Lg te365 groups for contacts

Just got it, and can't figure out how to use the Groups function in Contacts. I have a couple dozens contacts entered so far, and want to group them into Family, Friends, etc....none are grouped at this point. When I go to groups (Menu 8.4), and choose "Options" when Family is highlighted, and then "Add member", I get the message "No available members". What am I missing?

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Copy the contact from the SIM card to the handset. Then you can set groups, ringtones, etc.
You cannot set groups, ringtones and etc. on contacts that are on the SIM card.