASH RESERVES FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 90.74%
- -------------------------------------------------------------------------------------------------------------
FEDERAL AGRICULTURAL MORTGAGE CORP. (A) - 15.04%
$ 770,000 5.090%, due 11/01/06............................................................ $ 770,000
650,000 5.150%, due 11/27/06............................................................ 647,582
650,000 5.100%, due 01/09/07............................................................ 643,646
350,000 5.100%, due 01/16/07............................................................ 346,232
300,000 5.110%, due 01/16/07............................................................ 296,764
-----------
2,704,224
-----------
FEDERAL FARM CREDIT BANK - 15.18%
375,000 5.090%, due 11/02/06 (A)........................................................ 374,947
137,000 5.120%, due 11/15/06 (A)........................................................ 136,727
100,000 5.210%, due 11/15/06 (A)........................................................ 99,797
500,000 5.090%, due 11/17/06 (A)........................................................ 498,869
700,000 2.700%, due 11/24/06............................................................ 698,856
240,000 5.100%, due 11/29/06 (A)........................................................ 239,048
96,000 5.110%, due 12/04/06 (A)........................................................ 95,550
115,000 5.120%, due 12/04/06 (A)........................................................ 114,460
100,000 5.100%, due 12/27/06 (A)........................................................ 99,207
375,000 5.090%, due 01/12/07 (A)........................................................ 371,183
-----------
2,728,644
-----------
FEDERAL HOME LOAN BANK - 23.98%
100,000 5.090%, due 11/03/06 (A)........................................................ 99,972
100,000 5.099%, due 11/03/06 (A)........................................................ 99,972
350,000 5.095%, due 11/08/06 (A)........................................................ 349,653
450,000 5.115%, due 11/10/06 (A)........................................................ 449,425
650,000 5.081%, due 11/15/06 (A)........................................................ 648,716
253,000 5.130%, due 11/15/06 (A)........................................................ 252,495
208,000 5.100%, due 12/11/06 (A)........................................................ 206,821
210,000 5.130%, due 12/15/06 (A)........................................................ 208,683
223,000 5.090%, due 01/10/07 (A)........................................................ 220,793
109,000 5.090%, due 01/22/07 (A)........................................................ 107,736
171,000 5.200%, due 02/02/07 (A)........................................................ 168,703
400,000 4.000%, due 04/05/07............................................................ 397,725
600,000 5.350%, due 11/15/07 (H)........................................................ 600,000
500,000 5.250%, due 05/16/07............................................................ 499,571
-----------
4,310,265
-----------
FEDERAL HOME LOAN MORTGAGE CORP. - 13.48%
397,000 5.075%, due 11/14/06 (A)........................................................ 396,272
500,000 5.150%, due 11/28/06 (A)........................................................ 498,069
136,000 5.095%, due 01/19/07 (A)........................................................ 134,479
200,000 5.110%, due 01/23/07 (A)........................................................ 197,644
1,000,000 5.010%, due 01/26/07 (G)........................................................ 1,000,000
200,000 5.070%, due 02/28/07 (A)........................................................ 196,648
-----------
2,423,112
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (A) - 15.86%
200,000 5.080%, due 11/01/06............................................................ 200,000
268,000 5.100%, due 11/17/06............................................................ 267,393
100,000 5.080%, due 12/01/06............................................................ 99,577
221,000 5.300%, due 12/06/06............................................................ 219,861
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (A) (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
$ 115,000 5.080%, due 12/11/06............................................................ $ 114,351
20,000 5.110%, due 12/22/06............................................................ 19,855
700,000 5.090%, due 01/10/07............................................................ 693,072
41,000 5.090%, due 01/22/07............................................................ 40,525
275,000 5.172%, due 01/26/07............................................................ 271,602
300,000 5.180%, due 01/26/07............................................................ 296,288
500,000 5.173%, due 01/31/07............................................................ 493,462
137,000 5.085%, due 02/16/07............................................................ 134,929
-----------
2,850,915
-----------
TENNESSEE VALLEY AUTHORITY (A) - 3.88%
700,000 5.040%, due 11/30/06............................................................ 697,158
-----------
U.S. TREASURY BILLS (A) - 3.32%
600,000 4.736%, due 11/30/06............................................................ 597,711
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
( Cost $16,312,029 )............................................................ 16,312,029
<Caption>
Shares
- ------
INVESTMENT COMPANIES - 8.28%
- -------------------------------------------------------------------------------------------------------------
734,897 J.P. Morgan Prime Money Market Fund............................................. 734,897
754,173 SSgA Prime Money Market Fund (N)................................................ 754,173
-----------
TOTAL INVESTMENT COMPANIES
( Cost $1,489,070 )............................................................. 1,489,070
TOTAL INVESTMENTS - 99.02%
- -------------------------------------------------------------------------------------------------------------
( Cost $17,801,099** )........................................................................... 17,801,099
NET OTHER ASSETS AND LIABILITIES - 0.98%
- -------------------------------------------------------------------------------------------------------------
175,412
TOTAL NET ASSETS - 100.00%
- -------------------------------------------------------------------------------------------------------------
$ 17,976,511
- -------------------------------------------------------------------------------------------------------------
</Table>
** Aggregate cost for Federal tax purposes was
$17,801,099.
(A) Rate noted represents annualized yield at time of
purchase.
(G) Floating rate note. Date shown is next reset date.
(H) Security purchased on a delayed delivery or when-
issued basis. Rate shown is at issue date.
(N) Security segregated for forward or when-issued
purchase commitments outstanding as of October 31, 2006.
- --------------------------------------------------------------------------------
25
See accompanying Notes to Financial Statements.
BOND FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
ASSET BACKED - 6.67%
- -------------------------------------------------------------------------------------------------------------
$ 64,040 ABSC Long Beach Home Equity Loan Trust,
Series 2000-LB1, Class AF5 (M)
8.550%, due 09/21/30............................................................ $ 63,829
300,000 Ameriquest Mortgage Securities, Inc.,
Series 2004-FR1, Class M2 (M)
5.207%, due 05/25/34............................................................ 294,421
860,000 Citibank Credit Card Issuance Trust,
Series 2004-A1, Class A1
2.550%, due 01/20/09............................................................ 854,799
464,137 Countrywide Asset-Backed Certificates,
Series 2003-S1, Class A4 (M)
5.009%, due 12/25/32............................................................ 462,183
560,000 GMAC Mortgage Corp. Loan Trust,
Series 2004-HE2, Class M1
3.950%, due 10/25/33............................................................ 546,850
424,461 Green Tree Financial Corp.,
Series 1998-2, Class A6
6.810%, due 12/01/27............................................................ 438,374
772,000 GSAMP Trust,
Series 2006-S5, Class M5 (M)
7.488%, due 09/25/36............................................................ 772,000
1,500,000 New Century Home Equity Loan Trust,
Series 2003-5, Class AI5
5.500%, due 11/25/33............................................................ 1,501,208
580,000 Park Place Securities, Inc.,
Series 2004-WWF1, Class M10 (G)(M)
7.820%, due 12/25/34............................................................ 581,084
613,999 Residential Asset Mortgage Products, Inc.,
Series 2003-RS9, Class AI5
4.990%, due 03/25/31............................................................ 609,200
315,000 Soundview Home Equity Loan Trust,
Series 2005-B, Class M6 (M)
6.175%, due 05/25/35............................................................ 313,877
440,000 Wells Fargo Home Equity Trust,
Series 2004-2, Class M8A (C)(G)
8.320%, due 05/25/34............................................................ 434,875
-----------
TOTAL ASSET BACKED
( Cost $6,880,660 )............................................................. 6,872,700
COMMERCIAL MORTGAGE BACKED - 10.10%
- -------------------------------------------------------------------------------------------------------------
530,309 Bear Stearns Commercial Mortgage Securities,
Series 2001-TOP4, Class A1
5.060%, due 11/15/16............................................................ 528,692
640,000 Bear Stearns Commercial Mortgage Securities,
Series 2003-TOP10, Class E(C)(G)
5.540%, due 03/13/40............................................................ 640,354
503,679 Bear Stearns Commercial Mortgage Securities,
Series 2004-T16, Class A2
3.700%, due 02/13/46............................................................ 491,616
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
COMMERCIAL MORTGAGE BACKED (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
$ 525,000 Bear Stearns Commercial Mortgage Securities,
Series 2004-T16, Class A6 (G)
4.750%, due 02/13/46............................................................ $ 508,093
325,000 Bear Stearns Commercial Mortgage Securities,
Series 2005-T20, Class F (C)(G)
5.132%, due 10/12/42............................................................ 317,106
1,100,000 Government National Mortgage Association,
Series 2004-43, Class C (G)
5.008%, due 12/16/25............................................................ 1,088,809
1,200,000 Greenwich Capital Commercial Funding Corp.,
Series 2004-GG1, Class A7 (G)
5.317%, due 06/10/36............................................................ 1,203,371
1,000,000 LB-UBS Commercial Mortgage Trust,
Series 2004-C1, Class A2
3.624%, due 01/15/29............................................................ 965,786
800,000 LB-UBS Commercial Mortgage Trust,
Series 2004-C8, Class A6 (G)
4.799%, due 12/15/29............................................................ 776,495
1,150,000 Morgan Stanley Capital I,
Series 2004-HQ4, Class A7
4.970%, due 04/14/40............................................................ 1,126,981
500,000 Morgan Stanley Capital I,
Series 2004-T13, Class A3
4.390%, due 09/13/45............................................................ 481,630
330,000 Multi Security Asset Trust,
Series 2005-RR4A, Class J (C)
5.880%, due 11/28/35............................................................ 298,236
735,114 Wachovia Bank Commercial Mortgage Trust,
Series 2003-C6, Class A1
3.364%, due 08/15/35............................................................ 716,686
1,295,000 Wachovia Bank Commercial Mortgage Trust,
Series 2003-C8, Class A2
3.894%, due 11/15/35............................................................ 1,264,607
-----------
TOTAL COMMERCIAL MORTGAGE BACKED
( Cost $10,518,507 )............................................................ 10,408,462
PRIVATE LABEL MORTGAGE BACKED - 2.85%
- -------------------------------------------------------------------------------------------------------------
1,012,061 Bank of America Alternative Loan Trust,
Series 2005-12, Class 3CB1
6.000%, due 01/25/36............................................................ 1,015,687
1,912,149 Bank of America Alternative Loan Trust,
Series 2006-3, Class 2CB1
6.000%, due 04/25/36............................................................ 1,917,180
-----------
TOTAL PRIVATE LABEL MORTGAGE BACKED
( Cost $2,892,617 )............................................................. 2,932,867
</Table>
- --------------------------------------------------------------------------------
26
See accompanying Notes to Financial Statements.
BOND FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
CORPORATE NOTES AND BONDS - 23.52%
- -------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY - 2.17%
$ 750,000 American Association of Retired Persons (C)
7.500%, due 05/01/31............................................................ $ 934,588
700,000 Carnival Corp. (D)
3.750%, due 11/15/07............................................................ 687,385
575,000 Erac USA Finance Co. (C)
6.700%, due 06/01/34............................................................ 610,218
-----------
2,232,191
-----------
CONSUMER STAPLES - 1.07%
750,000 Coca-Cola Enterprises, Inc. (O)
4.375%, due 09/15/09............................................................ 736,115
365,000 Diageo Capital PLC (D)
5.500%, due 09/30/16............................................................ 362,321
-----------
1,098,436
-----------
ENERGY - 1.21%
240,000 Hess Corp.
7.875%, due 10/01/29............................................................ 285,163
400,000 Pemex Project Funding Master Trust
7.375%, due 12/15/14............................................................ 439,000
450,000 Valero Energy Corp. (O)
7.500%, due 04/15/32............................................................ 524,384
-----------
1,248,547
-----------
FINANCE - 5.37%
500,000 AIG SunAmerica Global Financing XII (C)
5.300%, due 05/30/07............................................................ 499,724
500,000 American General Finance Corp.,
Series H
4.625%, due 09/01/10............................................................ 488,650
500,000 Bear Stearns Cos., Inc.
7.800%, due 08/15/07............................................................ 509,368
500,000 CIT Group, Inc.
7.375%, due 04/02/07............................................................ 504,132
290,000 GE Insurance Solutions Corp.
7.000%, due 02/15/26............................................................ 320,411
330,000 GE Insurance Solutions Corp.
7.750%, due 06/15/30............................................................ 398,167
750,000 Goldman Sachs Group, Inc.
5.700%, due 09/01/12............................................................ 764,120
750,000 HSBC Finance Corp.
6.500%, due 11/15/08............................................................ 768,253
500,000 U.S. Bank N.A.
6.300%, due 02/04/14............................................................ 531,099
750,000 Wachovia Corp.
4.950%, due 11/01/06............................................................ 750,000
5,533,924
FORESTRY/PAPER - 0.35%
325,000 Westvaco Corp.
8.200%, due 01/15/30............................................................ 364,433
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
HEALTH CARE - 1.43%
$ 500,000 Eli Lilly & Co.
6.570%, due 01/01/16............................................................ $ 543,678
325,000 Genentech, Inc.
5.250%, due 07/15/35............................................................ 307,493
345,000 Merck & Co., Inc.
6.400%, due 03/01/28............................................................ 370,552
230,000 Wyeth
6.500%, due 02/01/34............................................................ 251,885
-----------
1,473,608
-----------
INDUSTRIALS - 5.10%
240,000 Boeing Co.
8.625%, due 11/15/31............................................................ 334,215
215,000 D.R. Horton, Inc. (O)
5.250%, due 02/15/15............................................................ 199,533
500,000 DaimlerChrysler N.A. Holding Corp.
4.750%, due 01/15/08............................................................ 495,264
1,000,000 Dow Chemical Co.
5.750%, due 12/15/08............................................................ 1,011,372
800,000 General Electric Co.
5.000%, due 02/01/13............................................................ 792,952
250,000 General Motors Acceptance Corp. LLC
6.125%, due 08/28/07............................................................ 249,197
500,000 General Motors Acceptance Corp. LLC
7.250%, due 03/02/11............................................................ 509,434
215,000 Pulte Homes, Inc.
5.200%, due 02/15/15............................................................ 203,304
192,000 Raytheon Co.
4.500%, due 11/15/07............................................................ 190,123
235,000 Waste Management, Inc.
7.125%, due 12/15/17............................................................ 260,842
500,000 Weyerhaeuser Co. (O)
6.875%, due 12/15/33............................................................ 497,135
525,000 WM Wrigley Jr. Co.
4.300%, due 07/15/10............................................................ 511,106
-----------
5,254,477
-----------
MEDIA - 0.93%
450,000 Comcast Cable Communications Holdings, Inc.
8.375%, due 03/15/13............................................................ 514,040
455,000 Rogers Cable, Inc. (D)
6.250%, due 06/15/13............................................................ 449,312
-----------
963,352
-----------
PIPELINE - 0.33%
345,000 KN Energy, Inc.
7.250%, due 03/01/28............................................................ 338,715
REAL ESTATE INVESTMENT TRUSTS - 0.26%
270,000 Simon Property Group L.P.
5.625%, due 08/15/14............................................................ 273,200
</Table>
- --------------------------------------------------------------------------------
27
See accompanying Notes to Financial Statements.
BOND FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
CORPORATE NOTES AND BONDS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 1.11%
$ 400,000 Cisco Systems, Inc.
5.500%, due 02/22/16............................................................ $ 404,610
250,000 Verizon Wireless Capital LLC
5.375%, due 12/15/06............................................................ 249,946
500,000 Vodafone Group PLC (D)(O)
5.000%, due 12/16/13............................................................ 484,032
-----------
1,138,588
-----------
TRANSPORTATION - 1.13%
285,000 Burlington Northern Santa Fe Corp.
8.125%, due 04/15/20............................................................ 348,996
359,000 Norfolk Southern Corp.
5.590%, due 05/17/25............................................................ 353,699
390,000 Norfolk Southern Corp.
7.050%, due 05/01/37............................................................ 458,090
-----------
1,160,785
-----------
UTILITIES - 3.06%
500,000 Energy East Corp.
8.050%, due 11/15/10............................................................ 545,208
550,000 Exelon Corp.
4.900%, due 06/15/15............................................................ 520,048
450,000 Illinois Power Co.
7.500%, due 06/15/09............................................................ 469,148
285,000 Pacific Gas & Electric Co.
6.050%, due 03/01/34............................................................ 291,129
250,000 Progress Energy, Inc.
7.750%, due 03/01/31............................................................ 304,472
200,000 Sierra Pacific Power Co.
6.000%, due 05/15/16............................................................ 202,192
750,000 Wisconsin Electric Power
6.500%, due 06/01/28............................................................ 817,035
-----------
3,149,232
-----------
TOTAL CORPORATE NOTES AND BONDS
( Cost $23,990,559 )............................................................ 24,229,488
MORTGAGE BACKED - 28.86%
- -------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. - 4.02%
753,372 5.000%, due 05/01/18
Pool # E96322................................................................... 743,319
7,778 8.000%, due 06/01/30
Pool # C01005................................................................... 8,181
8,786 7.000%, due 03/01/31
Pool # C48133................................................................... 9,072
140,827 6.500%, due 01/01/32
Pool # C62333................................................................... 144,410
2,415,793 5.000%, due 07/01/33
Pool # A11325................................................................... 2,340,138
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
MORTGAGE BACKED (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. (CONTINUED)
$ 247,267 6.000%, due 10/01/34
Pool # A28439................................................................... $ 249,279
241,732 6.000%, due 10/01/34
Pool # A28598................................................................... 243,699
216,486 5.000%, due 04/01/35
Pool # A32315................................................................... 209,264
200,469 5.000%, due 04/01/35
Pool # A32316................................................................... 193,781
-----------
4,141,143
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 24.70%
1,229,607 4.000%, due 04/01/15
Pool # 255719................................................................... 1,179,475
889,804 5.500%, due 04/01/16
Pool # 745444................................................................... 893,562
56,590 6.000%, due 05/01/16
Pool # 582558................................................................... 57,525
788,112 5.500%, due 02/01/18
Pool # 673194................................................................... 790,726
921,535 5.000%, due 05/01/20
Pool # 813965................................................................... 907,743
1,074,590 4.500%, due 09/01/20
Pool # 835465................................................................... 1,039,750
100,739 6.000%, due 05/01/21
Pool # 253847................................................................... 102,322
38,827 7.000%, due 12/01/29
Pool # 762813................................................................... 40,152
96,695 7.000%, due 11/01/31
Pool # 607515................................................................... 99,852
469,497 6.500%, due 03/01/32
Pool # 631377................................................................... 480,958
2,338 7.000%, due 04/01/32
Pool # 641518................................................................... 2,413
40,528 7.000%, due 05/01/32
Pool # 644591................................................................... 41,852
1,130,849 6.500%, due 06/01/32
Pool # 545691................................................................... 1,158,453
381,495 6.000%, due 12/01/32
Pool # 676552................................................................... 385,188
2,136,991 5.500%, due 04/01/33
Pool # 690206................................................................... 2,117,515
1,020,478 5.000%, due 10/01/33
Pool # 254903................................................................... 987,731
1,620,148 5.500%, due 11/01/33
Pool # 555880................................................................... 1,605,383
156,182 5.000%, due 05/01/34
Pool # 775604................................................................... 151,080
391,701 5.000%, due 05/01/34
Pool # 780890................................................................... 378,905
</Table>
- --------------------------------------------------------------------------------
28
See accompanying Notes to Financial Statements.
BOND FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
MORTGAGE BACKED (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 243,394 5.000%, due 06/01/34
Pool # 255230................................................................... $ 235,442
2,043,288 5.500%, due 06/01/34
Pool # 780384................................................................... 2,022,807
26,656 7.000%, due 07/01/34
Pool # 792636................................................................... 27,463
384,972 5.500%, due 08/01/34
Pool # 793647................................................................... 381,113
1,617,510 5.500%, due 03/01/35
Pool # 815976................................................................... 1,599,389
725,476 5.500%, due 07/01/35
Pool # 825283................................................................... 717,349
1,023,430 5.000%, due 08/01/35
Pool # 829670................................................................... 988,427
457,759 5.500%, due 08/01/35
Pool # 826872................................................................... 452,631
795,153 5.000%, due 09/01/35
Pool # 820347................................................................... 767,957
834,905 5.000%, due 09/01/35
Pool # 835699................................................................... 806,350
1,042,801 5.000%, due 10/01/35
Pool # 797669................................................................... 1,007,136
1,085,971 5.500%, due 10/01/35
Pool # 836912................................................................... 1,073,805
904,856 5.000%, due 11/01/35
Pool # 844504................................................................... 873,909
1,050,432 5.000%, due 11/01/35
Pool # 844809................................................................... 1,014,506
1,097,480 5.000%, due 12/01/35
Pool # 850561................................................................... 1,059,944
-----------
25,448,813
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.14%
22,814 8.000%, due 10/20/15
Pool # 002995................................................................... 24,074
66,987 6.500%, due 02/20/29
Pool # 002714................................................................... 68,838
45,058 6.500%, due 04/20/31
Pool # 003068................................................................... 46,268
-----------
139,180
-----------
TOTAL MORTGAGE BACKED
( Cost $29,982,509 )............................................................ 29,729,136
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 22.53%
- -------------------------------------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK - 0.52%
$ 500,000 5.875%, due 10/03/16............................................................ $ 535,084
-----------
FEDERAL HOME LOAN MORTGAGE CORP. - 2.80%
2,500,000 4.875%, due 11/15/13............................................................ 2,488,915
400,000 4.500%, due 01/15/14............................................................ 389,175
-----------
2,878,090
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.55%
1,400,000 4.000%, due 09/02/08............................................................ 1,374,941
1,095,000 4.625%, due 10/15/14............................................................ 1,073,796
1,000,000 6.625%, due 11/15/30............................................................ 1,206,725
-----------
3,655,462
-----------
U.S. TREASURY BONDS - 1.68%
1,245,000 6.250%, due 05/15/30 (O)........................................................ 1,503,338
210,000 5.375%, due 02/15/31 (O)........................................................ 227,998
-----------
1,731,336
-----------
U.S. TREASURY NOTES - 13.98%
1,615,000 2.625%, due 11/15/06 (O)........................................................ 1,613,359
750,000 2.875%, due 11/30/06 (O)........................................................ 748,564
1,500,000 3.125%, due 01/31/07............................................................ 1,492,792
1,000,000 4.000%, due 08/31/07 (O)........................................................ 992,070
1,040,000 3.000%, due 11/15/07 (O)........................................................ 1,020,176
830,000 3.750%, due 05/15/08 (O)........................................................ 817,744
625,000 3.000%, due 02/15/09 (O)........................................................ 602,783
650,000 3.875%, due 05/15/10 (O)........................................................ 635,198
300,000 3.875%, due 09/15/10 (O)........................................................ 292,594
100,000 4.500%, due 11/15/10 (O)........................................................ 99,727
350,000 4.750%, due 03/31/11 (O)........................................................ 352,365
3,600,000 4.875%, due 02/15/12 (O)........................................................ 3,653,860
2,100,000 4.500%, due 11/15/15 (O)........................................................ 2,084,086
-----------
14,405,318
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
( Cost $23,016,401 )............................................................ 23,205,290
CERTIFICATE OF DEPOSIT - 0.31%
- -------------------------------------------------------------------------------------------------------------
323,872 State Street Eurodollar
2.800%, due 11/01/06............................................................ 323,872
TOTAL CERTIFICATE OF DEPOSIT
( Cost $323,872 )............................................................... 323,872
</Table>
- --------------------------------------------------------------------------------
29
See accompanying Notes to Financial Statements.
BOND FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
INVESTMENT COMPANIES - 21.44%
- -------------------------------------------------------------------------------------------------------------
4,615,603 SSgA Prime Money Market Fund.................................................... $ 4,615,603
17,471,094 State Street Navigator Securities Lending Portfolio (I)......................... 17,471,094
-----------
TOTAL INVESTMENT COMPANIES
( Cost $22,086,697 )............................................................ 22,086,697
TOTAL INVESTMENTS - 116.28%
- -------------------------------------------------------------------------------------------------------------
( Cost $119,691,822** )......................................................................... 119,788,512
NET OTHER ASSETS AND LIABILITIES - (16.28)%
- -------------------------------------------------------------------------------------------------------------
(16,768,384)
TOTAL NET ASSETS - 100.00%
- -------------------------------------------------------------------------------------------------------------
$ 103,020,128
- -------------------------------------------------------------------------------------------------------------
</Table>
** Aggregate cost for Federal tax purposes was
$119,799,374.
(C) Security sold within terms of a private placement
memorandum exempt from registration under section 144A of the Securities
Act of 1933, as amended, and may be sold only to dealers in that program or
other "qualified institutional investors." The securities have been
determined to be liquid under guidelines established by the Board of
Trustees.
(D) Notes and bonds, issued by foreign entities,
denominated in U.S. dollars. The aggregate of these securities is 1.92% of
total net assets.
(G) Floating rate or variable rate note. Rate shown is
as of October 31, 2006.
(I) Represents investments of cash collateral received
in connection with securities lending.
(M) Stated interest rate is contingent upon sufficient
collateral market value. If collateral market value falls below a stated
level, the issuer will either initiate a clean-up call or increase the
stated interest rate.
(O) All (or portion of security) on loan.
PLC Public Limited Company.
- --------------------------------------------------------------------------------
30
See accompanying Notes to Financial Statements.
HIGH INCOME FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
CORPORATE NOTES AND BONDS - 95.44%
- -------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE - 2.60%
$ 300,000 Argo-Tech Corp.
9.250%, due 06/01/11............................................................ $ 311,250
250,000 Armor Holdings, Inc.
8.250%, due 08/15/13............................................................ 258,750
274,000 DI Finance/ DynCorp International,
Series B
9.500%, due 02/15/13............................................................ 284,960
200,000 DRS Technologies, Inc.
7.625%, due 02/01/18............................................................ 204,500
195,000 K&F Acquisition, Inc.
7.750%, due 11/15/14............................................................ 197,438
205,000 L-3 Communications Corp.
6.125%, due 01/15/14............................................................ 201,925
-----------
1,458,823
-----------
APPAREL/TEXTILES - 1.20%
200,000 Levi Strauss & Co. (G)(O)
10.122%, due 04/01/12........................................................... 206,250
250,000 Oxford Industries, Inc.
8.875%, due 06/01/11............................................................ 256,562
200,000 Warnaco, Inc.
8.875%, due 06/15/13............................................................ 209,000
-----------
671,812
-----------
AUTOMOTIVE - 3.14%
250,000 Ford Motor Credit Co.
6.625%, due 06/16/08............................................................ 245,280
500,000 Ford Motor Credit Co. (G)
9.824%, due 04/15/12............................................................ 521,489
250,000 General Motors Acceptance Corp. LLC (O)
6.750%, due 12/01/14............................................................ 247,859
250,000 Goodyear Tire & Rubber Co. (O)
7.857%, due 08/15/11............................................................ 241,875
500,000 United Components, Inc. (O)
9.375%, due 06/15/13............................................................ 505,000
-----------
1,761,503
-----------
BEVERAGE/FOOD - 2.27%
150,000 B&G Foods, Inc.
8.000%, due 10/01/11............................................................ 152,625
250,000 Del Monte Corp. (O)
6.750%, due 02/15/15............................................................ 244,688
125,000 Michael Foods, Inc.
8.000%, due 11/15/13............................................................ 129,062
250,000 NBTY, Inc. (O)
7.125%, due 10/01/15............................................................ 243,125
500,000 Pinnacle Foods Group, Inc. (O)
8.250%, due 12/01/13............................................................ 501,250
-----------
1,270,750
-----------
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
BUILDING MATERIALS - 3.14%
$ 300,000 Goodman Global Holdings, Inc. (O)
7.875%, due 12/15/12............................................................ $ 288,000
500,000 Interface, Inc.
7.300%, due 04/01/08............................................................ 503,750
172,000 Interface, Inc.
10.375%, due 02/01/10........................................................... 188,340
250,000 Interline Brands, Inc.
8.125%, due 06/15/14............................................................ 255,625
265,000 Jacuzzi Brands, Inc.
9.625%, due 07/01/10............................................................ 283,881
250,000 U.S. Concrete, Inc. (C)
8.375%, due 04/01/14............................................................ 240,000
-----------
1,759,596
-----------
CHEMICALS - 4.75%
110,000 Equistar Chemicals L.P./ Equistar Funding Corp.
10.625%, due 05/01/11........................................................... 117,700
150,000 Hexion U.S. Finance Corp./ Hexion Nova Scotia Finance ULC (O)
9.000%, due 07/15/14............................................................ 168,750
150,000 Hexion U.S. Finance Corp./ Hexion Nova Scotia Finance ULC (C)(G)(H)
1.000%, due 11/15/14............................................................ 149,437
350,000 Hexion U.S. Finance Corp./ Hexion Nova Scotia Finance ULC (C)(H)
9.750%, due 11/15/14............................................................ 349,125
268,000 Huntsman International LLC (O)
10.125%, due 07/01/09........................................................... 272,020
250,000 Ineos Group Holdings PLC (C)(D)
8.500%, due 02/15/16............................................................ 240,625
200,000 Lyondell Chemical Co.
8.000%, due 09/15/14............................................................ 204,500
300,000 Lyondell Chemical Co.
8.250%, due 09/15/16............................................................ 309,000
60,000 Nalco Co. (O)
7.750%, due 11/15/11............................................................ 61,050
160,000 Nalco Co. (O)
8.875%, due 11/15/13............................................................ 168,400
</Table>
- --------------------------------------------------------------------------------
31
See accompanying Notes to Financial Statements.
HIGH INCOME FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
CORPORATE NOTES AND BONDS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
CHEMICALS (CONTINUED)
$ 143,000 Rhodia S.A. (D)(O)
10.250%, due 06/01/10........................................................... $ 161,947
150,000 Rhodia S.A. (D)(O)
8.875%, due 06/01/11............................................................ 157,500
95,000 Rockwood Specialties Group, Inc.
10.625%, due 05/15/11........................................................... 101,888
200,000 Rockwood Specialties Group, Inc.
7.500%, due 11/15/14............................................................ 199,000
-----------
2,660,942
-----------
CONSUMER PRODUCTS - 4.20%
250,000 American Achievement Corp. (O)
8.250%, due 04/01/12............................................................ 255,000
300,000 Central Garden and Pet Co.
9.125%, due 02/01/13............................................................ 313,500
185,000 Da-Lite Screen Co., Inc.
9.500%, due 05/15/11............................................................ 195,175
150,000 Jarden Corp. (O)
9.750%, due 05/01/12............................................................ 158,625
300,000 Leslie's Poolmart
7.750%, due 02/01/13............................................................ 295,500
175,000 Playtex Products, Inc. (O)
9.375%, due 06/01/11............................................................ 182,000
400,000 Simmons Bedding Co. (O)
7.875%, due 01/15/14............................................................ 395,000
300,000 Visant Corp.
7.625%, due 10/01/12............................................................ 303,000
250,000 Visant Holding Corp. (O)
8.750%, due 12/01/13............................................................ 256,250
-----------
2,354,050
-----------
ENVIRONMENTAL - 2.02%
250,000 Allied Waste North America, Inc., Series B
7.125%, due 05/15/16............................................................ 247,500
350,000 Casella Waste Systems, Inc.
9.750%, due 02/01/13............................................................ 367,500
250,000 Waste Connections, Inc. (O)(P)
3.750%, due 04/01/26............................................................ 259,688
250,000 WCA Waste Corp. (C)
9.250%, due 06/15/14............................................................ 258,750
-----------
1,133,438
-----------
FOOD & DRUG RETAILERS - 2.24%
100,000 Ingles Markets, Inc.
8.875%, due 12/01/11............................................................ 104,250
500,000 Rite Aid Corp.
7.125%, due 01/15/07............................................................ 500,625
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
FOOD & DRUG RETAILERS (CONTINUED)
$ 250,000 Rite Aid Corp.
9.250%, due 06/01/13............................................................ $ 244,375
150,000 Stater Brothers Holdings
8.125%, due 06/15/12............................................................ 151,125
250,000 Supervalu, Inc.
7.500%, due 11/15/14............................................................ 254,292
-----------
1,254,667
-----------
FORESTRY/PAPER - 4.92%
150,000 Abitibi-Consolidated Co. of Canada (D)(O)
8.375%, due 04/01/15............................................................ 130,688
250,000 Abitibi-Consolidated, Inc. (D)(G)
8.890%, due 06/15/11............................................................ 241,250
250,000 Boise Cascade LLC
7.125%, due 10/15/14............................................................ 235,625
200,000 Boise Cascade LLC,
Series B (G)(O)
8.249%, due 10/15/12............................................................ 202,000
250,000 Cascades, Inc. (D)
7.250%, due 02/15/13............................................................ 245,000
250,000 Catalyst Paper Corp. (D)
7.375%, due 03/01/14............................................................ 231,875
200,000 Catalyst Paper Corp.,
Series D (D)(O)
8.625%, due 06/15/11............................................................ 200,000
250,000 NewPage Corp. (O)
10.000%, due 05/01/12........................................................... 261,875
220,000 Smurfit Kappa Funding PLC (D)
9.625%, due 10/01/12............................................................ 232,925
258,000 Smurfit-Stone Container Enterprises, Inc.
9.750%, due 02/01/11............................................................ 266,062
250,000 Verso Paper Holdings LLC and Verson Paper, Inc. (C)(G)
9.235%, due 08/01/14............................................................ 252,500
250,000 Verso Paper Holdings LLC and Verson Paper, Inc. (C)(O)
11.375%, due 08/01/16........................................................... 253,750
-----------
2,753,550
-----------
GAMING - 6.42%
300,000 American Casino & Entertainment Properties LLC
7.850%, due 02/01/12............................................................ 305,250
</Table>
- --------------------------------------------------------------------------------
32
See accompanying Notes to Financial Statements.
HIGH INCOME FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
CORPORATE NOTES AND BONDS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
GAMING (CONTINUED)
$ 100,000 Chukchansi Economic Development Authority (C) (G)
8.780%, due 11/15/12............................................................ $ 103,500
250,000 Chukchansi Economic Development Authority (C)
8.000%, due 11/15/13............................................................ 260,000
195,000 Global Cash Access LLC/ Global Cash Finance Corp.
8.750%, due 03/15/12............................................................ 205,969
300,000 Hard Rock Hotel, Inc.
8.875%, due 06/01/13............................................................ 322,500
250,000 Herbst Gaming, Inc.
7.000%, due 11/15/14............................................................ 241,562
350,000 Isle of Capri Casinos, Inc.
9.000%, due 03/15/12............................................................ 366,625
125,000 Isle of Capri Casinos, Inc.
7.000%, due 03/01/14............................................................ 120,000
400,000 MTR Gaming Group, Inc.,
Series B
9.750%, due 04/01/10............................................................ 420,000
200,000 Pinnacle Entertainment, Inc.
8.250%, due 03/15/12............................................................ 203,000
150,000 Pinnacle Entertainment, Inc. (O)
8.750%, due 10/01/13............................................................ 157,875
200,000 Seneca Gaming Corp.
7.250%, due 05/01/12............................................................ 201,250
200,000 Seneca Gaming Corp.,
Series B
7.250%, due 05/01/12............................................................ 201,250
250,000 Station Casinos, Inc. (O)
6.875%, due 03/01/16............................................................ 229,375
250,000 Station Casinos, Inc.
7.750%, due 08/15/16............................................................ 256,875
-----------
3,595,031
-----------
GENERAL INDUSTRIAL & MANUFACTURING - 1.17%
250,000 Chart Industries, Inc./ Pre First Reserve Fund X L.P. Merger (C)
9.125%, due 10/15/15............................................................ 261,250
130,000 Mueller Group, Inc.
10.000%, due 05/01/12........................................................... 141,700
250,000 Wesco Distribution, Inc.
7.500%, due 10/15/17............................................................ 252,500
-----------
655,450
-----------
HEALTH CARE - 4.09%
200,000 Alderwoods Group, Inc.
7.750%, due 09/15/12............................................................ 215,750
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
HEALTH CARE (CONTINUED)
$ 350,000 Carriage Services, Inc.
7.875%, due 01/15/15............................................................ $ 343,875
300,000 DaVita, Inc.
7.250%, due 03/15/15............................................................ 298,500
100,000 Fisher Scientific International, Inc.
6.125%, due 07/01/15............................................................ 99,250
250,000 Omnicare, Inc.,
Series OCR (P)
3.250%, due 12/15/35............................................................ 211,875
200,000 Psychiatric Solutions, Inc.
7.750%, due 07/15/15............................................................ 198,000
250,000 Res-Care, Inc.
7.750%, due 10/15/13............................................................ 248,750
150,000 Service Corp. International (C)
7.375%, due 10/01/14............................................................ 154,125
200,000 Service Corp. International (C) (O)
7.625%, due 10/01/18............................................................ 205,500
150,000 Triad Hospitals, Inc. (O)
7.000%, due 11/15/13............................................................ 145,875
162,000 Warner Chilcott Corp.
8.750%, due 02/01/15............................................................ 167,265
-----------
2,288,765
-----------
HOTELS - 0.55%
300,000 Gaylord Entertainment Co.
8.000%, due 11/15/13............................................................ 305,250
-----------
MEDIA - BROADCASTING - 2.65%
260,000 Allbritton Communications Co.
7.750%, due 12/15/12............................................................ 261,300
250,000 Gray Television, Inc. (O)
9.250%, due 12/15/11............................................................ 261,562
50,000 LIN Television Corp. (O)
6.500%, due 05/15/13............................................................ 47,438
250,000 LIN Television Corp. (P)
2.500%, due 05/15/33............................................................ 234,062
300,000 LIN Television Corp.,
Series B
6.500%, due 05/15/13............................................................ 284,625
150,000 Radio One, Inc. (O)
6.375%, due 02/15/13............................................................ 139,500
250,000 Sinclair Broadcast Group, Inc.
8.000%, due 03/15/12............................................................ 257,500
-----------
1,485,987
-----------
</Table>
- --------------------------------------------------------------------------------
33
See accompanying Notes to Financial Statements.
HIGH INCOME FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
CORPORATE NOTES AND BONDS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
MEDIA - CABLE - 5.89%
$ 300,000 Cablevision Systems Corp.,
Series B (G)
9.870%, due 04/01/09............................................................ $ 314,250
150,000 Cablevision Systems Corp.,
Series B
8.000%, due 04/15/12............................................................ 145,688
200,000 Insight Communications Co., Inc.
12.250%, due 02/15/11........................................................... 211,000
200,000 Insight Midwest L.P./ Insight Capital, Inc.
10.500%, due 11/01/10........................................................... 207,000
500,000 Kabel Deutschland GmbH (C)(D)
10.625%, due 07/01/14........................................................... 540,625
300,000 Lodgenet Entertainment Corp.
9.500%, due 06/15/13............................................................ 321,000
250,000 Mediacom Broadband LLC (O)
8.500%, due 10/15/15............................................................ 249,688
250,000 Mediacom LLC/ Mediacom Capital Corp. (O)
9.500%, due 01/15/13............................................................ 256,562
350,000 NTL Cable PLC (D)
9.125%, due 08/15/16............................................................ 367,937
500,000 Telenet Group Holding N.V. (B)(C)(D)
0.000%, due 06/15/14............................................................ 449,375
250,000 Videotron Ltee (D)
6.375%, due 12/15/15............................................................ 238,750
-----------
3,301,875
-----------
MEDIA - DIVERSIFIED & SERVICES - 3.68%
250,000 Advanstar Communications, Inc.
10.750%, due 08/15/10........................................................... 269,063
200,000 Advanstar Communications, Inc., Series B
12.000%, due 02/15/11........................................................... 209,750
250,000 Hughes Network Systems LLC/ HNS Finance Corp. (C)
9.500%, due 04/15/14............................................................ 258,750
150,000 Intelsat Bermuda, Ltd. (C)(D)
9.250%, due 06/15/16............................................................ 160,125
300,000 Intelsat Bermuda, Ltd. (C)(D)
11.250%, due 06/15/16........................................................... 326,625
150,000 Intelsat Subsidiary Holding Co., Ltd. (G)
10.484%, due 01/15/12........................................................... 152,062
125,000 Lamar Media Corp. (O)
7.250%, due 01/01/13............................................................ 125,625
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
MEDIA - DIVERSIFIED & SERVICES (CONTINUED)
$ 100,000 Lamar Media Corp. (O)
6.625%, due 08/15/15............................................................ $ 96,250
200,000 LBI Media, Inc.
10.125%, due 07/15/12........................................................... 212,750
250,000 Quebecor Media, Inc. (D)
7.750%, due 03/15/16............................................................ 252,500
-----------
2,063,500
-----------
METALS AND MINING - 2.11%
400,000 Alpha Natural Resources LLC/ Alpha Natural Resources Capital Corp.
10.000%, due 06/01/12........................................................... 430,000
250,000 Arch Western Finance LLC
6.750%, due 07/01/13............................................................ 241,250
200,000 Foundation PA Coal Co.
7.250%, due 08/01/14............................................................ 198,500
300,000 Peabody Energy Corp.
7.375%, due 11/01/16............................................................ 312,000
-----------
1,181,750
-----------
NON FOOD & DRUG RETAILERS - 2.53%
200,000 Affinity Group, Inc.
9.000%, due 02/15/12............................................................ 199,000
250,000 Autonation, Inc. (G)
7.374%, due 04/15/13............................................................ 251,875
300,000 Buhrmann U.S., Inc.
7.875%, due 03/01/15............................................................ 285,000
50,000 Burlington Coat Factory Warehouse Corp. (C)
11.125%, due 04/15/14........................................................... 49,188
100,000 GSC Holdings Corp. (G)(O)
9.247%, due 10/01/11............................................................ 104,000
150,000 Pantry, Inc.
7.750%, due 02/15/14............................................................ 151,875
100,000 Petro Stopping Centers L.P./ Petro Financial Corp.
9.000%, due 02/15/12............................................................ 102,250
250,000 Stripes Acquisition LLC/ Susser Finance Corp. (C)
10.625%, due 12/15/13........................................................... 271,250
-----------
1,414,438
-----------
OIL & GAS - 5.04%
166,000 Chesapeake Energy Corp.
6.875%, due 01/15/16............................................................ 164,755
300,000 Compton Petroleum Finance Corp.
7.625%, due 12/01/13............................................................ 284,250
250,000 Comstock Resources, Inc.
6.875%, due 03/01/12............................................................ 236,562
</Table>
- --------------------------------------------------------------------------------
34
See accompanying Notes to Financial Statements.
HIGH INCOME FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
CORPORATE NOTES AND BONDS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
OIL & GAS (CONTINUED)
$ 250,000 Denbury Resources, Inc.
7.500%, due 04/01/13............................................................ $ 251,250
175,000 Encore Acquisition Co.
6.250%, due 04/15/14............................................................ 162,750
200,000 Encore Acquisition Co. (O)
6.000%, due 07/15/15............................................................ 182,500
215,000 Exco Resources, Inc.
7.250%, due 01/15/11............................................................ 206,938
190,000 Hanover Compressor Co.
9.000%, due 06/01/14............................................................ 202,350
250,000 Harvest Operations Corp. (D)(O)
7.875%, due 10/15/11............................................................ 237,500
200,000 PetroHawk Energy Corp. (C)
9.125%, due 07/15/13............................................................ 204,000
190,000 Plains Exploration & Production Co.
7.125%, due 06/15/14............................................................ 203,775
300,000 Range Resources Corp.
6.375%, due 03/15/15............................................................ 288,000
200,000 Whiting Petroleum Corp.
7.250%, due 05/01/13............................................................ 197,500
-----------
2,822,130
-----------
PACKAGING - 1.20%
250,000 BWAY Corp.
10.000%, due 10/15/10........................................................... 262,500
250,000 Crown Americas LLC/ Crown Americas Capital Corp.
7.625%, due 11/15/13............................................................ 256,250
150,000 Owens-Brockway Glass Container, Inc.
8.875%, due 02/15/09............................................................ 153,750
-----------
672,500
-----------
PRINTING & PUBLISHING - 3.46%
300,000 CBD Media, Inc. (O)
8.625%, due 06/01/11............................................................ 300,375
180,000 Dex Media, Inc. (B)(O)
0.000%, due 11/15/13............................................................ 156,825
132,000 Dex Media West LLC/ Dex Media Finance Co.,
Series B
9.875%, due 08/15/13............................................................ 143,385
500,000 Houghton Mifflin Co. (O)
9.875%, due 02/01/13............................................................ 535,625
100,000 Morris Publishing Group LLC
7.000%, due 08/01/13............................................................ 95,125
500,000 RH Donnelley Corp.
8.875%, due 01/15/16............................................................ 515,625
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
PRINTING & PUBLISHING (CONTINUED)
$ 200,000 RH Donnelley Corp.,
Series A-2
6.875%, due 01/15/13............................................................ $ 188,250
-----------
1,935,210
-----------
STEEL - 0.36%
200,000 Valmont Industries, Inc.
6.875%, due 05/01/14............................................................ 199,000
-----------
SUPPORT SERVICES - 7.67%
150,000 Ahern Rentals, Inc.
9.250%, due 08/15/13............................................................ 154,125
300,000 Ashtead Capital, Inc. (C)
9.000%, due 08/15/16............................................................ 315,750
250,000 Avis Budget Car Rental LLC/ Avis Budget Finance, Inc. (C)(G)
7.905%, due 05/15/14............................................................ 244,375
200,000 Cardtronics, Inc.
9.500%, due 08/15/13............................................................ 206,500
350,000 Education Management LLC/ Education Management Corp. (C)
10.250%, due 06/01/16........................................................... 363,125
100,000 FTI Consulting, Inc. (P)
3.750%, due 07/15/12............................................................ 115,875
250,000 FTI Consulting, Inc. (C)
7.750%, due 10/01/16............................................................ 255,625
250,000 H&E Equipment Services, Inc. (C)
8.375%, due 07/15/16............................................................ 258,125
200,000 Hertz Corp. (C)
8.875%, due 01/01/14............................................................ 209,000
250,000 Hertz Corp. (C)(O)
10.500%, due 01/01/16........................................................... 274,375
410,000 Iron Mountain, Inc.
8.625%, due 04/01/13............................................................ 422,300
350,000 Mac-Gray Corp.
7.625%, due 08/15/15............................................................ 354,375
200,000 Norcross Safety Products LLC/ Norcross Capital Corp.,
Series B
9.875%, due 08/15/11............................................................ 212,000
200,000 United Rentals North America, Inc. (O)
7.750%, due 11/15/13............................................................ 199,500
250,000 West Corp. (C)
9.500%, due 10/15/14............................................................ 249,375
150,000 West Corp. (C)
11.000%, due 10/15/16........................................................... 150,375
</Table>
- --------------------------------------------------------------------------------
35
See accompanying Notes to Financial Statements.
HIGH INCOME FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
CORPORATE NOTES AND BONDS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
SUPPORT SERVICES (CONTINUED)
$ 300,000 Williams Scotsman, Inc.
8.500%, due 10/01/15............................................................ $ 309,750
-----------
4,294,550
-----------
TECHNOLOGY - 3.56%
250,000 Celestica, Inc. (D)(O)
7.625%, due 07/01/13............................................................ 250,625
150,000 Flextronics International, Ltd. (D)(O)(P)
1.000%, due 08/01/10............................................................ 146,062
100,000 Flextronics International, Ltd. (D)
6.500%, due 05/15/13............................................................ 99,375
600,000 Lucent Technologies, Inc.
6.450%, due 03/15/29............................................................ 537,000
100,000 NXP BV/NXP Funding LLC (C)(D)
7.875%, due 10/15/14............................................................ 101,500
200,000 Sungard Data Systems, Inc.
9.125%, due 08/15/13............................................................ 207,500
350,000 Sungard Data Systems, Inc. (O)
10.250%, due 08/15/15........................................................... 366,625
300,000 Syniverse Technologies, Inc.,
Series B
7.750%, due 08/15/13............................................................ 288,000
-----------
1,996,687
-----------
TELECOMMUNICATIONS - 8.39%
750,000 American Cellular Corp.,
Series B (O)
10.000%, due 08/01/11........................................................... 787,500
400,000 Centennial Communications Corp. (G)
11.122%, due 01/01/13........................................................... 416,000
350,000 Centennial Communications Corp./ Cellular Operating Co. LLC/Puerto Rico
Operations
8.125%, due 02/01/14............................................................ 350,438
500,000 Cincinnati Bell, Inc. (O)
8.375%, due 01/15/14............................................................ 510,000
250,000 Cincinnati Bell Telephone Co.
6.300%, due 12/01/28............................................................ 221,250
250,000 LCI International, Inc.
7.250%, due 06/15/07............................................................ 250,000
500,000 Nordic Telephone Co. Holdings ApS (C)(D)
8.875%, due 05/01/16............................................................ 523,750
250,000 Qwest Communications International, Inc. (G)
8.905%, due 02/15/09............................................................ 254,062
150,000 Qwest Corp. (C)
7.500%, due 10/01/14............................................................ 157,125
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
TELECOMMUNICATIONS (CONTINUED)
$ 120,000 Qwest Corp.
7.625%, due 06/15/15............................................................ $ 126,300
300,000 Rural Cellular Corp. (O)
8.250%, due 03/15/12............................................................ 308,625
500,000 Time Warner Telecom Holdings, Inc.
9.250%, due 02/15/14............................................................ 527,500
250,000 Windstream Corp. (C)
8.625%, due 08/01/16............................................................ 269,688
-----------
4,702,238
-----------
TRANSPORTATION - 0.79%
150,000 CHC Helicopter Corp. (D)
7.375%, due 05/01/14............................................................ 143,250
300,000 Gulfmark Offshore, Inc. (O)
7.750%, due 07/15/14............................................................ 301,500
-----------
444,750
-----------
UTILITIES - 5.40%
500,000 Dynegy Holdings, Inc.
8.375%, due 05/01/16............................................................ 513,750
150,000 Edison Mission Energy
7.730%, due 06/15/09............................................................ 156,000
250,000 Edison Mission Energy (C)
7.750%, due 06/15/16............................................................ 258,125
400,000 Ferrellgas Partners L.P./ Ferrellgas Partners Finance
8.750%, due 06/15/12............................................................ 413,000
200,000 Holly Energy Partners L.P. (O)
6.250%, due 03/01/15............................................................ 186,500
300,000 Inergy L.P./Inergy Finance Corp.
6.875%, due 12/15/14............................................................ 290,250
100,000 Mirant Americas Generation LLC
8.300%, due 05/01/11............................................................ 101,250
150,000 Mirant North America LLC (O)
7.375%, due 12/31/13............................................................ 151,688
200,000 NorthWestern Corp.
5.875%, due 11/01/14............................................................ 198,955
250,000 NRG Energy, Inc.
7.375%, due 02/01/16............................................................ 252,812
250,000 Suburban Propane Partners L.P./ Suburban Energy Finance Corp.
6.875%, due 12/15/13............................................................ 240,625
</Table>
- --------------------------------------------------------------------------------
36
See accompanying Notes to Financial Statements.
HIGH INCOME FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
CORPORATE NOTES AND BONDS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
UTILITIES (CONTINUED)
$ 250,000 Williams Cos., Inc. (O)
7.625%, due 07/15/19............................................................ $ 263,125
-----------
3,026,080
-----------
TOTAL CORPORATE NOTES AND BONDS
( Cost $53,173,749 )............................................................ 53,464,322
<Caption>
Shares
- ------
PREFERRED STOCKS - 1.88%
- -------------------------------------------------------------------------------------------------------------
AUTOMOTIVE - 1.38%
30,793 General Motors Corp., Series A (P)
4.500%.......................................................................... 768,285
-----------
TELECOMMUNICATIONS - 0.50%
5,000 Crown Castle International Corp. (P)
6.250%.......................................................................... 282,500
-----------
TOTAL PREFERRED STOCKS
( Cost $980,221 )............................................................... 1,050,785
-----------
INVESTMENT COMPANIES - 23.61%
- -------------------------------------------------------------------------------------------------------------
1,092,999 SSgA Prime Money Market Fund (N)................................................ 1,092,999
12,131,612 State Street Navigator Securities Lending Portfolio (I)......................... 12,131,612
-----------
TOTAL INVESTMENT COMPANIES
( Cost $13,224,611 )............................................................ 13,224,611
</Table>
<Table>
<Caption>
Value (Note 2)
--------------
TOTAL INVESTMENTS - 120.93%
- -------------------------------------------------------------------------------------------------------------
( Cost $67,378,581** )...........................................................................$ 67,739,718
NET OTHER ASSETS AND LIABILITIES - (20.93)%
- -------------------------------------------------------------------------------------------------------------
(11,723,116)
TOTAL NET ASSETS - 100.00%
- -------------------------------------------------------------------------------------------------------------
$ 56,016,602
- -------------------------------------------------------------------------------------------------------------
</Table>
** Aggregate cost for Federal tax purposes was
$67,378,581.
(B) Represents a security with a specified coupon until
a predetermined date, at which time the stated rate is adjusted to a new
contract rate.
(C) Security sold within terms of a private placement
memorandum exempt from registration under section 144A of the Securities
Act of 1933, as amended, and may be sold only to dealers in that program or
other "qualified institutional investors." The securities have been
determined to be liquid under guidelines established by the Board of
Trustees.
(D) Notes and bonds, issued by foreign entities,
denominated in U.S. dollars. The aggregate of these securities is 10.14% of
total net assets.
(G) Floating rate or variable rate note. Rate shown is
as of October 31, 2006.
(H) Security purchased on a delayed delivery or when-
issued basis. Rate shown is at issue date.
(I) Represents investments of cash collateral received
in connection with securities lending.
(N) Security segregated for forward or when-issued
purchase commitments outstanding as of October 31, 2006.
(O) All (or portion of security) on loan.
(P) Convertible.
PLC Public Limited Company.
- --------------------------------------------------------------------------------
37
See accompanying Notes to Financial Statements.
BALANCED FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS - 51.79%
- -------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY - 4.31%
6,300 Black & Decker Corp. (O)........................................................ $ 528,444
13,500 Comcast Corp.*.................................................................. 549,045
15,000 Gap, Inc. ...................................................................... 315,300
45,000 Home Depot, Inc. ............................................................... 1,679,850
17,200 Lowes Cos, Inc. ................................................................ 518,408
27,804 McDonald's Corp. ............................................................... 1,165,544
6,500 Nike, Inc. ..................................................................... 597,220
9,000 Polaris Industries, Inc. (O).................................................... 385,380
12,500 Tiffany & Co. (O)............................................................... 446,500
61,300 Time Warner, Inc. .............................................................. 1,226,613
-----------
7,412,304
-----------
CONSUMER STAPLES - 6.93%
31,700 Altria Group, Inc. ............................................................. 2,578,161
18,500 Anheuser-Busch Cos., Inc. ...................................................... 877,270
18,000 Coca-Cola Co. .................................................................. 840,960
8,300 Colgate-Palmolive Co. .......................................................... 530,951
11,500 General Mills, Inc. ............................................................ 653,430
26,000 Kimberly-Clark Corp. ........................................................... 1,729,520
14,000 PepsiCo, Inc. .................................................................. 888,160
24,500 Procter & Gamble Co. ........................................................... 1,553,055
45,700 Wal-Mart Stores, Inc. .......................................................... 2,252,096
-----------
11,903,603
-----------
ENERGY - 6.92%
23,000 BP PLC, ADR..................................................................... 1,543,300
28,300 Chevron Corp. .................................................................. 1,901,760
28,900 ConocoPhillips.................................................................. 1,740,936
7,900 Devon Energy Corp. ............................................................. 528,036
6,700 EOG Resources, Inc. ............................................................ 445,751
39,500 Exxon Mobil Corp. .............................................................. 2,821,090
15,000 Marathon Oil Corp. ............................................................. 1,296,000
12,500 Schlumberger, Ltd. ............................................................. 788,500
20,100 Weatherford International, Ltd.*................................................ 825,708
-----------
11,891,081
-----------
FINANCIALS - 13.01%
9,500 Allstate Corp. ................................................................. 582,920
26,700 American International Group, Inc. ............................................. 1,793,439
48,792 Bank of America Corp. .......................................................... 2,628,425
18,000 Bank of New York Co., Inc. ..................................................... 618,660
72,000 Citigroup, Inc. ................................................................ 3,611,520
16,900 Federal Home Loan Mortgage Corp. ............................................... 1,165,931
18,500 Fifth Third Bancorp (O)......................................................... 737,225
11,800 General Growth Properties, Inc., REIT........................................... 612,420
6,500 Goldman Sachs Group, Inc. ...................................................... 1,233,635
37,602 J.P. Morgan Chase & Co. ........................................................ 1,783,839
17,000 National City Corp. (O)......................................................... 633,250
</Table>
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
FINANCIALS (CONTINUED)
30,000 Plum Creek Timber Co., Inc., REIT............................................... $ 1,078,200
10,500 SLM Corp. ...................................................................... 511,140
10,200 SunTrust Banks, Inc. ........................................................... 805,698
30,500 U.S. Bancorp.................................................................... 1,032,120
24,400 Wachovia Corp. ................................................................. 1,354,200
15,000 Washington Mutual, Inc. (O)..................................................... 634,500
42,400 Wells Fargo & Co. .............................................................. 1,538,696
-----------
22,355,818
-----------
HEALTH CARE - 4.59%
25,200 Abbott Laboratories............................................................. 1,197,252
20,000 Bristol-Myers Squibb Co. ....................................................... 495,000
7,900 Cardinal Health, Inc. .......................................................... 517,055
37,500 Johnson & Johnson............................................................... 2,527,500
61,662 Pfizer, Inc. ................................................................... 1,643,292
29,500 Wyeth........................................................................... 1,505,385
-----------
7,885,484
-----------
INDUSTRIALS - 5.86%
8,900 3M Co. ......................................................................... 701,676
8,300 Burlington Northern Santa Fe Corp. ............................................. 643,499
6,000 Caterpillar, Inc. .............................................................. 364,260
116,500 General Electric Co. ........................................................... 4,090,315
22,100 Honeywell International, Inc. .................................................. 930,852
22,600 Illinois Tool Works, Inc. ...................................................... 1,083,218
25,000 Masco Corp. .................................................................... 691,250
23,900 United Technologies Corp. ...................................................... 1,570,708
-----------
10,075,778
-----------
INFORMATION TECHNOLOGY - 3.82%
30,000 Applied Materials, Inc. (O)..................................................... 521,700
22,000 Dell, Inc.*..................................................................... 535,260
18,665 First Data Corp. ............................................................... 452,626
14,500 Hewlett-Packard Co. ............................................................ 561,730
35,000 Intel Corp. .................................................................... 746,900
19,000 Maxim Integrated Products, Inc. ................................................ 570,190
94,300 Microsoft Corp. ................................................................ 2,707,353
12,700 Qualcomm, Inc. ................................................................. 462,153
-----------
6,557,912
-----------
MATERIALS - 1.36%
12,500 Dow Chemical Co. ............................................................... 509,875
20,800 Rohm & Haas Co. ................................................................ 1,077,856
11,800 Weyerhaeuser Co. (O)............................................................ 750,362
-----------
2,338,093
-----------
TELECOMMUNICATION SERVICES - 2.77%
40,900 BellSouth Corp. ................................................................ 1,844,590
</Table>
- --------------------------------------------------------------------------------
38
See accompanying Notes to Financial Statements.
BALANCED FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (CONTINUED)
76,000 Sprint Nextel Corp. ............................................................ $ 1,420,440
40,500 Verizon Communications, Inc. ................................................... 1,498,500
-----------
4,763,530
-----------
UTILITIES - 2.22%
4,000 Dominion Resources, Inc. ....................................................... 323,960
18,100 Duke Energy Corp. .............................................................. 572,684
13,700 Exelon Corp. ................................................................... 849,126
11,500 FPL Group, Inc. (O)............................................................. 586,500
17,400 PG&E Corp. ..................................................................... 750,636
20,000 Southern Co. (O)................................................................ 728,000
-----------
3,810,906
-----------
TOTAL COMMON STOCKS
( Cost $75,252,477 )............................................................ 88,994,509
</Table>
<Table>
<Caption>
Par Value
- ---------
ASSET BACKED - 1.79%
- -------------------------------------------------------------------------------------------------------------
$ 98,971 ABSC Long Beach Home Equity Loan Trust,
Series 2000-LB1, Class AF5 (M)
8.550%, due 09/21/30............................................................ 98,644
500,000 Ameriquest Mortgage Securities, Inc.,
Series 2004-FR1, Class M2 (M)
5.207%, due 05/25/34............................................................ 490,702
340,000 Citibank Credit Card Issuance Trust,
Series 2004-A1, Class A1
2.550%, due 01/20/09............................................................ 337,944
320,000 GMAC Mortgage Corp. Loan Trust,
Series 2004-HE2, Class M1
3.950%, due 10/25/33............................................................ 312,486
257,329 Green Tree Financial Corp.,
Series 1998-2, Class A6
6.810%, due 12/01/27............................................................ 265,764
534,000 GSAMP Trust,
Series 2006-S5, Class M5 (M)
7.488%, due 09/25/36............................................................ 534,000
380,000 Park Place Securities, Inc.,
Series 2004-WWF1, Class M10 (G)(M)
7.830%, due 12/25/34............................................................ 380,710
189,389 Residential Asset Mortgage Products, Inc.,
Series 2003-RS9, Class AI5
4.990%, due 03/25/31............................................................ 187,909
200,000 Soundview Home Equity Loan Trust,
Series 2005-B, Class M6 (M)
6.175%, due 05/25/35............................................................ 199,287
270,000 Wells Fargo Home Equity Trust,
Series 2004-2, Class M8A (C)(G)
8.330%, due 05/25/34............................................................ 266,855
----------
TOTAL ASSET BACKED
( Cost $3,088,590 )............................................................. 3,074,301
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
COMMERCIAL MORTGAGE BACKED - 3.41%
- --------------------------------------------------------------------------------------------------------------
$ 322,797 Bear Stearns Commercial Mortgage Securities,
Series 2001-TOP4, Class A1
5.060%, due 11/15/16............................................................ $ 321,812
445,000 Bear Stearns Commercial Mortgage Securities,
Series 2003-TOP 10, Class E (C)(G)
5.540%, due 03/13/40............................................................ 445,246
335,786 Bear Stearns Commercial Mortgage Securities,
Series 2004-T16, Class A2
3.700%, due 02/13/46............................................................ 327,744
350,000 Bear Stearns Commercial Mortgage Securities,
Series 2004-T16, Class A6 (G)
4.750%, due 02/13/46............................................................ 338,729
200,000 Bear Stearns Commercial Mortgage Securities,
Series 2005-T20, Class F (C)(G)
5.132%, due 10/12/42............................................................ 195,142
600,000 Government National Mortgage Association,
Series 2004-43, Class C (G)
5.008%, due 12/16/25............................................................ 593,896
400,000 Greenwich Capital Commercial Funding Corp.,
Series 2004-GG1, Class A7 (G)
5.317%, due 06/10/36............................................................ 401,124
700,000 LB-UBS Commercial Mortgage Trust,
Series 2004-C1, Class A2 (G)
3.624%, due 01/15/29............................................................ 676,050
400,000 LB-UBS Commercial Mortgage Trust,
Series 2004-C8, Class A6 (G)
4.799%, due 12/15/29............................................................ 388,247
700,000 Morgan Stanley Capital I,
Series 2004-HQ4, Class A7
4.970%, due 04/14/40............................................................ 685,989
200,000 Multi Security Asset Trust,
Series 2005-RR4A, Class J (C)
5.880%, due 11/28/35............................................................ 180,749
432,794 Wachovia Bank Commercial Mortgage Trust,
Series 2003-C6, Class A1
3.364%, due 08/15/35............................................................ 421,945
895,000 Wachovia Bank Commercial Mortgage Trust,
Series 2003-C8, Class A2
3.894%, due 11/15/35............................................................ 873,995
-----------
TOTAL COMMERCIAL MORTGAGE BACKED
( Cost $5,899,777 )............................................................. 5,850,668
</Table>
- --------------------------------------------------------------------------------
39
See accompanying Notes to Financial Statements.
BALANCED FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
PRIVATE LABEL MORTGAGE BACKED - 1.44%
- --------------------------------------------------------------------------------------------------------------
$ 460,028 Bank of America Alternative Loan Trust,
Series 2005-12, Class 3CB1
6.000%, due 01/25/36............................................................ $ 461,676
2,008,967 Bank of America Alternative Loan Trust,
Series 2006-3, Class 2CB1
6.000%, due 04/25/36............................................................ 2,014,252
-----------
TOTAL PRIVATE LABEL MORTGAGE BACKED
( Cost $2,435,400 )............................................................. 2,475,928
CORPORATE NOTES AND BONDS - 7.94%
- --------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY - 1.03%
750,000 American Association of Retired Persons (C)
7.500%, due 05/01/31............................................................ 934,588
500,000 Carnival Corp. (D)
3.750%, due 11/15/07............................................................ 490,990
325,000 Erac USA Finance Co. (C)
6.700%, due 06/01/34............................................................ 344,906
-----------
1,770,484
-----------
CONSUMER STAPLES - 0.37%
250,000 Diageo Capital PLC (D)
5.500%, due 09/30/16............................................................ 248,165
400,000 Safeway, Inc.
4.125%, due 11/01/08............................................................ 390,106
-----------
638,271
-----------
ENERGY - 0.26%
150,000 Hess Corp.
7.875%, due 10/01/29............................................................ 178,227
250,000 Pemex Project Funding Master Trust
7.375%, due 12/15/14............................................................ 274,375
-----------
452,602
-----------
FINANCE - 1.61%
500,000 American General Finance Corp., Series H
4.625%, due 09/01/10............................................................ 488,650
500,000 Bear Stearns Cos., Inc.
7.800%, due 08/15/07............................................................ 509,368
500,000 CIT Group, Inc.
7.375%, due 04/02/07............................................................ 504,132
210,000 GE Insurance Solutions Corp.
7.000%, due 02/15/26............................................................ 232,022
205,000 GE Insurance Solutions Corp.
7.750%, due 06/15/30............................................................ 247,346
250,000 HSBC Finance Corp.
6.500%, due 11/15/08............................................................ 256,084
500,000 U.S. Bank N.A.
6.300%, due 02/04/14............................................................ 531,099
-----------
2,768,701
-----------
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
CORPORATE NOTES AND BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------
FORESTRY/PAPER - 0.12%
$ 175,000 Westvaco Corp.
8.200%, due 01/15/30............................................................ $ 196,233
-----------
HEALTH CARE - 0.52%
300,000 Eli Lilly & Co.
6.570%, due 01/01/16............................................................ 326,207
195,000 Genentech, Inc. (O)
5.250%, due 07/15/35............................................................ 184,496
205,000 Merck & Co., Inc. (O)
6.400%, due 03/01/28............................................................ 220,183
150,000 Wyeth (O)
6.500%, due 02/01/34............................................................ 164,273
-----------
895,159
-----------
INDUSTRIALS - 0.97%
150,000 Boeing Co.
8.625%, due 11/15/31............................................................ 208,885
130,000 D.R. Horton, Inc. (O)
5.250%, due 02/15/15............................................................ 120,648
250,000 Ford Motor Credit Co.
5.800%, due 01/12/09............................................................ 238,790
150,000 General Motors Acceptance Corp. LLC (O)
6.125%, due 08/28/07............................................................ 149,518
350,000 General Motors Acceptance Corp. LLC
7.250%, due 03/02/11............................................................ 356,604
135,000 Pulte Homes, Inc. (O)
5.200%, due 02/15/15............................................................ 127,656
150,000 Waste Management, Inc.
7.125%, due 12/15/17............................................................ 166,495
310,000 WM Wrigley Jr. Co.
4.300%, due 07/15/10............................................................ 301,796
-----------
1,670,392
-----------
MEDIA - 0.37%
285,000 Comcast Cable Communications Holdings, Inc.
8.375%, due 03/15/13............................................................ 325,559
315,000 Rogers Cable, Inc. (D)
6.250%, due 06/15/13............................................................ 311,062
-----------
636,621
-----------
PIPELINE - 0.12%
205,000 KN Energy, Inc.
7.250%, due 03/01/28............................................................ 201,266
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.08%
140,000 Simon Property Group L.P.
5.625%, due 08/15/14............................................................ 141,659
-----------
</Table>
- --------------------------------------------------------------------------------
40
See accompanying Notes to Financial Statements.
BALANCED FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
CORPORATE NOTES AND BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 0.43%
$ 240,000 Cisco Systems, Inc. (O)
5.500%, due 02/22/16............................................................ $ 242,766
500,000 Verizon Wireless Capital LLC
5.375%, due 12/15/06............................................................ 499,893
-----------
742,659
-----------
TRANSPORTATION - 0.44%
175,000 Burlington Northern Santa Fe Corp.
8.125%, due 04/15/20............................................................ 214,296
239,000 Norfolk Southern Corp.
5.590%, due 05/17/25............................................................ 235,471
260,000 Norfolk Southern Corp.
7.050%, due 05/01/37............................................................ 305,393
-----------
755,160
-----------
UTILITIES - 1.62%
500,000 Energy East Corp.
8.050%, due 11/15/10............................................................ 545,207
375,000 Exelon Corp.
4.900%, due 06/15/15............................................................ 354,578
310,000 Illinois Power Co.
7.500%, due 06/15/09............................................................ 323,191
175,000 Pacific Gas & Electric Co.
6.050%, due 03/01/34............................................................ 178,764
350,000 Progress Energy, Inc.
7.750%, due 03/01/31............................................................ 426,260
126,000 Sierra Pacific Power Co.
6.000%, due 05/15/16............................................................ 127,381
750,000 Wisconsin Electric Power (O)
6.500%, due 06/01/28............................................................ 817,035
-----------
2,772,416
-----------
TOTAL CORPORATE NOTES AND BONDS
( Cost $13,341,054 )............................................................ 13,641,623
MORTGAGE BACKED - 10.79%
- --------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. - 1.42%
14,389 8.000%, due 06/01/30
Pool # C01005................................................................... 15,134
211,240 6.500%, due 01/01/32
Pool # C62333................................................................... 216,615
1,725,567 5.000%, due 07/01/33
Pool # A11325................................................................... 1,671,527
145,323 6.000%, due 10/01/34
Pool # A28439................................................................... 146,506
142,071 6.000%, due 10/01/34
Pool # A28598................................................................... 143,227
142,881 5.000%, due 04/01/35
Pool # A32315................................................................... 138,114
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
MORTGAGE BACKED (CONTINUED)
- --------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. (CONTINUED)
$ 113,473 5.000%, due 04/01/35
Pool # A32316................................................................... $ 109,688
-----------
2,440,811
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 9.26%
441,890 4.000%, due 04/01/15
Pool # 255719................................................................... 423,874
567,477 5.500%, due 04/01/16
Pool # 745444................................................................... 569,874
84,885 6.000%, due 05/01/16
Pool # 582558................................................................... 86,287
912,097 5.000%, due 12/01/17
Pool # 672243................................................................... 900,574
753,983 5.000%, due 05/01/20
Pool # 813965................................................................... 742,699
1,074,590 4.500%, due 09/01/20
Pool # 835465................................................................... 1,039,750
141,034 6.000%, due 05/01/21
Pool # 253847................................................................... 143,251
24,708 7.000%, due 12/01/29
Pool # 762813................................................................... 25,551
96,695 7.000%, due 11/01/31
Pool # 607515................................................................... 99,852
64,846 7.000%, due 05/01/32
Pool # 644591................................................................... 66,963
542,807 6.500%, due 06/01/32
Pool # 545691................................................................... 556,057
731,097 5.500%, due 10/01/33
Pool # 254904................................................................... 724,434
2,160,198 5.500%, due 11/01/33
Pool # 555880................................................................... 2,140,511
27,248 5.000%, due 05/01/34
Pool # 782214................................................................... 26,358
595,598 5.000%, due 06/01/34
Pool # 255230................................................................... 576,141
16,755 7.000%, due 07/01/34
Pool # 792636................................................................... 17,262
235,468 5.500%, due 08/01/34
Pool # 793647................................................................... 233,108
499,079 5.500%, due 03/01/35
Pool # 810075................................................................... 493,487
992,881 5.500%, due 03/01/35
Pool # 815976................................................................... 981,757
443,603 5.500%, due 07/01/35
Pool # 825283................................................................... 438,634
595,017 5.000%, due 08/01/35
Pool # 829670................................................................... 574,667
275,640 5.500%, due 08/01/35
Pool # 826872................................................................... 272,552
</Table>
- --------------------------------------------------------------------------------
41
See accompanying Notes to Financial Statements.
BALANCED FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
MORTGAGE BACKED (CONTINUED)
- --------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 474,302 5.000%, due 09/01/35
Pool # 820347................................................................... $ 458,080
519,686 5.000%, due 09/01/35
Pool # 835699................................................................... 501,912
948,001 5.000%, due 10/01/35
Pool # 797669................................................................... 915,578
633,399 5.000%, due 11/01/35
Pool # 844504................................................................... 611,736
668,457 5.000%, due 11/01/35
Pool # 844809................................................................... 645,595
668,031 5.000%, due 12/01/35
Pool # 850561................................................................... 645,184
1,000,000 5.500%, due 10/01/36
Pool # 901723................................................................... 988,379
-----------
15,900,107
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.11%
14,923 8.000%, due 10/20/15
Pool # 002995................................................................... 15,747
93,782 6.500%, due 02/20/29
Pool # 002714................................................................... 96,373
75,097 6.500%, due 04/20/31
Pool # 003068................................................................... 77,113
-----------
189,233
-----------
TOTAL MORTGAGE BACKED
( Cost $18,730,270 )............................................................ 18,530,151
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 15.15%
- --------------------------------------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK - 0.62%
1,000,000 5.875%, due 10/03/16............................................................ 1,070,167
-----------
FEDERAL HOME LOAN BANK - 1.33%
2,300,000 4.250%, due 04/16/07............................................................ 2,288,935
-----------
FEDERAL HOME LOAN MORTGAGE CORP. - 0.43%
750,000 4.500%, due 01/15/14............................................................ 729,703
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 1.32%
600,000 3.800%, due 01/18/08............................................................ 590,584
525,000 4.000%, due 09/02/08............................................................ 515,603
500,000 5.250%, due 08/01/12............................................................ 503,592
675,000 4.625%, due 10/15/14............................................................ 661,929
-----------
2,271,708
-----------
U.S. TREASURY BONDS - 0.92%
550,000 6.250%, due 05/15/30(O)......................................................... 664,125
840,000 5.375%, due 02/15/31(O)......................................................... 911,991
-----------
1,576,116
-----------
</Table>
<Table>
<Caption>
Par Value Value (Note 2)
- --------- --------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES - 10.53%
$ 750,000 2.875%, due 11/30/06(O)......................................................... $ 748,564
800,000 3.375%, due 02/28/07............................................................ 795,500
700,000 2.750%, due 08/15/07(O)......................................................... 688,024
200,000 4.000%, due 08/31/07(O)......................................................... 198,414
520,000 3.000%, due 11/15/07(O)......................................................... 510,088
1,350,000 4.625%, due 02/29/08(O)......................................................... 1,346,520
2,040,000 4.875%, due 04/30/08(O)......................................................... 2,042,789
225,000 3.875%, due 05/15/10(O)......................................................... 219,876
100,000 3.875%, due 09/15/10(O)......................................................... 97,531
30,000 4.500%, due 11/15/10(O)......................................................... 29,918
165,000 4.750%, due 03/31/11(O)......................................................... 166,115
2,250,000 4.875%, due 04/30/11(O)......................................................... 2,276,806
3,600,000 4.875%, due 02/15/12(O)......................................................... 3,653,860
1,525,000 4.000%, due 11/15/12(O)......................................................... 1,479,666
800,000 4.000%, due 02/15/14(O)......................................................... 770,687
415,000 4.125%, due 05/15/15(O)......................................................... 401,269
60,000 4.250%, due 08/15/15(O)......................................................... 58,491
234,000 4.500%, due 11/15/15(O)......................................................... 232,227
2,400,000 4.500%, due 02/15/16(O)......................................................... 2,381,062
-----------
18,097,407
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
( Cost $25,824,951 )............................................................ 26,034,036
CERTIFICATE OF DEPOSIT - 3.16%
- --------------------------------------------------------------------------------------------------------------
5,436,425 State Street Eurodollar
2.800%, due 11/01/06............................................................ 5,436,425
-----------
TOTAL CERTIFICATE OF DEPOSIT
( Cost $5,436,425 )............................................................. 5,436,425
<Caption>
Shares
- ------
INVESTMENT COMPANIES - 18.02%
- --------------------------------------------------------------------------------------------------------------
1 J.P. Morgan Prime Money Market Fund............................................. 1
7,742,254 SSgA Prime Money Market Fund.................................................... 7,742,254
23,225,289 State Street Navigator Securities Lending Portfolio (I)......................... 23,225,289
-----------
TOTAL INVESTMENT COMPANIES
( Cost $30,967,543 )............................................................ 30,967,544
</Table>
- --------------------------------------------------------------------------------
42
See accompanying Notes to Financial Statements.
BALANCED FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Value (Note 2)
--------------
TOTAL INVESTMENTS - 113.49%
- --------------------------------------------------------------------------------------------------------------
( Cost $180,976,487** )......................................................................... $195,005,185
NET OTHER ASSETS AND LIABILITIES - (13.49)%
- --------------------------------------------------------------------------------------------------------------
(23,180,296)
TOTAL NET ASSETS - 100.00%
- --------------------------------------------------------------------------------------------------------------
$ 171,824,889
- --------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing.
** Aggregate cost for Federal tax purposes was
$181,106,987.
(C) Security sold within terms of a private placement
memorandum exempt from registration under section 144A of the Securities
Act of 1933, as amended, and may be sold only to dealers in that program or
other "qualified institutional investors." The securities have been
determined to be liquid under guidelines established by the Board of
Trustees.
(D) Notes and bonds, issued by foreign entities,
denominated in U.S. dollars. The aggregate of these securities is 0.61% of
total net assets.
(G) Floating rate or variable rate note.
Rate shown is as of October 31, 2006.
(I) Represents investments of cash collateral received
in connection with securities lending.
(M) Stated interest rate is contingent upon sufficient
collateral market value. If collateral market value falls below a stated
level, the issuer will either initiate a clean-up call or increase the
stated interest rate.
(O) All (or portion of security) on loan.
ADR American Depository Receipt.
PLC Public Limited Company.
REITReal Estate Investment Trust.
- --------------------------------------------------------------------------------
43
See accompanying Notes to Financial Statements.
LARGE CAP VALUE FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS - 97.50%
- -------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY - 7.54%
32,600 CBS Corp. ...................................................................... $ 943,444
36,891 Comcast Corp.*.................................................................. 1,500,357
14,700 Federated Department Stores, Inc. .............................................. 645,477
23,000 Home Depot, Inc. ............................................................... 858,590
7,500 J.C. Penney Co., Inc. .......................................................... 564,225
28,500 Lowes Cos, Inc. ................................................................ 858,990
58,862 McDonald's Corp. ............................................................... 2,467,495
21,900 News Corp. ..................................................................... 456,615
11,000 Nike, Inc. ..................................................................... 1,010,680
11,000 Tiffany & Co. .................................................................. 392,920
102,200 Time Warner, Inc. .............................................................. 2,045,022
66,000 Walt Disney Co. ................................................................ 2,076,360
-----------
13,820,175
-----------
CONSUMER STAPLES - 7.35%
34,800 Altria Group, Inc. ............................................................. 2,830,284
18,200 Archer-Daniels-Midland Co. ..................................................... 700,700
7,300 Clorox Co. ..................................................................... 471,288
20,500 Coca-Cola Co. .................................................................. 957,760
7,500 Colgate-Palmolive Co. .......................................................... 479,775
24,200 General Mills, Inc. ............................................................ 1,375,044
19,800 Kellogg Co. .................................................................... 996,138
5,000 Kimberly-Clark Corp. ........................................................... 332,600
69,300 Procter & Gamble Co. ........................................................... 4,392,927
19,000 Wal-Mart Stores, Inc. .......................................................... 936,320
-----------
13,472,836
-----------
ENERGY - 14.62%
24,900 Apache Corp. ................................................................... 1,626,468
26,800 Cameron International Corp.*.................................................... 1,342,680
66,266 Chevron Corp. .................................................................. 4,453,075
68,900 ConocoPhillips.................................................................. 4,150,536
32,200 Devon Energy Corp. ............................................................. 2,152,248
6,000 EOG Resources, Inc. ............................................................ 399,180
118,900 Exxon Mobil Corp. .............................................................. 8,491,838
28,300 Marathon Oil Corp. ............................................................. 2,445,120
10,752 Transocean, Inc.*............................................................... 779,950
18,400 Valero Energy Corp. ............................................................ 962,872
-----------
26,803,967
-----------
FINANCIALS - 34.23%
47,400 Allstate Corp. ................................................................. 2,908,464
69,300 American International Group, Inc. ............................................. 4,654,881
22,500 AmSouth Bancorp................................................................. 679,950
131,984 Bank of America Corp. .......................................................... 7,109,978
4,800 Bear Stearns Cos., Inc. ........................................................ 726,480
149,366 Citigroup, Inc. ................................................................ 7,492,198
10,500 Compass Bancshares, Inc. ....................................................... 590,730
25,000 Equity Residential, REIT........................................................ 1,365,250
26,300 Federal Home Loan Mortgage Corp. ............................................... $ 1,814,437
</Table>
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
FINANCIALS (CONTINUED)
20,800 General Growth Properties, Inc., REIT........................................... $ 1,079,520
8,300 Goldman Sachs Group, Inc. ...................................................... 1,575,257
96,068 J.P. Morgan Chase & Co. ........................................................ 4,557,466
5,100 Legg Mason, Inc. ............................................................... 459,102
21,700 Lehman Brothers Holdings, Inc. ................................................. 1,689,128
12,800 Marshall & Ilsley Corp. ........................................................ 613,632
28,500 Merrill Lynch & Co., Inc. ...................................................... 2,491,470
25,500 Morgan Stanley.................................................................. 1,948,965
41,800 National City Corp. ............................................................ 1,557,050
26,200 Prudential Financial, Inc. ..................................................... 2,015,566
19,400 RenaissanceRe Holdings, Ltd. ................................................... 1,055,360
7,700 SL Green Realty Corp., REIT..................................................... 932,085
20,400 St. Paul Travelers Cos., Inc. .................................................. 1,043,052
19,800 SunTrust Banks, Inc. ........................................................... 1,564,002
65,400 U.S. Bancorp.................................................................... 2,213,136
33,600 UnumProvident Corp. ............................................................ 664,608
10,900 Vornado Realty Trust, REIT...................................................... 1,299,825
63,000 Wachovia Corp. ................................................................. 3,496,500
24,800 Washington Mutual, Inc. ........................................................ 1,049,040
113,800 Wells Fargo & Co. .............................................................. 4,129,802
-----------
62,776,934
-----------
HEALTH CARE - 7.50%
22,400 Abbott Laboratories............................................................. 1,064,224
12,700 Amgen, Inc.*.................................................................... 964,057
28,600 Bristol-Myers Squibb Co. ....................................................... 707,850
3,300 Cigna Corp. .................................................................... 386,034
20,100 Community Health Systems, Inc.*................................................. 652,245
5,700 Invitrogen Corp.*............................................................... 330,657
14,300 Johnson & Johnson............................................................... 963,820
27,400 Merck & Co., Inc. .............................................................. 1,244,508
193,240 Pfizer, Inc. ................................................................... 5,149,846
15,700 Watson Pharmaceuticals, Inc.*................................................... 422,487
11,500 WellPoint, Inc.*................................................................ 877,680
19,300 Wyeth........................................................................... 984,879
-----------
13,748,287
-----------
INDUSTRIALS - 6.45%
9,200 Burlington Northern Santa Fe Corp. ............................................. 713,276
13,400 CSX Corp. ...................................................................... 477,978
6,300 Deere & Co. .................................................................... 536,319
8,900 Eaton Corp. .................................................................... 644,627
5,800 Emerson Electric Co. ........................................................... 489,520
10,300 General Dynamics Corp. ......................................................... 732,330
142,300 General Electric Co. ........................................................... 4,996,153
21,200 Honeywell International, Inc. .................................................. 892,944
</Table>
- --------------------------------------------------------------------------------
44
See accompanying Notes to Financial Statements.
LARGE CAP VALUE FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
INDUSTRIALS (CONTINUED)
21,800 Masco Corp. .................................................................... $ 602,770
10,300 Parker Hannifin Corp. .......................................................... 861,389
13,400 United Technologies Corp. ...................................................... 880,648
-----------
11,827,954
-----------
INFORMATION TECHNOLOGY - 4.65%
19,200 Adobe Systems, Inc.*............................................................ 734,400
14,700 Automatic Data Processing, Inc. ................................................ 726,768
12,500 Computer Sciences Corp.*........................................................ 660,625
48,500 EMC Corp.*...................................................................... 594,125
14,194 Freescale Semiconductor, Inc., Class B*......................................... 558,250
32,621 Hewlett-Packard Co. ............................................................ 1,263,738
17,900 Intel Corp. .................................................................... 381,986
15,600 International Business Machines Corp. .......................................... 1,440,348
15,800 Maxim Integrated Products, Inc. ................................................ 474,158
32,400 Microsoft Corp. ................................................................ 930,204
33,300 Motorola, Inc. ................................................................. 767,898
-----------
8,532,500
-----------
MATERIALS - 3.75%
12,600 Air Products & Chemicals, Inc. ................................................. 877,842
32,800 Alcoa, Inc. .................................................................... 948,248
25,900 Dow Chemical Co. ............................................................... 1,056,461
8,400 E.I. Du Pont de Nemours & Co. .................................................. 384,720
9,700 Nucor Corp. .................................................................... 566,577
6,900 Phelps Dodge Corp. ............................................................. 692,622
14,700 PPG Industries, Inc. ........................................................... 1,005,480
21,300 Weyerhaeuser Co. ............................................................... 1,354,467
-----------
6,886,417
-----------
TELECOMMUNICATION SERVICES - 5.16%
10,200 Alltel Corp. ................................................................... 543,762
55,500 AT&T, Inc. ..................................................................... 1,900,875
68,100 BellSouth Corp. ................................................................ 3,071,310
25,300 Citizens Communications Co. .................................................... 370,898
87,000 Sprint Nextel Corp. ............................................................ 1,626,030
4,100 Telus Corp. .................................................................... 235,176
29,420 Verizon Communications, Inc. ................................................... 1,088,540
45,922 Windstream Corp. ............................................................... 630,050
-----------
9,466,641
-----------
UTILITIES - 6.25%
9,100 Dominion Resources, Inc. ....................................................... 737,009
43,000 Duke Energy Corp. .............................................................. 1,360,520
25,000 Edison International............................................................ 1,111,000
14,500 Entergy Corp. .................................................................. 1,244,535
</Table>
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
UTILITIES (CONTINUED)
27,300 Exelon Corp. ................................................................... $ 1,692,054
17,100 FirstEnergy Corp. .............................................................. 1,006,335
32,400 FPL Group, Inc. ................................................................ 1,652,400
19,300 Mirant Corp.*................................................................... 570,701
31,700 PG&E Corp. ..................................................................... 1,367,538
19,600 Southern Co. ................................................................... 713,440
-----------
11,455,532
-----------
TOTAL COMMON STOCKS
( Cost $140,187,438 )........................................................... 178,791,243
INVESTMENT COMPANIES - 2.15%
- -------------------------------------------------------------------------------------------------------------
9,300 iShares Russell 1000 Value Index Fund........................................... 738,792
6,500 iShares Russell Midcap Value Index Fund......................................... 920,075
2,283,065 SSgA Prime Money Market Fund.................................................... 2,283,065
-----------
TOTAL INVESTMENT COMPANIES
( Cost $3,855,305 )............................................................. 3,941,932
TOTAL INVESTMENTS - 99.65%
- -------------------------------------------------------------------------------------------------------------
( Cost $144,042,743** )...................................................................... 182,733,175
NET OTHER ASSETS AND LIABILITIES - 0.35%
- -------------------------------------------------------------------------------------------------------------
642,873
TOTAL NET ASSETS - 100.00%
- -------------------------------------------------------------------------------------------------------------
$ 183,376,048
- -------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing.
** Aggregate cost for Federal tax purposes ws
$144,748,370.
REITReal Estate Investment Trust.
- --------------------------------------------------------------------------------
45
See accompanying Notes to Financial Statements.
LARGE CAP GROWTH FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS - 97.25%
- -------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY - 11.86%
6,700 Apollo Group, Inc., Class A*.................................................... $ 247,632
6,300 Bed Bath & Beyond, Inc.*........................................................ 253,827
10,500 Best Buy Co., Inc. ............................................................. 580,125
40,300 Cheesecake Factory (O)*......................................................... 1,138,475
8,600 Coach, Inc.*.................................................................... 340,904
41,700 Comcast Corp.*.................................................................. 1,695,939
10,700 Federated Department Stores, Inc. .............................................. 469,837
4,500 Harley-Davidson, Inc. .......................................................... 308,835
21,800 Home Depot, Inc. ............................................................... 813,794
4,800 J.C. Penney Co., Inc. .......................................................... 361,104
14,700 Kohl's Corp.*................................................................... 1,037,820
11,700 Lowes Cos, Inc. ................................................................ 352,638
28,000 News Corp. ..................................................................... 583,800
14,000 Nike, Inc. ..................................................................... 1,286,320
3,500 Omnicom Group, Inc. ............................................................ 355,075
9,200 Panera Bread Co., Class A (O)*.................................................. 568,560
10,300 Starbucks Corp.*................................................................ 388,825
11,100 Target Corp. ................................................................... 656,898
6,900 Tiffany & Co. .................................................................. 246,468
16,950 Viacom, Inc.*................................................................... 659,694
8,900 Walt Disney Co. ................................................................ 279,994
35,500 XM Satellite Radio Holdings, Inc., Class A (O)*................................. 413,930
18,400 Yum! Brands, Inc. .............................................................. 1,094,064
-----------
14,134,558
-----------
CONSUMER STAPLES - 9.84%
16,300 Altria Group, Inc. ............................................................. 1,325,679
6,600 Anheuser-Busch Cos., Inc. ...................................................... 312,972
27,500 Coca-Cola Co. .................................................................. 1,284,800
18,800 Colgate-Palmolive Co. .......................................................... 1,202,636
5,800 Costco Wholesale Corp. ......................................................... 309,604
7,400 CVS Corp. ...................................................................... 232,212
36,500 PepsiCo, Inc. .................................................................. 2,315,560
9,400 Procter & Gamble Co. ........................................................... 595,866
12,500 Walgreen Co. ................................................................... 546,000
49,800 Wal-Mart Stores, Inc. .......................................................... 2,454,144
22,000 WM Wrigley Jr., Co. ............................................................ 1,142,900
-----------
11,722,373
-----------
ENERGY - 5.19%
13,800 Baker Hughes, Inc. ............................................................. 952,890
12,300 Cameron International Corp.*.................................................... 616,230
6,700 ENSCO International, Inc. ...................................................... 328,099
4,300 EOG Resources, Inc. ............................................................ 286,079
6,400 Exxon Mobil Corp. .............................................................. 457,088
11,000 FMC Technologies, Inc.*......................................................... 664,950
6,000 Marathon Oil Corp. ............................................................. 518,400
</Table>
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
ENERGY (CONTINUED)
7,900 Noble Corp. .................................................................... $ 553,790
28,900 Weatherford International, Ltd.*................................................ 1,187,212
13,166 XTO Energy, Inc. ............................................................... 614,326
-----------
6,179,064
-----------
FINANCIALS - 9.15%
12,200 ACE, Ltd. ...................................................................... 698,450
30,900 American Express Co. ........................................................... 1,786,329
8,600 American International Group, Inc. ............................................. 577,662
3,600 Cbot Holdings, Inc., Class A (O)*............................................... 534,240
19,500 Charles Schwab Corp. ........................................................... 355,290
900 Chicago Mercantile Exchange Holdings, Inc. ..................................... 450,900
17,400 Citigroup, Inc. ................................................................ 872,784
8,300 Goldman Sachs Group, Inc. ...................................................... 1,575,257
6,600 Legg Mason, Inc. ............................................................... 594,132
9,200 Mellon Financial Corp. ......................................................... 356,960
11,600 Merrill Lynch & Co., Inc. ...................................................... 1,014,072
29,700 SLM Corp. ...................................................................... 1,445,796
17,500 Wells Fargo & Co. .............................................................. 635,075
-----------
10,896,947
-----------
HEALTH CARE - 18.02%
6,900 Abbott Laboratories............................................................. 327,819
36,400 Amgen, Inc.*.................................................................... 2,763,124
13,300 Bristol-Myers Squibb Co. ....................................................... 329,175
20,400 Eli Lilly & Co. ................................................................ 1,142,604
21,100 Genentech, Inc.*................................................................ 1,757,630
10,400 Gen-Probe, Inc.*................................................................ 497,848
23,700 Genzyme Corp.*.................................................................. 1,599,987
7,800 Gilead Sciences, Inc.*.......................................................... 537,420
52,400 Johnson & Johnson............................................................... 3,531,760
15,300 Medimmune, Inc.*................................................................ 490,212
19,000 Medtronic, Inc. ................................................................ 924,920
19,700 Merck & Co., Inc. .............................................................. 894,774
22,900 Schering-Plough Corp. .......................................................... 507,006
6,400 St. Jude Medical, Inc.*......................................................... 219,840
28,200 Stryker Corp. .................................................................. 1,474,578
52,797 Teva Pharmaceutical Industries, Ltd., ADR....................................... 1,740,717
12,200 UnitedHealth Group, Inc. ....................................................... 595,116
4,605 VCA Antech, Inc.*............................................................... 149,064
9,600 Vertex Pharmaceuticals, Inc. (O)*............................................... 389,760
4,700 WellPoint, Inc.*................................................................ 358,704
24,300 Wyeth........................................................................... 1,240,029
-----------
21,472,087
-----------
</Table>
- --------------------------------------------------------------------------------
46
See accompanying Notes to Financial Statements.
LARGE CAP GROWTH FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
INDUSTRIALS - 10.62%
15,600 3M Co. ......................................................................... $ 1,229,904
12,300 Boeing Co. ..................................................................... 982,278
6,400 Burlington Northern Santa Fe Corp. ............................................. 496,192
8,300 Caterpillar, Inc. .............................................................. 503,893
6,400 Danaher Corp. .................................................................. 459,328
10,100 FedEx Corp. .................................................................... 1,156,854
119,000 General Electric Co. ........................................................... 4,178,090
6,100 Illinois Tool Works, Inc. ...................................................... 292,373
5,500 Monster World Wide, Inc.*....................................................... 222,805
12,500 Stericycle, Inc. (O)*........................................................... 883,875
7,100 United Parcel Service, Inc. .................................................... 534,985
26,100 United Technologies Corp. ...................................................... 1,715,292
-----------
12,655,869
-----------
INFORMATION TECHNOLOGY - 27.49%
12,000 Adobe Systems, Inc.*............................................................ 459,000
23,800 Amdocs, Ltd.*................................................................... 922,488
9,700 Apple Computer, Inc.*........................................................... 786,476
138,700 Cisco Systems, Inc.*............................................................ 3,346,831
26,400 Corning, Inc.*.................................................................. 539,352
66,600 Dell, Inc.*..................................................................... 1,620,378
59,700 eBay, Inc.*..................................................................... 1,918,161
65,400 EMC Corp.*...................................................................... 801,150
7,500 Google, Inc., Class A*.......................................................... 3,572,925
29,800 Hewlett-Packard Co. ............................................................ 1,154,452
114,300 Intel Corp. .................................................................... 2,439,162
24,400 International Business Machines Corp. .......................................... 2,252,852
10,800 Kla-Tencor Corp. ............................................................... 531,036
31,500 Maxim Integrated Products, Inc. ................................................ 945,315
7,700 MEMC Electronic Materials, Inc.*................................................ 273,350
35,400 Micron Technology, Inc.*........................................................ 511,530
192,500 Microsoft Corp. ................................................................ 5,526,675
45,700 Motorola, Inc. ................................................................. 1,053,842
4,100 NAVTEQ Corp.*................................................................... 136,120
6,000 Network Appliance, Inc.*........................................................ 219,000
16,000 Nokia OYJ, ADR.................................................................. 318,080
76,600 Oracle Corp.*................................................................... 1,414,802
21,700 Qualcomm, Inc. ................................................................. 789,663
18,000 Texas Instruments, Inc. ........................................................ 543,240
25,500 Yahoo!, Inc.*................................................................... 671,670
-----------
32,747,550
-----------
MATERIALS - 1.85%
11,800 E.I. Du Pont de Nemours & Co. .................................................. 540,440
31,000 Monsanto Co. ................................................................... 1,370,820
6,400 Newmont Mining Corp. ........................................................... 289,728
-----------
2,200,988
-----------
</Table>
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
TELECOMMUNICATION SERVICES - 2.05%
57,700 NeuStar, Inc. (O)*.............................................................. $ 1,685,994
11,700 NII Holdings, Inc. (O)*......................................................... 760,851
-----------
2,446,845
-----------
UTILITIES - 1.18%
15,000 AES Corp. (O)*.................................................................. 329,850
9,300 Exelon Corp. ................................................................... 576,414
16,700 Mirant Corp.*................................................................... 493,819
-----------
1,400,083
-----------
TOTAL COMMON STOCKS
( Cost $107,986,149 )........................................................... 115,856,364
INVESTMENT COMPANIES - 8.93%
- -------------------------------------------------------------------------------------------------------------
10,300 iShares Russell 1000 Growth Index Fund.......................................... 556,097
30,600 Nasdaq-100 Index Tracking Stock (O)............................................. 1,302,948
1,379,384 SSgA Prime Money Market Fund.................................................... 1,379,384
7,399,712 State Street Navigator Securities Lending Portfolio (I)......................... 7,399,712
-----------
TOTAL INVESTMENT COMPANIES
( Cost $10,502,626 )............................................................ 10,638,141
TOTAL INVESTMENTS - 106.18%
- -------------------------------------------------------------------------------------------------------------
( Cost $118,488,775** )......................................................................... 126,494,505
NET OTHER ASSETS AND LIABILITIES - (6.18)%
- -------------------------------------------------------------------------------------------------------------
(7,364,853)
TOTAL NET ASSETS - 100.00%
- -------------------------------------------------------------------------------------------------------------
$ 119,129,652
- -------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing.
** Aggregate cost for Federal tax purposes was
$118,843,943.
(I) Represents investments of cash collateral received
in connection with securities lending.
(O) All (or portion of security) on loan.
ADR American Depository Receipt.
- --------------------------------------------------------------------------------
47
See accompanying Notes to Financial Statements.
MID CAP VALUE FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS - 95.35%
- --------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY - 12.69%
2,100 Autoliv, Inc. .................................................................. $ 119,427
3,000 Black & Decker Corp. ........................................................... 251,640
4,900 Cato Corp., Class A............................................................. 112,161
1,900 CEC Entertainment, Inc.*........................................................ 65,493
6,100 Darden Restaurants, Inc. ....................................................... 255,590
5,000 Eastman Kodak Co. (O)........................................................... 122,000
6,808 Federated Department Stores, Inc. .............................................. 298,939
27,300 Ford Motor Co. (O).............................................................. 226,044
5,500 Fortune Brands, Inc. ........................................................... 423,225
9,400 Gannett Co., Inc. .............................................................. 555,916
15,200 Gap, Inc. ...................................................................... 319,504
3,000 J.C. Penney Co., Inc. .......................................................... 225,690
5,900 Jones Apparel Group, Inc. ...................................................... 197,060
10,600 JOS A Bank Clothiers, Inc. (O)*................................................. 314,714
5,600 Liberty Media Holding Corp. - Capital*.......................................... 498,736
8,300 Lowes Cos, Inc. ................................................................ 250,162
17,700 Mattel, Inc. ................................................................... 400,551
4,400 Matthews International Corp., Class A (O)....................................... 169,048
3,200 Modine Manufacturing Co. ....................................................... 76,192
3,300 Nike, Inc. ..................................................................... 303,204
11,900 O'Reilly Automotive, Inc. (O)*.................................................. 384,251
4,900 Rare Hospitality International, Inc.*........................................... 154,399
2,300 Sonic Corp.*.................................................................... 52,325
9,000 Stage Stores, Inc. (O).......................................................... 291,690
3,500 Standard-Pacific Corp. (O)...................................................... 84,805
2,200 Starwood Hotels & Resorts Worldwide, Inc. ...................................... 131,428
3,400 Talbots, Inc. (O)............................................................... 95,336
5,900 Tempur-Pedic International, Inc. (O)*........................................... 116,466
8,000 Tiffany & Co. .................................................................. 285,760
9,900 TJX Cos., Inc. ................................................................. 286,605
6,900 Tribune Co. (O)................................................................. 229,977
2,000 Univision Communications, Inc., Class A*........................................ 70,120
5,200 Valassis Communications, Inc.*.................................................. 78,052
3,000 VF Corp. ....................................................................... 228,030
5,800 WCI Communities, Inc. (O)*...................................................... 93,496
5,000 Wendy's International, Inc. .................................................... 173,000
7,900 Yankee Candle Co., Inc. (O)..................................................... 267,415
-----------
8,208,451
-----------
CONSUMER STAPLES - 7.77%
9,900 Casey's General Stores, Inc. ................................................... 240,273
8,400 Clorox Co. ..................................................................... 542,304
</Table>
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
CONSUMER STAPLES (CONTINUED)
11,300 Coca-Cola Enterprises, Inc. .................................................... $ 226,339
15,400 ConAgra Foods, Inc. ............................................................ 402,710
6,100 Constellation Brands, Inc.*..................................................... 167,689
5,000 Costco Wholesale Corp. ......................................................... 266,900
15,700 Hain Celestial Group, Inc. (O)*................................................. 443,211
2,800 Herbalife, Ltd. (O)*............................................................ 102,480
4,400 Hormel Foods Corp. (O).......................................................... 158,884
4,900 JM Smucker Co. ................................................................. 240,100
22,300 Kroger Co. ..................................................................... 501,527
3,800 Loews Corp. - Carolina Group.................................................... 219,716
7,200 McCormick & Co., Inc. .......................................................... 269,280
3,000 NBTY, Inc.*..................................................................... 83,460
2,800 Pepsi Bottling Group, Inc. ..................................................... 88,536
15,900 Safeway, Inc. .................................................................. 466,824
7,903 Supervalu, Inc. ................................................................ 263,960
6,400 Universal Corp./Richmond VA..................................................... 235,648
2,000 UST, Inc. (O)................................................................... 107,120
-----------
5,026,961
-----------
ENERGY - 5.22%
6,700 Chesapeake Energy Corp. ........................................................ 217,348
8,850 Encore Acquisition Co. (O)*..................................................... 221,604
4,400 ENSCO International, Inc. ...................................................... 215,468
3,100 FMC Technologies, Inc.*......................................................... 187,395
7,000 Forest Oil Corp.*............................................................... 228,480
8,400 Hess Corp. ..................................................................... 356,160
4,200 Murphy Oil Corp. ............................................................... 198,072
5,800 Newfield Exploration Co.*....................................................... 236,582
5,400 Noble Energy, Inc. ............................................................. 262,602
5,500 Pioneer Natural Resources Co. (O)............................................... 224,015
4,400 Plains Exploration & Production Co.*............................................ 186,076
4,600 Smith International, Inc. ...................................................... 181,608
2,900 Sunoco, Inc. ................................................................... 191,777
3,200 Tesoro Corp. ................................................................... 204,608
6,000 Whiting Petroleum Corp.*........................................................ 267,660
-----------
3,379,455
-----------
FINANCIALS - 30.27%
6,200 Ameriprise Financial, Inc. ..................................................... 319,300
12,300 Archstone-Smith Trust, REIT..................................................... 740,583
9,800 Ares Capital Corp. ............................................................. 181,594
3,700 Asset Acceptance Capital Corp. (O)*............................................. 65,897
13,260 Associated Banc-Corp. .......................................................... 435,458
8,300 Assured Guaranty, Ltd. ......................................................... 208,911
4,600 Bank of America Corp. .......................................................... 247,802
2,100 Bear Stearns Cos., Inc. ........................................................ 317,835
</Table>
- --------------------------------------------------------------------------------
48
See accompanying Notes to Financial Statements.
MID CAP VALUE FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------
FINANCIALS (CONTINUED)
5,900 Boston Properties, Inc., REIT................................................... $ 630,297
5,000 Capital One Financial Corp. .................................................... 396,650
11,100 CIT Group, Inc. ................................................................ 577,755
15,200 Colonial BancGroup, Inc. ....................................................... 362,368
7,200 Compass Bancshares, Inc. ....................................................... 405,072
2,900 Cousins Properties, Inc., REIT (O).............................................. 103,733
2,775 Delphi Financial Group, Class A................................................. 108,919
5,700 Equity Inns, Inc., REIT......................................................... 95,646
7,000 Equity Residential, REIT........................................................ 382,270
3,800 Everest Re Group, Ltd. ......................................................... 376,884
5,700 Federated Investors, Inc., Class B.............................................. 195,453
5,500 First Horizon National Corp. (O)................................................ 216,260
2,600 First Midwest Bancorp, Inc. (O)................................................. 98,878
5,200 General Growth Properties, Inc., REIT........................................... 269,880
4,700 Hartford Financial Services Group, Inc. ........................................ 409,699
1,800 Innkeepers USA Trust, REIT...................................................... 30,870
4,400 International Bancshares Corp. (O).............................................. 134,992
2,300 IPC Holdings, Ltd. (O).......................................................... 69,092
10,500 iStar Financial, Inc., REIT..................................................... 486,465
5,400 J.P. Morgan Chase & Co. ........................................................ 256,176
7,300 Janus Capital Group, Inc. ...................................................... 146,584
17,000 Keycorp......................................................................... 631,380
16,900 Kimco Realty Corp., REIT (O).................................................... 750,867
4,700 Legg Mason, Inc. ............................................................... 423,094
4,600 Lincoln National Corp. ......................................................... 291,226
4,600 M&T Bank Corp. ................................................................. 560,326
12,400 Marshall & Ilsley Corp. ........................................................ 594,456
3,000 MB Financial, Inc. (O).......................................................... 108,180
3,000 MBIA, Inc. ..................................................................... 186,060
8,200 Medical Properties Trust, Inc., REIT............................................ 111,356
9,200 Mellon Financial Corp. ......................................................... 356,960
3,300 Merrill Lynch & Co., Inc. ...................................................... 288,486
5,800 NewAlliance Bancshares, Inc. (O)................................................ 89,784
5,100 PartnerRe, Ltd. (O)............................................................. 356,592
1,900 Pennsylvania Real Estate Investment Trust, REIT (O)............................. 81,890
5,900 Platinum Underwriters Holdings, Ltd. (Bermuda) (O).............................. 176,174
13,300 Prologis, REIT.................................................................. 841,491
</Table>
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
FINANCIALS (CONTINUED)
1,600 PS Business Parks, Inc., REIT................................................... $ 105,360
3,100 RAIT Investment Trust, REIT (O)................................................. 93,186
8,400 Realty Income Corp., REIT (O)................................................... 221,760
5,100 Reinsurance Group of America, Inc. ............................................. 287,640
7,200 RenaissanceRe Holdings, Ltd. (O)................................................ 391,680
3,100 Safeco Corp. ................................................................... 180,389
6,400 Simon Property Group, Inc., REIT................................................ 621,440
5,100 SLM Corp. ...................................................................... 248,268
11,100 TCF Financial Corp. (O)......................................................... 288,933
8,500 Thornburg Mortgage, Inc., REIT (O).............................................. 218,280
7,700 Universal American Financial Corp. (O)*......................................... 143,143
22,300 UnumProvident Corp. (O)......................................................... 441,094
9,300 U-Store-It Trust, REIT (O)...................................................... 204,228
4,100 Ventas, Inc., REIT (O).......................................................... 159,818
6,700 Vornado Realty Trust, REIT...................................................... 798,975
5,700 Washington Mutual, Inc. (O)..................................................... 241,110
3,000 Webster Financial Corp. (O)..................................................... 144,960
2,100 Westamerica Bancorp. (O)........................................................ 104,685
7,103 Zions Bancorp. ................................................................. 571,081
-----------
19,585,675
-----------
HEALTH CARE - 3.98%
4,900 AmerisourceBergen Corp. ........................................................ 231,280
4,000 Amsurg Corp. (O)*............................................................... 84,080
2,900 Becton Dickinson & Co. ......................................................... 203,087
5,500 Centene Corp. (O)*.............................................................. 129,745
6,000 Charles River Laboratories International, Inc. (O)*............................. 257,520
3,700 Cigna Corp. .................................................................... 432,826
3,800 Dentsply International, Inc. ................................................... 118,864
4,516 Fisher Scientific International, Inc.*.......................................... 386,660
7,500 Health Management Associates, Inc., Class A..................................... 147,750
14,100 Millennium Pharmaceuticals, Inc.*............................................... 164,970
1,700 Omnicare, Inc. (O).............................................................. 64,396
5,800 Triad Hospitals, Inc.*.......................................................... 214,774
3,000 Varian, Inc.*................................................................... 140,670
-----------
2,576,622
-----------
INDUSTRIALS - 8.76%
3,500 Acco Brands Corp. (O)*.......................................................... 85,050
6,100 Acuity Brands, Inc. ............................................................ 302,194
</Table>
- --------------------------------------------------------------------------------
49
See accompanying Notes to Financial Statements.
MID CAP VALUE FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------
INDUSTRIALS (CONTINUED)
16,500 Airtran Holdings, Inc. (O)*..................................................... $ 164,505
2,700 Albany International Corp., Class A (O)......................................... 90,747
4,500 AMR Corp. (O)*.................................................................. 127,530
1,900 Avery Dennison Corp. ........................................................... 119,966
5,700 Belden CDT, Inc. (O)............................................................ 206,340
3,700 Carlisle Cos., Inc. (O)......................................................... 309,653
5,600 CSX Corp. ...................................................................... 199,752
6,400 Eaton Corp. .................................................................... 463,552
4,887 Genesee & Wyoming, Inc., Class A (O)*........................................... 137,276
2,300 Graco, Inc. (O)................................................................. 93,748
4,300 Ingersoll-Rand Co., Ltd., Class A............................................... 157,853
4,800 L-3 Communications Holdings, Inc. .............................................. 386,496
8,600 Masco Corp. .................................................................... 237,790
4,000 Mueller Industries, Inc. ....................................................... 146,680
5,300 Parker Hannifin Corp. .......................................................... 443,239
5,900 Pitney Bowes, Inc. ............................................................. 275,589
7,900 R.R. Donnelley & Sons Co. ...................................................... 267,494
2,900 Republic Services, Inc. ........................................................ 118,929
5,000 Simpson Manufacturing Co., Inc. (O)............................................. 141,950
9,300 Timken Co. ..................................................................... 279,465
4,100 United Stationers, Inc.*........................................................ 195,775
2,400 USG Corp. (O)*.................................................................. 117,336
5,900 W.W. Grainger, Inc. ............................................................ 429,402
4,400 YRC Worldwide, Inc. (O)*........................................................ 170,456
-----------
5,668,767
-----------
INFORMATION TECHNOLOGY - 6.80%
5,100 Affiliated Computer Services, Inc., Class A (O)*................................ 272,748
10,000 Arrow Electronics, Inc.*........................................................ 298,500
12,200 Avaya, Inc.*.................................................................... 156,282
13,000 CA, Inc. ....................................................................... 321,880
5,300 Citrix Systems, Inc.*........................................................... 156,509
7,300 Computer Sciences Corp. (O)*.................................................... 385,805
9,100 Convergys Corp.*................................................................ 193,011
2,600 Diebold, Inc. (O)............................................................... 113,568
7,200 Electronic Data Systems Corp. .................................................. 182,376
5,100 Electronics for Imaging (O)*.................................................... 120,564
2,700 Intergraph Corp.*............................................................... 117,963
7,100 Juniper Networks, Inc.*......................................................... 122,262
21,200 LSI Logic Corp. (O)*............................................................ 213,060
78,000 Lucent Technologies, Inc.*...................................................... 189,540
3,600 MAXIMUS, Inc. .................................................................. 100,476
12,600 Micron Technology, Inc.*........................................................ 182,070
</Table>
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
INFORMATION TECHNOLOGY (CONTINUED)
6,300 Molex, Inc. (O)................................................................. $ 219,870
8,000 NAM TAI Electronics, Inc. ...................................................... 124,720
10,700 Novellus Systems, Inc.*......................................................... 295,855
31,700 Tellabs, Inc.*.................................................................. 334,118
17,600 Xerox Corp.*.................................................................... 299,200
-----------
4,400,377
-----------
MATERIALS - 5.15%
7,800 Air Products & Chemicals, Inc. ................................................. 543,426
2,600 Aptargroup, Inc. ............................................................... 142,766
2,300 Ashland, Inc. (O)............................................................... 135,930
3,300 Bemis Co. ...................................................................... 110,946
5,100 Compass Minerals International, Inc. (O)........................................ 157,845
4,500 Dow Chemical Co. ............................................................... 183,555
5,400 Freeport-McMoRan Copper & Gold, Inc. ........................................... 326,592
14,500 Novelis, Inc. .................................................................. 363,950
9,200 PPG Industries, Inc. ........................................................... 629,280
9,100 Rohm & Haas Co. ................................................................ 471,562
16,900 Smurfit-Stone Container Corp.*.................................................. 180,154
1,300 United States Steel Corp. ...................................................... 87,880
-----------
3,333,886
-----------
TELECOMMUNICATION SERVICES - 2.05%
17,400 Citizens Communications Co. .................................................... 255,084
12,800 NeuStar, Inc. (O)*.............................................................. 374,016
3,800 NII Holdings, Inc.*............................................................. 247,114
26,600 Qwest Communications International, Inc. (O)*................................... 229,558
16,200 Windstream Corp. ............................................................... 222,264
-----------
1,328,036
-----------
UTILITIES - 12.66%
17,500 AES Corp.*...................................................................... 384,825
5,500 Alliant Energy Corp. ........................................................... 210,925
6,200 Ameren Corp. (O)................................................................ 335,420
15,300 American Electric Power Co., Inc. .............................................. 633,879
3,400 Atmos Energy Corp. (O).......................................................... 104,482
6,700 Consolidated Edison, Inc. (O)................................................... 323,945
4,600 Constellation Energy Group, Inc. ............................................... 287,040
14,200 Edison International............................................................ 631,048
8,400 Entergy Corp. .................................................................. 720,972
14,200 Mirant Corp.*................................................................... 419,894
1,700 New Jersey Resources Corp. (O).................................................. 88,162
</Table>
- --------------------------------------------------------------------------------
50
See accompanying Notes to Financial Statements.
MID CAP VALUE FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------
UTILITIES (CONTINUED)
5,400 NRG Energy, Inc. (O)*........................................................... $ 260,010
12,400 NSTAR (O)....................................................................... 431,396
6,700 Oneok, Inc. .................................................................... 278,921
15,400 PG&E Corp. ..................................................................... 664,356
6,750 PNM Resources, Inc. (O)......................................................... 190,080
19,200 PPL Corp. ...................................................................... 662,784
5,100 Progress Energy, Inc. .......................................................... 234,600
7,800 Sempra Energy................................................................... 413,712
5,900 UGI Corp. ...................................................................... 156,350
6,600 Westar Energy, Inc. ............................................................ 167,112
2,400 WGL Holdings, Inc. (O).......................................................... 77,880
23,200 Xcel Energy, Inc. (O)........................................................... 512,024
-----------
8,189,817
-----------
TOTAL COMMON STOCKS
( Cost $53,085,921 )............................................................ 61,698,047
INVESTMENT COMPANIES - 26.12%
- --------------------------------------------------------------------------------------------------------------
15,200 Consumer Discretionary Select Sector SPDR Fund (O).............................. 565,592
2,800 iShares Dow Jones Select Dividend Index Fund.................................... 192,220
19,700 iShares Russell 1000 Growth Index Fund.......................................... 1,063,603
2,900 iShares Russell Midcap Value Index Fund (O)..................................... 410,495
2,100 Pharmaceutical HOLDRs Trust (O)................................................. 163,716
684,445 SSgA Prime Money Market Fund.................................................... 684,445
</Table>
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
INVESTMENT COMPANIES (CONTINUED)
- --------------------------------------------------------------------------------------------------------------
13,823,775 State Street Navigator Securities Lending Portfolio (I)......................... $ 13,823,775
-----------
TOTAL INVESTMENT COMPANIES
( Cost $16,766,315 )............................................................ 16,903,846
TOTAL INVESTMENTS - 121.47%
- --------------------------------------------------------------------------------------------------------------
( Cost $69,852,236** )............................................................................ 78,601,893
NET OTHER ASSETS AND LIABILITIES - (21.47)%
- --------------------------------------------------------------------------------------------------------------
(13,893,854)
TOTAL NET ASSETS - 100.00%
- --------------------------------------------------------------------------------------------------------------
$ 64,708,039
- --------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing.
** Aggregate cost for Federal tax purposes was
$69,919,415.
(I) Represents investments of cash collateral received
in connection with securities lending.
(O) All (or portion of security) on loan.
REITReal Estate Investment Trust.
- --------------------------------------------------------------------------------
51
See accompanying Notes to Financial Statements.
MID CAP GROWTH FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS - 96.03%
- -------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY - 18.28%
14,000 Abercrombie & Fitch Co., Class A................................................ $ 1,073,100
40,900 Carter's, Inc. (O)*............................................................. 1,154,607
25,000 Coldwater Creek, Inc. (O)*...................................................... 762,250
2,500 DreamWorks Animation SKG, Inc.*................................................. 65,132
32,900 JOS A Bank Clothiers, Inc. (O)*................................................. 976,801
29,500 O'Reilly Automotive, Inc. (O)*.................................................. 952,555
39,100 Penn National Gaming, Inc.*..................................................... 1,429,887
16,400 Priceline.com, Inc. (O)*........................................................ 660,756
23,600 Rare Hospitality International, Inc. (O)*....................................... 743,636
17,400 Scientific Games Corp. A*....................................................... 487,722
9,900 Shuffle Master, Inc. (O)*....................................................... 277,002
21,500 Steiner Leisure, Ltd.*.......................................................... 981,260
11,500 Tween Brands, Inc.*............................................................. 480,930
14,000 Zumiez, Inc. (O)*............................................................... 460,040
-----------
10,505,678
-----------
CONSUMER STAPLES - 0.54%
9,800 Hansen Natural Corp. (O)*....................................................... 311,150
-----------
ENERGY - 9.36%
31,600 Chesapeake Energy Corp. (O)..................................................... 1,025,104
37,600 Complete Production Services, Inc.*............................................. 725,304
5,700 Noble Corp...................................................................... 399,570
27,700 Noble Energy, Inc. (O).......................................................... 1,347,051
52,600 Patterson-UTI Energy, Inc....................................................... 1,220,320
24,000 Pride International, Inc. (O)*.................................................. 662,640
-----------
5,379,989
-----------
FINANCIALS - 13.04%
16,030 Affiliated Managers Group, Inc. (O)*............................................ 1,605,244
61,700 E*Trade Financial Corp. (O)*.................................................... 1,436,376
12,900 First Marblehead Corp. (O)...................................................... 870,105
20,200 Nasdaq Stock Market, Inc. (O)*.................................................. 721,746
13,690 Nuveen Investments, Inc., Class A............................................... 674,917
22,200 optionsXpress Holdings, Inc. (O)................................................ 689,976
40,600 WR Berkley Corp. ............................................................... 1,496,516
-----------
7,494,880
-----------
HEALTH CARE - 14.84%
28,100 Amedisys, Inc. (O)*............................................................. 1,140,017
19,800 Biomet, Inc. (O)................................................................ 749,232
9,200 Celgene Corp. (O)*.............................................................. 491,648
</Table>
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
HEALTH CARE (CONTINUED)
14,500 Cephalon, Inc. (O)*............................................................. $ 1,017,610
22,200 Coventry Health Care, Inc. (O)*................................................. 1,042,290
3,100 Express Scripts, Inc.*.......................................................... 197,532
29,800 Health Net, Inc.*............................................................... 1,236,998
7,400 Hologic, Inc.*.................................................................. 356,310
3,400 Invitrogen Corp.*............................................................... 197,234
17,700 Omnicare, Inc. (O).............................................................. 670,476
16,800 Patterson Cos., Inc. (O)*....................................................... 551,880
17,700 Waters Corp.*................................................................... 881,460
-----------
8,532,687
-----------
INDUSTRIALS - 13.73%
3,200 Fastenal Co. (O)................................................................ 128,768
11,900 Gol Linhas Aereas Inteligentes S.A., ADR........................................ 370,685
28,300 Graco, Inc. .................................................................... 1,153,508
25,500 Joy Global, Inc. ............................................................... 997,305
10,900 Manpower, Inc. ................................................................. 738,693
20,000 Monster World Wide, Inc.*....................................................... 810,200
16,500 Oshkosh Truck Corp. ............................................................ 745,965
19,100 Precision Castparts Corp. (O)................................................... 1,299,946
19,500 Resources Connection, Inc. (O)*................................................. 564,330
20,900 Terex Corp.*.................................................................... 1,081,784
-----------
7,891,184
-----------
INFORMATION TECHNOLOGY - 24.88%
4,400 Akamai Technologies, Inc. (O)*.................................................. 206,184
35,900 Alliance Data Systems Corp. (O)*................................................ 2,179,848
16,400 Amphenol Corp. (O).............................................................. 1,113,560
24,300 Autodesk, Inc. (O)*............................................................. 893,025
13,700 Avid Technology, Inc. (O)*...................................................... 494,844
43,200 Benchmark Electronics, Inc. (O)*................................................ 1,146,960
3,000 CDW Corp. (O)................................................................... 197,010
7,100 Cognizant Technology Solutions Corp., Class A*.................................. 534,488
11,500 DST Systems, Inc.*.............................................................. 710,585
29,700 Flir Systems, Inc. (O)*......................................................... 948,618
33,500 Foundry Networks, Inc.*......................................................... 424,110
16,800 Intuit, Inc. (O)*............................................................... 593,040
14,900 Kanbay International, Inc. (O)*................................................. 423,160
27,600 Lam Research Corp.*............................................................. 1,364,820
7,600 Maxim Integrated Products, Inc. (O)............................................. 228,076
9,600 MEMC Electronic Materials, Inc. (O)*............................................ 340,800
</Table>
- --------------------------------------------------------------------------------
52
See accompanying Notes to Financial Statements.
MID CAP GROWTH FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (CONTINUED)
22,100 Polycom, Inc.*.................................................................. $ 605,540
41,300 QLogic Corp.*................................................................... 849,954
28,700 Varian Semiconductor Equipment Associates, Inc.*................................ 1,047,263
-----------
14,301,885
-----------
TELECOMMUNICATION SERVICES - 1.36%
21,000 NeuStar, Inc. (O)*.............................................................. 613,620
11,500 Syniverse Holdings, Inc.*....................................................... 169,625
-----------
783,245
-----------
TOTAL COMMON STOCKS
( Cost $51,251,378 )............................................................ 55,200,698
INVESTMENT COMPANIES - 25.37%
- -------------------------------------------------------------------------------------------------------------
2,277,138 SSgA Prime Money Market Fund.................................................... 2,277,138
12,305,395 State Street Navigator Securities Lending Portfolio (I)......................... 12,305,395
-----------
TOTAL INVESTMENT COMPANIES
( Cost $14,582,533 )............................................................ 14,582,533
TOTAL INVESTMENTS - 121.40%
- -------------------------------------------------------------------------------------------------------------
( Cost $65,833,911** )........................................................................... 69,783,231
NET OTHER ASSETS AND LIABILITIES - (21.40)%
- -------------------------------------------------------------------------------------------------------------
(12,300,625)
TOTAL NET ASSETS - 100.00%
- -------------------------------------------------------------------------------------------------------------
$ 57,482,606
- -------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing.
** Aggregate cost for Federal tax purposes was
$66,265,388.
(I) Represents investments of cash collateral received
in connection with securities lending.
(O) All (or portion of security) on loan.
ADR American Depository Receipt.
- --------------------------------------------------------------------------------
53
See accompanying Notes to Financial Statements.
INTERNATIONAL STOCK FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS - 93.09%
- -------------------------------------------------------------------------------------------------------------
ARGENTINA - 0.14%
6,400 Banco Macro Bansud S.A., ADR.................................................... $ 144,704
-----------
AUSTRALIA - 0.44%
17,860 ABC Learning Centres, Ltd. ..................................................... 97,488
18,745 James Hardie Industries N.V. ................................................... 114,220
32,479 John Fairfax Holdings, Ltd. .................................................... 122,214
47,051 Macquarie Infrastructure Group.................................................. 123,130
-----------
457,052
-----------
AUSTRIA - 0.30%
7,825 CAT Oil AG*..................................................................... 170,999
3,060 Oesterreichische Post AG*....................................................... 137,374
-----------
308,373
-----------
BELGIUM - 1.24%
23,000 InBev N.V. ..................................................................... 1,296,639
-----------
BRAZIL - 1.10%
5,200 Brasil Telecom Participacoes S.A., ADR.......................................... 174,044
27,200 Cia de Concessoes Rodoviarias................................................... 291,092
1,800 Grendene S.A. .................................................................. 15,162
4,300 Petroleo Brasileiro S.A., ADR................................................... 381,668
10,000 Souza Cruz S.A. ................................................................ 152,550
6,700 Ultrapar Participacoes S.A., ADR................................................ 129,645
-----------
1,144,161
-----------
CHILE - 0.00%
200 AFP Provida S.A., ADR........................................................... 5,094
-----------
CHINA - 0.19%
2,360 CNOOC, Ltd., ADR................................................................ 197,815
-----------
EGYPT - 0.59%
3,045 Eastern Tobacco................................................................. 151,326
6,030 Orascom Construction Industries................................................. 260,809
3,600 Orascom Telecom Holding S.A.E. ................................................. 203,521
-----------
615,656
-----------
FINLAND - 0.16%
7,690 Sampo OYJ....................................................................... 166,772
-----------
FRANCE - 13.19%
29,251 AXA S.A. ....................................................................... 1,115,177
16,056 BNP Paribas..................................................................... 1,766,654
2,211 Carbone Lorraine................................................................ 123,178
72,680 France Telecom S.A. ............................................................ 1,889,027
5,608 Lafarge S.A. ................................................................... 754,215
12,300 Lagardere S.C.A. ............................................................... 885,233
2,240 Neopost S.A. ................................................................... 274,077
21,621 Sanofi-Aventis.................................................................. 1,839,114
7,335 Schneider Electric S.A. ........................................................ 762,576
36,025 Total S.A. ..................................................................... 2,440,890
</Table>
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
FRANCE (CONTINUED)
49,888 Vivendi......................................................................... $ 1,890,481
-----------
13,740,622
-----------
GERMANY - 5.03%
16,000 Adidas AG....................................................................... 802,286
5,900 Allianz SE...................................................................... 1,095,809
21,300 Bayerische Motoren Werke AG..................................................... 1,224,196
4,164 Demag Cranes AG*................................................................ 151,889
3,026 DIC Asset AG.................................................................... 107,055
2,270 Fielmann AG..................................................................... 115,970
25,201 KarstadtQuelle AG*.............................................................. 592,235
1,560 Pfeiffer Vacuum Technology AG................................................... 105,400
272 Puma AG Rudolf Dassler Sport.................................................... 96,518
2,491 Techem AG....................................................................... 159,234
7,965 Volkswagen AG................................................................... 786,365
-----------
5,236,957
-----------
GREECE - 0.14%
5,030 Piraeus Bank S.A. .............................................................. 143,519
-----------
HONG KONG - 0.45%
46,500 China Netcom Group Corp., Hong Kong, Ltd. ...................................... 82,616
24,400 Esprit Holdings, Ltd. .......................................................... 236,205
136,000 Pacific Basin Shipping, Ltd. ................................................... 87,421
182,500 SA SA International Holdings, Ltd. ............................................. 64,755
2,400 Texwinca Holdings, Ltd. ........................................................ 1,574
-----------
472,571
-----------
HUNGARY - 0.24%
1,000 MOL Hungarian Oil and Gas NyRt. ................................................ 99,637
720 Richter Gedeon NyRt. ........................................................... 151,252
-----------
250,889
-----------
INDIA - 0.94%
7,200 Hero Honda Motors, Ltd. ........................................................ 121,191
19,700 Hindustan Lever, Ltd. .......................................................... 103,631
7,983 Oil & Natural Gas Corp., Ltd. .................................................. 144,839
900 Punjab National Bank Ltd. ...................................................... 10,379
24,004 Satyam Computer Services, Ltd. ................................................. 234,055
15,114 State Bank of India, Ltd. ...................................................... 368,816
-----------
982,911
-----------
INDONESIA - 0.57%
682,000 Bank Mandiri Persero Tbk PT..................................................... 204,338
6,500 Telekomunikasi Indonesia Tbk PT, ADR............................................ 237,640
207,000 United Tractors Tbk PT.......................................................... 149,076
-----------
591,054
-----------
</Table>
- --------------------------------------------------------------------------------
54
See accompanying Notes to Financial Statements.
INTERNATIONAL STOCK FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
IRELAND - 2.47%
11,416 Anglo Irish Bank Corp. PLC...................................................... $ 204,856
59,035 Bank of Ireland................................................................. 1,190,392
24,687 CRH PLC......................................................................... 873,000
6,009 DCC PLC......................................................................... 162,639
5,692 Irish Life & Permanent PLC...................................................... 139,944
-----------
2,570,831
-----------
ISRAEL - 0.50%
65,154 Bank Hapoalim B.M. ............................................................. 324,703
33,935 Israel Chemicals, Ltd. ......................................................... 193,812
-----------
518,515
-----------
ITALY - 5.70%
33,917 Banco Popolare di Verona e Novara S.c.r.l. ..................................... 913,593
93,455 Capitalia SpA................................................................... 826,573
146,650 Enel SpA........................................................................ 1,408,506
42,200 ENI SpA......................................................................... 1,273,605
182,541 UniCredito Italiano SpA......................................................... 1,514,253
-----------
5,936,530
-----------
JAPAN - 17.16%
3,200 ABC-Mart, Inc. ................................................................. 72,316
3,010 Aoyama Trading Co., Ltd. ....................................................... 92,500
5,400 Asahi Pretec Corp. ............................................................. 130,817
20,650 Bosch Corp. .................................................................... 116,843
6,000 Chiyoda Corp. .................................................................. 108,885
16,570 Daito Trust Construction Co., Ltd. ............................................. 875,166
15,290 Dodwell BMS, Ltd. .............................................................. 97,248
4,670 Don Quijote Co., Ltd. .......................................................... 99,540
93 East Japan Railway Co. ......................................................... 651,207
2,900 Eizo Nanao Corp. ............................................................... 71,495
4,100 Hisamitsu Pharmaceutical Co., Inc. ............................................. 118,276
2,110 Hogy Medical Co., Ltd. ......................................................... 85,433
24,600 Hoya Corp. ..................................................................... 951,823
8,420 Ichiyoshi Securities Co., Ltd. ................................................. 115,323
2,900 Ito En, Ltd. ................................................................... 92,099
4,120 JSR Corp. ...................................................................... 103,688
2,900 Keyence Corp. .................................................................. 642,955
134 KK DaVinci Advisors*............................................................ 146,824
2,630 Mars Engineering Corp. ......................................................... 50,542
20,700 Marui Co., Ltd. ................................................................ 278,729
81 Mitsubishi UFJ Financial Group, Inc. ........................................... 1,019,260
15,300 Nidec Corp. .................................................................... 1,172,188
159,400 Nissan Motor Co., Ltd. ......................................................... 1,911,654
11,000 Nissen Co., Ltd. ............................................................... 82,674
90 NIWS Co., HQ, Ltd. ............................................................. 61,556
67,900 Nomura Holdings, Inc. .......................................................... 1,200,253
7,700 OSG Corp. ...................................................................... 113,635
9,500 Pronexus, Inc. ................................................................. 82,948
2,900 Rinnai Corp. ................................................................... 82,417
1,700 Secom Techno Service Co., Ltd. ................................................. 72,762
</Table>
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
JAPAN (CONTINUED)
15,700 Sega Sammy Holdings, Inc. ...................................................... $ 395,121
3,500 Shoei Co., Ltd. ................................................................ 111,753
134 Sumitomo Mitsui Financial Group, Inc. .......................................... 1,468,242
111,000 Sumitomo Trust & Banking Co., Ltd. ............................................. 1,195,326
10,000 Suruga Bank, Ltd. .............................................................. 124,465
4,190 Takamatsu Corp. ................................................................ 81,060
17,900 Takeda Pharmaceutical Co., Ltd. ................................................ 1,150,736
27,400 THK Co., Ltd. .................................................................. 697,783
219,000 Tokyo Gas Co., Ltd. ............................................................ 1,119,183
1,460 USS Co., Ltd. .................................................................. 92,734
7,350 Yamada Denki Co., Ltd. ......................................................... 732,358
-----------
17,869,817
-----------
KAZAKHSTAN - 0.11%
8,000 Kazmunaigas Exploration, GDR (C)*............................................... 119,680
-----------
MEXICO - 1.01%
11,340 Cemex SAB de C.V.*.............................................................. 348,592
4,440 Desarrolladora Homex S.A. de C.V., ADR*......................................... 194,916
44,600 Grupo Mexico SAB de C.V. ....................................................... 155,735
7,900 Grupo Televisa S.A., ADR........................................................ 194,972
37,200 Kimberly-Clark de Mexico SAB de C.V. ........................................... 155,426
-----------
1,049,641
-----------
MOROCCO - 0.16%
10,945 Maroc Telecom................................................................... 163,694
-----------
NETHERLANDS - 2.21%
2,100 Boskalis Westminster............................................................ 153,417
4,992 Fugro N.V. ..................................................................... 215,884
1,385 Hunter Douglas N.V. ............................................................ 106,666
4,274 SBM Offshore N.V. .............................................................. 126,588
35,350 TNT N.V. ....................................................................... 1,361,694
6,900 Trader Media East Ltd., GDR*.................................................... 56,925
4,610 USG People N.V.*................................................................ 188,766
6,455 Wavin N.V. ..................................................................... 95,634
-----------
2,305,574
-----------
NEW ZEALAND - 0.79%
262,400 Telecom Corp. of New Zealand, Ltd. ............................................. 821,636
-----------
NORWAY - 0.89%
6,800 Acergy S.A.*.................................................................... 123,055
7,100 Songa Offshore ASA*............................................................. 63,291
29,300 Statoil ASA..................................................................... 740,963
-----------
927,309
-----------
</Table>
- --------------------------------------------------------------------------------
55
See accompanying Notes to Financial Statements.
INTERNATIONAL STOCK FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
PERU - 0.18%
4,500 Credicorp, Ltd. ................................................................ $ 189,900
-----------
PHILIPPINES - 0.23%
5,100 Philippine Long Distance Telephone Co., ADR..................................... 242,811
-----------
RUSSIA - 0.64%
5,000 Evraz Group S.A., GDR........................................................... 129,500
7,900 Mobile Telesystems OJSC, ADR.................................................... 348,232
1,500 OAO TMK, GDR (C)(L)*............................................................ 32,400
4,200 Oriflame Cosmetics S.A. ........................................................ 151,881
-----------
662,013
-----------
SOUTH AFRICA - 1.11%
11,726 Aquarius Platinum, Ltd. ........................................................ 218,626
59,699 Edgars Consolidated Stores, Ltd. ............................................... 296,516
10,900 Kumba Resources, Ltd. .......................................................... 208,975
31,698 Murray & Roberts Holdings, Ltd. ................................................ 163,186
22,570 Sanlam, Ltd. ................................................................... 53,440
67,296 Steinhoff International Holdings, Ltd. ......................................... 218,523
-----------
1,159,266
-----------
SOUTH KOREA - 1.85%
650 Hite Brewery Co., Ltd. ......................................................... 77,266
1,000 Hyundai Motor Co. .............................................................. 81,299
9,600 Kangwon Land, Inc. ............................................................. 185,948
5,686 Kookmin Bank.................................................................... 452,007
5,040 KT Corp., ADR................................................................... 112,795
1,910 LG Electronics, Inc. ........................................................... 115,549
1,679 Samsung Electronics Co., Ltd., GDR (C).......................................... 544,416
4,560 Shinhan Financial Group Co., Ltd. .............................................. 210,287
2,000 SK Corp. ....................................................................... 146,678
-----------
1,926,245
-----------
SPAIN - 2.04%
3,240 Abengoa S.A. ................................................................... 98,984
71,435 Banco Bilbao Vizcaya Argentaria S.A. ........................................... 1,726,199
6,580 Indra Sistemas S.A. ............................................................ 146,229
5,050 Prosegur Cia de Seguridad S.A. ................................................. 151,443
-----------
2,122,855
-----------
SWEDEN - 1.17%
11,410 Elekta AB, Class B.............................................................. 237,132
6,400 Getinge AB...................................................................... 113,280
5,950 Swedish Match AB................................................................ 95,216
203,400 Telefonaktiebolaget LM Ericsson................................................. 772,173
-----------
1,217,801
-----------
</Table>
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
SWITZERLAND - 7.23%
18,986 Compagnie Financiere Richemont AG, Class A...................................... $ 940,476
30,018 Credit Suisse Group............................................................. 1,811,879
79 Geberit AG...................................................................... 103,061
3,317 Nestle S.A. .................................................................... 1,134,542
41,285 Novartis AG..................................................................... 2,508,565
86 Sika AG*........................................................................ 112,124
3,697 Zurich Financial Services AG.................................................... 914,915
-----------
7,525,562
-----------
TAIWAN - 1.22%
42,989 Advantech Co., Ltd. ............................................................ 119,921
407,399 Chinatrust Financial Holding Co., Ltd. ......................................... 296,391
1,836 Chunghwa Telecom Co., Ltd., ADR................................................. 33,580
290,100 Fubon Financial Holding Co., Ltd. .............................................. 236,834
45,720 HON HAI Precision Industry Co., Ltd. ........................................... 296,812
124,808 Taiwan Semiconductor Manufacturing Co., Ltd. ................................... 229,350
5,457 Taiwan Semiconductor Manufacturing Co., Ltd., ADR............................... 52,933
-----------
1,265,821
-----------
THAILAND - 0.17%
56,300 Kasikornbank PCL................................................................ 110,392
93,300 Thai Union Frozen Products PCL.................................................. 63,521
-----------
173,913
-----------
TURKEY - 0.52%
15,505 Enka Insaat ve Sanayi AS........................................................ 130,849
27,922 Turkcell Iletisim Hizmet AS..................................................... 150,386
18,389 Turkcell Iletisim Hizmet AS, ADR................................................ 265,537
-----------
546,772
-----------
UNITED KINGDOM - 21.01%
11,500 Ashmore Group PLC*.............................................................. 42,740
194,900 BAE Systems PLC................................................................. 1,560,277
133,900 BP PLC.......................................................................... 1,489,728
7,916 Bunzl PLC....................................................................... 104,688
14,613 Cattles PLC..................................................................... 104,996
4,116 Chemring Group PLC.............................................................. 124,341
82,000 Diageo PLC...................................................................... 1,517,901
36,194 Enodis PLC...................................................................... 127,954
6,090 Enterprise Inns PLC............................................................. 125,284
19,108 Erinaceous Group PLC............................................................ 117,872
20,477 Filtrona PLC.................................................................... 105,899
85,924 Gallaher Group PLC.............................................................. 1,459,360
70,500 GlaxoSmithKline PLC............................................................. 1,883,541
41,532 Imperial Tobacco Group PLC...................................................... 1,471,813
9,380 Intertek Group PLC.............................................................. 147,320
371,700 ITV PLC......................................................................... 748,347
</Table>
- --------------------------------------------------------------------------------
56
See accompanying Notes to Financial Statements.
INTERNATIONAL STOCK FUND PORTFOLIO OF INVESTMENTS
<Table>
<Caption>
Shares Value (Note 2)
- ------ --------------
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
UNITED KINGDOM (CONTINUED)
76,000 Lloyds TSB Group PLC............................................................ $ 811,468
24,420 Man Group PLC................................................................... 227,417
61,493 Marks & Spencer Group PLC....................................................... 770,404
145,935 National Grid PLC............................................................... 1,865,916
35,400 Northern Rock PLC............................................................... 808,640
7,359 Northgate PLC................................................................... 153,356
302,178 Old Mutual PLC.................................................................. 977,441
28,100 Reckitt Benckiser PLC........................................................... 1,223,178
77,478 Regus Group PLC*................................................................ 157,835
6,570 Signet Group PLC, ADR........................................................... 150,979
182,200 Tesco PLC....................................................................... 1,368,205
823,492 Vodafone Group PLC.............................................................. 2,121,539
9,200 William Hill PLC................................................................ 114,295
-----------
21,882,734
-----------
TOTAL COMMON STOCKS
( Cost $77,809,646 )............................................................ 96,953,709
COMMON STOCK UNIT - 0.16%
- -------------------------------------------------------------------------------------------------------------
IRELAND - 0.16%
11,480 Grafton Group PLC*.............................................................. 168,612
-----------
TOTAL COMMON STOCK UNIT
( Cost $117,529 )............................................................... 168,612
PREFERRED STOCKS - 2.04%
- -------------------------------------------------------------------------------------------------------------
BRAZIL - 1.55%
4,700,000 AES Tiete S.A. ................................................................. 119,512
7,400 Bradespar S.A. ................................................................. 287,343
2,200 Cia de Bebidas das Americas, ADR................................................ 96,052
18,292 Cia Vale do Rio Doce............................................................ 394,943
11,400 Iochpe Maxion S.A. ............................................................. 80,712
95,800 Klabin S.A. .................................................................... 207,111
10,000 Tele Norte Leste Participacoes S.A., ADR........................................ 144,700
12,600 Telemar Norte Leste S.A. ....................................................... 281,540
-----------
1,611,913
-----------
GERMANY - 0.12%
2,047 Fuchs Petrolub AG............................................................... 122,094
-----------
GREECE - 0.09%
3,842 Motor Oil Hellas Corinth Refineries S.A. ....................................... 98,631
-----------
SOUTH KOREA - 0.28%
2,450 Hyundai Motor Co. .............................................................. 112,593
9,600 Lotte Shopping Co., Ltd., GDR (C)*.............................................. 180,000
-----------
292,593
-----------
TOTAL PREFERRED STOCKS
( Cost $1,851,527 )............................................................. 2,125,231
<Caption>
Par Value Value (Note 2)
- --------- --------------
CERTIFICATE OF DEPOSIT - 4.19%
- -------------------------------------------------------------------------------------------------------------
UNITED STATES - 4.19%
$4,364,014 State Street Eurodollar
2.800%, due 11/01/06............................................................ $ 4,364,014
-----------
TOTAL CERTIFICATE OF DEPOSIT
( Cost $4,364,014 )............................................................. 4,364,014
TOTAL INVESTMENTS - 99.48%
- -------------------------------------------------------------------------------------------------------------
( Cost $84,142,716** ).......................................................................... 103,611,566
NET OTHER ASSETS AND LIABILITIES - 0.52%
- -------------------------------------------------------------------------------------------------------------
546,418
TOTAL NET ASSETS - 100.00%
- -------------------------------------------------------------------------------------------------------------
$ 104,157,984
- -------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing.
** Aggregate cost for Federal tax purposes was
$84,272,736.
(C) Security sold within terms of a private placement
memorandum exempt from registration under section 144A of the Securities
Act of 1933, as amended, and may be sold only to dealers in that program or
other "qualified institutional investors." The securities have been
determined to be liquid under guidelines established by the Board of
Trustees.
(L) Security fair valued in accordance with methods
determined in good faith by and under the general supervision of the Board
of Trustees (see note 2).
ADR American Depository Receipt.
GDR Global Depository Receipt.
PLC Public Limited Company.
- --------------------------------------------------------------------------------
57
See accompanying Notes to Financial Statements.
INTERNATIONAL STOCK FUND PORTFOLIO OF INVESTMENTS (UNAUDITED)
OTHER INFORMATION:
Industry Concentration as a Percentage of Net Assets
<Table>
<Caption>
% of Net Assets
---------------
Banks 14.7%
Pharmaceuticals 7.3%
Oil, Gas & Consumable
Fuels 7.1%
Diversified Financial
Services 4.8%
Net Other Assets &
Liabilities 4.7%
Diversified
Telecommunication
Services 4.2%
Insurance 4.2%
Automobiles 4.1%
Media 3.7%
Electronic Equipment &
Instruments 3.5%
Electric Utilities 3.3%
Tobacco 3.2%
Beverages 3.0%
Wireless
Telecommunication
Services 2.8%
Multiline Retail 2.1%
Construction Materials 1.9%
Textiles, Apparel &
Luxury Goods 1.8%
Aerospace & Defense 1.6%
Air Freight & Logistics 1.4%
Household Products 1.4%
Real Estate Management &
Development 1.3%
Food & Staples Retailing 1.3%
Machinery 1.3%
</Table>
<Table>
<Caption>
% of Net Assets
---------------
Commercial Services &
Supplies 1.3%
Specialty Retail 1.2%
Food Products 1.2%
Gas Utilities 1.1%
Metals & Mining 1.1%
Construction &
Engineering 0.9%
Electrical Equipment 0.9%
Household Durables 0.8%
Communications Equipment 0.7%
Road & Rail 0.6%
Energy Equipment &
Services 0.5%
Chemicals 0.5%
Building Products 0.5%
Leisure Equipment &
Products 0.4%
Health Care Equipment &
Supplies 0.4%
Hotels, Restaurants &
Leisure 0.4%
Transportation
Infrastructure 0.4%
Distributors 0.4%
IT Services 0.4%
Semiconductors &
Semiconductor Equipment 0.3%
Office Electronics 0.3%
Industrial Conglomerates 0.2%
Paper & Forest Products 0.2%
Auto Components 0.2%
Personal Products 0.1%
Marine 0.1%
Computers & Peripherals 0.1%
Internet & Catalog
Retail 0.1%
-----------
100.0%
-----------
-----------
</Table>
- --------------------------------------------------------------------------------
58
See accompanying Notes to Financial Statements.
This page is left blank intentionally.
- --------------------------------------------------------------------------------
59
STATEMENTS OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2006
<Table>
- ----------------------------------------------------------------------------------------------------------
<Caption>
CONSERVATIVE MODERATE AGGRESSIVE
ALLOCATION ALLOCATION ALLOCATION
FUND(1) FUND(1) FUND(1)
ASSETS:
Investments:
Investments at cost $ 3,536,336 $ 11,601,748 $ 3,615,218
Net unrealized appreciation 87,258 377,760 194,033
-----------------------------------------------
Total investments at value 3,623,594 11,979,508 3,809,251
Cash - - -
Receivables:
Investments sold - - -
Fund shares sold 3,988 214,485 13,453
Dividends and interest 14 37 12
Due from Advisor, net 24,867 22,777 24,749
Prepaid insurance and registration fees 24,133 24,806 24,836
Deferred offering costs 3,672 3,671 3,672
Other assets - - -
-----------------------------------------------
Total Assets 3,680,268 12,245,284 3,875,973
-----------------------------------------------
LIABILITIES:
Payables:
Investments purchased 3,988 169,402 4,909
Fund shares repurchased 406 - 8,544
Due to Advisor, net - - -
Upon return of securities loaned - - -
Administration and transfer agent fees 8,012 7,905 7,963
Distribution fees - Class B 281 1,585 567
Shareholder servicing fees 644 1,992 685
Trustees' fees 15 37 16
Accrued expenses and other payables 14,021 13,574 14,012
-----------------------------------------------
Total Liabilities 27,367 194,495 36,696
-----------------------------------------------
NET ASSETS $ 3,652,901 $ 12,050,789 $ 3,839,277
-----------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 3,549,259 $ 11,654,140 $ 3,645,747
Accumulated net investment income (loss) 13,565 15,512 -
Accumulated net realized gain (loss) on investments sold
and foreign currency related transactions 2,819 3,377 (503)
Net unrealized appreciation of investments (including
appreciation (depreciation) of foreign currency related
transactions) 87,258 377,760 194,033
-----------------------------------------------
NET ASSETS $ 3,652,901 $ 12,050,789 $ 3,839,277
-----------------------------------------------
CLASS A SHARES:
Net Assets $ 3,031,177 $ 8,761,912 $ 2,675,600
Shares of beneficial interest outstanding 287,981 822,863 248,596
Net Asset Value, redemption and reinvestment price per
share(2) $ 10.53 $ 10.65 $ 10.76
Sales charge of offering price(3) 0.64 0.65 0.66
-----------------------------------------------
Maximum offering price per share $ 11.17 $ 11.30 $ 11.42
-----------------------------------------------
CLASS B SHARES:
Net Assets $ 621,724 $ 3,288,877 $ 1,163,677
Shares of beneficial interest outstanding 59,164 309,525 108,350
Net Asset Value, redemption and reinvestment price per
share(2) $ 10.51 $ 10.63 $ 10.74
-----------------------------------------------
CLASS Y SHARES:
Net Assets
Shares of beneficial interest outstanding
Net Asset Value, redemption and reinvestment price
per share(2)
-----------------------------------------------
</Table>
- ----------------------------------
(1) Fund commenced investment operations on June 30, 2006.
(2) If applicable, redemption price per share may be reduced by a contingent
deferred sales charge and/or redemption fee.
- --------------------------------------------------------------------------------
60
See accompanying Notes to Financial Statements.
<Table>
- -------------------------------------------------------------------------------------------
<Caption>
CASH RESERVES HIGH INCOME BALANCED LARGE CAP LARGE CAP
FUND BOND FUND FUND FUND VALUE FUND GROWTH FUND
$ 17,801,099 $119,691,822 $ 67,378,581 $180,976,487 $144,042,743 $ 118,488,775
- 96,690 361,137 14,028,698 38,690,432 8,005,730
- -------------------------------------------------------------------------------------------
17,801,099 119,788,512 67,739,718 195,005,185 182,733,175 126,494,505
- 1,617 - 980
- 384
- - 650,276 - - -
763,903 158,444 138,612 30,640
28,443 996,894 1,157,281 703,031 967,484 566,753
7,094 - - - 179,887 241,704
19,088 24,304 21,008 27,893 200,280 38,742
- - - - 28,608 24,625
- 1,430 8,742 1,389 - 1,186
- -------------------------------------------------------------------------------------------
18,619,627 120,971,201 69,715,637 195,769,118 184,109,434 127,367,899
- -------------------------------------------------------------------------------------------
600,000 - 1,029,501 - 231,322 350,951
13,248 335,440 395,783 456,185 270,755 305,690
- 22,506 10,107 71,663 51,542 42,668
- 17,471,094 12,131,612 23,225,289 - 7,399,712
5,549 28,283 16,677 55,317 60,556 53,121
2,746 23,674 11,053 51,397 39,914 27,931
- 20,570 11,358 39,913 37,187 23,113
117 727 390 1,220 1,252 797
21,456 48,779 92,554 43,245 40,858 34,264
- -------------------------------------------------------------------------------------------
643,116 17,951,073 13,699,035 23,944,229 733,386 8,238,247
- -------------------------------------------------------------------------------------------
$ 17,976,511 $103,020,128 $ 56,016,602 $171,824,889 $183,376,048 $ 119,129,652
- -------------------------------------------------------------------------------------------
$ 17,976,531 $104,191,977 $ 60,279,678 $154,968,483 $158,463,635 $ 122,434,449
(8) 2,879 156,711 5,928 1,733,337 -
(12) (1,271,418) (4,780,924) 2,821,780 (15,511,356) (11,310,527)
- 96,690 361,137 14,028,698 38,690,432 8,005,730
- -------------------------------------------------------------------------------------------
$ 17,976,511 $103,020,128 $ 56,016,602 $171,824,889 $183,376,048 $ 119,129,652
- -------------------------------------------------------------------------------------------
$ 10,989,331 $ 59,645,886 $ 36,281,125 $ 91,338,943 $113,441,315 $ 65,215,522
11,012,072 6,036,719 4,930,156 6,917,961 7,333,586 4,435,651
$ 1.00 $ 9.88 $ 7.36 $ 13.20 $ 15.47 $ 14.70
0.06 0.47 0.35 0.81 0.94 0.90
- -------------------------------------------------------------------------------------------
$ 1.06 $ 10.35 $ 7.71 $ 14.01 $ 16.41 $ 15.60
- -------------------------------------------------------------------------------------------
$ 4,241,732 $ 37,232,941 $ 17,098,744 $ 80,485,946 $ 62,766,322 $ 43,975,286
4,256,297 3,767,289 2,315,091 6,090,114 4,129,362 3,167,308
$ 1.00 $ 9.88 $ 7.39 $ 13.22 $ 15.20 $ 13.88
- -------------------------------------------------------------------------------------------
$ 2,745,448 $ 6,141,301 $ 2,636,733 $ 7,168,411 $ 9,938,844
2,745,448 621,873 358,037 462,938 675,138
1.00
$ $ 9.88 $ 7.36 $ 15.48 $ 14.72
- -------------------------------------------------------------------------------------------
</Table>
(3) Sales charge of offering price is 5.75% for the Conservative Allocation,
Moderate Allocation, Aggressive Allocation, Cash Reserves, Balanced, Large
Cap Value and Large Cap Growth Funds; and 4.50% for the Bond and High Income
Funds.
- --------------------------------------------------------------------------------
61
See accompanying Notes to Financial Statements.
STATEMENTS OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2006
<Table>
- ----------------------------------------------------------------------------------------------
<Caption>
MID CAP MID CAP INTERNATIONAL
VALUE FUND GROWTH FUND STOCK FUND
ASSETS:
Investments:
Investments at cost $69,852,236 $65,833,911 $ 84,142,716
Net unrealized appreciation 8,749,657 3,949,320 19,468,850
-------------------------------------------
Total investments at value 78,601,893 69,783,231 103,611,566
Cash - - -
Foreign currency (cost of $183,022)(Note 2) - - 181,759
Receivables:
Investments sold 625,390 620,520 1,160,925
Fund shares sold 145,217 181,801 251,487
Dividends and interest 54,039 12,370 179,366
Prepaid insurance and registration fees 15,112 15,251 24,410
Other assets 18,833 256 50,082
-------------------------------------------
Total Assets 79,460,484 70,613,429 105,459,595
-------------------------------------------
LIABILITIES:
Payables:
Investments purchased 662,406 566,354 971,144
Fund shares repurchased 153,192 154,904 142,402
Due to Advisor, net 24,640 9,810 52,067
Upon return of securities loaned 13,823,775 12,305,395 -
Administration and transfer agent fees 28,002 25,139 26,231
Distribution fees -- Class B 15,712 10,003 10,183
Shareholder servicing fees 12,488 10,491 19,808
Trustees' fees 432 372 686
Accrued expenses and other payables 31,798 48,355 79,090
-------------------------------------------
Total Liabilities 14,752,445 13,130,823 1,301,611
-------------------------------------------
NET ASSETS $64,708,039 $57,482,606 $104,157,984
-------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $43,469,817 $60,865,015 $ 73,181,969
Accumulated undistributed net investment income 140,425 - 589,402
Accumulated net realized gain (loss) on
investments sold and foreign currency related
transactions 12,348,140 (7,331,729) 10,918,461
Net unrealized appreciation of investments
(including appreciation (depreciation) of
foreign currency related transactions) 8,749,657 3,949,320 19,468,152
-------------------------------------------
NET ASSETS $64,708,039 $57,482,606 $104,157,984
-------------------------------------------
CLASS A SHARES:
Net Assets $34,363,802 $33,898,843 $ 78,957,751
Shares of beneficial interest outstanding 2,211,205 5,408,310 5,041,407
NET ASSET VALUE, redemption and reinvestment
price
per share(1) $ 15.54 $ 6.27 $ 15.66
Sales charge of offering price(2) 0.95 0.38 0.96
-------------------------------------------
Maximum offering price per share $ 16.49 $ 6.65 $ 16.62
-------------------------------------------
CLASS B SHARES:
Net Assets $24,813,274 $15,753,809 $ 16,174,882
Shares of beneficial interest outstanding 1,658,962 2,641,816 1,047,203
Net Asset Value, redemption and reinvestment
price
per share(1) $ 14.96 $ 5.96 $ 15.45
-------------------------------------------
CLASS Y SHARES:
Net Assets $ 5,530,963 $7,829,954 $ 9,025,351
Shares of beneficial interest outstanding 355,518 1,248,140 575,751
Net Asset Value, redemption and reinvestment
price
per share(1) $ 15.56 $ 6.27 $ 15.68
-------------------------------------------
</Table>
- ----------------------------------
(1) If applicable, redemption price per share may be reduced by a contingent
deferred sales charge and/or redemption fee.
(2) Sales charge of offering price is 5.75% for the Mid Cap Value, Mid Cap
Growth and International Stock Funds.
- --------------------------------------------------------------------------------
62
See accompanying Notes to Financial Statements.
This page is left blank intentionally.
- --------------------------------------------------------------------------------
63
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2006
<Table>
- ------------------------------------------------------------------------------------------
<Caption>
CONSERVATIVE MODERATE AGGRESSIVE
ALLOCATION ALLOCATION ALLOCATION
FUND(1) FUND(1) FUND(1)
INVESTMENT INCOME:
Interest $ 122 $ 506 $ 164
Dividends 21,719 31,044 769
Less: Foreign taxes withheld - - -
Securities lending income, net - - -
---------------------------------------------
Total investment income 21,841 31,550 933
---------------------------------------------
EXPENSES:
Management fees 1,247 3,061 1,303
Administration and transfer agent fees 29,015 29,045 29,038
Registration expenses 10,415 10,597 10,429
Custodian and accounting fees 4,996 4,996 4,996
Professional fees 13,689 13,792 13,694
Reports to shareholders expense 1,375 1,528 1,383
Trustees' fees 48 101 49
Distribution fees -- Class B 492 2,781 949
Shareholder servicing fees -- Class A 1,395 2,901 1,316
Shareholder servicing fees -- Class B 164 927 316
Compliance expense 1,000 1,000 1,000
Amortization of offering costs 741 741 740
Other expenses 878 880 878
---------------------------------------------
Total expenses before reimbursement/waiver 65,455 72,350 66,091
Less: reimbursement/waiver (60,600) (58,861) (60,571)
---------------------------------------------
Total expenses net of reimbursement/waiver 4,855 13,489 5,520
---------------------------------------------
NET INVESTMENT INCOME (LOSS) 16,986 18,061 (4,587)
---------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net realized gain (loss) on investments
(including net realized gain (loss) on
foreign currency related transactions) 2,819 3,306 1,589
Net change in unrealized appreciation on
investments (including a net unrealized
appreciation (depreciation) on foreign
currency related transactions) 87,258 377,760 194,033
---------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS 90,077 381,066 195,622
---------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 107,063 $399,127 $191,035
---------------------------------------------
</Table>
- ----------------------------------
(1) Fund commenced investment operations on June 30, 2006.
- --------------------------------------------------------------------------------
64
See accompanying Notes to Financial Statements.
<Table>
- -----------------------------------------------------------------------------------
<Caption>
CASH HIGH LARGE CAP LARGE CAP
RESERVES BOND INCOME BALANCED VALUE GROWTH
FUND FUND FUND FUND FUND FUND
$773,372 $5,332,433 $ 4,265,177 $ 3,587,443 $ 71,118 $ 54,198
- - 52,043 2,349,065 4,455,098 1,550,853
- - (744) (844) (180) (6,901)
- 25,064 22,826 26,871 2,434 12,257
- -----------------------------------------------------------------------------------
773,372 5,357,497 4,339,302 5,962,535 4,528,470 1,610,407
- -----------------------------------------------------------------------------------
65,883 518,600 298,829 1,245,230 983,596 939,119
40,911 212,801 124,704 421,519 459,894 417,647
30,282 33,233 29,888 35,107 37,086 34,991
18,895 36,518 29,387 46,496 42,960 36,625
13,972 22,430 22,282 28,432 27,924 24,280
2,480 16,009 9,219 27,709 28,819 22,041
1,709 10,999 5,756 17,133 18,792 12,687
38,308 314,736 143,760 676,160 516,626 368,071
- 151,860 87,003 253,548 272,239 186,884
- 104,912 47,920 225,387 172,208 122,690
5,214 5,214 5,214 5,214 5,214 5,214
- - - - - -
1,701 6,845 4,387 12,160 11,088 7,719
- -----------------------------------------------------------------------------------
219,355 1,434,157 808,349 2,994,095 2,576,446 2,177,968
(90,538) (189,515) (122,119) (210,578) (276,232) (310,809)
- -----------------------------------------------------------------------------------
128,817 1,244,642 686,230 2,783,517 2,300,214 1,867,159
- -----------------------------------------------------------------------------------
644,555 4,112,855 3,653,072 3,179,018 2,228,256 (256,752)
- -----------------------------------------------------------------------------------
(5) (403,816) 313,613 11,963,911 12,909,804 15,215,544
- 696,586 310,355 1,301,919 14,788,053 (6,799,789)
- -----------------------------------------------------------------------------------
(5) 292,770 623,968 13,265,830 27,697,857 8,415,755
- -----------------------------------------------------------------------------------
$644,550 $4,405,625 $ 4,277,040 $16,444,848 $29,926,113 $ 8,159,003
- -----------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
65
See accompanying Notes to Financial Statements.
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2006
<Table>
- ----------------------------------------------------------------------------------------
<Caption>
MID CAP MID CAP INTERNATIONAL
VALUE FUND GROWTH FUND STOCK FUND
INVESTMENT INCOME:
Interest $ 50,238 $ 55,492 $ 73,411
Dividends 1,230,456 243,877 2,400,059
Less: Foreign taxes withheld (524) (1,434) (215,276)
Securities lending income, net 18,739 2,842 -
-----------------------------------------------
Total investment income 1,298,909 300,777 2,258,194
-----------------------------------------------
EXPENSES:
Management fees 637,040 377,980 903,240
Administration and transfer agent fees 212,898 191,429 182,730
Registration expenses 29,207 29,094 31,583
Custodian and accounting fees 41,058 45,643 217,050
Professional fees 20,634 18,665 27,689
Reports to shareholders expense 9,707 8,447 11,243
Trustees' fees 6,309 5,193 8,583
Distribution fees - Class B 181,877 116,563 107,440
Shareholder servicing fees - Class A 105,078 84,423 176,031
Shareholder servicing fees - Class B 60,626 38,854 35,813
Compliance expense 5,214 5,214 5,214
Other expenses 4,788 3,529 4,657
-----------------------------------------------
Total expenses before
reimbursement/waiver 1,314,436 925,034 1,711,273
Less: reimbursement/waiver (195,647) (206,584) (230,191)
-----------------------------------------------
Total expenses net of
reimbursement/waiver 1,118,789 718,450 1,481,082
-----------------------------------------------
NET INVESTMENT INCOME (LOSS) 180,120 (417,673) 777,112
-----------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net realized gain on investments
(including net realized gain (loss) on
foreign currency related
transactions)(1) 14,089,064 10,239,937 10,823,451
Net change in unrealized appreciation
(depreciation) on investments
(including a net unrealized
appreciation (depreciation) on foreign
currency related transactions)(2) (3,919,762) (1,880,424) 6,822,444
-----------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS 10,169,302 8,359,513 17,645,895
-----------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $10,349,422 $7,941,840 $18,423,007
-----------------------------------------------
</Table>
- ----------------------------------
(1) Includes foreign capital gains taxes paid of $3,813 for the International
Stock Fund.
(2) Net of deferred foreign capital gains taxes of $4,945 for the International
Stock Fund.
- --------------------------------------------------------------------------------
66
See accompanying Notes to Financial Statements.
This page is left blank intentionally.
- --------------------------------------------------------------------------------
67
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
- ---------------------------------------------------------------------------------------------------------
<Caption>
CONSERVATIVE MODERATE AGGRESSIVE
ALLOCATION FUND(1) ALLOCATION FUND(1) ALLOCATION FUND(1)
------------------ ------------------ ------------------
FOR THE YEAR OR PERIOD ENDED OCTOBER 31, 2006 2006 2006
NET ASSETS AT BEGINNING OF PERIOD $ - $ - $ -
--------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income (loss) 16,986 18,061 (4,587)
Net realized gain (loss) 2,819 3,306 1,589
Net change in unrealized appreciation 87,258 377,760 194,033
--------------------------------------------------------------
Net increase in net assets from
operations 107,063 399,127 191,035
--------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A - - -
Class B - - -
Class Y - - -
--------------------------------------------------------------
Total distributions - - -
CAPITAL STOCK TRANSACTIONS:
CLASS A SHARES
Shares sold 2,974,268 8,485,312 2,556,341
Issued to shareholders in reinvestment
of distributions - - -
Shares redeemed (37,356) (19,946) (25,928)
Redemption fees 53 - -
--------------------------------------------------------------
Net increase (decrease) from capital
stock transactions 2,936,965 8,465,366 2,530,413
--------------------------------------------------------------
CLASS B SHARES
Shares sold 640,103 3,253,668 1,149,576
Issued to shareholders in reinvestment
of distributions - - -
Shares redeemed (31,230) (67,372) (31,747)
--------------------------------------------------------------
Net increase (decrease) from capital
stock transactions 608,873 3,186,296 1,117,829
--------------------------------------------------------------
CLASS Y SHARES
Shares sold - - -
Issued to shareholders in reinvestment
of distributions - - -
Shares redeemed - - -
--------------------------------------------------------------
Net increase from capital stock
transactions - - -
--------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,652,901 12,050,789 3,839,277
--------------------------------------------------------------
NET ASSETS AT END OF PERIOD $3,652,901 $12,050,789 $3,839,277
--------------------------------------------------------------
Accumulated net investment income $ 13,565 $ 15,512 $ -
--------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
CLASS A SHARES
Shares sold 291,590 824,793 251,071
Issued to shareholders in reinvestment
of distributions - - -
Shares redeemed (3,609) (1,930) (2,475)
--------------------------------------------------------------
Net increase (decrease) from capital
stock transactions 287,981 822,863 248,596
--------------------------------------------------------------
CLASS B SHARES
Shares sold 62,123 315,940 111,446
Issued to shareholders in reinvestment
of distributions - - -
Shares redeemed (2,959) (6,415) (3,096)
--------------------------------------------------------------
Net increase (decrease) from capital
stock transactions 59,164 309,525 108,350
--------------------------------------------------------------
CLASS Y SHARES(2)
Shares sold
Issued to shareholders in reinvestment
of distributions
Shares redeemed
--------------------------------------------------------------
Net increase from capital stock
transactions
--------------------------------------------------------------
</Table>
- ----------------------------------
(1) Fund commenced investment operations on June 30, 2006.
(2) Class Y commenced investment operations on June 30, 2006. Class Y is not
available for the Allocation and Balanced Funds.
- --------------------------------------------------------------------------------
68
See accompanying Notes to Financial Statements.
<Table>
- -------------------------------------------------------------------------------------
<Caption>
CASH RESERVES FUND BOND FUND
----------------------------------- -----------------------------------
2006 2005 2006 2005
$ 17,347,840 $20,348,022 $109,530,215 $115,169,491
- -------------------------------------------------------------------------------------
644,555 366,161 4,112,855 3,920,310
(5) (7) (403,816) 210,525
- - 696,586 (3,572,710)
- -------------------------------------------------------------------------------------
644,550 366,154 4,405,625 558,125
- -------------------------------------------------------------------------------------
(453,637) (261,600) (2,612,420) (2,405,620)
(172,164) (105,896) (1,484,994) (1,647,191)
(19,565) - (48,143) -
- -------------------------------------------------------------------------------------
(645,366) (367,496) (4,145,557) (4,052,811)
12,927,325 6,087,557 10,141,287 13,980,460
443,451 258,400 2,518,469 2,314,294
(13,623,930) (7,018,403) (15,108,256) (12,352,304)
- - 544 1,381
- -------------------------------------------------------------------------------------
(253,154) (672,446) (2,447,956) 3,943,831
- -------------------------------------------------------------------------------------
1,362,350 1,672,418 2,127,842 3,970,780
157,059 97,404 1,353,157 1,512,182
(3,382,216) (4,096,216) (13,860,774) (11,571,383)
- -------------------------------------------------------------------------------------
(1,862,807) (2,326,394) (10,379,775) (6,088,421)
- -------------------------------------------------------------------------------------
2,939,100 - 7,826,110 -
19,565 - 48,144 -
(213,217) - (1,816,678) -
- -------------------------------------------------------------------------------------
2,745,448 - 6,057,576 -
- -------------------------------------------------------------------------------------
628,671 (3,000,182) (6,510,087) (5,639,276)
- -------------------------------------------------------------------------------------
$ 17,976,511 $17,347,840 $103,020,128 $109,530,215
- -------------------------------------------------------------------------------------
$ (8) $ 803 $ 2,879 $ 37,296
- -------------------------------------------------------------------------------------
12,927,380 6,087,557 1,036,915 1,394,768
443,451 258,400 257,346 230,356
(13,623,930) (7,018,403) (1,544,979) (1,229,378)
- -------------------------------------------------------------------------------------
(253,099) (672,446) (250,718) 395,746
- -------------------------------------------------------------------------------------
1,361,802 1,672,418 217,901 394,605
157,059 97,404 138,200 150,443
(3,382,216) (4,096,216) (1,417,962) (1,150,615)
- -------------------------------------------------------------------------------------
(1,863,355) (2,326,394) (1,061,861) (605,567)
- -------------------------------------------------------------------------------------
2,939,100 - 803,148 -
19,565 - 4,897 -
(213,217) - (186,172) -
- -------------------------------------------------------------------------------------
2,745,448 - 621,873 -
- -------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
69
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
- --------------------------------------------------------------------------------------------------------------
<Caption>
HIGH INCOME FUND BALANCED FUND
------------------------- ---------------------------
FOR THE YEAR ENDED OCTOBER 31, 2006 2005 2006 2005
NET ASSETS AT BEGINNING OF PERIOD $65,126,572 $67,485,810 $205,715,130 $204,684,264
-------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income 3,653,072 4,289,635 3,179,018 3,188,269
Net realized gain (loss) 313,613 493,268 11,963,911 7,310,825
Net change in unrealized appreciation (depreciation) 310,355 (3,072,100) 1,301,919 579,312
-------------------------------------------------------
Net increase in net assets from operations 4,277,040 1,710,803 16,444,848 11,078,406
-------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (2,431,599) (2,947,502) (2,031,413) (2,024,516)
Class B (1,189,183) (1,279,041) (1,152,532) (1,230,115)
Class Y (33,786) - - -
-------------------------------------------------------
TOTAL DISTRIBUTIONS (3,654,568) (4,226,543) (3,183,945) (3,254,631)
CAPITAL STOCK TRANSACTIONS:
CLASS A SHARES
Shares sold 9,892,530 8,513,095 17,702,055 19,500,679
Issued to shareholders in reinvestment of
distributions 1,878,657 1,770,738 2,003,495 1,999,000
Shares redeemed (19,763,802) (8,840,700) (42,574,463) (16,722,892)
Redemption fees 705 198 1,022 352
-------------------------------------------------------
Net increase (decrease) from capital stock
transactions (7,991,910) 1,443,331 (22,867,891) 4,777,139
-------------------------------------------------------
CLASS B SHARES
Shares sold 1,626,452 2,949,055 4,521,125 9,776,495
Issued to shareholders in reinvestment of
distributions 978,918 1,035,777 1,127,458 1,199,896
Shares redeemed (6,963,369) (5,271,661) (29,931,836) (22,546,439)
-------------------------------------------------------
Net (decrease) from capital stock transactions (4,357,999) (1,286,829) (24,283,253) (11,570,048)
-------------------------------------------------------
CLASS Y SHARES
Shares sold 2,800,030 - - -
Issued to shareholders in reinvestment of
distributions 33,786 - - -
Shares redeemed (216,349) - - -
-------------------------------------------------------
Net increase from capital stock transactions 2,617,467 - - -
-------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (9,109,970) (2,359,238) (33,890,241) 1,030,866
-------------------------------------------------------
NET ASSETS at end of period $56,016,602 $65,126,572 $171,824,889 $205,715,130
-------------------------------------------------------
Accumulated net investment income $ 156,711 $ 157,170 $ 5,928 $ 3,909
-------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
CLASS A SHARES
Shares sold 1,350,232 1,133,885 1,401,144 1,594,151
Issued to shareholders in reinvestment of
distributions 257,041 237,816 158,390 163,465
Shares redeemed (2,698,570) (1,189,373) (3,411,546) (1,365,001)
-------------------------------------------------------
Net increase (decrease) from capital stock
transactions (1,091,297) 182,328 (1,852,012) 392,615
-------------------------------------------------------
CLASS B SHARES
Shares sold 221,556 393,564 357,686 799,826
Issued to shareholders in reinvestment of
distributions 133,435 138,631 89,093 98,163
Shares redeemed (947,225) (704,210) (2,368,149) (1,838,903)
-------------------------------------------------------
Net (decrease) from capital stock transactions (592,234) (172,015) (1,921,370) (940,914)
-------------------------------------------------------
CLASS Y SHARES(2)
Shares sold 382,987 -
Issued to shareholders in reinvestment of
distributions 4,613 -
Shares redeemed (29,563) -
-------------------------------------------------------
Net increase from capital stock transactions 358,037 -
-------------------------------------------------------
</Table>
- ----------------------------------
(1) Class Y commenced investment operations on June 30, 2006. Class Y is not
available for the Allocation and Balanced Funds.
- --------------------------------------------------------------------------------
70
See accompanying Notes to Financial Statements.
<Table>
- -------------------------------------------------------------
<Caption>
LARGE CAP VALUE FUND LARGE CAP GROWTH FUND
--------------------------- ---------------------------
2006 2005 2006 2005
$177,793,189 $169,337,191 $133,731,230 $137,218,036
- -------------------------------------------------------------
2,228,256 1,726,743 (256,752) 426,541
12,909,804 (333,713) 15,215,544 4,642,829
14,788,053 14,146,845 (6,799,789) 3,474,748
- -------------------------------------------------------------
29,926,113 15,539,875 8,159,003 8,544,118
- -------------------------------------------------------------
(1,397,838) (1,084,836) (422,539) (4,002)
(417,037) (377,017) - -
- - - -
- -------------------------------------------------------------
(1,814,875) (1,461,853) (422,539) (4,002)
20,907,477 21,817,829 11,131,414 11,846,637
1,385,357 1,072,530 419,623 3,921
(29,570,359) (12,359,804) (29,196,406) (11,623,924)
46 43 150 13
- -------------------------------------------------------------
(7,277,479) 10,530,598 (17,645,219) 226,647
- -------------------------------------------------------------
3,990,922 5,643,751 2,608,151 3,402,886
406,155 368,151 - -
(26,471,869) (22,164,524) (16,717,772) (15,656,455)
- -------------------------------------------------------------
(22,074,792) (16,152,622) (14,109,621) (12,253,569)
- -------------------------------------------------------------
7,945,792 - 10,230,128 -
- - - -
(1,121,900) - (813,330) -
- -------------------------------------------------------------
6,823,892 - 9,416,798 -
- -------------------------------------------------------------
5,582,859 8,455,998 (14,601,578) (3,486,806)
- -------------------------------------------------------------
$183,376,048 $177,793,189 $119,129,652 $133,731,230
- -------------------------------------------------------------
$ 1,733,337 $ 1,330,889 $ - $ 422,539
- -------------------------------------------------------------
1,480,466 1,686,415 793,139 871,267
103,154 82,885 30,145 286
(2,112,059) (950,793) (2,129,786) (853,010)
- -------------------------------------------------------------
(528,439) 818,507 (1,306,502) 18,543
- -------------------------------------------------------------
287,531 443,034 196,201 264,215
30,584 28,784 - -
(1,896,703) (1,733,043) (1,260,713) (1,211,040)
- -------------------------------------------------------------
(1,578,588) (1,261,225) (1,064,512) (946,825)
- -------------------------------------------------------------
539,416 - 733,687 -
- - - -
(76,478) - (58,549) -
- -------------------------------------------------------------
462,938 - 675,138 -
- -------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
71
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
- --------------------------------------------------------------------------------------------------------------------------
<Caption>
MID CAP VALUE FUND MID CAP GROWTH FUND INTERNATIONAL STOCK FUND
------------------------- ------------------------- --------------------------
FOR THE YEAR ENDED OCTOBER 31, 2006 2005 2006 2005 2006 2005
NET ASSETS AT BEGINNING OF PERIOD $66,758,591 $60,207,060 $46,859,450 $38,927,058 $69,746,931 $51,473,800
----------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income (loss) 180,120 (30,551) (417,673) (210,899) 777,112 647,859
Net realized gain 14,089,064 4,522,348 10,239,937 3,883,785 10,823,451 8,668,893
Net change in unrealized appreciation
(depreciation) (3,919,762) 3,767,022 (1,880,424) 718,895 6,822,444 1,851,149
----------------------------------------------------------------------------------
Net increase in net assets from
operations 10,349,422 8,258,819 7,941,840 4,391,781 18,423,007 11,167,901
----------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (24,039) (295,803) - - (635,430) (419,232)
Class B - - - - (30,964) (8,299)
Class Y - - - - - -
Net realized gains
Class A (2,905,036) - - - (31,599) -
Class B (1,562,221) - - - (6,158) -
Class Y - - - - - -
----------------------------------------------------------------------------------
Total distributions (4,491,296) (295,803) - - (704,151) (427,531)
CAPITAL STOCK TRANSACTIONS:
CLASS A SHARES
Shares sold 7,577,181 6,770,681 6,486,021 9,319,697 11,830,931 8,611,712
Issued to shareholders in reinvestment
of distributions 2,882,740 263,976 - - 647,398 404,891
Shares redeemed (23,629,914) (8,335,996) (10,206,754) (5,891,137) (6,807,125) (3,252,531)
Redemption fees 371 1,213 1,156 36 990 768
----------------------------------------------------------------------------------
Net increase (decrease) from capital
stock transactions (13,169,622) (1,300,126) (3,719,577) 3,428,596 5,672,194 5,764,840
----------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 3,462,269 3,467,853 2,327,950 2,860,783 5,994,867 3,618,865
Issued to shareholders in reinvestment
of distributions 1,515,538 - - - 36,150 8,157
Shares redeemed (4,997,839) (3,579,212) (3,289,072) (2,748,768) (3,623,098) (1,859,101)
----------------------------------------------------------------------------------
Net increase (decrease) from capital
stock transactions (20,032) (111,359) (961,122) 112,015 2,407,919 1,767,921
----------------------------------------------------------------------------------
CLASS Y SHARES
Shares sold 5,787,430 - 8,014,612 - 9,549,386 -
Issued to shareholders in reinvestment
of distributions - - - - - -
Shares redeemed (506,454) - (652,597) - (937,302) -
----------------------------------------------------------------------------------
Net increase from capital stock
transactions 5,280,976 - 7,362,015 - 8,612,084 -
----------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (2,050,552) 6,551,531 10,623,156 7,932,392 34,411,053 18,273,131
----------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $64,708,039 $66,758,591 $57,482,606 $46,859,450 $104,157,984 $69,746,931
----------------------------------------------------------------------------------
Accumulated net investment income $ 140,425 $ - $ - $ - $ 589,402 $ 608,408
----------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
CLASS A SHARES
Shares sold 521,717 502,042 1,105,355 1,823,270 821,660 720,801
Issued to shareholders in reinvestment
of distributions 207,113 19,715 - - 48,064 34,695
Shares redeemed (1,651,619) (610,886) (1,738,051) (1,141,602) (477,375) (265,298)
----------------------------------------------------------------------------------
Net increase (decrease) from capital
stock transactions (922,789) (89,129) (632,696) 681,668 392,349 490,198
----------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 246,758 263,787 415,538 579,081 420,428 307,425
Issued to shareholders in reinvestment
of distributions 112,429 - - - 2,708 705
Shares redeemed (355,404) (271,823) (587,263) (557,779) (251,326) (158,736)
----------------------------------------------------------------------------------
Net increase (decrease) from capital
stock transactions 3,783 (8,036) (171,725) 21,302 171,810 149,394
----------------------------------------------------------------------------------
CLASS Y SHARES(1)
Shares sold 389,726 - 1,359,324 - 638,254 -
Issued to shareholders in reinvestment
of distributions - - - - - -
Shares redeemed (34,208) - (111,184) - (62,503) -
----------------------------------------------------------------------------------
Net increase from capital stock
transactions 355,518 - 1,248,140 - 575,751 -
----------------------------------------------------------------------------------
</Table>
- ----------------------------------
(1) Class Y commenced investment operations on June 30, 2006. Class Y is not
available for the Allocation and Balanced Funds.
- --------------------------------------------------------------------------------
72
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
<Table>
- --------------------------------------------------------------------------------------------
<Caption>
CONSERVATIVE MODERATE AGGRESSIVE
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------- --------------- ---------------
INCEPTION INCEPTION INCEPTION
to 10/31/06(1) to 10/31/06(1) to 10/31/061(1)
CLASS A
- ------
NET ASSET VALUE at beginning of period $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.02 (0.01)
Net realized and unrealized gain on
investments 0.48 0.63 0.77
---------------------------------------------------
Total from investment operations 0.53 0.65 0.76
---------------------------------------------------
Net increase in net asset value 0.53 0.65 0.76
---------------------------------------------------
NET ASSET VALUE at end of period $10.53 $10.65 $10.76
---------------------------------------------------
TOTAL RETURN(2) 5.30%(3) 6.50%(3) 7.60%(3)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $3,031 $8,762 $2,675
Ratios of expenses to average net
assets
Before reimbursement of expenses by
Advisor 10.53%(4) 4.73%(4) 10.14%(4)
After reimbursement of expenses by
Advisor 0.70%(4) 0.70%(4) 0.70%(4)
Ratio of net investment income to
average net assets
After reimbursement of expenses by
Advisor 2.78%(4) 1.34%(4) (0.56)%(4)
Portfolio Turnover 26%(3) 11%(3) 10%(3)
CLASS B
- ------
NET ASSET VALUE at beginning of period $10.00 $10.00 $10.00
---------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.02 0.01 (0.01)
Net realized and unrealized gain on
investments 0.49 0.62 0.75
---------------------------------------------------
Total from investment operations 0.51 0.63 0.74
---------------------------------------------------
Net increase in net asset value 0.51 0.63 0.74
---------------------------------------------------
NET ASSET VALUE at end of period $10.51 $10.63 $10.74
---------------------------------------------------
TOTAL RETURN(2) 5.10%(3) 6.30%(3) 7.40%(3)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $ 622 $3,289 $1,164
Ratios of expenses to average net
assets
Before reimbursement of expenses by
Advisor 10.21%(4) 4.71%(4) 10.07%(4)
After reimbursement of expenses by
Advisor 1.45%(4) 1.45%(4) 1.45%(4)
Ratio of net investment income to
average net assets
After reimbursement of expenses by
Advisor 2.20%(4) 0.67%(4) (1.28)%(4)
Portfolio Turnover 26%(3) 11%(3) 10%(3)
</Table>
- ----------------------------------
(1) Commenced investment operations on June 30, 2006.
(2) Total return at net asset value and excludes applicable sales charge.
(3) Not annualized.
(4) Annualized.
- --------------------------------------------------------------------------------
73
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
<Table>
- ------------------------------------------------------------------------------------------------------------
<Caption>
CASH RESERVES FUND
------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2006 2005 2004 2003 2002
CLASS A
- ------
NET ASSET VALUE at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.04 0.02 0.01 0.00(1) 0.01
------------------------------------------------------------------
Total from investment operations 0.04 0.02 0.01 0.00 0.01
------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment
income (0.04) (0.02) (0.01) (0.00)(1) (0.01)
------------------------------------------------------------------
Total distributions (0.04) (0.02) (0.01) (0.00) (0.01)
------------------------------------------------------------------
Net increase (decrease) in net asset
value - - - - -
------------------------------------------------------------------
NET ASSET VALUE at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------------------------------
TOTAL RETURN(2) 4.27% 2.33% 0.68% 0.75% 1.57%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $10,989 $11,243 $11,916 $14,236 $16,487
Ratios of expenses to average net assets:
Before reimbursement of expenses by
Advisor 1.09% 0.98% 0.82% 0.87% 0.99%
After reimbursement of expenses by
Advisor 0.55% 0.55% 0.55% 0.55% 0.55%
Ratio of net investment income to average
net assets
After reimbursement of expenses by
Advisor 4.13% 2.30% 0.68% 0.75% 1.46%
CLASS B
- ------
NET ASSET VALUE at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.02 0.00(1) 0.00(1) 0.01
------------------------------------------------------------------
Total from investment operations 0.03 0.02 0.00 0.00 0.01
------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment
income (0.03) (0.02) - 0.00(1) (0.01)
------------------------------------------------------------------
Total distributions (0.03) (0.02) - 0.00 (0.01)
------------------------------------------------------------------
Net increase (decrease) in net asset
value - - 0.00 - -
------------------------------------------------------------------
NET ASSET VALUE at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------------------------------
TOTAL RETURN(2) 3.48% 1.57% 0.07% 0.08% 0.81%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $ 4,242 $ 6,105 $ 8,432 $12,071 $17,636
Ratios of expenses to average net assets:
Before reimbursement of expenses by
Advisor 1.84% 1.73% 1.57% 1.62% 1.74%
After reimbursement of expenses by
Advisor 1.30% 1.30% 1.15%(3) 1.23%(3) 1.30%
Ratio of net investment income to average
net assets
After reimbursement of expenses by
Advisor 3.37% 1.49% 0.06% 0.08% 0.71%
</Table>
- ----------------------------------
(1) Amounts represent less than $0.005 per share.
(2) Total return at net asset value and excludes applicable sales charge.
(3) Amount includes fees waived by distributor (Note 3).
- --------------------------------------------------------------------------------
74
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
<Table>
- ---------------------------------------------------------
<Caption>
CASH RESERVES
FUND
--------------
INCEPTION
to 10/31/06(1)
CLASS Y
- ------
NET ASSET VALUE at beginning of period $ 1.00
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.02
-------
Total from investment operations 0.02
-------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.02)
-------
Total distributions (0.02)
-------
Net increase (decrease) in net asset value -
-------
NET ASSET VALUE at end of period $ 1.00
-------
TOTAL RETURN(2) 1.57%(4)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $ 2,746
Ratios of expenses to average net assets
Before reimbursement of expenses by
Advisor 1.35%(5)
After reimbursement of expenses by
Advisor 0.55%(5)
Ratio of net investment income to average
net assets
After reimbursement of expenses by
Advisor 4.75%(5)
</Table>
<Table>
<Caption>
BOND FUND
--------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------
CLASS A
- ------
NET ASSET VALUE at beginning of period $ 9.85 $ 10.17 $ 10.12 $ 10.17 $ 10.23
--------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.42 0.39 0.37 0.40 0.47
Net realized and unrealized gain (loss) on
investments 0.03 (0.31) 0.07 (0.05) (0.06)(3)
--------------------------------------------------------------
Total from investment operations 0.45 0.08 0.44 0.35 0.41
--------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.42) (0.40) (0.39) (0.40) (0.47)
--------------------------------------------------------------
Total distributions (0.42) (0.40) (0.39) (0.40) (0.47)
--------------------------------------------------------------
Net increase (decrease) in net asset value 0.03 (0.32) 0.05 (0.05) (0.06)
--------------------------------------------------------------
NET ASSET VALUE at end of period $ 9.88 $ 9.85 $ 10.17 $ 10.12 $ 10.17
--------------------------------------------------------------
TOTAL RETURN(2) 4.70% 0.74% 4.46% 3.51% 4.21%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $59,646 $61,942 $59,900 $78,165 $63,069
Ratios of expenses to average net assets:
Before reimbursement of expenses by Advisor 1.08% 1.07% 1.01% 1.10% 1.17%
After reimbursement of expenses by Advisor 0.90% 0.90% 0.90% 0.90% 0.90%
Ratio of net investment income to average net
assets
After reimbursement of expenses by Advisor 4.27% 3.82% 3.73% 3.94% 4.62%
Portfolio Turnover(6) 33% 43% 81% 75% 90%
</Table>
- ----------------------------------
1 Commenced investment operations on June 30, 2006.
2 Total return at net asset value and excludes applicable sales charge.
3 The amount shown for a share outstanding does not correspond with the
aggregate net gain (loss) on investments due to the timing of sales and
repurchases of shares in relation to fluctuating market values of the
investments of the Fund.
4 Not annualized.
5 Annualized.
6 Portfolio turnover is calculated at the Fund level and represents the entire
fiscal year period.
- --------------------------------------------------------------------------------
75
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
<Table>
- -------------------------------------------------------------------------------------------------------------
<Caption>
BOND FUND
--------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2006 2005 2004 2003 2002
CLASS B
- ------
NET ASSET VALUE at beginning of period $ 9.85 $ 10.17 $ 10.12 $ 10.18 $ 10.24
--------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.35 0.31 0.30 0.33 0.39
Net realized and unrealized gain (loss) on
investments 0.03 (0.31) 0.07 (0.06) (0.05)(2)
--------------------------------------------------------------
Total from investment operations 0.38 - 0.37 0.27 0.34
--------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.35) (0.32) (0.32) (0.33) (0.40)
--------------------------------------------------------------
Total distributions (0.35) (0.32) (0.32) (0.33) (0.40)
--------------------------------------------------------------
Net increase (decrease) in net asset value 0.03 (0.32) 0.05 (0.06) (0.06)
--------------------------------------------------------------
NET ASSET VALUE at end of period $ 9.88 $ 9.85 $ 10.17 $ 10.12 $ 10.18
--------------------------------------------------------------
TOTAL RETURN(3) 3.91% (0.01)% 3.68% 2.64% 3.44%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $37,233 $47,588 $55,269 $64,529 $60,517
Ratios of expenses to average net assets:
Before reimbursement of expenses by Advisor 1.83% 1.82% 1.76% 1.85% 1.92%
After reimbursement of expenses by Advisor 1.65% 1.65% 1.65% 1.65% 1.65%
Ratio of net investment income to average net
assets
After reimbursement of expenses by Advisor 3.51% 3.08% 2.95% 3.19% 3.87%
Portfolio Turnover(6) 33% 43% 81% 75% 90%
</Table>
<Table>
- -------------------------------------------------------------
<Caption>
INCEPTION
to 10/31/06(1)
CLASS Y
- ------
NET ASSET VALUE at beginning of period $ 9.61
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.15
Net realized and unrealized gain on
investments 0.27
-------
Total from investment operations 0.42
-------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.15)
-------
Total distributions (0.15)
-------
Net increase in net asset value 0.27
-------
NET ASSET VALUE at end of period $ 9.88
-------
TOTAL RETURN(3) 4.39%(4)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $ 6,141
Ratios of expenses to average net assets
Before reimbursement of expenses by Advisor 0.89%(5)
After reimbursement of expenses by Advisor 0.65%(5)
Ratio of net investment income to average net
assets
After reimbursement of expenses by Advisor 4.67%(5)
Portfolio Turnover(6) 33%(4)
</Table>
- ----------------------------------
1 Commenced investment operations on June 30, 2006.
2 The amount shown for a share outstanding does not correspond with the
aggregate net gain (loss) on investments due to the timing of sales and
repurchases of shares in relation to fluctuating market values of the
investments of the Fund.
3 Total return at net asset value and excludes applicable sales charge.
4 Not annualized.
5 Annualized.
6 Portfolio turnover is calculated at the Fund level and represents the entire
fiscal year period.
- --------------------------------------------------------------------------------
76
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
<Table>
<Caption>
HIGH INCOME FUND
--------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------
CLASS A
- ------
NET ASSET VALUE at beginning of period $ 7.29 $ 7.56 $ 7.36 $ 6.57 $ 7.13
--------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.52 0.49 0.55 0.54 0.58
Net realized and unrealized gain (loss) on
investments 0.07 (0.28) 0.21 0.80 (0.55)
--------------------------------------------------------------
Total from investment operations 0.59 0.21 0.76 1.34 0.03
--------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.52) (0.48) (0.56) (0.55) (0.59)
--------------------------------------------------------------
Total distributions (0.52) (0.48) (0.56) (0.55) (0.59)
--------------------------------------------------------------
Net increase (decrease) in net asset value 0.07 (0.27) 0.20 0.79 (0.56)
--------------------------------------------------------------
NET ASSET VALUE at end of period $ 7.36 $ 7.29 $ 7.56 $ 7.36 $ 6.57
--------------------------------------------------------------
TOTAL RETURN(1) 8.33% 2.85% 10.73% 21.09% 0.33%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $36,281 $43,872 $44,137 $33,024 $18,055
Ratios of expenses to average net assets:
Before reimbursement of expenses by Advisor 1.22% 1.23% 1.16% 1.38% 1.59%
After reimbursement of expenses by Advisor 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income to average net
assets
After reimbursement of expenses by Advisor 6.98% 6.50% 7.37% 7.73% 8.55%
Portfolio Turnover(3) 67% 81%(2) 60% 58% 47%
CLASS B
- ------
NET ASSET VALUE at beginning of period $ 7.31 $ 7.58 $ 7.37 $ 6.59 $ 7.14
--------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.47 0.43 0.49 0.49 0.54
Net realized and unrealized gain (loss) on
investments 0.07 (0.28) 0.22 0.78 (0.55)
--------------------------------------------------------------
Total from investment operations 0.54 0.15 0.71 1.27 (0.01)
--------------------------------------------------------------
LESS DISTRIBUTIONS:
Less Distributions:
Distributions from net investment income (0.46) (0.42) (0.50) (0.49) (0.54)
--------------------------------------------------------------
Total distributions (0.46) (0.42) (0.50) (0.49) (0.54)
--------------------------------------------------------------
Net increase (decrease) in net asset value 0.08 (0.27) 0.21 0.78 (0.55)
--------------------------------------------------------------
NET ASSET VALUE at end of period $ 7.39 $ 7.31 $ 7.58 $ 7.37 $ 6.59
--------------------------------------------------------------
TOTAL RETURN(1) 7.64% 2.06% 10.02% 19.96% (0.27)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $17,099 $21,255 $23,349 $21,992 $15,561
Ratios of expenses to average net assets:
Before reimbursement of expenses by Advisor 1.97% 1.98% 1.91% 2.13% 2.34%
After reimbursement of expenses by Advisor 1.75% 1.75% 1.75% 1.75% 1.75%
Ratio of net investment income to average net
assets
After reimbursement of expenses by Advisor 6.24% 5.75% 6.63% 6.98% 7.80%
Portfolio Turnover(3) 67% 81%(2) 60% 58% 47%
</Table>
- ----------------------------------
(1) Total return at net asset value and excludes applicable sales charge.
(2) Reflects subadvisor change as of February 28, 2005.
(3) Portfolio turnover is calculated at the Fund level and represents the entire
fiscal year period.
- --------------------------------------------------------------------------------
77
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
<Table>
- -----------------------------------------------------------
<Caption>
HIGH INCOME
FUND
--------------
INCEPTION
to 10/31/06(1)
CLASS Y
- ------
NET ASSET VALUE at beginning of period $ 7.21
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.16
Net realized and unrealized gain on
investments 0.17
-------
Total from investment operations 0.33
-------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.18)
Total distributions (0.18)
-------
Net increase in net asset value 0.15
-------
NET ASSET VALUE at end of period $ 7.36
-------
TOTAL RETURN(2) 4.59%(4)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $ 2,637
Ratios of expenses to average net assets
Before reimbursement of expenses by Advisor 1.06%(5)
After reimbursement of expenses by Advisor 0.75%(5)
Ratio of net investment income to average
net assets
After reimbursement of expenses by Advisor 7.33%(5)
Portfolio Turnover(7) 67%(4)
</Table>
<Table>
- -------------------------------------------------------------------------------------------------------------
<Caption>
BALANCED FUND
--------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2006 2005 2004 2003 2002
CLASS A
- ------
NET ASSET VALUE at beginning of period $ 12.25 $ 11.81 $ 11.18 $ 10.16 $ 11.28
--------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.26 0.24 0.22 0.25 0.28
Net realized and unrealized gain (loss) on
investments 0.95 0.44 0.64 1.02 (1.12)
--------------------------------------------------------------
Total from investment operations 1.21 0.68 0.86 1.27 (0.84)
--------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.26) (0.24) (0.23) (0.25) (0.28)
Distributions from capital gains -- -- -- -- (0.00)(3)
--------------------------------------------------------------
Total distributions (0.26) (0.24) (0.23) (0.25) (0.28)
--------------------------------------------------------------
Net increase (decrease) in net asset value 0.95 0.44 0.63 1.02 (1.12)
--------------------------------------------------------------
NET ASSET VALUE at end of period $ 13.20 $ 12.25 $ 11.81 $ 11.18 $ 10.16
--------------------------------------------------------------
TOTAL RETURN(2) 9.97%(6) 5.74% 7.71% 12.72% (7.59)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $91,339 $107,457 $98,900 $83,606 $70,389
Ratios of expenses to average net assets:
Before reimbursement of expenses by Advisor 1.21% 1.21% 1.17% 1.32% 1.30%
After reimbursement of expenses by Advisor 1.10% 1.10% 1.10% 1.10% 1.10%
Ratio of net investment income to average net
assets
After reimbursement of expenses by Advisor 2.01% 1.88% 1.88% 2.38% 2.56%
Portfolio Turnover(7) 62% 34% 39% 35% 48%
</Table>
- ----------------------------------
1 Commenced investment operations on June 30, 2006.
2 Total return at net asset value and excludes applicable sales charge.
3 Amounts represent less than $0.005 per share.
4 Not annualized.
5 Annualized.
6 In 2006, the Fund's total return included a voluntary reimbursement by the
Advisor for a realized investment loss that had no impact on the total return.
7 Portfolio turnover is calculated at the Fund level and represents the entire
fiscal year period.
- --------------------------------------------------------------------------------
78
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
<Table>
- --------------------------------------------------------------------------------------------------------------
<Caption>
BALANCED FUND
------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2006 2005 2004 2003 2002
CLASS B
- ------
NET ASSET VALUE at beginning of period $ 12.26 $ 11.82 $ 11.19 $ 10.17 $ 11.29
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.16 0.14 0.13 0.17 0.20
Net realized and unrealized gain (loss)
on investments 0.96 0.44 0.64 1.02 (1.12)
------------------------------------------------------------------
Total from investment operations 1.12 0.58 0.77 1.19 (0.92)
------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.16) (0.14) (0.14) (0.17) (0.20)
Distributions from capital gains - - - - (0.00)(1)
------------------------------------------------------------------
Total distributions (0.16) (0.14) (0.14) (0.17) (0.20)
------------------------------------------------------------------
Net increase (decrease) in net asset value 0.96 0.44 0.63 1.02 (1.12)
------------------------------------------------------------------
NET ASSET VALUE at end of period $ 13.22 $ 12.26 $ 11.82 $ 11.19 $ 10.17
------------------------------------------------------------------
TOTAL RETURN(2) 9.23%(4) 4.94% 6.90% 11.87% (8.27)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $ 80,486 $ 98,258 $105,784 $100,787 $90,903
Ratios of expenses to average net assets:
Before reimbursement of expenses by
Advisor 1.96% 1.96% 1.92% 2.07% 2.05%
After reimbursement of expenses by Advisor 1.85% 1.85% 1.85% 1.85% 1.85%
Ratio of net investment income to average
net assets
After reimbursement of expenses by Advisor 1.27% 1.15% 1.14% 1.63% 1.81%
Portfolio Turnover(5) 62% 34% 39% 35% 48%
</Table>
<Table>
- --------------------------------------------------------------------------------------------------------------
<Caption>
LARGE CAP VALUE FUND
------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2006 2005 2004 2003 2002
CLASS A
- ------
NET ASSET VALUE at beginning of period $ 13.20 $ 12.19 $ 11.05 $ 9.37 $ 11.14
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.22 0.16 0.14 0.12 0.10
Net realized and unrealized gain (loss)
on investments 2.23 1.00 1.12 1.64 (1.82)(3)
------------------------------------------------------------------
Total from investment operations 2.45 1.16 1.26 1.76 (1.72)
------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.18) (0.15) (0.12) (0.08) (0.05)
------------------------------------------------------------------
Total distributions (0.18) (0.15) (0.12) (0.08) (0.05)
------------------------------------------------------------------
Net increase (decrease) in net asset value 2.27 1.01 1.14 1.68 (1.77)
------------------------------------------------------------------
NET ASSET VALUE at end of period $ 15.47 $ 13.20 $ 12.19 $ 11.05 $ 9.37
------------------------------------------------------------------
TOTAL RETURN(2) 18.75% 9.56% 11.48% 18.95% (15.51)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $113,441 $103,765 $ 85,855 $ 68,406 $53,896
Ratios of expenses to average net assets:
Before reimbursement of expenses by
Advisor 1.16% 1.17% 1.13% 1.35% 1.30%
After reimbursement of expenses by Advisor 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income to average
net assets
After reimbursement of expenses by Advisor 1.53% 1.29% 1.26% 1.29% 0.91%
Portfolio Turnover(5) 45% 12% 16% 20% 18%
</Table>
- ----------------------------------
1 Amounts represent less than $0.005 per share.
2 Total return at net asset value and excludes applicable sales charge.
3 Calculated based on average shares outstanding.
4 In 2006, 0.08% of the Fund's total return consisted of a voluntary
reimbursement by the Advisor for a realized investment loss. Excluding this
reimbursement, the total return would have been 9.15%.
5 Portfolio turnover is calculated at the Fund level and represents the entire
fiscal year period.
- --------------------------------------------------------------------------------
79
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
<Table>
- --------------------------------------------------------------------------------------------------------------
<Caption>
LARGE CAP VALUE FUND
------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2006 2005 2004 2003 2002
CLASS B
- ------
NET ASSET VALUE at beginning of period $ 12.97 $ 11.98 $ 10.87 $ 9.24 $ 11.02
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.15 0.09 0.06 0.05 0.02(3)
Net realized and unrealized gain (loss)
on investments 2.16 0.96 1.10 1.60 (1.79)
------------------------------------------------------------------
Total from investment operations 2.31 1.05 1.16 1.65 (1.77)
------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.08) (0.06) (0.05) (0.02) (0.01)
------------------------------------------------------------------
Total distributions (0.08) (0.06) (0.05) (0.02) (0.01)
------------------------------------------------------------------
Net increase (decrease) in net asset value 2.23 0.99 1.11 1.63 (1.78)
------------------------------------------------------------------
NET ASSET VALUE at end of period $ 15.20 $ 12.97 $ 11.98 $ 10.87 $ 9.24
------------------------------------------------------------------
TOTAL RETURN(2) 17.86% 8.73% 10.70% 17.93% (16.09)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $62,766 $ 74,028 $ 83,482 $ 79,765 $72,329
Ratios of expenses to average net assets:
Before reimbursement of expenses by
Advisor 1.90% 1.92% 1.89% 2.10% 2.05%
After reimbursement of expenses by Advisor 1.75% 1.75% 1.75% 1.75% 1.75%
Ratio of net investment income to average
net assets
After reimbursement of expenses by Advisor 0.80% 0.57% 0.53% 0.54% 0.16%
Portfolio Turnover(6) 45% 12% 16% 20% 18%
</Table>
<Table>
<Caption>
INCEPTION
to 10/31/06(1)
--------------
CLASS Y
- ------
NET ASSET VALUE at beginning of period $ 14.07
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03
Net realized and unrealized gain on
investments 1.38
-------
Total from investment operations 1.41
-------
Net increase in net asset value 1.41
-------
NET ASSET VALUE at end of period $ 15.48
-------
TOTAL RETURN(2) 10.02%(4)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $ 7,169
Ratios of expenses to average net assets
Before reimbursement of expenses by
Advisor 0.96%(5)
After reimbursement of expenses by Advisor 0.75%(5)
Ratio of net investment income to average
net assets
After reimbursement of expenses by Advisor 1.31%(5)
Portfolio Turnover(6) 45%(4)
</Table>
- ----------------------------------
(1) Commenced investment operations on June 30, 2006.
(2) Total return at net asset value and excludes applicable sales charge.
(3) Calculated based on average shares outstanding.
(4) Not annualized.
(5) Annualized.
(6) Portfolio turnover is calculated at the Fund level and represents the entire
fiscal year period.
- --------------------------------------------------------------------------------
80
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
<Table>
- --------------------------------------------------------------------------------------------------------------
<Caption>
LARGE CAP GROWTH FUND
------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2006 2005 2004 2003 2002
CLASS A
- ------
NET ASSET VALUE at beginning of period $ 13.72 $ 12.87 $ 11.88 $ 9.63 $ 12.81
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.00(1) 0.08 0.01 (0.00)(1) (0.02)(3)
Net realized and unrealized gain (loss)
on investments 1.05 0.77 0.98 2.25 (3.11)
------------------------------------------------------------------
Total from investment operations 1.05 0.85 0.99 2.25 (3.13)
------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.07) (0.00)(1) - - -
Distributions from capital gains - - - - (0.05)
------------------------------------------------------------------
Total distributions (0.07) (0.00) - - (0.05)
------------------------------------------------------------------
Net increase (decrease) in net asset value 0.98 0.85 0.99 2.25 (3.18)
------------------------------------------------------------------
NET ASSET VALUE at end of period $ 14.70 $ 13.72 $ 12.87 $ 11.88 $ 9.63
------------------------------------------------------------------
TOTAL RETURN(2) 7.71% 6.61% 8.33% 23.36% (24.54)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $65,216 $ 78,785 $ 73,674 $ 71,733 $55,865
Ratios of expenses to average net assets:
Before reimbursement of expenses by
Advisor 1.45% 1.44% 1.38% 1.64% 1.58%
After reimbursement of expenses by Advisor 1.20% 1.20% 1.20% 1.20% 1.20%
Ratio of net investment income to average
net assets
After reimbursement of expenses by Advisor 0.09% 0.62% 0.08% 0.05% (0.16)%
Portfolio Turnover(4) 148% 18% 27% 25% 25%
CLASS B
- ------
NET ASSET VALUE at beginning of period $ 12.98 $ 12.27 $ 11.40 $ 9.31 $ 12.48
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (0.09) (0.01) (0.08) (0.08) (0.11)(3)
Net realized and unrealized gain (loss)
on investments 0.99 0.72 0.95 2.17 (3.01)
------------------------------------------------------------------
Total from investment operations 0.90 0.71 0.87 2.09 (3.12)
------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from capital gains - - - - (0.05)
------------------------------------------------------------------
Total distributions - - - - (0.05)
------------------------------------------------------------------
Net increase (decrease) in net asset value 0.90 0.71 0.87 2.09 (3.17)
NET ASSET VALUE at end of period $ 13.88 $ 12.98 $ 12.27 $ 11.40 $ 9.31
------------------------------------------------------------------
TOTAL RETURN(2) 6.93% 5.79% 7.63% 22.45% (25.12)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $43,975 $ 54,946 $ 63,544 $ 62,832 $54,600
Ratios of expenses to average net assets:
Before reimbursement of expenses by
Advisor 2.20% 2.19% 2.13% 2.39% 2.33%
After reimbursement of expenses by Advisor 1.95% 1.94% 1.95% 1.95% 1.95%
Ratio of net investment income to average
net assets
After reimbursement of expenses by Advisor (0.65)% (0.09)% (0.67)% (0.70)% (0.91)%
Portfolio Turnover(4) 148% 18% 27% 25% 25%
</Table>
- ----------------------------------
(1) Amounts represent less than $0.005 per share.
(2) Total return at net asset value and excludes applicable sales charge.
(3) Calculated based on average shares outstanding.
(4) Portfolio turnover is calculated at the Fund level and represents the entire
fiscal year period.
- --------------------------------------------------------------------------------
81
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
<Table>
- -----------------------------------------------------------
<Caption>
LARGE CAP
GROWTH FUND
--------------
INCEPTION
to 10/31/06(1)
CLASS Y
- ------
NET ASSET VALUE at beginning of period $ 13.71
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (0.00)(4)
Net realized and unrealized gain on
investments 1.01
-------
Total from investment operations 1.01
-------
Net increase in net asset value 1.01
-------
NET ASSET VALUE at end of period $ 14.72
-------
TOTAL RETURN(3) 7.37%(5)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $ 9,939
Ratios of expenses to average net assets
Before reimbursement of expenses by Advisor 1.30%(6)
After reimbursement of expenses by Advisor 0.95%(6)
Ratio of net investment income to average
net assets
After reimbursement of expenses by Advisor (0.07)%(6)
Portfolio Turnover(7) 148%(5)
</Table>
<Table>
- -------------------------------------------------------------------------------------------------------------
<Caption>
MID CAP VALUE FUND
--------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2006 2005 2004 2003 2002
CLASS A
- ------
NET ASSET VALUE at beginning of period $ 14.08 $ 12.44 $ 11.12 $ 8.64 $ 9.48
--------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.10 0.03 0.09 0.01 0.02(2)
Net realized and unrealized gain (loss) on
investments 2.32 1.70 1.23 2.47 (0.85)
--------------------------------------------------------------
Total from investment operations 2.42 1.73 1.32 2.48 (0.83)
--------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.01) (0.09) - - (0.01)
Distributions from capital gains (0.95) - - - (0.00)(4)
--------------------------------------------------------------
Total distributions (0.96) (0.09) - - (0.01)
--------------------------------------------------------------
Net increase (decrease) in net asset value 1.46 1.64 1.32 2.48 (0.84)
--------------------------------------------------------------
NET ASSET VALUE at end of period $ 15.54 $ 14.08 $ 12.44 $ 11.12 $ 8.64
--------------------------------------------------------------
TOTAL RETURN(3) 17.93% 13.95% 11.87% 28.70% (8.79)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $34,364 $44,126 $40,103 $31,591 $22,650
Ratios of expenses to average net assets:
Before reimbursement of expenses by Advisor 1.68% 1.70% 1.61% 1.92% 1.97%
After reimbursement of expenses by Advisor 1.40% 1.40% 1.40% 1.40% 1.40%
Ratio of net investment income to average net
assets
After reimbursement of expenses by Advisor 0.53% 0.20% 0.77% 0.17% 0.18%
Portfolio Turnover(7) 108% 37% 21% 25% 31%
</Table>
- ----------------------------------
(1) Commenced investment operations on June 30, 2006.
(2) Calculated based on average shares outstanding.
(3) Total return at net asset value and excludes applicable sales charge.
(4) Amounts represent less than $0.005 per share.
(5) Not annualized.
(6) Annualized.
(7) Portfolio turnover is calculated at the Fund level and represents the entire
fiscal year period.
- --------------------------------------------------------------------------------
82
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
<Table>
- ---------------------------------------------------------------------------------------------------------------
<Caption>
MID CAP VALUE FUND
-----------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
2006 2005 2004 2003 2002
CLASS B
- ------
NET ASSET VALUE at beginning of period $ 13.67 $ 12.09 $ 10.91 $ 8.54 $ 9.43
-----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.03) (0.07) 0.00(4) (0.05) (0.06)(3)
Net realized and unrealized gain (loss) on
investments 2.27 1.65 1.18 2.42 (0.83)
-----------------------------------------------------------------
Total from investment operations 2.24 1.58 1.18 2.37 (0.89)
-----------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from capital gains (0.95) - - - (0.00)(4)
-----------------------------------------------------------------
Total distributions (0.95) - - - (0.00)
-----------------------------------------------------------------
Net increase (decrease) in net asset value 1.29 1.58 1.18 2.37 (0.89)
-----------------------------------------------------------------
NET ASSET VALUE at end of period $ 14.96 $ 13.67 $ 12.09 $ 10.91 $ 8.54
-----------------------------------------------------------------
TOTAL RETURN(2) 17.04% 13.07% 10.82% 27.75% (9.43)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $24,813 $22,633 $20,104 $16,721 $11,765
Ratios of expenses to average net assets:
Before reimbursement of expenses by Advisor 2.45% 2.45% 2.36% 2.67% 2.72%
After reimbursement of expenses by Advisor 2.15% 2.15% 2.15% 2.15% 2.15%
Ratio of net investment income to average net
assets
After reimbursement of expenses by Advisor (0.20)% (0.55)% 0.01% (0.58)% (0.57)%
Portfolio Turnover(7) 108% 37% 21% 25% 31%
</Table>
<Table>
- ------------------------------------------------------------
<Caption>
INCEPTION
to 10/31/06(1)
CLASS Y
- ------
NET ASSET VALUE at beginning of period $ 14.54
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.02
Net realized and unrealized gain on
investments 1.00
-------
Total from investment operations 1.02
-------
Net increase in net asset value 1.02
-------
NET ASSET VALUE at end of period $ 15.56
-------
TOTAL RETURN(2) 6.95%(5)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $ 5,531
Ratios of expenses to average net assets
Before reimbursement of expenses by Advisor 1.63%(6)
After reimbursement of expenses by Advisor 1.15%(6)
Ratio of net investment income to average net
assets
After reimbursement of expenses by Advisor 0.97%(6)
Portfolio Turnover(7) 108%(5)
</Table>
- ----------------------------------
(1) Commenced investment operations on June 30, 2006.
(2) Total return at net asset value and excludes applicable sales charge.
(3) Calculated based on average shares outstanding.
(4) Amounts represent less than $0.005 per share.
(5) Not annualized.
(6) Annualized.
(7) Portfolio turnover is calculated at the Fund level and represents the entire
fiscal year period.
- --------------------------------------------------------------------------------
83
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
<Table>
- -------------------------------------------------------------------------------------------------------------
<Caption>
MID CAP GROWTH FUND
----------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
2006 2005 2004 2003 2002
CLASS A
- ------
NET ASSET VALUE at beginning of period $ 5.36 $ 4.83 $ 4.46 $ 3.49 $ 4.27
----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (0.04) (0.01) (0.03) (0.03) (0.02)(2)
Net realized and unrealized gain (loss)
on investments 0.95 0.54 0.40 1.00 (0.76)
----------------------------------------------------------------
Total from investment operations 0.91 0.53 0.37 0.97 (0.78)
----------------------------------------------------------------
Net increase (decrease) in net asset value 0.91 0.53 0.37 0.97 (0.78)
----------------------------------------------------------------
NET ASSET VALUE at end of period $ 6.27 $ 5.36 $ 4.83 $ 4.46 $ 3.49
----------------------------------------------------------------
TOTAL RETURN(2) 16.98% 10.97% 8.30% 27.79% (18.27)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $33,899 $32,395 $25,897 $14,366 $7,915
Ratios of expenses to average net assets:
Before reimbursement of expenses by
Advisor 1.61% 1.69% 1.62% 2.40% 2.60%
After reimbursement of expenses by Advisor 1.20% 1.19% 1.20% 1.20% 1.20%
Ratio of net investment income to average
net assets
After reimbursement of expenses by Advisor (0.59)% (0.25)% (0.64)% (0.42)% (0.55)%
Portfolio Turnover(3) 207% 92% 71% 123% 214%
CLASS B
- ------
NET ASSET VALUE at beginning of period $ 5.14 $ 4.67 $ 4.34 $ 3.42 $ 4.22
----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (0.08) (0.05) (0.06) (0.02) (0.05)(2)
Net realized and unrealized gain (loss)
on investments 0.90 0.52 0.39 0.94 (0.75)
----------------------------------------------------------------
Total from investment operations 0.82 0.47 0.33 0.92 (0.80)
----------------------------------------------------------------
Net increase (decrease) in net asset value 0.82 0.47 0.33 0.92 (0.80)
----------------------------------------------------------------
NET ASSET VALUE at end of period $ 5.96 $ 5.14 $ 4.67 $ 4.34 $ 3.42
----------------------------------------------------------------
TOTAL RETURN(2) 16.15% 10.06% 7.60% 26.90% (18.96)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $15,754 $14,464 $13,030 $ 9,935 $6,050
Ratios of expenses to average net assets:
Before reimbursement of expenses by
Advisor 2.35% 2.44% 2.37% 3.15% 3.35%
After reimbursement of expenses by Advisor 1.95% 1.94% 1.95% 1.95% 1.95%
Ratio of net investment income to average
net assets
After reimbursement of expenses by Advisor (1.36)% (0.98)% (1.39)% (1.17)% (1.30)%
Portfolio Turnover(3) 207% 92% 71% 123% 214%
</Table>
- ----------------------------------
(1) Total return at net asset value and excludes applicable sales charge.
(2) Calculated based on average shares outstanding.
(3) Portfolio turnover is calculated at the Fund level and represents the entire
fiscal year period.
- --------------------------------------------------------------------------------
84
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
<Table>
- -----------------------------------------------------------
<Caption>
MID CAP
GROWTH FUND
--------------
INCEPTION
to 10/31/06(1)
CLASS Y
- ------
NET ASSET VALUE at beginning of period $ 5.84
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (0.01)
Net realized and unrealized gain on
investments 0.44
-------
Total from investment operations 0.43
-------
Net increase in net asset value 0.43
-------
NET ASSET VALUE at end of period $ 6.27
-------
TOTAL RETURN(3) 7.53%(4)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $ 7,830
Ratios of expenses to average net assets
Before reimbursement of expenses by Advisor 1.47%(5)
After reimbursement of expenses by Advisor 0.95%(5)
Ratio of net investment income to average
net assets
After reimbursement of expenses by Advisor (0.58)%(5)
Portfolio Turnover(6) 207%(4)
</Table>
<Table>
- --------------------------------------------------------------------------------------------------------------
<Caption>
INTERNATIONAL STOCK FUND
------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2006 2005 2004 2003 2002
CLASS A
- ------
NET ASSET VALUE at beginning of period $ 12.65 $ 10.56 $ 8.92 $ 7.00 $ 7.31
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.15 0.14 0.08 0.10 0.07(2)
Net realized and unrealized gain (loss)
on investments 3.01 2.05 1.66 1.88 (0.38)
------------------------------------------------------------------
Total from investment operations 3.16 2.19 1.74 1.98 (0.31)
------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.14) (0.10) (0.10) (0.06) -
Distributions from capital gains (0.01) - - - -
------------------------------------------------------------------
Total distributions (0.15) (0.10) (0.10) (0.06) -
------------------------------------------------------------------
Net increase (decrease) in net asset value 3.01 2.09 1.64 1.92 (0.31)
------------------------------------------------------------------
NET ASSET VALUE at end of period $ 15.66 $ 12.65 $ 10.56 $ 8.92 $ 7.00
------------------------------------------------------------------
TOTAL RETURN(3) 25.11% 20.81% 19.56% 28.46% (4.24)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $78,958 $ 58,825 $ 43,915 $ 33,664 $25,732
Ratios of expenses to average net assets:
Before reimbursement of expenses by
Advisor 1.87% 1.90% 1.85% 2.11% 2.29%
After reimbursement of expenses by Advisor 1.60% 1.60% 1.60% 1.60% 1.60%
Ratio of net investment income to average
net assets
After reimbursement of expenses by Advisor 1.03% 1.15% 0.76% 1.30% 0.69%
Portfolio Turnover(6) 63% 64% 45% 34% 47%
</Table>
- ----------------------------------
(1) Commenced investment operations on June 30, 2006.
(2) Calculated based on average shares outstanding.
(3) Total return at net asset value and excludes applicable sales charge.
(4) Not annualized.
(5) Annualized.
(6) Portfolio turnover is calculated at the Fund level and represents the entire
fiscal year period.
- --------------------------------------------------------------------------------
85
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
<Table>
- --------------------------------------------------------------------------------------------------------------
<Caption>
INTERNATIONAL STOCK FUND
------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2006 2005 2004 2003 2002
CLASS B
- ------
NET ASSET VALUE at beginning of period $ 12.48 $ 10.41 $ 8.78 $ 6.89 $ 7.25
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.03 0.04 (0.00)(4) 0.04 0.02(2)
Net realized and unrealized gain (loss)
on investments 2.98 2.04 1.64 1.85 (0.38)
------------------------------------------------------------------
Total from investment operations 3.01 2.08 1.64 1.89 (0.36)
------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.01) (0.01) (0.00)(4) -
Distributions from capital gains (0.01) - - - -
------------------------------------------------------------------
Total distributions (0.04) (0.01) (0.01) (0.00) -
------------------------------------------------------------------
Net increase (decrease) in net asset value 2.97 2.07 1.63 1.89 (0.36)
------------------------------------------------------------------
NET ASSET VALUE at end of period $ 15.45 $ 12.48 $ 10.41 $ 8.78 $ 6.89
------------------------------------------------------------------
TOTAL RETURN(3) 24.18% 20.00% 18.67% 27.44% (4.97)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $16,175 $ 10,922 $ 7,559 $ 5,806 $ 4,591
Ratios of expenses to average net assets:
Before reimbursement of expenses by
Advisor 2.62% 2.65% 2.59% 2.86% 3.04%
After reimbursement of expenses by Advisor 2.35% 2.35% 2.35% 2.35% 2.35%
Ratio of net investment income to average
net assets
After reimbursement of expenses by Advisor 0.32% 0.41% 0.03% 0.55% (0.06)%
Portfolio Turnover(7) 63% 64% 45% 34% 47%
</Table>
<Table>
- ----------------------------------------------------------
<Caption>
INCEPTION
to 10/31/06(1)
CLASS Y
- ------
NET ASSET VALUE at beginning of period $ 14.57
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.01
Net realized and unrealized gain on
investments 1.10
-------
Total from investment operations 1.11
-------
Net increase in net asset value 1.11
-------
NET ASSET VALUE at end of period $ 15.68
-------
TOTAL RETURN(3) 7.62%(5)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (in 000's) $ 9,025
Ratios of expenses to average net assets
Before reimbursement of expenses by
Advisor 1.72%(6)
After reimbursement of expenses by Advisor 1.35%(6)
Ratio of net investment income to average
net assets
After reimbursement of expenses by Advisor 0.48%(6)
Portfolio Turnover(7) 63%(5)
</Table>
- ----------------------------------
(1) Commenced investment operations on June 30, 2006.
(2) Calculated based on average shares outstanding.
(3 )Total return at net asset value and excludes applicable sales charge.
(4) Amounts represent less than $0.005 per share.
(5) Not annualized.
(6) Annualized.
(7) Portfolio turnover is calculated at the Fund level and represents the entire
fiscal year period.
- --------------------------------------------------------------------------------
86
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The MEMBERS Mutual Funds, a Delaware Business Trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended (the "1940 Act") as a
diversified, open-end, management investment company. As of the date of this
report, the Trust offers twelve funds (individually, a "fund," collectively, the
"Funds"). The Declaration of Trust permits the Trustees to issue an unlimited
number of shares of beneficial interest of the Trust without par value. The
Trust has entered into an Investment Advisory Agreement with MEMBERS Capital
Advisors, Inc. (the "Investment Advisor"). The Investment Advisor has entered
into subadvisory agreements with certain subadvisers ("Subadvisers") for the
management of the investments of the High Income Fund, Mid Cap Growth Fund,
International Stock Fund, and a portion of the Mid Cap Value Fund. The
accompanying financial statements include the Cash Reserves, Bond, High Income,
Balanced, Large Cap Value, Large Cap Growth, Mid Cap Value, Mid Cap Growth, and
International Stock Funds (collectively, the "Core Funds"), and the Conservative
Allocation, Moderate Allocation, and Aggressive Allocation Funds (collectively,
the "Allocation Funds"). The Allocation Funds commenced operations on June 30,
2006. The Core Funds, excluding the Balanced Fund, offer three classes of
shares: Class A, B and Y, and the Allocation Funds and the Balanced Fund, offer
two classes of shares: A and B. Each class of shares represents an interest in
the assets of the respective fund and has identical voting, dividend,
liquidation and other rights, except that each class of shares bears its own
distribution fees and servicing fees, if any, and its proportional share of fund
level expenses, is subject to its own sales charges, if any, and has exclusive
voting rights on matters pertaining to Rule 12b-1 of the 1940 Act as it relates
to that class.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reported period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by each fund, collectively, the "Funds", in the preparation of its financial
statements.
PORTFOLIO VALUATION: Securities and other investments are valued as follows:
Equity securities and exchange-traded funds (ETFs) listed on any U.S. or foreign
stock exchange or quoted on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") are valued at the last quoted sale price
or official closing price on that exchange or NASDAQ on the valuation day
(provided that, for securities traded on NASDAQ, the Funds utilize the NASDAQ
Official Closing Price). If no sale occurs, (a) equities traded on a U.S.
exchange or on NASDAQ are valued at the mean between the closing bid and closing
asked prices and (b) equity securities traded on a foreign exchange are valued
at the official bid price. Debt securities purchased with a remaining maturity
of 61 days or more are valued by a pricing service selected by the Trust or on
the basis of dealer-supplied quotations. Investments in shares of open-ended
mutual funds, including money market funds, are valued at their daily net asset
value (NAV) which is calculated as of 3:00 p.m. Central Time on each day on
which the New York Stock Exchange is open for business. NAV per share is
determined by dividing each fund's total net assets by the number of shares of
such fund outstanding at the time of calculation. Since the assets of the
Allocation Funds consist primarily of shares of the underlying funds, the NAV of
each Allocation Fund is determined based on the NAV's of the underlying funds.
Total net assets are determined by adding the total current value of portfolio
securities, cash, receivables, and other assets and subtracting liabilities.
Short-term instruments having maturities of 60 days or less and all securities
in the Cash Reserves Fund are valued on an amortized cost basis.
Over-the-counter securities not quoted on NASDAQ are valued at the last sale
price on the valuation day. If no sale occurs on the valuation day, an
over-the-counter security is valued at the mean between the last bid and asked
prices. Over-the-counter options are valued based upon prices provided by market
makers in such securities or dealers in such currencies. Financial futures
contracts generally are valued at the settlement price established by the
exchange on which the contracts are primarily traded. The Investment Advisor's
Securities Valuation Committee (the "Committee") shall estimate the fair value
of futures positions affected by the daily limit by using its valuation
procedures for determining fair value, when necessary. Forward foreign currency
exchange contracts are valued based on quotations supplied by dealers in such
contracts.
The value of all assets and liabilities expressed in foreign currencies will be
converted into U.S. dollar values at the noon (Eastern Standard Time) using
Reuters spot rate.
All other securities for which either quotations are not readily available, no
other sales have occurred, or in MEMBERS Capital Advisors' (the Investment
Adviser) opinion, do not reflect the current market value and are appraised at
their fair values as determined in good faith by the Investment Advisor and
under the general supervision of the Board of Trustees. Because the
- --------------------------------------------------------------------------------
87
NOTES TO FINANCIAL STATEMENTS
Allocation Funds will only invest in underlying funds, government securities and
short-term commercial paper, it is not anticipated that the Investment Advisor
will need to "fair" value any of the investments of the Allocation Funds.
However, an underlying fund may need to "fair" value one or more of its
investments.
A fund's investments (and underlying fund) will be valued at fair value if in
the judgment of the Committee an event impacting the value of an investment
occurred between the closing time of a security's primary market or exchange
(for example, a foreign exchange or market) and the time the fund's share price
is calculated at 3:00 p.m. Central Time. Significant events may include, but are
not limited to the following: (1) significant fluctuations in domestic markets,
foreign markets or foreign currencies; (2) occurrences not directly tied to the
securities markets such as natural disasters, armed conflicts or significant
government actions; and (3) major announcements affecting a single issuer or an
entire market or market sector. In responding to a significant event, the
Committee would determine the fair value of affected securities considering
factors including, but not limited to: index options and futures traded
subsequent to the close; depository receipts; currency spot or forward markets
that trade after pricing or foreign exchange; other derivative securities traded
after the close such as WEBs and SPDRs. The Committee may rely on an independent
fair valuation service to adjust the valuations of foreign equity securities
based on specific market-movement parameters established by the Committee and
approved by the Funds.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are accounted
for on a trade date basis. Net realized gains or losses on sales are determined
by the identified cost method. Interest income is recorded on an accrual basis.
Dividend income is recorded on ex-dividend date. Amortization and accretion are
recorded on the effective yield method.
FEDERAL INCOME TAXES: It is each fund's policy to comply with the requirements
of Subchapter M of the Internal Revenue Code of 1986 applicable to regulated
investment companies and to distribute substantially all it's taxable income to
its shareholders. Accordingly, no provisions for federal income taxes are
recorded in the accompanying financial statements.
EXPENSES: Expenses that are directly related to one fund are charged directly to
that fund. Other operating expenses are prorated to the Funds on the basis of
relative net assets. Class-specific expenses are borne by that class.
CLASSES: Income and realized and unrealized gains/losses are allocated to the
respective classes on the basis of relative net assets.
REPURCHASE AGREEMENTS: Each fund may engage in repurchase agreements. In a
repurchase agreement, a security is purchased for a relatively short period
(usually not more than 7 days) subject to the obligation to sell it back to the
issuer at a fixed time and price plus accrued interest. The Funds will enter
into repurchase agreements only with member banks of the Federal Reserve System
and with "primary dealers" in U.S. Government securities. As of October 31,
2006, none of the funds have open repurchase agreements.
The Trust has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Funds'
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.
FOREIGN CURRENCY TRANSACTIONS: The books and records are maintained in U.S.
dollars. Foreign currency denominated transactions (i.e. market value of
investment securities, assets and liabilities, purchases and sales of investment
securities, and income and expenses) are translated into U.S. dollars at the
current rate of exchange.
The Mid Cap Growth Fund and International Stock Fund report certain foreign
currency-related transactions as components of realized gains or losses for
financial reporting purposes, whereas such components are treated as ordinary
income for federal income tax purposes.
The Funds do not isolate the portion of gains and losses on investments in
securities that is due to changes in the foreign exchange rates from that which
is due to change in market prices of securities. Such amounts are categorized as
gain or loss on investments for financial reporting purposes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Core Funds, except the Cash
Reserves Fund, may purchase and sell forward foreign currency exchange contracts
for defensive or hedging purposes. When entering into forward foreign currency
exchange contracts, the Funds agree to receive or deliver a fixed quantity of
foreign currency for an agreed-upon price on an agreed future date. These
contracts are valued daily. The Funds' net assets reflect unrealized gains or
losses on the contracts
- --------------------------------------------------------------------------------
88
NOTES TO FINANCIAL STATEMENTS
as measured by the difference between the forward foreign currency exchange
rates at the dates of entry into the contracts and the forward rates at the
reporting date. The Funds realize a gain or a loss at the time the forward
foreign currency exchange contracts are settled or closed out with an offsetting
contract. Realized and unrealized gains and losses are included in the
Statements of Operations. For the year ended October 31, 2006, none of the funds
have open forward foreign currency exchange contracts.
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 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.
FUTURES CONTRACTS: The Core Funds, except the Cash Reserves Fund, may purchase
and sell futures contracts and purchase and write options on futures contracts.
The Funds will engage in futures contracts or related options transactions to
hedge certain market positions. Upon entering into a futures contract, the fund
is required to pledge to the broker an amount of cash, U.S. Government
securities or other assets, equal to a certain percentage of the contract
(initial margin deposit). Subsequent payments, known as "variation margin," are
made or received by the fund each day, depending on the daily fluctuations in
the fair value of the futures contract. When a fund enters into a futures
contract, the fund segregates in cash or liquid securities, of any type or
maturity, equal in value to the fund's commitment. The fund recognizes a gain or
loss equal to the daily change in the value of the futures contracts. Should
market conditions move unexpectedly, the fund may not achieve the anticipated
benefits of the futures contracts and may realize a loss. As of October 31,
2006, none of the funds have open futures contracts.
DELAYED DELIVERY SECURITIES: The Core Funds may purchase securities on a
when-issued or delayed delivery basis. "When-issued" refers to securities whose
terms are available and for which a market exists, but that have not been
issued. For when-issued or delayed delivery transactions, no payment is made
until delivery date, which is typically longer than the normal course of
settlement, and often more than a month or more after the purchase. When a fund
enters into an agreement to purchase securities on a when-issued or delayed
delivery basis, the fund segregates in cash or liquid securities, of any type or
maturity, equal in value to the fund's commitment. Losses may arise due to
changes in the market value of the underlying securities, if the counterparty
does not perform under the contract, or if the issuer does not issue the
securities due to political, economic or other factors. For the year ended
October 31, 2006, the Cash Reserves and High Income Funds entered into such
transactions, the market values of which are identified in each fund's Portfolio
of Investments.
RECLASSIFICATION ADJUSTMENTS: Paid-in capital, undistributed net investment
income, and accumulated net realized gain (loss) have been adjusted in the
Statements of Assets and Liabilities for permanent book-tax differences for all
funds. Differences primarily relate to the tax treatment of net operating
losses, paydown gains and losses, foreign currency gains and losses, and
distributions from real estate investment trusts and passive foreign investment
companies.
REDEMPTION FEES: The Conservative Allocation, Moderate Allocation, Aggressive
Allocation, Bond Fund, Balanced Fund, Large Cap Value Fund and Large Cap Growth
Fund will deduct a fee of 2% from redemption proceeds on Class A shares held 5
business days or less. The High Income Fund, Mid Cap Value Fund, Mid Cap Growth
Fund and International Stock Fund will deduct a fee of 2% from redemption
proceeds on Class A shares held 30 calendar days or less. Redemption fees are
treated as additional paid-in capital to the fund from which the shares are
redeemed and are designed to help offset any costs associated with short-term
shareholder trading.
NEW ACCOUNTING PRONOUNCEMENTS: In July 2006, the Financial Accounting Standards
Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes -- an Interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48
addresses the accounting for uncertainty in income taxes and establishes for all
entities, including pass-through entities, such as the Funds, a minimum
threshold for financial statement recognition of the benefit of positions taken
in filing tax returns (including whether an entity is taxable in a particular
jurisdiction), and requires certain expanded tax disclosures. The provisions of
FIN 48 are effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness. FASB also
issued Statement of Financial Accounting Standards No. 157, Fair Value
Measurements ("FAS 157"), in September 2006, which is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands financial statement disclosures
about fair value measurements. Management is currently evaluating the
application of FIN 48 and FAS 157 to the Funds, and is not in a position at this
time to estimate the significance of their impacts, if any, on the Funds'
financial statements.
- --------------------------------------------------------------------------------
89
NOTES TO FINANCIAL STATEMENTS
3. ADVISORY, ADMINISTRATION AND DISTRIBUTION AGREEMENTS
For its investment advisory services to the Funds, the Investment Advisor is
entitled to receive a fee, which is computed at an annualized percentage rate of
the average daily value of the net assets of each fund as follows: 0.40% for the
Cash Reserves Fund; 0.50% for the Bond Fund; 0.55% for the High Income Fund;
0.65% for the Balanced Fund; 0.55% for the Large Cap Value Fund; 0.75% for the
Large Cap Growth Fund; 0.95% for the Mid Cap Value Fund, 0.75% for the Mid Cap
Growth Fund, 1.05% for the International Stock Fund, and .20% for the
Conservative Allocation, Moderate Allocation, and Aggressive Allocation Funds.
The Investment Advisor is solely responsible for the payment of all fees to the
Subadvisers. The Subadvisers for the Funds at October 31, 2006, are Shenkman
Capital Management, Inc. for the High Income Fund, Wellington Management
Company, LLP for a portion of the Mid Cap Value Fund and the entire Mid Cap
Growth Fund, and Lazard Asset Management LLC for the International Stock Fund.
The Investment Advisor manages the other portion of the Mid Cap Value Fund, the
Bond Fund, Balanced Fund, Large Cap Growth Fund, Large Cap Value Fund, Cash
Reserves Fund, Conservative Allocation Fund, Moderate Allocation Fund, and
Aggressive Allocation Fund.
The Investment Advisor has contractually agreed to waive fees and/or reimburse
expenses with respect to the Funds ("Expense Cap Agreement") until February 28,
2007, such that total expenses, exclusive of management fees, 12b-1 fees, taxes,
interest, service fees, and other extraordinary items will not exceed the
following amounts:
<Table>
<Caption>
FUND CLASS A CLASS B CLASS Y
- ---- ------- ------- -------
Conservative Allocation 0.70% 1.45% NA
Moderate Allocation 0.70% 1.45% NA
Aggressive Allocation 0.70% 1.45% NA
Cash Reserves 0.55% 1.30% 0.55%
Bond 0.90% 1.65% 0.65%
High Income 1.00% 1.75% 0.75%
</Table>
<Table>
<Caption>
FUND CLASS A CLASS B CLASS Y
- ---- ------- ------- -------
Balanced 1.10% 1.85% NA
Large Cap Value 1.00% 1.75% 0.75%
Large Cap Growth 1.20% 1.95% 0.95%
Mid Cap Value 1.40% 2.15% 1.15%
Mid Cap Growth 1.20% 1.95% 0.95%
International Stock 1.60% 2.35% 1.35%
</Table>
For the year ended October 31, 2006, the Investment Advisor reimbursed expenses
of $60,600 for the Conservative Allocation Fund, $58,861 for the Moderate
Allocation Fund, $60,571 for the Aggressive Allocation Fund, $90,538 for the
Cash Reserves Fund, $189,515 for the Bond Fund, $122,119 for the High Income
Fund, $210,578 for the Balanced Fund, $276,232 for the Large Cap Value Fund,
$310,809 for the Large Cap Growth Fund, $195,647 for the Mid Cap Value Fund,
$206,584 for the Mid Cap Growth Fund and $230,191 for the International Stock
Fund.
Any reimbursements or fee waivers made by the Investment Advisor to a fund are
subject to repayment by the fund, to the extent that the fund is able to make
the repayment within its Expense Cap Agreement. Under the Expense Cap Agreement,
such recoupments must be made within three years, measured on a fiscal year
basis, from when the reimbursement or fee reduction occurred.
<Table>
<Caption>
RECOVERY EXPIRING RECOVERY EXPIRING RECOVERY EXPIRING
FUND OCTOBER 31, 2007 OCTOBER 31, 2008 OCTOBER 31, 2009
- ---- ---------------- ---------------- ----------------
Conservative Allocation NA NA $ 60,600
Moderate Allocation NA NA 58,861
Aggressive Allocation NA NA 60,571
Cash Reserves $ 58,813 $ 78,715 90,538
Bond 150,645 187,908 189,515
High Income 97,662 159,911 122,119
Balanced 131,637 238,207 210,578
Large Cap Value 220,402 305,185 276,232
Large Cap Growth 250,709 335,822 310,809
Mid Cap Value 115,700 201,154 195,647
Mid Cap Growth 140,426 222,629 206,584
International Stock 114,012 187,015 230,191
</Table>
Through October 31, 2006 the Investment Advisor did not recoup any fees
previously waived or reimbursed under the Expense Cap Agreement.
The Investment Advisor reimbursed the Balanced Fund during the current period
for realized losses resulting from a trading error in the amount of $18,064 or
..00142 and .00135 per share, for class A and B respectively, based upon the
Fund's shares outstanding as of October 31, 2006.
- --------------------------------------------------------------------------------
90
NOTES TO FINANCIAL STATEMENTS
CUNA Brokerage Services, Inc. ("CUNA Brokerage") serves as distributor of the
Funds. The Trust adopted Distribution Plans (the "Plans") with respect to the
Trust's Class A and B shares pursuant to Rule 12b-1 under the 1940 Act. Under
the Plans, the Trust will pay service fees for Class A and Class B shares at an
aggregate annual rate of 0.25% of each fund's daily net assets attributable to
the respective class of shares for all funds except the Cash Reserves Fund. The
Trust will also pay distribution fees for Class B shares at an aggregate annual
rate of 0.75% of each fund's daily net assets attributable to Class B. The
distribution fees are used to reimburse CUNA Brokerage for its distribution
expenses with respect to Class B only, including but not limited to: (1) initial
and ongoing sales compensation to selling brokers and others engaged in the sale
of fund shares, (2) marketing, promotional and overhead expenses incurred in
connection with the distribution of fund shares, and (3) interest expenses on
unreimbursed distribution expenses. The service fees will be used to compensate
selling brokers and others for providing personal and account maintenance
services to shareholders.
The distributor may from time to time voluntarily agree to waive distribution
fees with respect to the Cash Reserves Fund for the purpose of maintaining a
one-day yield or distribution rate of zero. The amount of the daily waiver is
equal to the amount required to maintain a minimum daily distribution rate of
zero. For the year ended October 31, 2006, no such waivers were made by the
distributor.
In addition to distribution fees, CUNA Brokerage received sales charges paid by
the purchasers or redeemers of the Funds' shares. For the year ended October 31,
2006, sales charges received by CUNA Brokerage were as follows:
<Table>
<Caption>
AMOUNT PAID
-------------------
FUND CLASS A CLASS B
- ---- ------- -------
Conservative Allocation $ 56,132 $ 85
Moderate Allocation 180,804 480
Aggressive Allocation 50,673 447
Cash Reserves 16,579 29,003
Bond 165,172 114,485
High Income 134,365 43,360
</Table>
<Table>
<Caption>
AMOUNT PAID
-------------------
FUND CLASS A CLASS B
- ---- ------- -------
Balanced $316,227 $186,835
Large Cap Value 240,955 101,429
Large Cap Growth 159,269 104,866
Mid Cap Value 180,441 43,385
Mid Cap Growth 134,553 30,161
International Stock 191,200 18,355
</Table>
Certain officers and trustees of the Funds are also officers of the Investment
Advisor. The Funds do not compensate their officers or affiliated trustees.
Unaffiliated trustees receive from the Trust an attendance fee for each Board or
Committee meeting attended, with additional remuneration paid to the "lead"
trustee and audit committee chair.
4. DIVIDENDS FROM NET INCOME AND DISTRIBUTIONS OF CAPITAL GAINS
With respect to dividends from net investment income, the Cash Reserves Fund and
Bond Fund declare dividends daily and reinvest monthly. The High Income Fund and
Balanced Fund declare and reinvest dividends monthly. The Large Cap Value Fund,
Large Cap Growth Fund, Mid Cap Value Fund, Mid Cap Growth Fund, International
Stock Fund, Conservative Allocation Fund, Moderate Allocation Fund, and the
Aggressive Allocation Fund declare and reinvest dividends annually. The Funds
distribute net realized gains from investment transactions, if any, to
shareholders annually.
Income and capital gain distributions, if any, are determined in accordance with
federal income tax regulations, which may differ from accounting principles
generally accepted in the United States of America. Taxable distributions from
income and realized capital gains in the Funds differ from book amounts earned
during the period due to differences in the timing of capital gains recognition,
and due to the reclassification of certain gains or losses from capital to
income. Dividends from net investment income are determined on a class level.
Capital gains are determined on a fund level.
- --------------------------------------------------------------------------------
91
NOTES TO FINANCIAL STATEMENTS
5. SECURITIES TRANSACTIONS
For the year ended October 31, 2006, aggregate cost of purchases and proceeds
from sales of securities, other than short-term investments, were as follows:
<Table>
<Caption>
U.S. GOVERNMENT SECURITIES OTHER INVESTMENT SECURITIES
-------------------------- ---------------------------
FUND PURCHASES SALES PURCHASES SALES
- ---- --------- ----- --------- -----
Conservative Allocation(1) $ - $ - $ 3,541,696 $ 449,847
Moderate Allocation(1) - - 11,481,496 506,099
Aggressive Allocation(1) - - 3,806,844 194,968
Bond 22,994,396 27,008,583 10,642,708 16,871,357
High Income - - 35,527,008 44,319,106
Balanced 31,554,878 22,549,179 84,593,002 149,576,386
Large Cap Value - - 79,046,089 101,785,274
Large Cap Growth - - 183,892,531 204,983,349
Mid Cap Value - - 71,254,887 81,820,545
Mid Cap Growth - - 104,184,956 102,074,314
International Stock - - 66,659,469 52,334,879
</Table>
- ----------------------------------
(1) Commenced investment operations on June 30, 2006.
6. FOREIGN SECURITIES
The Core Funds may invest in foreign securities, although only the Mid Cap
Growth Fund and International Stock Fund anticipate having significant
investments in such securities, and the Cash Reserves Fund is limited to U.S.
dollar-denominated foreign money market securities. Foreign securities refer to
securities that are: (1) issued by companies organized outside the U.S. or whose
principal operations are outside the U.S., (2) issued by foreign governments or
their agencies or instrumentalities, (3) principally traded outside the U.S., or
(4) quoted or denominated in a foreign currency. Foreign securities include
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"),
Global Depository Receipts ("GDRs"), Swedish Depository Receipts ("SDRs") and
foreign money market securities. Dollar-denominated securities that are part of
the Merrill Lynch U.S. Domestic Master Index are not considered a foreign
security.
Certain of the funds have reclaim receivable balances, in which the funds are
due a reclaim on the taxes that have been paid to some foreign jurisdictions.
The values of all reclaims are not significant for any of the funds and are
reflected in Other Assets on the Statement of Assets and Liabilities. On a
periodic basis, these receivables are reviewed to ensure the current receivable
balance is reflective of the amount deemed to be collectible.
7. SECURITIES LENDING
The Core Funds, except the Cash Reserves Fund, entered into a Securities Lending
Agreement (the "Agreement") with State Street Bank and Trust Company ("State
Street"). Under the terms of the Agreement, the Funds may lend portfolio
securities to qualified borrowers in order to earn additional income. The
Agreement requires that loans are collateralized at all times by cash or other
liquid assets at least equal to 102% of the value of the securities, which is
determined on a daily basis. At October 31, 2006, cash collateral received for
Funds engaged in securities lending was invested in the State Street Navigator
Securities Lending Prime Portfolio. Additionally, the Bond and Balanced Funds
received non-cash collateral, which they are not permitted to sell or repledge,
in the amounts of $194,031 and $3,474,738, respectively. The value of all cash
collateral is included within the Portfolio of Investments with an offsetting
liability, payable upon return of securities loaned, reflected on the Statement
of Assets and Liabilities.
Amounts earned as interest on investments of cash collateral, net of rebates and
fees, are included in the Statement of Operations. The value of securities on
loan at October 31, 2006 is as follows:
<Table>
<Caption>
FUND VALUE OF SECURITIES ON LOAN
- ---- ---------------------------
Bond $17,310,827
High Income 11,883,612
Balanced 26,152,135
</Table>
<Table>
<Caption>
FUND VALUE OF SECURITIES ON LOAN
- ---- ---------------------------
Large Cap Growth $ 7,226,302
Mid Cap Growth 12,020,676
Mid Cap Value 13,491,781
</Table>
- --------------------------------------------------------------------------------
92
NOTES TO FINANCIAL STATEMENTS
The primary risk associated with securities lending is if the borrower defaults
on its obligation to return the securities loaned because of insolvency or other
reasons, the funds could experience delays and costs in recovering securities
loaned or in gaining access to the collateral.
8. TAX INFORMATION
The tax character of distributions paid during the years ended October 31, 2006
and 2005 was as follows:
<Table>
<Caption>
LONG-TERM CAPITAL
ORDINARY INCOME GAIN
FUND 2006 2005 2006 2005
- ---- ---- ---- ---- ----
Conservative Allocation $ - NA $ - NA
Moderate Allocation - NA - NA
Aggressive Allocation - NA - NA
Cash Reserves 645,366 367,496 - -
Bond 4,145,557 4,052,811 - -
High Income 3,654,568 4,226,543 - -
Balanced 3,183,945 3,254,631 - -
Large Cap Value 1,814,875 1,461,853 - -
Large Cap Growth 422,539 4,002 - -
Mid Cap Value 571,830 295,803 3,919,466 -
Mid Cap Growth - - - -
International Stock 666,394 427,531 37,757 -
</Table>
As of October 31, 2006, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
FUND ORDINARY INCOME LONG-TERM CAPITAL GAIN
- ---- --------------- ----------------------
Conservative Allocation $ 17,041 $ -
Moderate Allocation 19,390 -
Aggressive Allocation - -
Cash Reserves 1,376 -
Bond 18,776 -
High Income 217,955 -
Balanced 9,774 2,952,279
Large Cap Value 1,733,337 -
Large Cap Growth - -
Mid Cap Value 1,157,272 11,398,471
Mid Cap Growth - -
International Stock 2,918,731 8,721,408
</Table>
For federal income tax purposes, the funds listed below have capital loss
carryovers as of October 31, 2006, which are available to offset future capital
gains, if any:
<Table>
<Caption>
FUND 2008 2009 2010 2011 2012 2013 2014
- ---- ---- ---- ---- ---- ---- ---- ----
Cash Reserves $ - $ - $ - $ - $ - $ 7 $ 5
Bond 194,286 - 230,858 - 310,659 65,261 362,802
High Income - 1,720,815 2,445,850 614,259 - - -
Large Cap Value - - 4,759,254 9,713,003 - 333,474 -
Large Cap Growth - - - 10,955,359 - - -
Mid Cap Growth - 1,172,106 5,728,147 - - - -
</Table>
The High Income, Balanced, Large Cap Value, Large Cap Growth and Mid Cap Growth
Funds, utilized $305,431, $5,214,842, $10,918,843, $14,628,614 and $10,615,556,
respectively, of prior capital loss carryovers during the year ended October 31,
2006.
- --------------------------------------------------------------------------------
93
NOTES TO FINANCIAL STATEMENTS
At October 31, 2006, the aggregate gross unrealized appreciation (depreciation)
and net unrealized appreciation (depreciation) for all securities as computed on
a federal income tax basis for each fund were as follows:
<Table>
<Caption>
FUND APPRECIATION DEPRECIATION NET
- ---- ------------ ------------ ---
Conservative Allocation $ 86,601 $ - $ 86,601
Moderate Allocation 377,259 - 377,259
Aggressive Allocation 193,530 - 193,530
Bond 917,100 927,962 (10,862)
High Income 899,186 538,049 361,137
Balanced 15,834,417 1,936,219 13,898,198
Large Cap Value 39,212,078 1,227,273 37,984,805
Large Cap Growth 11,490,454 3,839,892 7,650,562
Mid Cap Value 9,423,257 740,779 8,682,478
Mid Cap Growth 5,305,331 1,787,488 3,517,843
International Stock 20,507,056 1,168,226 19,338,830
</Table>
The differences between cost amounts for book purposes and tax purposes are
primarily due to the tax deferral of losses.
The Balanced and Mid Cap Value Funds incurred shareholder redemptions
substantially in-kind as of June 23, 2006, at which date the market value of the
securities provided was $18,655,199 and $12,263,388 respectively. These resulted
in a realized gain for financial reporting purposes of $3,792,856 in the
Balanced Fund and $1,751,469 in the Mid Cap Value Fund. The Large Cap Value Fund
incurred a shareholder redemption substantially in-kind as of June 16, 2006, at
which date the market value of the securities provided was $7,901,034 resulting
in a realized gain of $1,874,545 for financial reporting purposes. The Large Cap
Growth Fund incurred a shareholder redemption substantially in-kind as of July
19, 2006, at which date the market value of the securities provided was
$13,221,757 resulting in a realized gain of $929,012 for financial reporting
purposes. For federal income tax purposes, these funds do not recognize realized
gains on the disposition of those securities.
9. CONCENTRATION OF RISK
Investing in certain financial instruments, including forward foreign currency
contracts and futures contracts, involves risk other than that reflected in the
Statements of Assets and Liabilities. Risks associated with these instruments
include potential for an illiquid secondary market for the instruments or
inability of counterparties to perform under the terms of the contracts, changes
in the value of foreign currency relative to the U.S. dollar and financial
statement volatility resulting from an imperfect correlation between the
movements in the prices of the instruments and the prices of the underlying
securities and interest rates being hedged. The High Income Fund, Mid Cap Growth
Fund, and International Stock Fund enter into these contracts primarily to
protect these funds from adverse currency movements.
Investing in foreign securities involves certain risks not necessarily found in
U.S. markets. These include risks associated with adverse changes in economic,
political, regulatory and other conditions, changes in currency exchange rates,
exchange control regulations, expropriation of assets or nationalization,
imposition of withholding taxes on dividend or interest payments or capital
gains, and possible difficulty in obtaining and enforcing judgments against
foreign entities. Further, issuers of foreign securities are subject to
different, and often less comprehensive, accounting, reporting and disclosure
requirements than domestic issuers.
The High Income Fund invests in securities offering high current income which
generally will include bonds in the below investment grade categories of
recognized rating agencies (so-called "junk bonds"). These securities generally
involve more credit risk than securities in the higher rating categories. In
addition, the trading market for high yield securities may be relatively less
liquid than the market for higher-rated securities. The fund generally invests
at least 80% of its assets in high yield securities.
The Allocation Funds are fund of funds, meaning that they invest primarily in
the shares of other registered investment companies (the "underlying funds"),
including ETFs. Thus, each fund's investment performance and its ability to
achieve its investment goal are directly related to the performance of the
underlying funds in which it invests; and the underlying fund's performance, in
turn, depends on the particular securities in which that underlying fund invests
and the expenses of that fund. Accordingly, the Allocation Funds are subject to
the risks of the underlying funds in direct proportion to the allocation of its
assets among the underlying funds.
- --------------------------------------------------------------------------------
94
NOTES TO FINANCIAL STATEMENTS
Additionally, the Allocation Funds are subject to asset allocation risk, which
is the risk that the selection of the underlying funds and the allocation of the
fund's assets among the various asset classes and market segments will cause the
fund to under perform other funds with a similar investment objective.
10. CAPITAL SHARES AND AFFILIATED OWNERSHIP
Each fund is authorized to issue an unlimited number of shares of beneficial
interest with no par value. Each fund currently offers three classes of shares,
Class A, B, and Y. At October 31, 2006, investments in the Funds by affiliates
were as follows:
<Table>
<Caption>
CUNA CUNA
MUTUAL LIFE MUTUAL CUMIS CUNA
INSURANCE INSURANCE INSURANCE BROKERAGE
FUND CLASS COMPANY SOCIETY SOCIETY, INC. SERVICES, INC.
- ---- ----- ------- ------- ------------- --------------
Conservative Allocation A $1,052,947 $ - $ - $ -
Conservative Allocation B 53 - - -
Moderate Allocation A 1,064,947 - - -
Moderate Allocation B 53 - - -
Aggressive Allocation A 1,075,946 - - -
Aggressive Allocation B 54 - - -
Cash Reserves A 1,992,676 1,985,103 - -
Bond A 1,307,336 2,277,558 - -
High Income A 7,533,718 - - -
Balanced A - - - 1,545,605
International Stock A 4,937,211 9,414,472 33,634,077 -
</Table>
- --------------------------------------------------------------------------------
95
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of MEMBERS Mutual Funds:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments of MEMBERS Mutual Funds comprising Cash Reserves
Fund, Bond Fund, Balanced Fund, High Income Fund, Large Cap Value Fund (formerly
Growth and Income Fund), Large Cap Growth Fund (formerly Capital Appreciation
Fund), Mid Cap Value Fund (formerly Mid-Cap Fund), Mid Cap Growth (formerly
Multi-Cap Growth Fund), International Stock Fund, Conservative Allocation Fund,
Moderate Allocation Fund and Aggressive Allocation Fund (collectively, the
"Funds") as of October 31, 2006 and the related statements of operations for the
respective period then ended. We have audited the statements of changes in net
assets for each of the two years in the period ended October 31, 2006 and the
financial highlights for each of the three years in the period ended October 31,
2006 for the Cash Reserves Fund, Bond Fund, Balanced Fund, High Income Fund,
Large Cap Value Fund, Large Cap Growth Fund, Mid Cap Value Fund, Mid Cap Growth,
and International Stock Fund. We have audited the statement of changes in net
assets and financial highlights for the period ended October 31, 2006 for the
Conservative Allocation Fund, Moderate Allocation Fund and Aggressive Allocation
Fund. These financial statements and financial highlights are the responsibility
of the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The Funds'
financial highlights for the periods ended prior to October 31, 2004 were
audited by other auditors whose report, dated December 11, 2003, expressed and
unqualified opinion on those financial highlights.
We conducted our audits in accordance with the auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Funds are not
required to have, nor were we engaged to perform, an audit of their internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Funds' internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of October 31, 2006, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial highlights referred to
above present fairly, in all material respects, the respective financial
positions of Cash Reserves Fund, Bond Fund, Balanced Fund, High Income Fund,
Large Cap Value Fund, Large Cap Growth Fund, Mid Cap Value Fund, Mid Cap Growth,
International Stock Fund, Conservative Allocation Fund, Moderate Allocation
Fund, and Aggressive Allocation Fund as of October 31, 2006, and the results of
their operations, changes in their net assets and financial highlights for the
indicated periods, in conformity with accounting principles generally accepted
in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
December 18, 2006
- --------------------------------------------------------------------------------
96
OTHER INFORMATION (UNAUDITED)
FUND EXPENSES PAID BY SHAREHOLDERS
As a shareholder of the Funds, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, and redemption
fees; (2) ongoing costs, including management fees; distribution and/or service
(12b-1) fees; and other fund expenses. In the most recent six-month period, the
Funds limited these ongoing costs; had it not done so, expenses would have been
higher. The examples below are intended to help you understand your ongoing
costs (in dollars) of investing in the Funds and to compare these costs with the
ongoing costs of investing in other mutual funds.
The examples below are based on an investment of $1,000 invested at the
beginning of the period and held for the entire six month period ended October
31, 2006. Expenses paid during the period in the tables below are equal to the
fund's annualized expense ratio, multiplied by the average account value over
the period, multiplied by 184/365 (to reflect the one-half fiscal year period),
except for the Allocation Fund's and Class Y's actual return information, which
had 124 days in the most recent fiscal period due to the commencement of
investment operations on June 30, 2006.
ACTUAL EXPENSES
The table below provides information about actual account values using actual
expenses and actual returns for the Funds. You may use the information in this
table, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the table for the fund you own under the heading entitled
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
<Table>
<Caption>
CLASS A CLASS B
------------------------------------------ ------------------------------
EXPENSES EXPENSES
BEGINNING ENDING ANNUAL PAID ENDING ANNUAL PAID
ACCOUNT ACCOUNT EXPENSE DURING ACCOUNT EXPENSE DURING
FUND VALUE VALUE RATIO PERIOD VALUE RATIO PERIOD
- ---- ----- ----- ----- ------ ----- ----- ------
Conservative
Allocation(1) $1,000 $1,053.00 .70% $2.42 $1,051.00 1.45% $5.01
Moderate
Allocation(1) 1,000 1,065.00 .70% 2.44 1,063.00 1.45% 5.04
Aggressive
Allocation(1) 1,000 1,076.00 .70% 2.45 1,074.00 1.45% 5.07
Cash Reserves 1,000 1,023.30 .55% 2.80 1,019.40 1.30% 6.62
Bond 1,000 1,043.00 .90% 4.63 1,038.00 1.65% 8.48
High Income 1,000 1,036.20 1.00% 5.13 1,033.60 1.75% 8.97
Balanced 1,000 1,048.20 1.10% 5.68 1,045.00 1.85% 9.54
Large Cap Value 1,000 1,077.30 1.00% 5.24 1,073.40 1.75% 9.15
Large Cap Growth 1,000 1,029.40 1.20% 6.14 1,025.10 1.95% 9.95
Mid Cap Value 1,000 1,041.60 1.40% 7.20 1,036.80 2.15% 11.04
Mid Cap Growth 1,000 1,014.60 1.20% 6.09 1,010.20 1.95% 9.88
International Stock 1,000 1,015.60 1.60% 8.13 1,012.50 2.35% 11.92
</Table>
<Table>
<Caption>
CLASS Y(1)
------------------------------------------
------------------------------------------
EXPENSES
BEGINNING ENDING ANNUAL PAID
ACCOUNT ACCOUNT EXPENSE DURING
FUND VALUE VALUE RATIO PERIOD
- ---- ----- ----- ----- ------
Cash Reserves $1,000 $1,015.70 .55% $1.87
Bond 1,000 1,043.90 .65% 2.24
High Income 1,000 1,045.90 .75% 2.59
Large Cap Value 1,000 1,100.20 .75% 2.65
Large Cap Growth 1,000 1,073.70 .95% 3.32
Mid Cap Value 1,000 1,069.50 1.15% 4.01
Mid Cap Growth 1,000 1,075.30 .95% 3.32
International Stock 1,000 1,076.20 1.35% 4.72
</Table>
(1) Commenced investment operations on June 30, 2006.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below provides information about hypothetical account values and
hypothetical expenses based on the Funds' actual expense ratios and an assumed
rate of return of 5% per year before expenses, which are not the Funds' actual
returns. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid
- --------------------------------------------------------------------------------
97
OTHER INFORMATION (UNAUDITED)
for the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare the 5% hypothetical
example of the funds you own with the 5% hypothetical examples that appear in
the shareholder reports of other similar funds. The Allocation Fund's and Class
Y's hypothetical expenses reflect amounts as if the Fund/Class had been in
existence for the entire fiscal half year.
<Table>
<Caption>
CLASS A CLASS B
------------------------------------------ ------------------------------
EXPENSES EXPENSES
BEGINNING ENDING ANNUAL PAID ENDING ANNUAL PAID
ACCOUNT ACCOUNT EXPENSE DURING ACCOUNT EXPENSE DURING
FUND VALUE VALUE RATIO PERIOD VALUE RATIO PERIOD
- ---- ----- ----- ----- ------ ----- ----- ------
Conservative
Allocation(1) $1,000 $1,021.68 .70% $3.57 $1,017.90 1.45% $7.38
Moderate
Allocation(1) 1,000 1,021.68 .70% 3.57 1,017.90 1.45% 7.38
Aggressive
Allocation(1) 1,000 1,021.68 .70% 3.57 1,017.90 1.45% 7.38
Cash Reserves 1,000 1,022.43 .55% 2.80 1,018.65 1.30% 6.61
Bond 1,000 1,020.67 .90% 4.58 1,016.89 1.65% 8.39
High Income 1,000 1,020.16 1.00% 5.09 1,016.38 1.75% 8.89
Balanced 1,000 1,019.66 1.10% 5.60 1,015.88 1.85% 9.40
Large Cap Value 1,000 1,020.16 1.00% 5.09 1,016.38 1.75% 8.89
Large Cap Growth 1,000 1,019.16 1.20% 6.11 1,015.38 1.95% 9.91
Mid Cap Value 1,000 1,018.15 1.40% 7.12 1,014.37 2.15% 10.92
Mid Cap Growth 1,000 1,019.16 1.20% 6.11 1,015.38 1.95% 9.91
International Stock 1,000 1,017.14 1.60% 8.13 1,013.36 2.35% 11.93
</Table>
<Table>
<Caption>
CLASS Y(1)
------------------------------------------
EXPENSES
BEGINNING ENDING ANNUAL PAID
ACCOUNT ACCOUNT EXPENSE DURING
FUND VALUE VALUE RATIO PERIOD
- ---- ----- ----- ----- ------
Cash Reserves $1,000 $1,022.43 .55% $2.80
Bond 1,000 1,021.93 .65% 3.31
High Income 1,000 1,021.42 .75% 3.82
Large Cap Value 1,000 1,021.42 .75% 3.82
Large Cap Growth 1,000 1,020.42 .95% 4.84
Mid Cap Value 1,000 1,019.41 1.15% 5.85
Mid Cap Growth 1,000 1,020.42 .95% 4.84
International Stock 1,000 1,018.40 1.35% 6.87
</Table>
<Table>
<Caption>
</Table>
- ----------------------------------
(1) Commenced investment operations on June 30, 2006.
Please note that the expenses shown in both tables are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), or redemption fees. The information provided in the
hypothetical example table is useful in comparing ongoing costs only, and will
not help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher.
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES
The Funds file its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. Form N-Q is available
to shareholders at no cost on the Funds' website at www.membersfunds.com and on
the SEC's website at www.sec.gov. Form N-Q may also be reviewed and copied at
the Commission's Public Reference Room in Washington, DC. More information on
the operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
PROXY VOTING POLICIES, PROCEDURES AND RECORDS
A description of the policies and procedures used by the Funds to vote proxies
related to portfolio securities is available to shareholders at no cost on the
Funds' website at www.membersfunds.com or by calling 1-800-877-6089. The proxy
voting records for the Funds for the most recent twelve-month period ended June
30 are available to shareholders at no cost on the Funds' website at
www.membersfunds.com and on the SEC's website at www.sec.gov.
- --------------------------------------------------------------------------------
98
OTHER INFORMATION (UNAUDITED)
TAX INFORMATION
FOREIGN TAX CREDITS: The International Stock Fund expects to make an election
under Internal Revenue Code Section 853 to pass through foreign taxes paid by
the fund to its shareholders. For the year ended October 31, 2006, the total
amount of foreign taxes that is expected to be passed through to shareholders
and foreign source income for information reporting purposes will be $149,717
(all of which represents taxes withheld) and $2,400,059, respectively. Complete
information regarding the fund's foreign tax credit pass through to shareholders
for 2006, will be reported in conjunction with Form 1099-DIV.
CORPORATE DIVIDENDS RECEIVED DEDUCTION: Of the dividends paid by the High
Income, Balanced, Large Cap Value, Large Cap Growth, and the Mid Cap Value
Funds, 1.42%, 70.57%, 100.00%, 100.00% and 99.20%, respectively, qualify for the
corporate dividends received deduction.
QUALIFIED DIVIDEND INCOME: For the fiscal year ended October 31, 2006, the High
Income, Balanced, Large Cap Value, Large Cap Growth, Mid Cap Value and
International Stock Funds paid dividend income totaling $3,654,568, $3,183,945,
$1,814,875, $422,539, $571,830, and $666,394, respectively. The Funds hereby
designate the maximum amount of dividends allowable pursuant to the Internal
Revenue Code, as qualified dividend income ("QDI") eligible for reduced tax
rates (the rates range from 5% to 15% depending upon an individual's tax
bracket.) Complete information regarding each fund's income distributions paid
during the calendar year 2006, including the portion, if any, which qualify as
QDI, will be reported in conjunction with Form 1099-DIV.
BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS
Under the Investment Company Act, each fund's investment advisory agreement, and
any subadvisory agreement, must be approved at least annually by the fund's
board of trustees, including a majority of the trustees who are not "interested
persons" under the Act.
The board of trustees of the MEMBERS Mutual Funds (the "Funds") reviews the
performance of the Funds and their investment adviser and subadvisers at each
regular board meeting. At these meetings, the board also receives updates
concerning the investment strategies being pursued by the Funds, changes in the
Funds' investment processes and portfolio management personnel, the expenses
incurred by the Funds, and various other matters which may impact the Funds'
performance and that of their investment adviser and subadvisers.
In addition, the board of trustees considers the formal approval of the Funds'
investment advisory and subadvisory agreements at an in-person meeting held near
the end of each year. The most recent such meeting was held November 30, 2006.
The agreements which the trustees considered at this meeting pertained to 12
existing Funds and two proposed new Funds (the "New Funds"). Three of the
existing Funds are so-called "funds-of-funds" which invest in other mutual
funds, including other MEMBERS Funds and unaffiliated funds. These three Funds
(the "Funds-of-Funds") commenced operations on June 30, 2006.
Before the November 30 meeting, the board of trustees asked the Funds'
investment adviser and subadvisers to provide written information addressing
factors to be considered by the trustees in deciding whether or not to approve
the agreements. In addition, counsel to the independent trustees provided the
trustees with a memorandum reviewing their duties under the Investment Company
Act and state law with respect to approval of the agreements. Before the
November 30 meeting, the trustees and counsel also asked the adviser and
subadvisers to expand upon certain of the written information they had provided,
and they held a conference call with representatives of the adviser to discuss
the information provided.
At the November 30 meeting, representatives of the investment adviser reviewed
the written information it had provided and responded to further questions from
trustees concerning this information and related matters. In addition, at this
meeting representatives of each subadviser made presentations and responded to
follow-up questions from trustees. After these presentations and discussions,
the board of trustees unanimously approved the investment advisory agreement and
each subadvisory agreement. In determining to approve these agreements, the
board of trustees considered the following factors and reached the following
conclusions:
NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE INVESTMENT ADVISER AND
SUBADVISERS: The trustees received and considered a variety of information
pertaining to the nature, extent and quality of the services provided and
proposed to be provided by the investment adviser and subadvisers. This
information included professional qualifications and experience of the portfolio
management teams for each Fund; the portfolio management processes utilized by
these teams; the organization, resources and research capabilities of the
investment management companies of which these teams are a part; and the
investment adviser's and subadvisers' compliance, regulatory and litigation
experience, their portfolio transaction execution
- --------------------------------------------------------------------------------
99
OTHER INFORMATION (UNAUDITED)
policies and practices, and their policies and procedures for allocating
transactions among accounts. In the course of this review, the board of trustees
noted that the investment adviser retained a new Chief Investment Officer
("CIO") in September 2005, and the board considered enhancements to the
adviser's investment processes and personnel which the new CIO has implemented
since then. After reviewing this information and discussing it with
representatives of the investment adviser and subadvisers, the board of trustees
concluded that it was generally satisfied with the nature, extent and quality of
the services provided and to be provided by the investment adviser and
subadvisers and that these services compare satisfactorily to those provided by
others in the industry.
INVESTMENT PERFORMANCE OF THE FUNDS AND THEIR INVESTMENT ADVISER AND
SUBADVISERS: As noted above, the Funds' board of trustees reviews the
performance of the Funds and their investment adviser and subadvisers at each
regular board meeting held throughout the year. In addition, at the board's
November 30 meeting, the trustees reviewed the performance of the Funds (except
the New Funds) compared to (i) the performance of such Funds' respective
unmanaged benchmarks, which also are used for comparative purposes in the Funds'
annual and semi-annual reports to shareholders, and (ii) the performance of the
funds which Morningstar places in the same "style boxes" as are indicated by the
respective Funds' names ("peer funds"). Morningstar, Inc., an investment
research and reporting company, compiles and analyzes stock, mutual fund and
variable annuity data, including performance ratings and rankings.
In the case of the New Funds, no performance history existed. For this reason,
with respect to the New Funds the trustees considered the performance of other
accounts which the proposed subadvisers manage in the same styles, as compared
to the performance of unmanaged benchmark indices.
In the case of the nine Core Funds (i.e. the funds other than the New Funds and
the Funds-of-Funds), the trustees also considered written discussions which the
investment adviser and, in the case of the subadvised funds, the subadviser
provided to them regarding the major elements of each Fund's investment strategy
which contributed positively or negatively to the Fund's performance during the
preceding year, as well as the steps which have been or will be taken in order
to improve performance where appropriate. In the case of the investment adviser,
these steps included the enhancements, noted above, which the adviser's CIO has
implemented. Because the Funds-of-Funds had only four months of performance
history, the trustees did not request written discussions concerning them.
Among other things, the trustees noted that five of these nine Core Funds
outperformed their Morningstar peer group medians on a trailing one-year basis
as of September 30, 2006, and that an additional Fund ranked in the middle third
of its Morningstar peer group for this period. Of the remaining three Funds, one
ranked above the median and one ranked in the middle third of its Morningstar
peer group on a trailing three-year basis as of September 30, 2006. With respect
to the remaining Fund (Balanced Fund), the trustees noted that a new portfolio
manager for equities was named during the past year and that the Fund's relative
performance for the three-month period ended October 30, 2006 showed
improvement. The trustees also noted that the investment adviser intends to
transform this Fund into a diversified income fund during the coming year.
Although the Funds-of-Funds had only a limited performance history, the trustees
noted that all three of them outperformed their Morningstar peer group medians
for the three-month period ended October 30, 2006.
Based on the foregoing reviews, the trustees concluded that they were
comfortable with the Funds' performance or with the steps which the investment
adviser is taking to improve their performance or to change their focus.
COST OF SERVICES PROVIDED AND PROFITABILITY: At the November 30 meeting, the
trustees reviewed a written presentation by the Funds' investment adviser
setting forth, on a fund-by-fund basis, the adviser's revenues, expenses, and
pre-tax profitability under its investment advisory agreements with the Funds
which have been in existence for more than a year (i.e., excluding the New Funds
and the Funds-of-Funds). The trustees also reviewed the methodology which the
adviser used to allocate revenues and expenses for purposes of this
presentation. In the course of their review, the trustees noted that the pre-tax
margins reported by the adviser appeared reasonable and were substantially lower
than the margins which have been upheld in reported judicial decisions
concerning investment advisory fees. They also noted that this year's margins
were lower than last year's, which the adviser attributed to its increased
expenditures for portfolio management personnel and tools.
The trustees also considered how each Fund's management fees and total expenses
compare to those of the other funds in its Morningstar peer group. They noted
that eight of the nine Core Funds' management fees after waivers ranked in the
first or second quintiles of their Morningstar peer groups (with the first
quintile including the 20% of funds with the lowest management fees), and that
the remaining Fund ranked in the third quintile. They also noted that all but
one Fund's management fees before waivers ranked in the middle three quintiles,
and that all Funds' total expenses ranked in the middle
- --------------------------------------------------------------------------------
100
OTHER INFORMATION (UNAUDITED)
three quintiles. In addition, the trustees considered explanations provided by
the investment adviser concerning certain funds' comparative expenses, including
the negative impact of the Funds' relatively small average account sizes.
The trustees also considered information provided by the investment adviser and
subadvisers concerning the management fees they charge to other comparable
mutual funds and to other accounts with similar investment objectives and
policies. The trustees concluded that the fees charged to the Funds are
generally comparable to those charged by the adviser or subadviser, as
applicable, to other comparable funds. They also concluded that where the fees
charged to other, non-fund accounts with similar investment objectives and
policies are lower than those charged to the Funds, the non-fund accounts
generally require less work on the part of the adviser or subadviser due to less
active cash flows, the absence of Investment Company Act regulatory
requirements, and other factors.
The trustees noted that to the extent the Funds-of-Funds invest in other MEMBERS
Funds ("Underlying Funds"), the investment adviser receives advisory fees both
from the Underlying Funds and from the Funds-of-Funds which invest in them. The
trustees were satisfied in this regard that the investment adviser provides
services to the Funds-of-Funds which are separate from, and in addition to, the
services which it provides to the Underlying Funds, thus justifying the second
layer of advisory fees which is paid in such instances.
In addition, the trustees noted that the investment adviser has contractually
agreed to "cap" each Fund's total expenses at a specified level at least through
February 28, 2008. The trustees also noted that during the nine months ended
September 30, 2006, the investment adviser absorbed expenses with respect to
each Fund that was in existence for the entire period in amounts ranging from
approximately $67,000 to more than $233,000, pursuant to the expense "caps"
which were then in effect.
The trustees also noted that the investment adviser intends to increase the
"caps" (thus reducing the amount of expenses it would absorb) with respect to
two Core Funds. The trustees considered the investment adviser's view that these
changes were appropriate given changes in these Funds' focus, and they noted
that none of the Funds' expense "caps" had been changed since 1997. They also
noted that the changes would have only a small impact on the affected Funds'
performance rankings compared to peer group funds and on the investment
adviser's profitability with respect to them.
Based on all this information, the trustees concluded that the management fees
and total expenses borne by the Funds are reasonable in relation to the services
provided, and that the investment adviser's level of profitability from its
advisory agreements with the Funds is well within reason.
ECONOMIES OF SCALE: The investment adviser provided the trustees with the
results of its analysis concerning how large a Fund must be before the adviser
could cease subsidizing the fund, and how much larger than that a Fund must grow
before economies of scale likely would begin. At September 30, 2006, the Funds
ranged in size from approximately $3 million to $173 million. The trustees
observed that none of the Funds is near the size at which the adviser said
subsidies could cease or economies of scale likely would begin.
The trustees also considered and agreed to the investment adviser's proposal to
add "breakpoints" to each Fund's management fee schedule. Under these
breakpoints, each Fund's management fee will be reduced by five basis points on
assets exceeding $500 million, and by another five basis points on assets
exceeding $1 billion. The trustees believed that these "breakpoints" provide a
reasonable sharing, as between the adviser and Fund shareholders, of the
economies of scale which would exist at higher asset levels.
OTHER BENEFITS TO THE INVESTMENT ADVISER AND SUBADVISERS FROM THEIR
RELATIONSHIPS WITH THE FUNDS: The trustees also considered the nature and extent
of other benefits which may flow to the investment adviser and subadvisers from
their relationships with the Funds. The trustees noted that an affiliate of the
investment adviser acts as principal underwriter for the Funds and, in this
capacity, receives front-end sales charges, 12b-1 fees and service fees in
connection with the distribution of Fund shares and the provision of services to
Fund shareholders. As required by the Investment Company Act, the trustees
review and approve the Funds' 12b-1 plans and agreements on an annual basis. In
addition, at each regular board of trustees meeting, the trustees review the
payments which the Funds made under these plans and agreements since the last
such meeting. At its November 30 meeting, the board of trustees approved these
plans and agreements for another year, concluding that there is a reasonable
likelihood they will benefit the Funds and their shareholders.
As discussed above, the trustees noted that to the extent the Funds-of-Funds
invest in Underlying Funds, the fees which the investment adviser receives from
the Underlying Funds are increased. However, the trustees were satisfied that
the investment adviser provides separate services for the two layers of fees
which are paid in such instances. In addition, the trustees noted
- --------------------------------------------------------------------------------
101
OTHER INFORMATION (UNAUDITED)
that the fee "caps" which are in effect for the Funds-of-Funds and the
Underlying Funds reduce the impact of these two layers of fees.
The trustees also noted that the investment adviser and some subadvisers execute
a portion of the Funds' portfolio transactions on a "soft dollar" basis,
pursuant to which the adviser and subadvisers receive research services from or
through the executing brokers. In connection with each regular board of trustees
meeting, the trustees review a third-party evaluation of the quality of
execution of the portfolio transactions executed by the investment adviser on
behalf of the Funds. The trustees noted that these evaluations generally have
indicated that the quality of the Funds' executions compares favorably with that
of other mutual funds. The trustees also noted that the reported execution and
soft dollar benefits received by the subadvisers were reasonable in light of the
transactions each subadviser executes on behalf of the Funds. Based on these
reviews, the trustees were satisfied with the quality of execution of the Funds'
portfolio transactions and did not believe the soft dollar benefits received by
the investment adviser and subadvisers were excessive. The trustees also
considered the adviser's stated intention to increase its use of soft dollar
research in the coming year in order to partially offset its increased
investment in portfolio management personnel and tools, and concluded that this
is not unreasonable.
Based on the foregoing information, the trustees concluded that while additional
benefits flow to the investment adviser and subadvisers from their relationships
with the Funds, the nature and extent of these additional benefits are not
unreasonable when considered in the context of the overall services provided to,
and fees received from, the Funds by these entities.
BOARD OF TRUSTEES CONCLUSION: After taking the foregoing information and the
other information provided by the investment adviser and subadvisers into
account, the board of trustees, acting in the exercise of its business judgment,
unanimously approved the investment advisory agreement and the subadvisory
agreements referred to above. In doing so, the board did not assign specific
weights to the various factors considered, nor did it deem any one factor or set
of factors to be decisive. Instead, it considered the total mix of information
provided to it in reaching its decisions.
- --------------------------------------------------------------------------------
102
MEMBERS MUTUAL FUNDS' TRUSTEES AND OFFICERS
Each trustee and officer oversees 25 portfolios in the fund complex, which
consists of the MEMBERS Mutual Funds with 12 portfolios and the Ultra Series
Fund with 13 portfolios. The address of each trustee and officer is 5910 Mineral
Point Road, Madison WI 53705. The Statement of Additional Information, which
includes additional information about the trustees and officers, is available at
no cost on the Funds' website at www.membersfunds.com or by calling
1-800-877-6089.
<Table>
<Caption>
NAME;
POSITION(S) HELD WITH THE FUND & PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS;
YEAR ELECTED(1); YEAR OF BIRTH OTHER OUTSIDE DIRECTORSHIPS
- --------------------------------------------------------------------------------------------
INTERESTED TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------
David P. Marks, CFA CUNA Mutual Insurance Society: Chief Investment
Trustee, President & Officer (since 2005); MEMBERS Capital Advisors, Inc.:
Principal Executive Officer President (since 2005); CUNA Mutual Life Insurance
["PEO"](2006) Company: Chief Investment Officer (since 2005);
1947 Citigroup Insurance Investors: Chief Investment
Officer (2004-2005); CIGNA Investments: Chief
Investment Officer, (2002-2004); Green Mountain
Partners: Partner (2001-2002); Allianz Investments:
Chief Investment Officer (1991-2001).
Other Directorships: CBRE Realty Finance
- --------------------------------------------------------------------------------------------
Lawrence R. Halverson, CFA MEMBERS Capital Advisors, Inc.: Managing Director,
Trustee (1997) Equities (since 2006), Senior Vice President-Equities
President & PEO (1997-2005) (1996-2006).
1945 Other Directorships: None
- --------------------------------------------------------------------------------------------
Mary E. Hoffmann, CPA MEMBERS Capital Advisors, Inc.: Vice
Treasurer (1998) President-Finance and Operations (since 2006),
1970 Assistant Vice President-Finance and Operations
(2001-2005).
Other Directorships: None
- --------------------------------------------------------------------------------------------
Holly S. Baggot MEMBERS Capital Advisors, Inc.: Director, Mutual Fund
Secretary and Assistant Treasurer Operations, (since 2006), Operations Officer-Mutual
(1999) Funds (2005-2006), and Senior Manager Product and
1960 Fund Operations (2001-2005).
Other Directorships: None
- --------------------------------------------------------------------------------------------
Dan P. Owens MEMBERS Capital Advisors, Inc.: Director, Investment
Assistant Treasurer Operations, (since June 2006), Operations
(2000) Officer-Investments (2005-2006), and Senior Manager
1966 Portfolio Operations (2001-2005).
Other Directorships: None
- --------------------------------------------------------------------------------------------
Molly Nelson MEMBERS Capital Advisors, Inc.: Chief Compliance
Chief Compliance Officer (2005) Officer (since 2005); Harris Associates L.P.: Chief
1962 Compliance Officer/Advisor (1985-2005).
Other Directorships: None
- --------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------------------
Rolf F. Bjelland, CLU Lutheran Brotherhood Mutual Funds: Chairman and
Chairman (2006) President (1983-2002); Lutheran Brotherhood (now
Trustee (2003) Thrivent Financial) Chief Investment Officer (1983-
1938 2002).
Other Directorships: Regis Corp, Director (since
1982).
- --------------------------------------------------------------------------------------------
Linda S. Foltz, CPA Dougherty Consulting, LLC: President/Owner (since
Trustee (Nov. 2006) 2005); Direct Supply, Inc.: Executive Vice President
1950 of Corporate Development and Chief Financial Officer
(1988-2005).
Other Directorships: Direct Supply, Inc., Director
(since 2003).
- --------------------------------------------------------------------------------------------
Steven P. Riege The Rgroup: Owner/President (since 2001); Robert W.
Trustee (2005) Baird & Company: Senior Vice President Marketing and
1954 First Vice President Human Resources (1986-2001).
Other Directorships: None
- --------------------------------------------------------------------------------------------
Richard E. Struthers Clearwater Capital Management: Chairman and Chief
Trustee (2004) Executive Officer (since 1998).
1952 Other Directorships: None
- --------------------------------------------------------------------------------------------
</Table>
(1) The board of trustees adopted term limits authorizing each independent
trustee to serve in such capacity until the first to occur: (1) serving one
twelve-year term, or (2) reaching the age of 72.
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(MEMBERS LOGO)
MEMBERS Mutual Funds
Post Office Box 8390
Boston, MA 02266-8390
1 (800) 877-6089
www.membersfunds.com
Distributed by:
CUNA Brokerage Services, Inc.
Office of Supervisory Jurisdiction
2000 Heritage Way
Waverly, IA 50677-9202
Member NASD/SIPC
4460-P1053(1206)
<Table>
(MEMBERS LOGO) PRESORTED
STANDARD
MEMBERS Mutual Funds US POSTAGE PAID
Post Office Box 8390 PERMIT #3602
Boston, MA 02266-8390 BERWYN, IL 60402
1 (800) 877-6089
www.membersfunds.com
Distributed by:
CUNA Brokerage Services, Inc.
Office of Supervisory Jurisdiction
2000 Heritage Way
Waverly, IA 50677-9202
Member NASD/SIPC
</Table>
4460-P1053(1206)
ITEM 2. CODE OF ETHICS.
As of the period ended October 31, 2006, MEMBERS Mutual Funds (also referred to
herein as the "Registrant," or the "Trust") has adopted a code of ethics
("Code") that applies to the Fund's principal executive officer and principal
financial officer, principal accounting officer or controller, or person
performing similar functions, a copy of which is posted on the Registrant's
Internet website at www.membersfunds.com. Registrant intends to disclose on its
Internet website information related to (1) any amendment of the Code (with the
exception of technical, administrative or other non-substantive amendments), and
(2) any waiver from a provision of the Code that has been granted to the
Registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
within five business days following the date of such amendment or waiver.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Registrant's board of trustees has determined that the Registrant has at
least one audit committee financial expert serving on its audit committee. The
name of the audit committee financial expert is Richard E, Struthers, who is an
"independent" trustee for purposes of this Item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
For the fiscal years ended October 31, 2006 and October 31, 2005
respectively, the aggregate fees for professional services rendered by
Deloitte & Touche LLP ("Deloitte & Touche"), the Trust's independent public
accountant, for the audit of the Trust's annual financial statements and
services normally provided by such firm in connection with statutory and
regulatory filings and engagements for such fiscal years, totaled $173,033
and $119,280 respectively.
(b) Audit Related Fees
For the fiscal years ended October 31, 2006 and October 31, 2005
respectively, the aggregate fees for professional services rendered by
Deloitte & Touche for assurance and related services by such firm that were
reasonably related to the performance of the audit of the Trust's annual
financial statements other than those referenced in paragraph (a) above,
totaled $0.
(c) Tax Fees
For the fiscal years ended October 31, 2006 and October 31, 2005
respectively, the aggregate fees for professional services rendered by
Deloitte and Touche for tax compliance, tax advice and tax planning for
such fiscal years, totaled $21,664 and $20,342 respectively, in each case
100% of which were pre-approved by the Audit Committee.
1
In the scope of services comprising the fees disclosed under this Item 4(c)
were the following services:
- Review and sign as signature preparer for U.S. Income Tax Return for
Regulated Investment Companies, Form 1120-RIC and the Return of Excise
Tax on Undistributed Income of Regulated Investment Companies, Form
8613.
(d) All Other Fees
For the fiscal years ended October 31, 2006 and October 31, 2005
respectively, the aggregate fees for professional services rendered by
Deloitte & Touche for products and services other than those reported in
subparagraphs (a) through (c) of this Item 4, for such fiscal years,
totaled $0.
(e)(1) Pursuant to Rule 2-01(a)(c)(7) of Regulation S-X, the Audit Committee has
established pre-approval policies and procedures with respect to audit,
audit-related, tax, and other non-audit services. A copy of such
pre-approval policies and procedures is attached hereto as Appendix A.
(e)(2) The Audit Committee has approved, as required by Rule 2-01(c)(7)(i)(C) of
Regulation S-X, 100% of the services described in this Item 4(b) through
(d), which such services are described above.
(f) Not applicable.
(g) During the Trust's fiscal years ended October 31, 2006 and October 31,
2005, the aggregate non-audit fees billed by Deloitte & Touche for services
rendered to the Trust, and to MEMBERS Capital Advisors, Inc. ("MCA"), the
Trust's investment adviser, and to any entity controlling, controlled by,
or under common control with MCA that provides ongoing services to the
Trust, totaled $0.
(h) The Trust's Audit Committee has considered the provision of the non-audit
services that were rendered to MCA, and any entity controlling, controlled
by, or under common control with MCA that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph Rule
2-01(c)(7)(ii) of Regulation S-X and has determined that the provision of
such services is compatible with maintaining Deloitte & Touche's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
The Registrant's board of trustees has determined that the Registrant has a
separately-designated standing audit committee. The names of the audit committee
are Rolf F. Bjelland, Linda S. Foltz, Steven P. Riege, and Richard E. Struthers.
ITEM 6. SCHEDULE OF INVESTMENTS
2
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not
Applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have not been any material changes to the procedures by which shareholders
may recommend nominees to the registrant's board of directors, since those
procedures were last disclosed in response to the requirements of Item
7(d)(2)(ii)(G) of Schedule 14A or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the Registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the 1940 Act, the
Registrant's principal executive officer and principal financial
officer have concluded that such disclosure controls and procedures
are reasonably designed and are operating effectively to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to them by others within
those entities, particularly during the period in which this report is
being prepared, and that the information required in filings on Form
N-CSR is recorded, processed, summarized, and reported on a timely
basis. This review took place on December 19, 2006.
(b) There were no significant changes in the Trust's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act)
that occurred during the Registrant's most recent second fiscal
half-year that have materially affected, or are reasonably likely to
materially affect, the Registrant's internal control over financial
reporting.
3
ITEM 12. EXHIBITS.
(a) Not applicable.
(b) Certifications of the principal executive and principal financial
officer.
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MEMBERS MUTUAL FUNDS
BY: /s/ David P. Marks
---------------------------------
David P. Marks
President
DATE: 12/19/06
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
BY: /s/ David P. Marks
---------------------------------
David P. Marks
President, MEMBERS Mutual Funds
DATE: 12/19/06
BY: /s/ Mary E. Hoffmann
---------------------------------
Mary E. Hoffmann
Treasurer, MEMBERS Mutual Funds
DATE: 12/19/06
EXHIBIT INDEX
2(f)(1) - Code of Ethics.
11(b)(i) - Certification of David P. Marks, President/Principal Executive
Officer, MEMBERS Mutual Funds
11(b)(ii) - Certification of Mary E. Hoffman, Treasurer/Principal Financial
Officer, MEMBERS Mutual Funds
Appendix A - Audit Committee Policy Regarding Pre-Approval of Services Provided
by Independent Auditors