<PAGE>
June 13, 1997
Dear Shareholder:
You have previously been advised of the proposed reorganizations of Retirement
System Fund Inc. ("RSFund") with The Enterprise Group of Funds ("Enterprise
Group").
RSFund is a registered investment company (mutual fund) established by
Retirement System Group Inc. ("RSGROUP-SM-"). Enterprise Group is a registered
investment company managed by Enterprise Capital Management, Inc.
("Enterprise Capital"). Enterprise Capital is a wholly owned subsidiary of
The Mutual Life Insurance Company of New York (MONY).
In order for the reorganizations to proceed, it is necessary that shareholders
(i.e., investors) in RSFund vote to approve the transaction. Therefore, I have
enclosed the Notice, Proxy Statement and Prospectus and proxy card(s) for the
reorganizations of RSFund with the Enterprise Group.
The Board of Directors of RSFund considers the reorganizations to be in the
best interests of shareholders of RSFund. An outline of the benefits to
shareholders is contained on pages 18 through 20 of the enclosed Proxy
Statement and Prospectus. As stated on page 21, all expenses of completing
the reorganizations will be borne by RSGroup and Enterprise Capital; not by
RSFund. Please review the entire contents of the Proxy Statement and Prospectus
carefully before you vote.
THE BOARD OF DIRECTORS OF RSFUND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
REORGANIZATIONS BY COMPLETING A PROXY CARD FOR EACH INVESTMENT FUND IN WHICH
YOU ARE A SHAREHOLDER. RETURN THE PROXY CARD(S) AS SOON AS POSSIBLE IN THE
ENVELOPE PROVIDED.
If you have any questions or concerns, please call us at 1-800-772-3615.
Sincerely,
/s/ William Dannecker
William Dannecker
President
enclosures
<PAGE>
RETIREMENT SYSTEM FUND INC.
P.O. BOX 2064
GRAND CENTRAL STATION
NEW YORK, NEW YORK 10163-2064
NOTICE OF SPECIAL MEETING
OF
SHAREHOLDERS
TO BE
HELD ON
JULY 15, 1997
TO THE SHAREHOLDERS OF:
Retirement System Fund Inc. Core Equity Fund
Retirement System Fund Inc. Emerging Growth Equity Fund
Retirement System Fund Inc. Intermediate-Term Fixed-Income
Fund
Retirement System Fund Inc. Money Market Fund
NOTICE IS HEREBY GIVEN that a Special Meeting of
Shareholders (the "Meeting") of Retirement System Fund Inc.
Core Equity Fund ("RSF Inc. Core Equity"), Retirement System
Fund Inc. Emerging Growth Equity Fund ("RSF Inc. Emerging
Growth"), Retirement System Fund Inc. Intermediate-Term
Fixed-Income Fund ("RSF Inc. Intermediate-Term"), and
Retirement System Fund Inc. Money Market Fund ("RSF Inc. Money
Market"), (each, an "Acquired Fund," and collectively, the
"Acquired Funds" or the "RSF Inc. Funds"), and each a separate
series of Retirement System Fund Inc. ("RSF Inc."), will be
held at the offices of RSF Inc., 317 Madison Avenue, New York,
New York 10017, on July 15, 1997 at 10:30 a.m., for the
following purposes with respect to each Acquired Fund:
A. To approve an Agreement and Plan of
Reorganization and the proposed transaction with respect
to each Acquired Fund whereby all of the assets and
liabilities of such Acquired Fund will be transferred to
the series of The Enterprise Group of Funds, Inc. (each,
an "Acquiring Fund" and collectively, the "Enterprise
Portfolios") listed opposite its name below, in exchange
for Class Y shares of such Acquiring Fund, which will be
distributed pro rata by the Acquired Fund to the holders
of its shares in complete liquidation of the Acquired
Fund.
<TABLE>
<CAPTION>
ACQUIRED FUND ACQUIRING FUND
-------------------------------------- --------------------
<S> <C>
RSF INC. CORE EQUITY.............. Enterprise Growth
and Income Portfolio
RSF INC. EMERGING GROWTH.......... Enterprise Small
Company Growth
Portfolio
RSF INC. INTERMEDIATE-TERM........ Enterprise
Government
Securities Portfolio
RSF INC. MONEY MARKET............. Enterprise Money
Market Portfolio
</TABLE>
B. To transact such other business as may
properly come before the Meeting or any and all
adjournments thereof.
The Board of Directors has fixed the close of business
on May 19, 1997, as the record date for the determination of
shareholders of each Acquired Fund entitled to notice of and
to vote at the Meeting or any adjournment thereof.
A complete list of the shareholders of each Acquired
Fund entitled to vote at the Meeting will be available and
open to the examination of any shareholder of such Acquired
Fund, for any purpose germane to the Meeting during ordinary
business hours at the offices of the Acquired Funds, 317
Madison Avenue, New York, New York 10017.
<PAGE>
You are cordially invited to attend the Meeting.
Shareholders who do not expect to attend the Meeting in person
are requested to complete, date and sign the enclosed proxy or
proxies and return them promptly in the envelope provided for
that purpose. Each proxy is being solicited on behalf of the
Board of Directors of the Acquired Funds.
By Order of the Board
of Directors,
[SIGNATURE]
Stephen P. Pollak
SECRETARY
New York, New York
Dated: May 27, 1997
<PAGE>
PROSPECTUS
AND PROXY
STATEMENT
MAY 27, 1997
THE ENTERPRISE GROUP OF FUNDS, INC.
3343 PEACHTREE ROAD, N.E. SUITE 450
ATLANTA, GEORGIA 30326
800-432-4320
---------------------------------
PROSPECTUS
-------------------------------
CORE EQUITY FUND
EMERGING GROWTH EQUITY FUND
INTERMEDIATE-TERM FIXED-INCOME FUND
MONEY MARKET FUND
PORTFOLIOS OF
RETIREMENT SYSTEM FUND INC.
P.O. BOX 2064
GRAND CENTRAL STATION
NEW YORK, NEW YORK 10163-2064
800-772-3615
---------------------------------
PROXY STATEMENT
-------------------------------
This Prospectus/Proxy Statement is being furnished to
shareholders of: Retirement System Fund Inc. Core Equity Fund
("RSF Inc. Core Equity"), Retirement System Fund Inc. Emerging
Growth Equity Fund ("RSF Inc. Emerging Growth"), Retirement
System Fund Inc. Intermediate-Term Fixed-Income Fund ("RSF
Inc. Intermediate-Term"), and Retirement System Fund Inc.
Money Market Fund ("RSF Inc. Money Market") (each of RSF Inc.
Core Equity, RSF Inc. Emerging Growth, RSF Inc.
Intermediate-Term and RSF Inc. Money Market being referred to
individually as an "Acquired Fund" and collectively as the
"Acquired Funds" or the "RSF Inc. Funds"), each a series of
Retirement System Fund Inc. ("RSF Inc."), a Maryland
corporation. This Prospectus/Proxy Statement is being
furnished in connection with the Special Meeting of
Shareholders of each of the Acquired Funds (the "Meeting") to
be held on July 15, 1997, at which shareholders will be asked
to vote on a proposed reorganization (each, a "Reorganization"
and collectively, the "Reorganizations") pursuant to which all
of the assets and liabilities of the respective Acquired Fund
will be transferred to the series (each, an "Acquiring Fund,"
and collectively, the "Acquiring Funds" or the "Enterprise
Portfolios") (the Acquired Funds and Acquiring Funds are
collectively referred to as the "Funds") of The Enterprise
Group of Funds, Inc. ("Enterprise Funds"), a Maryland
corporation, listed opposite its name below, in exchange for
Class Y shares of such Acquiring Fund.
<PAGE>
<TABLE>
<CAPTION>
ACQUIRED FUND ACQUIRING FUND
-------------------------------- -------------------------------------------------------
<S> <C>
RSF INC. CORE EQUITY............ Enterprise Growth and Income Portfolio
(Enterprise Growth and Income)
RSF INC. EMERGING GROWTH........ Enterprise Small Company Growth Portfolio
(Enterprise Small Company Growth)
RSF INC. INTERMEDIATE-TERM...... Enterprise Government Securities Portfolio
(Enterprise Government)
RSF INC. MONEY MARKET........... Enterprise Money Market Portfolio
(Enterprise Money)
</TABLE>
Shares of the Acquiring Fund received by the Acquired Fund
will be distributed to the shareholders of the respective
Acquired Fund in liquidation of such Acquired Fund.
Shareholders of the Acquiring Funds will not vote on the
Reorganizations.
THE BOARD OF DIRECTORS OF RSF INC. UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS OF EACH ACQUIRED FUND VOTE IN
FAVOR OF THE REORGANIZATION OF THE ACQUIRED FUND.
Enterprise Growth and Income, Enterprise Small Company
Growth, Enterprise Government and Enterprise Money are
separate series of Enterprise Funds, an open-end, management
investment company registered under the Investment Company Act
of 1940 (the "1940 Act"). Enterprise Growth and Income is a
newly created portfolio which seeks to achieve a total return
in excess of the total return of the Lipper Growth and Income
Mutual Funds Average measured over a period of three to five
years, by investing primarily in a broadly diversified group
of large capitalization companies. Enterprise Small Company
Growth is a newly created portfolio which seeks to achieve
maximum capital appreciation, primarily through investment in
the equity securities of companies that have a market
capitalization of no more than $1 billion. Enterprise
Government's investment objective is current income and safety
of principal, primarily from securities that are obligations
of the U.S. Government, or its agencies or its
instrumentalities. Enterprise Money's investment objective is
to provide the highest possible level of current income
consistent with preservation of capital and liquidity by
investing in obligations maturing in one year or less from the
time of purchase. The investment objectives, policies and
restrictions of the Acquiring Funds, and consequently the
risks of investing in the Acquiring Funds, are similar to
those of the respective Acquired Funds, but differ in certain
respects. There can be no assurance that any Fund will achieve
its objective. See "Summary Comparison of the Funds" and "Risk
Factors and Special Considerations." Enterprise Capital
Management, Inc. ("Enterprise Capital") is the investment
adviser to each Acquiring Fund. Enterprise Fund Distributors,
Inc. is the distributor of each Acquiring Fund.
This Prospectus/Proxy Statement should be retained for
future reference. It sets forth concisely the information
about each Acquiring Fund that a prospective investor should
know before investing. The Prospectus of Enterprise Funds
dated May 1, 1997 is enclosed herewith and is incorporated
herein. The following additional information concerning the
proposed Reorganizations has been filed with the Securities
and Exchange Commission, and is incorporated herein by
reference: (i) Prospectus of the Acquired Funds dated January
28, 1997; (ii) Statement of Additional Information of the
Acquired Funds ("RSF Inc. SAI") dated January 28, 1997; (iii)
Annual Report of the Acquired Funds for the fiscal year ended
September 30, 1996; (iv) Semi-Annual Report of the Acquired
Funds for
ii
<PAGE>
the six-month period ended March 31, 1997; (v) Statement of
Additional Information of Enterprise Funds ("Enterprise Funds
SAI") dated May 1, 1997; and (vi) the Statement of Additional
Information, filed as part of the Registration Statement of
which this Prospectus/Proxy Statement forms a part. Copies of
any of the documents listed in (i), (ii), (iii), (iv) and (vi)
may be obtained by writing or calling RSF Inc. at the address
and telephone number shown above. Copies of the document
listed in (v) may be obtained without charge by writing or
calling Enterprise Funds at the address and telephone number
shown above.
It is anticipated that this Prospectus/Proxy Statement
will first be mailed to shareholders on or about June 16,
1997.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT
DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR
GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ADEQUACY OR ACCURACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
iii
<PAGE>
TABLE OF CONTENTS
SUMMARY OF EXPENSES..................................................1
SUMMARY..............................................................6
The Reorganizations................................................6
Summary Comparison of the Funds....................................6
Investment Objectives and Policies...............................6
Advisory Fees and Expense Ratios................................12
Distribution Arrangements.......................................14
Purchase, Exchange and Redemption Privileges....................15
Tax Considerations................................................16
Risk Factors and Special Considerations...........................16
THE REORGANIZATIONS.................................................18
Background and Reasons for Proposed Reorganizations...............18
Considerations of the Board of Directors of RSF Inc.............18
Considerations of the Board of Directors of Enterprise Funds....19
Agreement Among Enterprise Capital, Retirement Investors and
RSGroup-SM-......................................................19
Terms of the Agreement............................................20
Description of Shares to be Issued................................20
Certain Effects of the Reorganizations On Shareholders of the
Acquired Funds...................................................21
Expenses of the Reorganizations...................................21
Federal Income Tax Consequences...................................21
Comparative Information on Shareholder Rights and Obligations.....22
FINANCIAL INFORMATION...............................................23
Capitalization....................................................23
MANAGEMENT'S DISCUSSION OF FUNDS' PERFORMANCE.......................23
INFORMATION ABOUT ENTERPRISE FUNDS AND RSF INC. ....................24
INFORMATION CONCERNING THE MEETING..................................25
Voting Information................................................25
Dissenters' Rights................................................27
SECURITY OWNERSHIP OF CERTAIN SHAREHOLDERS AND MANAGEMENT...........27
OTHER MATTERS.......................................................30
AGREEMENT AND PLAN OF REORGANIZATION.........................Exhibit A
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
ENTERPRISE
GROWTH AND
RSF INC. INCOME PRO FORMA
CORE EQUITY (CLASS Y) COMBINED
------------ ------------ ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price).......... None None None
Maximum Sales Charge Imposed on Reinvested
Dividends
(as a percentage of offering price).......... None None None
Contingent Deferred Sales Charge
(as a percentage of original purchase price
or redemption proceeds, as applicable)....... None None None
Redemption Fee
(as a percentage of amount redeemed, if
applicable).................................. None None None
Exchange Fee................................... None None None
ANNUAL OPERATING EXPENSES(A)
(As a percentage of average net assets)
(after expense reimbursements or waivers)
Management Fee................................. .60% .75% .75%
12b-1 Fee...................................... .20%(B) None None
Other Expenses................................. .20%(C) .30% .30%
Total Operating Expenses..................... 1.00%(D) 1.05%(E) 1.05%(E)
</TABLE>
----------------------------------
(A) The Fund operating expenses set forth in this table reflect
actual expenses incurred by RSF Inc. Core Equity for the
fiscal year ended September 30, 1996, shown as a percentage
of its average net assets for such period, and estimated
expenses for Enterprise Growth and Income. Due to the
continuous nature of Rule 12b-1 fees, long-term
shareholders of RSF Inc. may pay more than the equivalent
of the maximum front-end sales charges permitted by the
Conduct Rules of the National Association of Securities
Dealers, Inc.
(B) Absent voluntary fee waivers, 12b-1 fees would be .25% for
RSF Inc. Core Equity.
(C) "Other Expenses" is based on amounts for RSF Inc. Core
Equity for the fiscal year ended September 30, 1996. Absent
voluntary waivers, "Other Expenses" would be 1.20% of
average net assets of RSF Inc. Core Equity.
(D) Absent voluntary fee waivers, total annual Fund operating
expenses would be 2.05% of average net assets of RSF Inc.
Core Equity.
(E) For accounts with a balance of $1,000 or less, as of July
31, 1997, a $25 fee per account registration for
maintenance will apply, excluding former RSF Inc.
shareholders, Automatic Bank Draft Plan, Automatic
Investment Plan, Retirement Plan and Savings Plan Accounts.
1
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
ENTERPRISE
SMALL
RSF INC. COMPANY
EMERGING GROWTH PRO FORMA
GROWTH (CLASS Y) COMBINED
------------ ------------ ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............ None None None
Maximum Sales Charge Imposed on Reinvested
Dividends
(as a percentage of offering price)............ None None None
Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds, as applicable)............ None None None
Redemption Fee
(as a percentage of amount redeemed, if
applicable).................................... None None None
Exchange Fee..................................... None None None
ANNUAL OPERATING EXPENSES(A)
(As a percentage of average net assets)
(after expense reimbursements or waivers)
Management Fee................................... 1.00%(B) 1.00% 1.00%
12b-1 Fee........................................ .20%(C) None None
Other Expenses................................... .80%(D) .40% .40%
Total Operating Expenses....................... 2.00%(E) 1.40%(F) 1.40%(F)
</TABLE>
----------------------------------
(A) The Fund operating expenses set forth in this table reflect
actual expenses incurred by RSF Inc. Emerging Growth for
the fiscal year ended September 30, 1996, shown as a
percentage of its average net assets for such period, and
estimated expenses for Enterprise Small Company Growth. Due
to the continuous nature of Rule 12b-1 fees, long-term
shareholders of RSF Inc. may pay more than the equivalent
of the maximum front-end sales charges permitted by the
Conduct Rules of the National Association of Securities
Dealers, Inc.
(B) Absent voluntary waivers, management fees would be 1.20% of
the average net assets of RSF Inc. Emerging Growth.
(C) Absent voluntary fee waivers, 12b-1 fees would be .25% for
RSF Inc. Emerging Growth.
(D) "Other Expenses" is based on amounts for RSF Inc. Emerging
Growth for the fiscal year ended September 30, 1996. Absent
voluntary waivers, "Other Expenses" would be 2.00% of
average net assets of RSF Inc. Emerging Growth.
(E) Absent voluntary fee waivers, total annual Fund operating
expenses would be 3.45% of average net assets of RSF Inc.
Emerging Growth.
(F) For accounts with a balance of $1,000 or less, as of July
31, 1997, a $25 fee per account registration for
maintenance will apply, excluding former RSF Inc.
shareholders, Automatic Bank Draft Plan, Automatic
Investment Plan, Retirement Plan and Savings Plan Accounts.
2
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
ENTERPRISE
RSF INC. GOVERNMENT PRO FORMA
INTERMEDIATE-TERM (CLASS Y) COMBINED
------------ ------------ ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price).......... None None None
Maximum Sales Charge Imposed on Reinvested
Dividends
(as a percentage of offering price).......... None None None
Contingent Deferred Sales Charge
(as a percentage of original purchase price
or redemption proceeds, as applicable)....... None None None
Redemption Fee
(as a percentage of amount redeemed, if
applicable).................................. None None None
Exchange Fee................................... None None None
ANNUAL OPERATING EXPENSES(A)
(As a percentage of average net assets)
(after expense reimbursements or waivers)
Management Fee................................. .40% .60% .60%
12b-1 Fee...................................... .20%(B) None None
Other Expenses................................. .40%(C) .25% .25%
Total Operating Expenses..................... 1.00%(D) .85%(E) .85%(E)
</TABLE>
----------------------------------
(A) The Fund operating expenses set forth in this table reflect
actual expenses incurred by RSF Inc. Intermediate-Term for
the fiscal year ended September 30, 1996, shown as a
percentage of its average net assets for such period, and
estimated expenses for Enterprise Government Class Y shares
for the fiscal year ending December 31, 1997. Class Y
shares of Enterprise Government have not yet been offered
to the public. Due to the continuous nature of Rule 12b-1
fees, long-term shareholders of RSF Inc. may pay more than
the equivalent of the maximum front-end sales charges
permitted by the Conduct Rules of the National Association
of Securities Dealers, Inc.
(B) Absent voluntary fee waivers, 12b-1 fees would be .25% for
RSF Inc. Intermediate-Term.
(C) "Other Expenses" is based on amounts for RSF Inc.
Intermediate-Term for the fiscal year ended September 30,
1996. Absent voluntary waivers, "Other Expenses" would be
1.32% of average net assets of RSF Inc. Intermediate-Term.
(D) Absent voluntary fee waivers, total annual Fund operating
expenses would be 1.97% of average net assets of RSF Inc.
Intermediate-Term.
(E) For accounts with a balance of $1,000 or less, as of July
31, 1997, a $25 fee per account registration for
maintenance will apply, excluding former RSF Inc.
shareholders, Automatic Bank Draft Plan, Automatic
Investment Plan, Retirement Plan and Savings Plan Accounts.
3
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
ENTERPRISE
RSF INC. MONEY (CLASS PRO FORMA
MONEY MARKET Y) COMBINED
------------ ------------ ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price).......... None None None
Maximum Sales Charge Imposed on Reinvested
Dividends
(as a percentage of offering price).......... None None None
Contingent Deferred Sales Charge
(as a percentage of original purchase price
or redemption proceeds, as applicable)....... None None None
Redemption Fee
(as a percentage of amount redeemed, if
applicable).................................. None None None
Exchange Fee................................... None None None
ANNUAL OPERATING EXPENSES(A)
(As a percentage of average net assets)
(after expense reimbursements or waivers)
Management Fee................................. .00%(B) .35% .35%
12b-1 Fee...................................... .20%(C) None None
Other Expenses................................. .30%(D) .35% .35%
Total Operating Expenses..................... .50%(E) .70%(F) .70%(F)
</TABLE>
----------------------------------
(A) The Fund operating expenses set forth in this table reflect
actual expenses incurred by RSF Inc. Money Market for the
fiscal year ended September 30, 1996, shown as a percentage
of its average net assets for such period, and estimated
expenses for Enterprise Money Class Y shares for the fiscal
year ending December 31, 1997. Class Y shares of Enterprise
Money have not yet been offered to the public. Due to the
continuous nature of Rule 12b-1 fees, long-term
shareholders of RSF Inc. may pay more than the equivalent
of the maximum front-end sales charges permitted by the
Conduct Rules of the National Association of Securities
Dealers, Inc.
(B) Absent voluntary waivers, management fees would be .25% of
the average net assets of RSF Inc. Money Market.
(C) Absent voluntary fee waivers, 12b-1 fees would be .25% for
RSF Inc. Money Market.
(D) "Other Expenses" is based on amounts for RSF Inc. Money
Market for the fiscal year ended September 30, 1996. Absent
voluntary waivers, "Other Expenses" would be 3.64% of
average net asset of RSF Inc. Money Market.
(E) Absent voluntary fee waivers, total annual Fund operating
expenses would be 4.14% of average net assets of RSF Inc.
Money Market.
(F) For accounts with a balance of $1,000 or less, as of July
31, 1997, a $25 fee per account registration for
maintenance will apply, excluding former RSF Inc.
shareholders, Automatic Bank Draft Plan, Automatic
Investment Plan, Retirement Plan and Savings Plan Accounts.
The purpose of the foregoing tables is to assist an
investor in understanding the various costs and expenses that
a shareholder of shares of each Acquired Fund, Acquiring Fund
and the respective Pro Forma Combined Fund will bear, either
directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Summary -- Advisory and Other
Fees" and "Summary -- Distribution Arrangements."
4
<PAGE>
EXAMPLE
The Example below is intended to assist an investor in
understanding the various costs that an investor will bear
directly or indirectly. The Example assumes payment of
operating expenses at the levels set forth in the table above.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period.Expenses would be the same if there
were no redemption at the end of each time
period.
Enterprise Growth and Income..................... $ 11.00 $ 33.00 $ 58.00 $ 128.00
RSF Inc. Core Equity............................. $ 10.00 $ 32.00 $ 55.00 $ 123.00
Pro Forma Combined............................... $ 11.00 $ 33.00 $ 58.00 $ 128.00
Enterprise Small Company Growth.................. $ 14.00 $ 44.00 $ 77.00 $ 168.00
RSF Inc. Emerging Growth......................... $ 20.00 $ 63.00 $ 108.00 $ 235.00
Pro Forma Combined............................... $ 14.00 $ 44.00 $ 77.00 $ 168.00
Enterprise Government............................ $ 9.00 $ 27.00 $ 47.00 $ 105.00
RSF Inc. Intermediate-Term....................... $ 10.00 $ 32.00 $ 55.00 $ 123.00
Pro Forma Combined............................... $ 9.00 $ 27.00 $ 47.00 $ 105.00
Enterprise Money................................. $ 7.00 $ 22.00 $ 39.00 $ 87.00
RSF Inc. Money Market............................ $ 5.00 $ 16.00 $ 28.00 $ 63.00
Pro Forma Combined............................... $ 7.00 $ 22.00 $ 39.00 $ 87.00
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION RELATING TO
EACH PROPOSED REORGANIZATION AND THE PARTIES THERETO CONTAINED
ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT (INCLUDING THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE), AND THE FORM OF
AGREEMENT AND PLAN OF REORGANIZATION BETWEEN RSF INC. AND THE
ENTERPRISE FUNDS, A COPY OF WHICH IS ATTACHED TO THIS
PROSPECTUS/PROXY STATEMENT AS EXHIBIT A.
THE REORGANIZATIONS
At a meeting held on February 26, 1997, the Directors of RSF
Inc. approved a proposal to transfer all of the assets and
liabilities of each Acquired Fund to the Acquiring Fund listed
below, in exchange for Class Y shares of the Acquiring Fund:
<TABLE>
<CAPTION>
ACQUIRED FUND ACQUIRING FUND
---------------------------- -----------------------------------
<S> <C>
RSF Inc. Core Equity Enterprise Growth and Income
RSF Inc. Emerging Growth Enterprise Small Company Growth
RSF Inc. Intermediate-Term Enterprise Government
RSF Inc. Money Market Enterprise Money
</TABLE>
Shares of the Acquiring Fund received by the Acquired
Fund will be distributed to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund. The
acquisition of the assets and liabilities of each Acquired
Fund by an Acquiring Fund, and the subsequent distribution of
Class Y shares of the respective Acquiring Fund to the
shareholders of the respective Acquired Funds are herein
referred to each as a "Reorganization" and collectively as the
"Reorganizations."
SUMMARY COMPARISON OF THE FUNDS
The following comparison is a summary of information contained
elsewhere in this Prospectus/Proxy Statement.
1. INVESTMENT OBJECTIVES AND POLICIES.
ENTERPRISE GROWTH AND INCOME AND RSF INC. CORE
EQUITY. Enterprise Growth and Income is a newly created
portfolio for the purpose of the Reorganization and is
designed to have the same investment objective as RSF Inc.
Core Equity. The investment objective of both Enterprise
Growth and Income and RSF Inc. Core Equity is to achieve a
total return in excess of the total return of the Lipper
Growth and Income Mutual Funds Average, measured over a period
of three to five years, by investing primarily in a broadly
diversified group of large capitalization companies. In
carrying out its investment objective, it is contemplated that
Enterprise Growth and Income will have similar investment
policies to those of RSF Inc. Core Equity.
Enterprise Growth and Income and RSF Inc. Core Equity
each seeks its investment objective primarily through capital
appreciation with income as a secondary consideration. Under
normal circumstances, Enterprise Growth and Income and RSF
Inc. Core Equity each invests in equity-based securities,
primarily common stocks, and will each be at least 65% so
invested. Equity-based securities may include securities
convertible into common stocks and warrants to purchase common
stocks. In general, Enterprise Growth and Income and RSF Inc.
Core Equity each invests in stocks of companies with market
capitalizations in excess of $750 million.
6
<PAGE>
Enterprise Growth and Income may invest up to 10% of
its total assets in foreign securities, as well as both
sponsored and unsponsored American Depository Receipts
("ADRs"), and European Depository Receipts ("EDRs") which are
securities representing a right to obtain underlying
securities of foreign issuers. RSF Inc. Core Equity may invest
up to 20% of its total assets in foreign securities and may
invest in ADRs without limitation.
See "Summary -- Risk Factors and Special
Considerations" for a discussion of the comparative risks of
the two Funds.
ENTERPRISE SMALL COMPANY GROWTH AND RSF INC. EMERGING
GROWTH. Enterprise Small Company Growth is a newly created
portfolio for the purpose of the Reorganization and is
designed to have a similar investment objective to RSF Inc.
Emerging Growth. The investment objective of Enterprise Small
Company Growth is to achieve maximum capital appreciation
primarily through investment in common stocks of small
capitalization companies believed by the portfolio manager
("Portfolio Manager") to have an outlook for strong earnings
momentum and consistently strong financial characteristics.
The investment objective of RSF Inc. Emerging Growth is to
achieve maximum capital appreciation, primarily through
investment in the equity securities of companies that have a
market capitalization of no more than $1 billion. In carrying
out its investment objective, it is contemplated that
Enterprise Small Company Growth will have similar investment
policies to those of RSF Inc. Emerging Growth.
Under normal market conditions, Enterprise Small
Company Growth will invest at least 65% of its total assets in
common stocks and convertible securities of small
capitalization companies (market capitalization of up to $1
billion). At certain times that percentage may be
substantially higher. Enterprise Small Company Growth may also
invest up to 5% of its assets in warrants and rights to
purchase common stocks.
Under normal circumstances, RSF Inc. Emerging Growth
invests in equity-based securities, primarily common stocks,
including ADRs and will be at least 65% so invested.
Equity-based securities may include securities convertible
into common stocks and warrants to purchase common stocks.
Enterprise Small Company Growth may invest up to 10% of
its total assets in foreign securities, as well as both
sponsored and unsponsored ADRs, and EDRs. RSF Inc. Emerging
Growth may invest up to 20% of its total assets in foreign
securities.
See "Summary -- Risk Factors and Special
Considerations" for a discussion of the comparative risks of
the two Funds.
ENTERPRISE GOVERNMENT AND RSF INC.
INTERMEDIATE-TERM. The investment objective of Enterprise
Government is current income and safety of principal,
primarily from securities that are obligations of the U.S.
Government, or its agencies or its instrumentalities ("U.S.
Government Securities"). The investment objective of RSF Inc.
Intermediate-Term is to seek to achieve a total return in
excess of the Lipper Short-Intermediate (one to five year
maturities) U.S. Government Mutual Funds Average, measured
over a period of three to five years, by investing primarily
in a diversified portfolio of debt securities with an actual
or expected average life of under ten years. In pursuing their
investment objectives, Enterprise Government and RSF Inc.
Intermediate-Term have similar policies.
7
<PAGE>
It is a fundamental policy of Enterprise Government
that under normal circumstances at least 80% of the value of
its net assets will be invested in U.S. Government Securities.
U.S. Government Securities consist of direct obligations of
the United States Treasury (such as treasury bills, treasury
notes and treasury bonds) and securities issued or guaranteed
by agencies or instrumentalities of the United States
Government. Those securities issued by agencies or
instrumentalities may or may not be backed by the full faith
and credit of the United States Government. Enterprise
Government may concentrate from time to time in different U.S.
Government Securities in order to obtain the highest level of
current income and safety of principal. U.S. Government
Securities are generally considered to be of the same or
higher credit quality as privately issued securities rated Aaa
by Moody's Investors Services, Inc. ("Moodys") or AAA by
Standard & Poor's Corporation ("S&P"). Enterprise Government
may invest the remainder of its assets in repurchase
agreements, bankers acceptances, bank certificates of deposit,
commercial paper and similar money market instruments,
corporate bonds, other mortgage-related securities (including
collateralized mortgage obligations or "CMOs") and
asset-backed securities rated Aaa by Moody's or AAA by S&P at
the time of the investment or determined by the Portfolio
Manager to be of comparable credit quality at the time of
investment to such rated securities. In making such
investments, the Portfolio Manager seeks income but gives
careful attention to security of principal and considers such
factors as marketability and diversification.
RSF Inc. Intermediate-Term seeks to achieve its
objective of total return through a high level of current
income with consideration also given to the safety of
principal through investments in fixed-income securities
either maturing within 10 years or having an expected average
life of under 10 years. RSF Inc. Intermediate-Term is managed
within an average portfolio maturity range of 2 years to a
maximum of 5 years and an average duration range from 2 1/2
years to 4 years. Enterprise Government does not seek any
specified average portfolio maturity or average duration.
Under normal circumstances, RSF Inc. Intermediate-Term
will have at least 65% of its assets invested in fixed income
securities. RSF Inc. Intermediate-Term is also subject to the
following policies: (i) at least 75% of RSF Inc.
Intermediate-Term's assets, taken at market value, must be in
securities having a rating at the time of purchase of "Aa" or
better from Moody's, "AA" or better from S&P or Fitch
Investors Services, Inc. or an equivalent rating from another
nationally known rating service or must consist of U.S.
Government Securities; (ii) at least 65% of RSF Inc.
Intermediate-Term's assets must be invested in U.S. Government
Securities; and (iii) the balance of RSF Inc.
Intermediate-Term's assets must be invested in securities of
United States corporations rated "A" or better by one of the
foregoing rating agencies, and other debt securities (E.G.,
securities of foreign issuers), which in the judgment of the
investment manager, would be of comparable quality to United
States securities having a rating of "A" or better by one of
the rating agencies. RSF Inc. Intermediate-Term will attempt
to purchase only securities which were part of an original
issue of $100 million or more. The investment manager will
also consider the nature of the issuer's business; the
industry under which it is classified; the issuer's financial
strength, including its historic and projected earnings and
its present and anticipated cash flow; the issuer's debt
maturity schedules and current and future borrowing
requirements; and the issuer's continuing ability to meet its
future obligations.
8
<PAGE>
RSF Inc. Intermediate-Term may from time to time invest
in CMOs, real estate mortgage investment conduits ("REMICs")
and certain stripped mortgage-backed securities. RSF Inc.
Intermediate-Term may also purchase zero-coupon obligations of
corporations, and instruments evidencing ownership of future
interest or principal payments on United States Treasury Bonds
and CMOs.
RSF Inc. Intermediate-Term may invest up to 10% of its
assets in foreign securities. Enterprise Government does not
invest in foreign securities.
RSF Inc. Intermediate-Term may lend portfolio
securities to broker-dealers or financial institutions deemed
creditworthy under guidelines approved by RSF Inc.'s Board of
Directors. Any such loan will be made only against collateral
consisting of cash or U.S. Government Securities with an
aggregate value at all times equal to or greater than the
value of the securities loaned. Enterprise Government may not
lend its securities.
See "Summary -- Risk Factors and Special
Considerations" for a discussion of the comparative risks of
the two Funds.
ENTERPRISE MONEY AND RSF INC. MONEY MARKET. The
investment objectives of Enterprise Money and RSF Inc. Money
Market are similar. Enterprise Money seeks to provide the
highest possible level of current income consistent with
preservation of capital and liquidity. The Fund invests in a
diversified portfolio of high quality money market instruments
comprised of U.S. dollar-denominated instruments which present
minimal credit risks and are of eligible quality. RSF Inc.
Money Market seeks as high a level of current interest income
as is consistent with maintaining liquidity and stability of
principal by investing in high quality, U.S.
dollar-denominated money market instruments with maturities of
one year or less. In carrying out their investment objectives,
Enterprise Money and RSF Inc. Money Market have similar
investment policies.
Both Enterprise Money and RSF Inc. Money Market are
money market mutual funds that seek to maintain a stable net
asset value of $1.00 per share. There can be no assurance that
either Enterprise Money or RSF Inc. Money Market will be able
to maintain such a stable net asset value. In addition,
Enterprise Money and RSF Inc. Money Market are subject to the
investment restrictions of Rule 2a-7 under the 1940 Act which
requires that each maintain a dollar weighted average maturity
of not more than 90 days and invest exclusively in securities
that mature within 397 days. Rule 2a-7 also requires that all
investments be limited to U.S. dollar-denominated investments
that: (1) present "minimal credit risks," and (2) are at the
time of acquisition "Eligible Securities," as defined in Rule
2a-7.
RSF Inc. Money Market may invest up to 10% of its
assets in U.S. dollar-denominated foreign securities.
Enterprise Money does not invest in foreign securities.
See "Summary -- Risk Factors and Special
Considerations" for a discussion of the comparative risks.
ALL FUNDS
Each of the Enterprise Portfolios may invest up to 5%
of its total assets in variable amount master demand notes.
Variable amount master demand notes are demand obligations
that permit the investment of fluctuating amounts at varying
market rates of interest pursuant to arrangements
9
<PAGE>
between the issuer and a commercial bank acting as agent for
the payees of such notes whereby both
parties have the right to vary the amount of the outstanding
indebtedness on the notes. RSF Inc. Funds do not purchase
variable amount master demand notes.
Each of the Enterprise Portfolios may invest up to 10%
of its net assets in restricted securities (privately placed
equity or debt securities) or other securities which are not
readily marketable. Each of
the RSF Inc. Funds may invest up to 10% of its net assets in
illiquid securities, including repurchase agreements with
maturities greater than seven days.
Each of the Enterprise Portfolios and RSF Inc. Funds
may borrow from banks as a temporary measure for extraordinary
or emergency purposes and not for leverage. Borrowing by each
of the Enterprise Portfolios is limited to the lesser of (a)
5% of its total assets taken at cost, or (b) 5% of the value
of its assets at the time the loan is made; and each
Enterprise Portfolio will not purchase securities while
borrowings are outstanding. Each of the RSF Inc. Funds may not
borrow in an amount exceeding 10% of the value of its total
assets at the time of such borrowing; provided that while
borrowings of the Fund (including reverse repurchase
agreements) equaling 5% or more of its assets are outstanding,
the Fund will not purchase securities. In addition to bank
borrowing, for temporary or emergency purposes, each of the
RSF Inc. Funds may invest in reverse repurchase agreements
with broker-dealers or financial institutions deemed
creditworthy under guidelines approved by the Board of
Directors of RSF Inc. up to an aggregate value of not more
than 5% of the Fund's total assets. Such agreements involve
the sale of securities held by the Fund pursuant to the Fund's
agreement to repurchase the securities at an agreed-upon date
and price reflecting a market rate of interest. While a
reverse repurchase agreement is outstanding, each RSF Inc.
Fund will maintain appropriate assets in a segregated account
with its custodian in an amount at least equal to the Fund's
obligation under the agreement.
Each of the Enterprise Portfolios and RSF Inc. Funds
may purchase securities on a when-issued basis. "When-issued"
securities are securities which have not been issued at the
time they are purchased and thus delivery of and payment for
these securities may be delayed for several weeks or more, as
compared to the timing of a normal settlement. Each of the
Enterprise Portfolios does not invest more than 5% of its
assets in when-issued securities (except Enterprise Government
which does not invest more than 20% of its assets in
when-issued securities). Each of the RSF Inc. Funds does not
invest more than 25% of its assets at any time in when-issued
securities.
Each of the Enterprise Portfolios and the RSF Inc.
Funds is limited to investing no more than 5% of its total
assets in the securities of any single issuer (other than U.S.
Government Securities). This limitation applies to 100% of the
portfolio of each of Enterprise Government and Enterprise
Money and 75% of the portfolio of each of Enterprise Growth
and Income and Enterprise Small Company Growth. The Board of
Directors of Enterprise Funds has approved changing this
limitation to 75% with respect to Enterprise Government;
however, such change is subject to shareholder approval. This
limitation applies to 75% of the portfolio of each of the
Retirement Funds.
Each of the Enterprise Portfolios (except Enterprise
Money) and each of the RSF Inc. Funds (except RSF Inc. Money
Market) may sell or write covered call options in order to
earn premium income. Enterprise Growth and Income and
Enterprise Small Company Growth each may invest up to 5% of
its net assets in covered call options. Enterprise Government
may invest up to 20% of its net assets in covered call
options. A RSF Inc. Fund may not write an option if
immediately after such sale
10
<PAGE>
the aggregate value of the obligations under the outstanding
options would exceed 25% of its assets.
Each of the RSF Inc. Funds (except RSF Inc. Money
Market) may also purchase or sell (or write) exchange-traded
options on securities or indices of securities and may enter
into closing transactions with respect thereto.
The Enterprise Portfolios (except Enterprise Government
and Enterprise Money) may purchase put options which relate to
(i) securities (whether or not they hold such securities);
(ii) Index Options (whether or not they hold such Options); or
(iii) broadly-based stock indexes. The Enterprise Portfolios
(except Enterprise Government and Enterprise Money) may write
covered put options. Each of the RSF Inc. Funds may sell (or
write) secured put options.
Each of the Enterprise Portfolios (except Enterprise
Money) and each of the RSF Inc. Funds (except RSF Inc. Money
Market), may enter into contracts for future acquisition or
delivery of securities ("Futures Contracts"). The Enterprise
Portfolios (except Enterprise Money) may enter into such
Futures Contracts, including index contracts and foreign
currencies and may also purchase and sell call options on
Futures Contracts for hedging purposes. Enterprise Growth and
Income and Enterprise Small Company Growth may each invest up
to 5% of its net assets in Futures Contracts, and Enterprise
Government may invest up to 20% of its net assets in Futures
Contracts. Each of the RSF Inc. Funds may invest in Futures
Contracts to purchase or sell specified financial instruments
at a date in the future, and invest in interest rate and stock
index Futures Contracts and in their related options, as well
as purchase or sell (or write) Futures Contracts and their
related options for hedging purposes. A RSF Inc. Fund may not
enter into any of the foregoing transactions if, immediately
thereafter, more than 25% of the value of the Fund's assets
would be so invested or the amount committed to initial margin
plus the amount paid for premiums for unexpired options on
futures contracts exceeds 5% of the value of the Fund's total
assets, after taking into account unrealized gains and
unrealized losses on such contracts, excluding the amount by
which any option is "in-the-money."
Enterprise Growth and Income and Enterprise Small
Company Growth each may invest 5% of its net assets in options
on stock indexes. These options are based on indexes of stock
prices that change in value according to the market value of
the stock they include. Some stock index options are based on
a broad market index, such as the New York Stock Exchange
Composite Index or the Standard & Poor's 500. Other index
options are based on a market segment or on stocks in a single
industry. Stock index options are traded primarily on
securities exchanges.
For temporary defensive purposes, each of the RSF Inc.
Funds may invest up to 100% of its total assets in cash
equivalents. Each of the RSF Inc. Funds (except RSF Inc. Money
Market) may also pursue certain additional investment policies
and strategies including: investing in options on securities
and indices of securities; engaging in futures transactions;
acquiring foreign securities; investing in foreign currency
transactions; investing in repurchase agreements; acquiring
when-issued securities; and lending Fund securities.
Each of the Enterprise Portfolios (except for
Enterprise Money) may engage in interest rate swaps for
hedging purposes and not as a speculative investment. RSF Inc.
Funds do not engage in this technique.
11
<PAGE>
In addition to the policies and restrictions set forth
above, the Enterprise Portfolios and RSF Inc. Funds are
subject to certain additional investment policies and
limitations, described in the Enterprise Funds SAI dated May
1, 1997 and the RSF Inc. SAI dated January 28, 1997. Reference
is hereby made to the Enterprise Funds Prospectus, dated May
1, 1997 and enclosed herewith, the Enterprise Funds SAI, dated
May 1, 1997, and the RSF Inc. Prospectus and SAI, dated
January 28, 1997, which set forth in full the investment
objectives, policies and investment restrictions of each of
the Enterprise Portfolios and the RSF Inc. Funds.
2. ADVISORY FEES AND EXPENSE RATIOS.
Enterprise Capital serves as investment adviser to all
of the Acquiring Funds. The Acquiring Funds pay advisory fees
to Enterprise Capital at the following annual rates:
<TABLE>
<CAPTION>
ACQUIRING FUND FEE
-------------------------------------------------- -----
<S> <C>
Enterprise Growth and Income...................... .75%
Enterprise Small Company Growth................... 1.00%
Enterprise Government............................. .60%
Enterprise Money.................................. .35%
</TABLE>
Enterprise Capital has the authority to retain
Portfolio Managers to provide an investment program and manage
the assets of each of the Enterprise Portfolios, subject to
the supervision of Enterprise Capital and the Board of
Directors of Enterprise Funds. Enterprise Capital itself
manages Enterprise Money. Retirement System Investors Inc.
("Retirement Investors") will serve as Portfolio Manager for
Enterprise Growth and Income, and Pilgrim Baxter & Associates,
Ltd. ("Pilgrim Baxter") will serve as Portfolio Manager for
Enterprise Small Company Growth, each pursuant to a
subadvisory agreement between Enterprise Capital and
Retirement Investors or Pilgrim Baxter, respectively. TCW
Management, Inc. ("TCW") serves as the Portfolio Manager for
Enterprise Government pursuant to a subadvisory agreement
between Enterprise Capital and TCW. Retirement Investors and
Pilgrim Baxter will be paid, and TCW is paid, a subadvisory
fee by the Adviser and not by Enterprise Funds at the
following annual rates:
<TABLE>
<CAPTION>
ACQUIRING FUND FEE
-------------------------------------------------- --------------------------------------------------
<S> <C>
Enterprise Growth and Income............... .30% of average net assets up to $100 million,
.25% of the next $100 million of average net
assets and .20% of such assets above $200
million.
Enterprise Small Company Growth............ .65% of average net assets up to $50 million, .55%
of the next $50 million of average net assets
and .45% of such assets in excess of $100
million.
Enterprise Government...................... .30% of average net assets up to $50 million, and
.25% of such assets greater than $50 million.
</TABLE>
12
<PAGE>
Enterprise Capital has agreed to reimburse such portion
of the fees due to it to assure, for the period commencing
January 1, 1997, and ending no earlier than December 31, 1997,
that expenses incurred by Class Y shares of Enterprise Growth
and Income will not exceed 1.05%; Enterprise Small Company
Growth will not exceed 1.40%; Enterprise Government will not
exceed .85%; and Enterprise Money will not exceed .70%,
respectively, of average annual assets.
Retirement Investors serves as investment adviser to
each of the RSF Inc. Funds. Retirement Investors serves as
investment manager to RSF Inc. Core Equity, RSF Inc.
Intermediate-Term and RSF Inc. Money Market. Prior to April 1,
1997, Putnam Advisory Company, Inc. ("Putnam"), an independent
investment manager, served as the investment manager of RSF
Inc. Emerging Growth. Following discussions between Retirement
Investors and Putnam concerning Putnam's competitive
distribution relationships, the Board of Directors, at a
meeting held on February 26, 1997, considered a proposal by
Retirement Investors to terminate the sub-advisory arrangement
with Putnam, effective as of the close of business on March
31, 1997, and to appoint Pilgrim Baxter, an independent
investment manager, as investment manager of RSF Inc. Emerging
Growth. Retirement Investors is a subsidiary of Retirement
System Group Inc. ("RSGroup-SM-"), a company formed as part of
a reorganization, effective August 1, 1990, that externalized
the management functions of RSI Retirement Trust (the
"Retirement Trust"), an open-end diversified management
investment company designed exclusively for the investment of
funds held in certain tax-exempt trusts. The Retirement Trust
has six portfolios that have investment objectives and
policies that are substantially the same as those of RSF Inc.
Funds, as well as two portfolios that have specialized
functions.
Retirement Investors is paid advisory fees at the
following annual rates:
<TABLE>
<CAPTION>
ACQUIRED FUND FEE
-------------------------------------------------- ----
<S> <C>
RSF Inc. Core Equity
First $50 million............................... .60%
Next $150 million............................... .50%
Over $200 million............................... .40%
RSF Inc. Intermediate-Term
First $50 million............................... .40%
Next $100 million............................... .30%
Over $150 million............................... .20%
RSF Inc. Money Market
First $50 million............................... .25%
Over $50 million................................ .20%
</TABLE>
Retirement Investors is currently waiving such fee with
respect to RSF Inc. Money Market.
With respect to RSF Inc. Emerging Growth, Retirement
Investors is entitled to receive a fee based on a percentage
of average annual net assets of RSF Inc. Emerging Growth, in
an amount equal to the sum of (i) .20% of the total assets of
RSF Inc. Emerging Growth and (ii) the fee to which the
investment manager of RSF Inc. Emerging Growth is entitled,
which Retirement Investors remits to the investment manager.
The investment manager of RSF Inc. Emerging Growth is entitled
to an annual management fee equal to .65% of average net
assets up to $50 million, .55% of the next $50 million of
13
<PAGE>
average net assets and .45% of such assets in excess of $100
million. Retirement Investors has agreed to waive payment of
the portion of its investment advisory fee in an amount equal
to .20% of the total assets of RSF Inc. Emerging Growth, and
intends to waive payment of such amount going forward to the
Closing Date (see "The Reorganizations") if necessary to
maintain a competitive expense ratio.
A comparison of annual operating expense data for the
Acquired Funds (as of September 30, 1996) and Acquiring Funds
(estimated) is set forth in the "Summary of Expenses" at pages
1-5.
Enterprise Growth and Income, Enterprise Government and
Enterprise Money pay advisory fees at a marginally higher
annual rate than RSF Inc. Core Equity, RSF Inc.
Intermediate-Term and RSF Inc. Money Market, respectively. The
annual rate of advisory fees for Enterprise Small Company
Growth and RSF Inc. Emerging Growth will be the same (taking
into account the voluntary fee waivers with respect to RSF
Inc. Emerging Growth). It is currently estimated that Class Y
shares of Enterprise Growth and Income and Enterprise Small
Company Growth will have lower annual expense ratios than RSF
Inc. Core and RSF Inc. Emerging Growth, respectively, without
giving effect to voluntary fee waivers. For their most
recently completed fiscal years, Class Y shares of Enterprise
Government had a lower expense ratio than RSF Inc.
Intermediate-Term. Class Y shares of Enterprise Money have a
higher expense ratio than RSF Inc. Money Market, due to
voluntary waivers assumed by the RSF Inc. Funds' adviser.
There is no assurance that any voluntary fee waivers will
continue. Given the economies of scale that should result from
the Reorganization and in view of all relevant factors, the
Board of Directors of RSF Inc. has determined that the
Reorganization would be beneficial to each such Acquired Fund
and its shareholders. See "The Reorganizations -- Background
and Reasons for Proposed Reorganizations."
3. DISTRIBUTION ARRANGEMENTS
Each Enterprise Portfolio offers four classes of
shares. Shareholders of the Acquired Funds will receive Class
Y shares of the respective Acquiring Funds in the
Reorganizations. Class Y shares are sold at net asset value
and do not incur any initial or contingent deferred sales
charge. Class Y shares are not subject to any ongoing
distribution or service fees. Enterprise Fund Distributors,
Inc. ("Enterprise Distributors") serves as distributor of
Enterprise Funds, and receives no compensation from Enterprise
Funds for distributing Class Y shares. Enterprise Distributors
pays expenses of distribution of Class Y shares that are not
otherwise paid by dealers or other financial services firms.
Class Y shares are not subject to any plan of distribution
pursuant to Rule 12b-1 under the 1940 Act.
Class Y shares are generally available only to a
limited class of eligible institutional investors with a
minimum investment of $1 million; however, following
consummation of the Reorganizations, former shareholders of
the Acquired Funds will be eligible to purchase Class Y shares
of each portfolio of Enterprise Funds at net asset value, even
if they do not otherwise qualify to purchase such shares,
subject to an initial opening balance of $1,000 per Portfolio.
Each RSF Inc. Fund offers its shares at net asset value
without a sales charge.
Retirement System Distributors Inc. ("Retirement
Distributors") acts as distributor of each of the RSF Inc.
Funds and bears all of each RSF Inc. Fund's distribution
expenses. Retirement Distributors receives no compensation for
its services as such except as may be paid under a
distribution plan adopted by each RSF Inc. Fund pursuant to
Rule 12b-1 under the 1940 Act. Under the distribution plan,
14
<PAGE>
the maximum amount payable to Retirement Distributors is equal
to .25% of the RSF Inc. Fund's average daily net assets on an
annual basis. Retirement Distributors currently voluntarily
limits payments under the distribution plan to .20% of the RSF
Inc. Fund's average daily net assets.
Under the distribution plan adopted for each RSF Inc.
Fund, Retirement Distributors may make payments to
broker-dealers that sell shares to their customers and provide
certain related services, and to banks and other financial
institutions that enter into agreements with RSF Inc. to
provide shareholder services.
4. PURCHASE, EXCHANGE AND REDEMPTION PRIVILEGES
Procedures for the purchase, exchange and redemption of
the Enterprise Portfolios differ slightly from procedures
applicable to the purchase, exchange and redemption of the RSF
Inc. Funds. Any questions about such procedures may be
directed to, and assistance in effecting purchases, exchanges
or redemptions of the Enterprise Portfolios' or the RSF Inc.
Funds' shares may be obtained from Enterprise Funds
Shareholder Services at 1-800-368-3527, or from Retirement
Distributors at 1-800-772-3615.
Reference is made to the Enterprise Funds Prospectus
dated May 1, 1997, and enclosed herewith, and the Prospectus
of RSF Inc. dated January 28, 1997, for a complete description
of the purchase, exchange and redemption procedures applicable
to purchases, exchanges and redemptions of the Enterprise
Portfolios and RSF Inc. Funds, respectively. Set forth below
is a brief listing of the significant purchase, exchange and
redemption procedures applicable to the Enterprise Portfolios
and RSF Inc. Funds.
Purchases of Class Y shares of the Enterprise
Portfolios may be made through Enterprise Distributors and
most investment dealers by check. Purchases of RSF Inc. Funds
may be made through Retirement Distributors and broker dealers
that have entered into dealer agreements and through financial
institutions that provide shareholder services to their
customers, by check or wire. Class Y shares of the Enterprise
Portfolios are offered to certain institutional purchasers of
$1 million or more and to The Mutual of New York Employee
401(k) Plan. The minimum initial investment in a RSF Inc. Fund
is $2,500 and the minimum subsequent investment is $250,
except with respect to purchases pursuant to a periodic
purchase or payroll deduction plan. Former RSF Inc. Fund
shareholders who receive Class Y shares of an Enterprise
Portfolio as a result of the Reorganizations will be subject
to a $1,000 minimum initial investment per additional
Portfolio, and $50 minimum subsequent investment. Minimums are
not applicable for investments through non-qualified
retirement plans, Individual Retirement Accounts, periodic
purchases or payroll deduction plans. Enterprise Funds and RSF
Inc. each reserves the right to reject any purchase request.
The purchase price of the Class Y shares of Enterprise
Portfolios and shares of RSF Inc. Funds is based on the net
asset value of the respective Fund and is not subject to any
sales charges. The net asset value per share of the Enterprise
Portfolios and RSF Inc. Funds is calculated at the close of
the trading on each day the New York Stock Exchange is open
for trading (currently 4:00 p.m., New York time).
15
<PAGE>
Class Y Shares of each Enterprise Portfolio may be
exchanged at net asset value for Class Y shares of any
portfolio of Enterprise Funds. Shares of any of the RSF Inc.
Funds may be exchanged without a sales charge for shares of
any other portfolio of RSF Inc.
If each Reorganization is consummated, shareholders of
each Retirement Fund will receive Class Y shares of the
respective Enterprise Portfolio, which may be exchanged
without a sales charge for Class Y shares of any of the other
portfolios of Enterprise Funds.
Redemptions of Enterprise Portfolios may be made by
telephone, in writing or by wire. Redemptions of RSF Inc.
Funds must be submitted in writing. Shares of the Enterprise
Portfolios and RSF Inc. Funds are redeemed at the net asset
value per share next determined after the receipt of such
request by the respective Funds. Enterprise Portfolios redeems
its shares in cash (by check), but reserves the right to
redeem in kind should considerations and the size of the
Portfolio require that method of redemption. RSF Inc. Funds
redeems its shares by check unless arrangements have been made
in advance for payment by wire transfer, not later than seven
days after receipt of written redemption requests in proper
form.
The right of a shareholder to redeem shares of the
Acquired Funds at net asset value at any time prior to the
Closing Date will not be impaired by the approval of the
Reorganizations. Therefore, a shareholder may redeem in
accordance with the redemption procedures set forth in the
Acquired Fund's current prospectus until the date on which the
Reorganization is consummated. Shareholders should consult
with their personal tax advisors as to the different tax
consequences of redeeming their shares as opposed to
exchanging their shares for shares of the Acquiring Funds in
the Reorganizations. See "Tax Considerations" below.
TAX CONSIDERATIONS
Each Reorganization is being structured as a tax-free
reorganization of the Fund pursuant to which no gain or loss
would be recognized by the Acquired Fund or shareholders of
the Acquired Fund for federal income tax purposes as a result
of the receipt of shares of the Acquiring Fund in the
Reorganization. The aggregate tax basis of shares of the
Acquiring Fund received by shareholders of the Acquired Fund
in the Reorganization would be the same as the aggregate tax
basis of the Acquired Fund's shares held by a shareholder
immediately prior to the Reorganization. In addition, a
shareholder's holding period in Acquiring Fund shares will
include the shareholder's holding period in the Acquired
Fund's shares surrendered in exchange therefor, provided that
such shares are held by the shareholder as a capital asset on
the closing date. A legal opinion will be provided which
describes the tax consequences of the Reorganization.
For further information about the tax consequences of
the Reorganizations, see "The Reorganizations -- Federal
Income Tax Consequences."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Enterprise Growth and Income and Enterprise Small Company
Growth invest primarily in equity securities and as such, are
subject to market risks. That is, the possibility exists that
common stocks will decline over short or even extended periods
of time, and the United States equity market tends to be
cyclical, experiencing both periods when stock prices
generally increase and periods when stock prices
16
<PAGE>
generally decrease. Since RSF Inc. Core Equity and RSF Inc.
Emerging Growth invest primarily in common stocks, these risk
factors are generally also present in investments in RSF Inc.
Core Equity and RSF Inc. Emerging Growth. Like RSF Inc. Core
Equity and RSF Inc. Emerging Growth, Enterprise Growth and
Income and Enterprise Small Company Growth may invest in the
securities of foreign issuers which may present greater risks
in the form of nationalization, confiscation, domestic
marketability, or other national or international
restrictions. As a matter of practice, Enterprise Growth and
Income and Enterprise Small Company Growth will not invest in
the securities of a foreign issuer if such risk appears to the
Portfolio Manager to be substantial.
Enterprise Small Company Growth may invest in
securities of small or emerging growth companies which may be
subject to more abrupt or erratic market movements than
larger, more established companies or the market average in
general. A risk of investing in smaller, emerging companies is
that they often are at an earlier stage of development and
therefore have limited product lines, market access for such
products, financial resources and depth in management than
larger, more established companies, and their securities may
be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market
averages in general. In addition, certain smaller issuers may
face difficulties in obtaining the capital necessary to
continue in operation and may go into bankruptcy, which could
result in a complete loss of an investment. Smaller companies
also may be less significant factors within their industries
and may have difficulty withstanding competition from larger
companies. While smaller companies may be subject to these
additional risks, they may also realize more substantial
growth than larger, more established companies. Since RSF Inc.
Emerging Growth invests in similar securities, these risk
factors are generally also present in an investment in RSF
Inc. Emerging Growth.
As with other mutual funds that invest in U.S.
Government securities and CMOs, Enterprise Government is
subject to market risks. Although some obligations issued or
guaranteed by agencies or instrumentalities of the U.S.
Government, such as Government National Mortgage Association
participation certificates, are backed by the full faith and
credit of the U.S. Treasury, no assurances can be given that
the U.S. Government will provide financial support to other
agencies or instrumentalities, since it is not obligated to do
so. The prices of fixed-income government securities generally
fluctuate inversely in relation to the direction of interest
rates. The prices of longer term securities fluctuate more
widely in response to market interest rate changes.
Furthermore, there is no limit to portfolio maturity.
Generally, the values of the securities in which Enterprise
Government will invest, and accordingly the value of
Enterprise Government's shares, will fall as interest rates
rise and rise as interest rates fall. Since RSF Inc.
Intermediate-Term also invests primarily in U.S. Government
securities, in addition to investing in CMOs, these risk
factors are generally also present in an investment in RSF
Inc. Intermediate-Term.
Enterprise Money invests primarily in money market
securities and as such, is subject to market risks. Briefly,
these risks include, but are not limited to, the ability of
the issuers of securities owned by Enterprise Money to meet
their obligations for the payment of principal and interest
when due or to repurchase such securities as previously
agreed, and, in the case of certain dollar-denominated
obligations issued by domestic or foreign branches of U.S. and
foreign banks and other offshore issuers,
17
<PAGE>
international economic and political developments, foreign
governmental restrictions that may adversely affect the
payment of principal or interest and foreign withholding or
other taxes on interest income. Since RSF Inc. Money Market
also invests in money market instruments, these risk factors
are generally also present in an investment in RSF Inc. Money
Market.
A full discussion of the risks inherent in investment
in each of the Enterprise Portfolios and each of the RSF Inc.
Funds is set forth in the Enterprise Funds Prospectus and SAI,
dated May 1, 1997 and RSF Inc.'s Prospectus and SAI, dated
January 28, 1997.
THE REORGANIZATIONS
The terms and conditions upon which each Reorganization may be
consummated are set forth in the Form of Agreement and Plan of
Reorganization (the "Agreement"), between Enterprise Funds and
RSF Inc., on behalf of the respective Acquired and Acquiring
Funds (see Exhibit A hereto). If certain conditions, including
approval by the shareholders of each Acquired Fund are
satisfied, all of such Acquired Fund's assets will be sold to
the respective Acquiring Fund and its liabilities assumed by
such Acquiring Fund. This will occur on the "Closing Date" of
the Reorganizations, which is July 16, 1997, or such other
date as the parties may agree.
On the Closing Date, after the transfer of an Acquired
Fund's assets to the respective Acquiring Fund and assumption
of the Acquired Fund's liabilities by the Acquiring Fund, such
Acquired Fund's shareholders will receive the number of
newly-issued Class Y shares of the Acquiring Fund of equal
aggregate value to the aggregate value of the shares of the
Acquired Fund which were previously held. The newly-issued
shares will be credited to each shareholder's account as of
the Closing Date.
BACKGROUND AND REASONS FOR PROPOSED REORGANIZATIONS
CONSIDERATIONS OF THE BOARD OF DIRECTORS OF RSF INC.
In electing to approve the Agreement and recommend it
to shareholders of RSF Inc., the Directors acted upon
information provided to them indicating that the proposed
Reorganizations would operate in the best interests of
shareholders. In particular, the Directors determined that the
proposed Reorganizations offered the following benefits:
- PARTICIPATING IN A LARGER FUND COMPLEX: The Directors
were informed that the proposed Reorganizations would, if
effected, result in shareholders of RSF Inc.'s four
current portfolios becoming shareholders in a mutual fund
complex consisting of thirteen portfolios and total
assets in excess of $1.02 billion as of March 31, 1997.
RSF Inc. shareholders could thereafter exchange their
shares for a significantly larger number of funds than is
currently the case within RSF Inc without the imposition
of a sales charge or other fee (see "Description of
Shares to be Issued"). The Directors received information
to the effect that a larger, more diverse complex can
appeal to a broader class of institutional and retail
investors, may be able to achieve economies of scale more
quickly or efficiently, and may be able to reduce costs
by taking advantage of its relatively larger size.
- CONTINUITY OF MANAGEMENT: The Directors were provided
with information detailing the arrangements, whereby the
current investment manager to RSF Inc. Core Equity will
be
18
<PAGE>
retained as Portfolio Manager to Enterprise Growth and
Income, as well as the fact that the investment manager
to RSF Inc. Emerging Growth will serve as the Portfolio
Manager to Enterprise Small Company Growth. Accordingly,
with respect to these two RSF Inc. portfolios, the
post-reorganization Enterprise Funds portfolios will be
managed on a day-to-day basis by the same persons who had
been responsible for managing these RSF Inc. portfolios.
- TAX-FREE NATURE OF TRANSACTION; LACK OF DILUTION: The
Directors were informed that the proposed Reorganizations
involving RSF Inc. and the Enterprise Funds would be
accomplished without the imposition of federal income
taxes on either RSF Inc. or its shareholders. In
addition, the Directors received representations to the
effect that RSGroup-SM- will defray RSF Inc.'s costs
associated with participation in the proposed
Reorganizations. Finally, the Directors were informed
that the interests of RSF Inc. shareholders would not be
materially diluted as a result of the proposed
Reorganizations, and that the RSF Inc. shareholders would
receive shares of Enterprise Portfolios equal in value to
the aggregate value of their RSF Inc. Fund shares.
- PERFORMANCE OF ENTERPRISE FUNDS; FEES AND EXPENSES: The
Directors received information relating to the
performance of the various Enterprise Portfolios with
which the various RSF Inc. Funds would be reorganized.
The Directors were given details of the performance
record for each of Enterprise Government and Enterprise
Money, both on an absolute basis and in comparison to
relevant benchmarks and industry averages. The Directors
also received information about the fees and expenses
charged (or to be charged) to each of the Enterprise
Portfolios, which information tended to show that RSF
Inc. shareholders who become Class Y shareholders of the
Enterprise Portfolios as a result of the proposed
Reorganizations will in most instances be subject to fees
and expenses that are lower than, or at most equal to,
the fees charged by RSF Inc. (without taking into account
voluntary fee waivers).
THE BOARD OF DIRECTORS OF RSF INC. UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF EACH ACQUIRED FUND VOTE
FOR THE RESPECTIVE REORGANIZATION.
CONSIDERATIONS OF THE BOARD OF DIRECTORS OF ENTERPRISE
FUNDS
The Board of Directors of Enterprise Funds, including
the independent Directors, has unanimously concluded that
consummation of each Reorganization is in the best interests
of the respective Enterprise Portfolio and its shareholders,
and has unanimously voted to approve the Agreement.
AGREEMENT AMONG ENTERPRISE CAPITAL, RETIREMENT INVESTORS AND
RSGROUP-SM-
Each Reorganization is being proposed as part of an agreement
by and among Enterprise Capital, Retirement Investors and
RSGroup-SM-, the parent corporation of Retirement Investors,
pursuant to which Retirement Investors and RSGroup-SM- would
be compensated for selling to Enterprise Capital the books,
records and goodwill relating to the management of the RSF
Inc. Funds and cooperating in facilitating the transactions
contemplated by the Agreement. As part of the Agreement,
Retirement Investors and RSGroup-SM- have agreed not to
compete with Enterprise Capital and its affiliates by
providing advisory
19
<PAGE>
services to certain investment companies. The Agreement also
contains provisions relating to providing subadvisory services
by Retirement Investors to Enterprise Growth and Income
following consummation of the Reorganizations.
TERMS OF THE AGREEMENT
On the Closing Date, all the assets and liabilities of each
Acquired Fund will be transferred to the respective Acquiring
Fund in exchange for Class Y shares of the Acquiring Fund on
the basis of relative net asset value. Each Acquired Fund will
then distribute to its shareholders the shares of the
Acquiring Fund received by such Acquired Fund pursuant to the
terms of the Agreement in complete liquidation of the Acquired
Fund. Immediately upon distribution, the shares of the
Acquiring Fund received by the Acquired Fund's shareholders
will have an aggregate net asset value equal to the aggregate
net asset value of the shares of the Acquired Fund held
immediately prior to the Reorganization.
As of the Closing Date, each Acquiring Fund will,
through its transfer agent, credit on its books and confirm in
writing an appropriate number of its Class Y shares to each
shareholder of the Acquired Fund, regardless of whether such
shareholder holds physically issued certificates. As of the
Closing Date, any such certificate representing shares of the
Acquired Fund will represent only the right to receive an
appropriate number of shares of the Acquiring Fund. Therefore,
as of the Closing Date, any present certificate holders of an
Acquired Fund will be asked to surrender their certificates.
No redemption or repurchase of any Acquiring Fund's shares
credited to former shareholders of an Acquired Fund in respect
of Acquired Fund shares represented by unsurrendered
certificates will be permitted until such certificates have
been surrendered for cancellation. Any shareholder of an
Acquired Fund who wishes to receive a certificate representing
his or her shares in Acquiring Funds must submit a written
request therefor, along with any certificates representing
shares of such Acquired Fund accompanied by such proper
instruments of transfer, such as stock powers and signature
guarantees, as the Acquiring Fund may reasonably require.
The Agreement sets forth certain additional conditions
to the obligations of the parties to proceed with each
Reorganization, including the approval of the Reorganization
by shareholders of the Acquired Fund, an opinion of counsel as
to tax matters (depending on then-existing facts and
circumstances) and the accuracy of various representations and
warranties of each Acquiring and Acquired Fund. Further, if
the Reorganization is not approved at the Meeting by
shareholders of an Acquired Fund, such Acquired Fund will
continue to operate separately; however, the proposal may be
resubmitted to shareholders of such Acquired Fund, or the
Board of Directors of such Acquired Fund may consider what
other action, if any, should be taken. The failure by
shareholders of any one Acquired Fund to approve its
Reorganization will not affect consummation of a
Reorganization by another Acquired Fund.
The foregoing description of the Agreement is qualified
in its entirety by the terms and provisions of the Agreement,
a copy of which is attached hereto as Exhibit A.
DESCRIPTION OF SHARES TO BE ISSUED
Full and fractional Class Y shares of each Acquiring Fund will
be issued without the imposition of a sales charge or other
fee to the shareholders of the respective Acquired Fund in
accordance with the procedures described above. Class Y shares
to be issued in the Reorganizations will be fully paid and
20
<PAGE>
nonassessable when issued and transferable without restriction
and will have no preemptive or conversion rights. Reference is
hereby made to the Enterprise Funds Prospectus, dated May 1,
1997, and enclosed herewith, for additional information about
Class Y shares.
CERTAIN EFFECTS OF THE REORGANIZATIONS ON SHAREHOLDERS OF THE
ACQUIRED FUNDS
Upon consummation of each Reorganization, the prior election
of each Acquired Fund's shareholders to reinvest dividends and
distributions in additional shares or to receive dividends or
distributions in cash will continue in effect until changed as
set forth in the Prospectus of the Acquiring Funds (such
options for reinvestment being identical to those of each
Acquired Fund). Shareholders of the Acquired Funds will
receive shares of the respective Acquiring Fund having, on the
Closing Date, the equivalent value in the aggregate of the
shares of the Acquired Fund previously held, in accordance
with the terms of the Agreement.
EXPENSES OF THE REORGANIZATIONS
The expenses for effecting the Reorganizations are estimated
at not more than $30,000 per Acquired Fund. These expenses
will be borne by RSGroup-SM- and Enterprise Capital.
FEDERAL INCOME TAX CONSEQUENCES
All of the Funds have elected to qualify as regulated
investment companies under the Internal Revenue Code of 1986,
as amended (the "Code"), and the Acquiring Funds intend to
continue to so qualify.
As a condition to the Reorganization, the Funds will
receive opinions from Shereff, Friedman, Hoffman & Goodman,
LLP, counsel to Enterprise Funds, to the effect that, on the
basis of the existing provisions of the Code, current
administrative rules and court decisions, for federal income
tax purposes: (1) each Reorganization as set forth in the
Agreement will constitute a tax-free reorganization under
Section 368(a)(1)(C) or (F) of the Code; (2) no gain or loss
will be recognized by the Acquiring Fund upon its receipt of
the Acquired Fund's assets solely in exchange for Class Y
shares of the Acquiring Fund; (3) no gain or loss will be
recognized by the Acquired Fund upon the transfer of its
assets to the Acquiring Fund solely in exchange for Class Y
shares of the Acquiring Fund and the assumption of the
Acquired Fund's liabilities, if any, or upon the distribution
(whether actual or constructive) of the Class Y shares of the
Acquiring Fund to the Acquired Fund shareholders in exchange
for their shares of the Class Y shares of the Acquiring Fund;
(4) no gain or loss will be recognized by shareholders of the
Acquired Fund upon the exchange of their Acquired Fund shares
for Class Y shares of the Acquiring Fund; (5) the tax basis of
the Acquired Fund's assets acquired by the Acquiring Fund will
be the same as the tax basis of such assets to the Acquired
Fund immediately prior to the Reorganization; (6) the tax
basis of Class Y shares of the Acquiring Fund received by each
shareholder of the Acquired Fund pursuant to the Agreement
will be the same as the tax basis of Acquired Fund shares held
by such shareholder immediately prior to the Reorganization;
(7) the holding period of the assets of the Acquired Fund in
the hands of the Acquiring Fund will include the period during
which those assets were held by the Acquired Fund; and (8) the
holding period of Class Y shares of the Acquiring Fund
received by each shareholder of the Acquiring Fund will
include the period during which the Acquired Fund shares
exchanged therefor were held by such shareholder, provided the
Acquired Fund shares were held as capital assets on the date
of the Reorganization.
21
<PAGE>
The opinion of counsel will be based upon certain
representations made by the Funds. While an opinion of counsel
does not bind the Internal Revenue Service or the courts, it
will reflect such counsel's view, as of the closing of the
Reorganizations, as to the expected federal income tax
treatment of each Reorganization. If the Internal Revenue
Service were to take a position contrary to the views
expressed by such counsel, and succeed in asserting such
position, shareholders would be treated as having received
shares of the Acquiring Fund in a transaction in which gain or
loss would be recognized for federal income tax purposes and
the Acquiring Fund would be treated for such purposes as
having purchased the assets of the Acquired Fund for their
fair market value.
Shareholders should consult their tax advisers
regarding the effect of the proposed transactions in light of
their individual circumstances. As the foregoing discussion
relates only to federal income tax consequences, shareholders
should also consult their tax advisers as to the state and
local tax consequences of such transactions.
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS AND OBLIGATIONS
GENERAL. Both Enterprise Funds and RSF Inc. are
open-end, diversified management investment companies
registered under the 1940 Act, which continuously offer to
sell shares at their current net asset value. Each of
Enterprise Funds and RSF Inc. is organized as a corporation
under the laws of the State of Maryland and is governed by its
respective Articles of Incorporation, Bylaws and Board of
Directors, in addition to applicable state and federal law.
Each of the Acquiring Funds is a separate series of Enterprise
Funds, and each of the Acquired Funds is a separate series of
RSF Inc. Set forth below is a brief summary of the significant
rights of shareholders of the Acquiring and Acquired Funds.
SHARES OF THE ACQUIRING AND ACQUIRED FUNDS. Enterprise
Funds is authorized to issue up to 1,700,000 shares of common
stock. The Board of Directors may determine the number of
authorized shares of each of Enterprise Growth and Income,
Enterprise Small Company Growth Enterprise Government and
Enterprise Money,. The shares of each Enterprise Portfolio
have been divided into four classes, Class A, Class B, Class C
and Class Y shares. RSF Inc. is authorized to issue up to two
billion shares of common stock. The RSF Inc. Funds have only
one class of shares. Issued and outstanding shares of both the
Acquiring and Acquired Funds are fully paid and nonassessable,
and freely transferable.
VOTING RIGHTS. Neither Enterprise Funds nor RSF Inc.
is required to hold annual meetings of shareholders except as
required under the 1940 Act. Shareholder approval is necessary
only for certain changes in operations or the election of
directors under certain circumstances. Enterprise Funds
requires that a special meeting of shareholders be called by
the Board of Directors or the shareholders for action by
shareholder vote, including the removal of any or all of the
Directors, as may be required by either the Articles of
Incorporation, the bylaws or the 1940 Act. Shareholders of RSF
Inc. retain the right, under certain circumstances, to request
that a meeting of shareholders be held and, if such a request
is made, RSF Inc. will assist with the shareholder
communication in connection with the meeting. Each share of an
Acquiring or Acquired Fund gives the shareholder one vote in
director elections and other matters submitted to shareholders
for vote. All shares of each series of RSF Inc., and of each
series and class of Enterprise Funds, have equal voting rights
except that in matters affecting only a particular series or
class, only shares of that series or class are entitled to
vote.
22
<PAGE>
FINANCIAL INFORMATION
CAPITALIZATION
The capitalization of each of the Acquired Funds and Class Y
shares of the Acquiring Funds as of December 31, 1996, and the
pro forma combined capitalization as of that date after giving
effect to the Reorganization are as follows:
<TABLE>
<CAPTION>
ENTERPRISE
GROWTH AND
ENTERPRISE INCOME
RSF INC. CORE GROWTH AND INCOME (CLASS Y) PRO
EQUITY (CLASS Y) FORMA COMBINED
--------------- --------------------- ----------------
<S> <C> <C> <C>
Net Assets.................... $10,329,748 $ 0 $10,329,748
Shares Outstanding............ 510,795 0 510,795
Net Asset Value per Share..... $ 20.22 $ 0 $ 20.22
<CAPTION>
ENTERPRISE
SMALL COMPANY
ENTERPRISE GROWTH
RSF INC. SMALL COMPANY GROWTH (CLASS Y) PRO
EMERGING GROWTH (CLASS Y) FORMA COMBINED
--------------- --------------------- ----------------
<S> <C> <C> <C>
Net Assets.................... $ 8,754,909 $ 0 $8,754,909
Shares Outstanding............ 401,490 0 401,490
Net Asset Value per Share..... $ 21.81 $ 0 $ 21.81
<CAPTION>
ENTERPRISE
GOVERNMENT
RSF INC. ENTERPRISE (CLASS Y) PRO
INTERMEDIATE-TERM GOVERNMENT (CLASS Y) FORMA COMBINED
--------------- --------------------- ----------------
<S> <C> <C> <C>
Net Assets.................... $ 6,487,280 $ 0 $6,487,280
Shares Outstanding............ 615,860 0 549,769
Net Asset Value per Share..... $ 10.53 $ 0 $ 11.80
<CAPTION>
ENTERPRISE MONEY
RSF INC. MONEY ENTERPRISE MONEY (CLASS Y) PRO
MARKET (CLASS Y) FORMA COMBINED
--------------- --------------------- ----------------
<S> <C> <C> <C>
Net Assets.................... $ 1,670,085 $ 0 $1,670,085
Shares Outstanding............ 1,670,100 0 1,670,100
Net Asset Value per Share..... $ 1.00 $ 0 $ 1.00
</TABLE>
MANAGEMENT'S DISCUSSION OF
FUNDS' PERFORMANCE
ENTERPRISE GROWTH AND INCOME AND ENTERPRISE SMALL COMPANY
GROWTH
Enterprise Growth and Income and Enterprise Small Company
Growth are newly created Portfolios of Enterprise Funds and
accordingly, have no historical performance information.
ENTERPRISE GOVERNMENT
TCW, a wholly owned subsidiary of TCW Management Company, has
been managing Enterprise Government since May 1, 1992. TCW
currently manages over $54 billion for institutional clients.
Its normal investment minimum is $35 million.
The investment process is grounded in long term value
consideration. TCW does not attempt to forecast short term
trends in interest rates and, therefore, does not frequently
alter average portfolio maturities. The process focuses on
controlling the variables that are known and can be managed,
such
23
<PAGE>
as the term structure of interest rates, mortgage prepayment
rates and security structure. Portfolios remain substantially
invested in mortgage-backed products under the great majority
of market conditions.
1996 PERFORMANCE REVIEW
Mortgage-backed securities, which are the primary
holding of Enterprise Government, were once again a top
performing fixed income asset in 1996. Moderately increasing
interest rates, low volatility and strong technicals pushed
the total rate of return of the mortgage sector over 250 basis
points above the aggregate fixed income market. During the
first six months, news of a strengthening economy stimulated
inflationary fears and drove interest rates steadily higher.
By July 1, the treasury yield curve had moved up all over 100
basis points. However, as evidence of slowing economic growth
and minimal inflationary pressures mounted in the third
quarter, interest rates reversed. These falling interest rates
during the early fall months reignited prepayment fears among
mortgage investors causing mortgages to underperform slightly.
But during December, this trend once again reversed. News of
widespread economic strength drove interest rates higher,
spreads tightened and mortgages outperformed.
A number of technical factors contributed positively to
the performance of the mortgage sector in 1996. Most
significantly, there was an increase in the demand for
mortgage product at the same time that the supply of new
securities decreased. The increase in investor demand was
driven, at least in part, by tight spreads in other sectors of
the fixed income market. This supply/demand imbalance was
especially pronounced in the adjustable rate mortgage sector
where demand for short duration assets increased as new
production declined. The collateralized mortgage obligation
sub-sector continued to revive in 1996. Increased demand drove
new issuance up but volume of new product remained well below
the levels seen three years ago.
Class Y shares of Enterprise Government have not yet
been offered and accordingly, there is no historical
performance information with respect to such class.
RSF INC. FUNDS
The performance information of RSF Inc. Funds is contained in
RSF Inc.'s Annual Report, dated September 30, 1996, and RSF
Inc.'s Semi-Annual Report for the six-month period ended March
31, 1997, which are incorporated herein by reference.
INFORMATION ABOUT
ENTERPRISE FUNDS AND RSF
INC.
ENTERPRISE FUNDS
Information about the Enterprise Portfolios and Enterprise
Funds is contained in the Enterprise Funds Prospectus, dated
May 1, 1997, a copy of which is enclosed herewith. Additional
information about Enterprise Funds is included in the
Enterprise Funds' Annual Report to Shareholders dated December
31, 1996, the Enterprise Funds SAI, dated May 1, 1997, and the
Statement of Additional Information (relating to this
Prospectus/Proxy Statement). Copies of the Annual Report and
the Enterprise Funds SAI, which have been filed with the
Securities and Exchange Commission (the "SEC"), may be
obtained upon request and without charge by contacting
Enterprise Funds at 1-800-432-4320, or by writing Enterprise
Funds at 3343 Peachtree Road, N.E., Suite 450, Atlanta,
Georgia 30326. Enterprise Funds is
24
<PAGE>
subject to the informational requirements of the Securities
Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the
1940 Act and in accordance therewith files reports and other
information with the SEC. Reports, proxy and information
statements, charter documents and other information filed by
Enterprise Funds can be obtained by calling or writing
Enterprise Funds and can also be inspected and copied by the
public at the public reference facilities maintained by the
SEC in Washington, D.C. located at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at certain of its
regional offices located at Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, IL 60661 and 13th
Floor, Seven World Trade Center, New York, NY 10048. Copies of
such material can be obtained from the Public Reference
Branch, Office of Consumer Affairs and Information Services,
SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
This Prospectus/Proxy Statement, which constitutes part
of a Registration Statement filed by Enterprise Funds with the
SEC under the 1933 Act, omits certain of the information
contained in the Registration Statement. Reference is hereby
made to the Registration Statement and to the exhibits thereto
for further information with respect to the Enterprise Funds
and the shares offered hereby. Statements contained herein
concerning the provisions of documents are necessarily
summaries of such documents, and each such statement is
qualified in its entirety by reference to the copy of the
applicable document filed with the SEC.
RSF INC.
Information about the RSF Inc. Funds and RSF Inc. is contained
in RSF Inc.'s current Prospectus dated January 28, 1997, the
Annual Report to Shareholders dated September 30, 1996, the
Semi-Annual Report to Shareholders for the six-month period
ended March 31, 1997, the RSF Inc. SAI dated January 28, 1997,
and the Statement of Additional Information (relating to this
Prospectus/Proxy Statement). Copies of such Prospectus, Annual
Report, Semi-Annual Report, RSF Inc. SAI and Statement of
Additional Information, which have been filed with the SEC,
may be obtained upon request and without charge from RSF Inc.
by calling 1-800-772-3615 or by writing to RSF Inc. at P.O.
Box 2064, Grand Central Station, New York, NY 10163-2064. RSF
Inc. is subject to the informational requirements of the 1933
Act, the 1934 Act and the 1940 Act and in accordance therewith
files reports and other information with the SEC. Reports,
proxy and information statements, charter documents and other
information filed by RSF Inc. can be obtained by calling or
writing RSF Inc. and can also be inspected at the public
reference facilities maintained by the SEC or obtained at
prescribed rates at the addresses listed in the previous
section.
INFORMATION CONCERNING THE
MEETING
VOTING INFORMATION
Proxies in the form enclosed with this Prospectus/Proxy
Statement are being solicited by the Board of Directors of RSF
Inc. for use at the Meeting. If the proxy cards in the
accompanying form are properly executed and returned, the
shares of the Acquired Funds represented thereby will be voted
as instructed on the proxy. If no instructions are given, such
shares will be voted FOR the proposed Reorganization and in
the discretion of the proxies named in the proxy card, on any
other proposals to properly come
25
<PAGE>
before the Meeting or any adjournment thereof. Any proxy may
be revoked by a shareholder prior to its exercise upon written
notice to the Secretary of RSF Inc., by the shareholder
signing and sending a later-dated proxy, or by the vote of a
shareholder cast in person at the Meeting.
The costs of preparing, printing and mailing the
accompanying Notice of Special Meeting and this
Prospectus/Proxy Statement and the costs of the Meeting will
be borne by Enterprise Capital and RSGroup-SM-. In addition to
the use of the mail, proxies may be solicited by telephone or
telecopier by officers, employees and agents of RSF Inc. on
behalf of the Board of Directors, expenses of which may be
charged to Enterprise Capital and RSGroup-SM-. If RSF Inc.
determines that it is necessary to retain a proxy soliciting
firm to assist in the solicitation of proxies for the Meeting,
the cost of such firm will be borne by Enterprise Capital and
RSGroup-SM-. The mailing address of the Acquired Funds is P.O.
Box 2064, Grand Central Station, New York, New York
10163-2064.
Shareholders of record at the close of business on May
19, 1997 are entitled to vote at the Meeting. Each share of an
Acquired Fund is entitled to one vote with respect to the
proposed Reorganization with respect to that Fund. On May 19,
1997 there were issued and outstanding 578,780, 596,604,
643,978 and 1,930,460 shares of RSF Inc. Core Equity, RSF Inc.
Emerging Growth, RSF Inc. Intermediate-Term and RSF Inc. Money
Market, respectively. SEE "Security Ownership of Certain
Shareholders and Management."
As of the record date, there were no issued and
outstanding Class Y shares of any of Enterprise Growth and
Income, Enterprise Small Company Growth, Enterprise Government
or Enterprise Money. SEE "Security Ownership of Certain
Shareholders and Management."
If, by the time scheduled for the Meeting, a quorum of
shareholders of an Acquired Fund is not present or if a quorum
of an Acquired Fund's shareholders is present but sufficient
votes in favor of the Reorganization are not received, such
Acquired Fund may propose one or more adjournments of the
Meeting to permit further solicitation of proxies from
shareholders of the Acquired Fund. Any such adjournment will
require the affirmative vote of a majority of the shares of
the Acquired Fund present in person or by proxy at the session
of the Meeting to be adjourned. In the event of a proposal to
adjourn the Meeting, the persons named as proxies will vote
the proxies in favor of such adjournment if they determine
that such adjournment and additional solicitation is
reasonable and in the interest of the Acquired Fund's
shareholders.
A quorum for the transaction of business at the Meeting
is constituted with respect to each of RSF Inc. Core Equity,
RSF Inc. Emerging Growth, RSF Inc. Intermediate-Term and RSF
Inc. Money Market, by the presence in person or by proxy of
holders of one-third of the outstanding shares of the
respective Fund entitled to vote at the Meeting. If a proxy is
properly executed and returned accompanied by instructions to
withhold authority ("non-vote"), or is marked with an
abstention, the shares represented thereby will be considered
to be present at the Meeting for determining the existence of
a quorum for the transaction of business with respect to such
Acquired Fund. Approval of the Reorganization requires the
affirmative vote of a majority of such Fund's shares
outstanding and entitled to vote at the Meeting. The shares
represented by a proxy that constitutes a non-vote or an
abstention will be considered outstanding for all purposes and
will therefore have the same effect as a vote cast against the
Reorganization. Approval of the Reorganization by the
shareholders of the Acquiring Funds is not necessary.
26
<PAGE>
DISSENTERS' RIGHTS
Under Maryland law, shareholders of registered investment
companies such as RSF Inc. are not entitled to demand the fair
value of shares and will be bound by the terms of the
Reorganizations. Any shareholder of an Acquired Fund may,
however, redeem his or her shares at net asset value prior to
the date of the Reorganization in accordance with the
procedures set forth in the RSF Inc. Prospectus.
SECURITY OWNERSHIP OF
CERTAIN SHAREHOLDERS AND
MANAGEMENT
On May 19, 1997, the record date for the Meeting, the
Directors and officers of the RSF Inc. as a group owned less
than 1% of the outstanding shares of each Acquired Fund. To
the best knowledge of Retirement Investors, as of the record
date, no person, except as set forth in the table below, owned
beneficially or of record 5% or more of an Acquired Fund's
outstanding shares.
<TABLE>
<CAPTION>
TITLE OF FUND AND NAME NUMBER OF SHARES PERCENT OWNED OF NUMBER OF PERCENT OWNED
AND ADDRESS OF RECORD OWNED OF RECORD RECORD AND SHARES OWNED OF RECORD
OR BENEFICIAL OWNER AND BENEFICIALLY BENEFICIALLY OF RECORD ONLY ONLY
---------------------------------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
RSF INC. CORE EQUITY
IBJ Schroder as Trustee -- -- 341,771 59.0%
for various accounts
One State Street
New York, NY 10004
Marine Midland as Trustee -- -- 66,662 11.5%
for various accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
The Dime Savings Bank 30,105 5.2% -- --
of Williamsburgh
209 Havemeyer Street
Brooklyn, NY 11211
Independence Savings Bank 40,103 6.9% -- --
195 Montague Street
Brooklyn, NY 11201
ALBANK, FSB 104,271 18.0% -- --
10 North Pearl Street
Albany, NY 12207
First Union National Bank 134,735 23.3% -- --
301 South College St.
Charlotte, NC 28288
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
TITLE OF FUND AND NAME NUMBER OF SHARES PERCENT OWNED OF NUMBER OF PERCENT OWNED
AND ADDRESS OF RECORD OWNED OF RECORD RECORD AND SHARES OWNED OF RECORD
OR BENEFICIAL OWNER AND BENEFICIALLY BENEFICIALLY OF RECORD ONLY ONLY
---------------------------------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Flushing Savings Bank 44,836 7.7% -- --
144-51 Northern Blvd.
Flushing, NY 11354
RSF INC. EMERGING GROWTH
IBJ Schroder as Trustee -- -- 147,471 24.7%
for various accounts
One State Street
New York, NY 10004
Marine Midland as Trustee -- -- 40,300 6.8%
for various accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
ALBANK, FSB 46,732 7.8% -- --
10 North Pearl Street
Albany, NY 12207
Ridgewood Savings Bank 42,981 7.2% -- --
Myrtle & Forest Avenues
Ridgewood, NY 11385
RSF INC. INTERMEDIATE-TERM
IBJ Schroder as Trustee -- -- 291,560 45.3%
for various accounts
One State Street
New York, NY 10004
Marine Midland as Trustee -- -- 85,477 13.3%
for various accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
ALBANK, FSB 58,784 9.1% -- --
10 North Pearl Street
Albany, NY 12207
First Union National Bank 75,558 11.7% -- --
301 South College Street
Charlotte, NC 28288
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
TITLE OF FUND AND NAME NUMBER OF SHARES PERCENT OWNED OF NUMBER OF PERCENT OWNED
AND ADDRESS OF RECORD OWNED OF RECORD RECORD AND SHARES OWNED OF RECORD
OR BENEFICIAL OWNER AND BENEFICIALLY BENEFICIALLY OF RECORD ONLY ONLY
---------------------------------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Flushing Savings Bank 50,860 7.9% -- --
144-51 Northern Blvd.
Flushing, NY 11354
Beneficial Owners:
Institutional Securities Corp. 131,379 20.4% -- --
200 Park Avenue,
6th Floor West
New York, NY 10166
The Dime Savings Bank 43,962 6.8% -- --
of Williamsburgh
209 Havemeyer Street
Brooklyn, NY 11211
The Roslyn Savings Bank 69,183 10.7% -- --
1400 Old Northern Blvd.
Roslyn, NY 11576
RSF INC. MONEY MARKET
IBJ Schroder as Trustee -- -- 729,959 37.8%
for various accounts
One State Street
New York, NY 10004
Marine Midland as Trustee -- -- 288,568 14.9%
for various accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
ALBANK, FSB 654,607 33.9%* -- --
10 North Pearl Street
Albany, NY 12207
Beneficial Owners:
Flushing Savings Bank 138,168 7.2% -- --
144-51 Northern Blvd.
Flushing, NY 11354
</TABLE>
----------------------------------
* Total ownership is less than 25% of total RSF Inc. Funds'
assets.
29
<PAGE>
<TABLE>
<CAPTION>
TITLE OF FUND AND NAME NUMBER OF SHARES PERCENT OWNED OF NUMBER OF PERCENT OWNED
AND ADDRESS OF RECORD OWNED OF RECORD RECORD AND SHARES OWNED OF RECORD
OR BENEFICIAL OWNER AND BENEFICIALLY BENEFICIALLY OF RECORD ONLY ONLY
---------------------------------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Charter Trust Company 231,759 12.0% -- --
Trustee of Mid-Maine
Savings Bank
95 North Main Street
P.O. Box 1374
Concord, NH 03302
North Fork Bank 113,763 5.9% -- --
275 Broad Hollow Road
Melville, NY 11747
Poughkeepsie Savings Bank 150,400 7.8% -- --
249 Main Mall
Poughkeepsie, NY 12602
General Sullivan Group, Inc. 233,208 12.1% -- --
Sullivan Way
P.O. Box 7509
West Trenton, NJ 08628
</TABLE>
On the record date, the Directors and officers of
Enterprise Funds as a group owned less than 1% of the
outstanding shares of each Acquiring Fund. To the best
knowledge of Enterprise Capital, as of the record date, no
person owned beneficially or of record 5% or more of the
Acquiring Funds' outstanding shares of any of the Acquiring
Funds.
OTHER
MATTERS
The Board of Directors of each Acquired Fund knows of no other
matters that may come before the Meeting. If any such matters
should properly come before the Meeting, it is the intention
of the persons named in the enclosed proxy (or proxies) to
vote such proxy (or proxies) in accordance with their best
judgment.
Please mark, sign, date and return the enclosed proxy
(or proxies) promptly. No postage is required on the enclosed
envelope if mailed in the United States.
By Order of the Board
of Directors
[SIGNATURE]
Stephen P. Pollak
SECRETARY
New York, NY
May 27, 1997
30
<PAGE>
Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated as of , 1997 (the
"Agreement"), between THE ENTERPRISE GROUP OF FUNDS, INC., a Maryland
corporation ("Enterprise Funds"), on behalf of its portfolios as set forth in
Schedule A hereto (each, an "Acquiring Fund" and together, the "Acquiring
Funds"), and RETIREMENT SYSTEM FUND INC., a Maryland corporation ("RSF Inc.") on
behalf of its portfolios as set forth in Schedule A hereto (each, an "Acquired
Fund" and together, the "Acquired Funds").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation with respect to each respective Acquiring Fund
and Acquired Fund within the meaning of Section 368(a)(1)(C) or Section
368(a)(1)(F) of the United States Internal Revenue Code of 1986, as amended (the
"Code"), as set forth on Schedule A hereto. Each reorganization (each, a
"Reorganization") will consist of the transfer of all of the assets of an
Acquired Fund to the corresponding Acquiring Fund as set forth in Exhibit A
hereto, in exchange solely for Class Y Shares of the respective Acquiring Fund
(with respect to each Acquiring Fund, the "Acquiring Fund Shares"), and the
distribution, after the Closing Date (as hereinafter defined), of such Acquiring
Fund Shares to the shareholders of such Acquired Fund in liquidation of such
Acquired Fund as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.
WHEREAS, RSF Inc. and Enterprise Funds are registered open-end management
investment companies and each Acquired Fund owns securities in which each
respective Acquiring Fund is permitted to invest;
WHEREAS, each Acquired Fund and each Acquiring Fund is authorized to
issue shares of common stock;
WHEREAS, the Board of Directors, including a majority of the directors
who are not "interested persons" (as defined under the Investment Company Act of
1940, as amended (the "1940 Act")), of Enterprise Funds has determined
separately with respect to each Acquiring Fund that the exchange of all of the
assets of the respective Acquired Fund for Acquiring Fund Shares is in the best
interests of the Acquiring Fund and its shareholders; and
WHEREAS, the Board of Directors, including a majority of the directors
who are not "interested persons" (as defined under the 1940 Act), of RSF Inc.
has determined separately with respect to each Acquired Fund that the exchange
of all of the assets of such Acquired Fund for the respective Acquiring Fund
Shares is in the best interests of such Acquired Fund and its shareholders;
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF EACH ACQUIRED FUND IN EXCHANGE FOR THE RESPECTIVE
ACQUIRING FUND SHARES AND LIQUIDATION OF EACH ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, RSF Inc., on
behalf of each Acquired Fund (severally and not jointly), agrees to assign,
transfer and convey to the respective Acquiring Fund all of the assets of such
Acquired Fund, including without limitation all cash, cash equivalents,
securities, receivables (including interest and dividends receivable) and other
property of any kind owned by such Acquired Fund and any deferred or prepaid
expenses shown as assets on the books of such Acquired Fund on the closing date
(the "Closing Date") provided for in paragraph 3.1., and Enterprise Funds, on
behalf of each Acquiring Fund (severally and not jointly), agrees in exchange
therefor (a) to deliver to each such Acquired Fund the number of
A-1
<PAGE>
respective Acquiring Fund Shares, including fractional Acquiring Fund Shares,
determined as set forth in paragraph 2.3 and (b) to assume such Acquired Fund's
liabilities, if any, as set forth in paragraph 1.2. Such transaction shall take
place at the closing (the "Closing") on the Closing Date. In lieu of delivering
certificates for the Acquiring Fund Shares, each Acquiring Fund shall credit the
respective Acquiring Fund Shares to such Acquired Fund's account, for the
benefit of its shareholders, on the stock record books of such Acquiring Fund
and shall deliver a confirmation thereof to such Acquired Fund.
1.2 Except as otherwise provided herein, each Acquiring Fund will assume
from the respective Acquired Fund all debts, liabilities, obligations and duties
of such Acquired Fund of whatever kind or nature, whether absolute, accrued,
contingent or otherwise, whether or not determinable as of the Closing Date and
whether or not specifically referred to in this Agreement; provided, however,
that each such Acquired Fund agrees to utilize its best efforts to discharge all
of its known debts, liabilities, obligations and duties prior to the Closing
Date.
1.3 Delivery of the assets of each Acquired Fund to be transferred shall be
made on the Closing Date and shall be delivered to State Street Bank and Trust
Company, Boston, Massachusetts, each Acquiring Fund's custodian (the
"Custodian"), for the account of the respective Acquiring Fund, together with
proper instructions and all necessary documents to transfer to the account of
such Acquiring Fund, free and clear of all liens, encumbrances, rights,
restrictions and claims created by such Acquired Fund. All cash delivered shall
be in the form of immediately available funds payable to the order of the
Custodian for the account of such Acquiring Fund.
1.4 Each Acquired Fund will pay or cause to be paid to the respective
Acquiring Fund any dividends or interest received on or after the Closing Date
with respect to assets transferred to such Acquiring Fund hereunder. Each
Acquired Fund will transfer to the respective Acquiring Fund any distributions,
rights or other assets received by such Acquired Fund after the Closing Date as
distributions on or with respect to the securities transferred. Such assets
shall be deemed included in assets transferred to such Acquiring Fund on the
Closing Date and shall not be separately valued.
1.5 As soon after the Closing Date as is conveniently practicable, each
Acquired Fund will liquidate and distribute pro rata to the respective Acquired
Fund's shareholders of record, determined as of the close of business on the
Closing Date (with respect to each Acquired Fund, the "Acquired Fund
Shareholders"), the Acquiring Fund Shares received by such Acquired Fund
pursuant to paragraph 1.1. In addition, each Acquired Fund Shareholder shall
have the right to receive any unpaid dividends or other distributions which were
declared before the Valuation Date (as hereinafter defined) with respect to the
shares of the respective Acquired Fund that are held by the shareholder on the
Valuation Date. Such liquidation and distribution will be accomplished by the
transfer of such Acquiring Fund Shares then credited to the account of such
Acquired Fund on the books of such Acquiring Fund to open accounts on the share
record books of such Acquiring Fund in the names of the Acquired Fund
Shareholders, and representing the pro rata number of such Acquiring Fund Shares
due such shareholders, based on their ownership of shares of such Acquired Fund
on the Closing Date. All issued and outstanding shares of each Acquired Fund
will simultaneously be canceled on the books of such Acquired Fund. Share
certificates representing interests in each Acquired Fund will represent a
number of respective Acquiring Fund Shares after the Closing Date as determined
in accordance with Section 2.3. No redemption or repurchase of any Acquiring
Fund's shares credited to former shareholders of an Acquired Fund in respect of
Acquired Fund shares represented by unsurrendered certificates will be permitted
until such certificates have been surrendered for cancellation. No Acquiring
Fund shall issue certificates representing Acquiring Fund Shares in connection
with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of each
respective Acquiring Fund's transfer agent. Shares of each Acquiring Fund will
be issued in the manner described in such Acquiring Fund's current prospectus
and statement of additional information.
A-2
<PAGE>
1.7 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the respective Acquired Fund shares on
the books of such Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund Shares
are to be issued and transferred.
1.8 Any reporting responsibility of an Acquired Fund is and shall remain
the responsibility of RSF Inc. up to and including the Closing Date and such
later dates, with respect to dissolution and deregistration of RSF Inc., on
which RSF Inc. is dissolved and deregistered.
1.9 RSF Inc. shall be deregistered as an investment company under the 1940
Act and dissolved as a Maryland corporation as promptly as practicable following
the Closing Date and the making of all distributions pursuant to paragraph 1.5.
2. VALUATION.
2.1 The value of each Acquired Fund's net assets to be acquired by each
respective Acquiring Fund hereunder shall be the value of such assets computed
as of the close of the New York Stock Exchange (normally 4:00 p.m. Eastern time)
on the Closing Date (such time and date being herein called the "Valuation
Date"), using the valuation procedures set forth in the respective Acquiring
Fund's then-current prospectus or statement of additional information.
2.2 The net asset value of each Acquiring Fund Share shall be the net asset
value per share computed as of the close of the New York Stock Exchange
(normally 4:00 p.m. Eastern time) on the Valuation Date, using the valuation
procedures set forth in the respective Acquiring Fund's then-current prospectus
or statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for each respective Acquired Fund's net
assets shall be determined by dividing the value of the net assets of such
Acquired Fund determined using the same valuation procedures referred to in
paragraph 2.1, by the net asset value of one respective Acquiring Fund Share
determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with the regular
practices of each respective Acquiring Fund, subject to this Section 2.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be , 1997 or such later date as the
parties may mutually agree. All acts taking place on the Closing Date shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern
time) [at the offices of Enterprise Funds, Atlanta Financial Center, 3343
Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326], or such other time
and/or place as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for portfolio
securities of any Acquiring Fund or Acquired Fund shall be closed to trading or
trading thereon shall be restricted; or (b) trading or the reporting of trading
shall be disrupted so that accurate appraisal of the value of the net assets of
any Acquiring Fund or Acquired Fund is impracticable, the Closing Date with
respect to any such Acquiring Fund and Acquired Fund shall be postponed until
the first business day after the day when trading shall have been fully resumed
and reporting shall have been restored.
3.3 Retirement System Consultants Inc., as transfer agent for each Acquired
Fund, shall deliver at the Closing with respect to each Acquired Fund a
certificate of an authorized officer stating that its records contain the names
and addresses of such Acquired Fund Shareholders and the number and percentage
ownership of outstanding shares owned by each such shareholder immediately prior
to the Closing. Enterprise Funds shall issue and deliver confirmations with
respect to each Acquiring Fund evidencing the respective Acquiring Fund Shares
to be credited to the respective Acquired Fund on the Closing Date to the
Secretary
A-3
<PAGE>
of RSF Inc., or provide evidence satisfactory to RSF Inc. that such Acquiring
Fund Shares have been credited to each respective Acquired Fund's account on the
books of such Acquiring Fund. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, assumption agreements, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 RSF Inc., on behalf of each Acquired Fund (severally and not jointly),
represents and warrants to Enterprise Funds as follows:
(a) RSF Inc. is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland and has power to carry on
its business as it is now being conducted and to consummate the transactions
contemplated by this Agreement.
(b) RSF Inc. is registered under the 1940 Act, as an open-end,
management investment company, and such registration has not been revoked or
rescinded and is in full force and effect.
(c) RSF Inc. is not, and the execution, delivery and performance of
this Agreement will not result, in material violation of RSF Inc.'s Articles of
Incorporation or Bylaws or of any agreement, indenture, instrument, contract,
lease or other undertaking to which any Acquired Fund is a party or by which it
is bound.
(d) No Acquired Fund has any material contracts or other commitments
outstanding (other than this Agreement) which will result in liability to it
after the Closing Date.
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its knowledge
threatened against RSF Inc. or any Acquired Fund or any of the properties or
assets of an Acquired Fund, which, if adversely determined, would materially and
adversely affect the financial condition or the conduct of the business of such
Acquired Fund. RSF Inc. knows of no facts which might form the basis for the
institution of such proceedings, and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects the business of any Acquired Fund or its
ability to consummate the transactions contemplated herein.
(f) The current prospectus and statement of additional information of
each Acquired Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the
1940 Act and the rules and regulations of the Securities and Exchange Commission
(the "Commission") thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(g) The Statements of Assets and Liabilities of each Acquired Fund at
September 30, 1995 and 1996 have been audited by McGladrey & Pullen, LLP,
independent auditors, and have been prepared in accordance with generally
accepted accounting principles, consistently applied, and such statements
(copies of which have been furnished to Enterprise Funds) fairly reflect the
financial condition of each such Acquired Fund as of such dates, and there are
no known contingent liabilities of such Acquired Fund as of such dates not
disclosed therein.
(h) The unaudited Statement of Assets and Liabilities of each Acquired
Fund at March 31, 1997 has been prepared in accordance with generally accepted
accounting principles, consistently applied, although subject to year-end
adjustments, and on a basis consistent with the Statement of Assets and
Liabilities of such Acquired Fund at September 30, 1996 which has been audited
A-4
<PAGE>
by McGladrey & Pullen, LLP, independent auditors, and such statement (a copy of
which has been furnished to Enterprise Funds) fairly reflects the financial
condition of such Acquired Fund as of such date, and there are no known
liabilities of such Acquired Fund, contingent or otherwise, as of such date not
disclosed therein.
(i) Since March 31, 1997, there has not been any material adverse
change in any Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or any
incurrence by any Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by Enterprise Funds.
(j) At the Closing Date, all federal and other tax returns and reports
of each Acquired Fund required by law to have been filed by such date shall have
been filed or an appropriate extension obtained, and all federal and other taxes
shall have been paid so far as due, or provision shall have been made for the
payment thereof or contest in good faith, and to the best of RSF Inc.'s
knowledge no such return is currently under audit and no assessment has been
asserted with respect to such returns.
(k) For each fiscal year of its operation, each Acquired Fund has met
the requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company.
(l) All issued and outstanding shares of each Acquired Fund are, and at
the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. All of the issued and outstanding shares of each Acquired
Fund will, at the time of the Closing, be held by the persons and in the amounts
set forth in the records of the transfer agent as provided in paragraph 3.3
hereof. No Acquired Fund has outstanding any options, warrants or other rights
to subscribe for or purchase any of its shares, nor is there outstanding any
security convertible into shares of any Acquired Fund.
(m) On the Closing Date, each Acquired Fund will have full right, power
and authority to sell, assign, transfer and deliver the assets to be transferred
by it hereunder.
(n) The execution, delivery and performance of this Agreement with
respect to each Reorganization will have been duly authorized prior to the
Closing Date by all necessary action on the part of RSF Inc. and, subject to the
approval of the respective Acquired Fund Shareholders, this Agreement
constitutes the valid and legally binding obligation of RSF Inc. with respect to
each Acquired Fund, enforceable in accordance with its terms, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto, and to general principles of
equity and the discretion of the court (regardless of whether the enforceability
is considered in a proceeding in equity or at law).
(o) The joint prospectus/proxy statement of each Acquiring Fund (the
"Prospectus/Proxy Statement") to be included in the Registration Statement
referred to in paragraph 5.5 (only insofar as it relates to RSF Inc. and the
respective Acquired Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
4.2 Enterprise Funds, on behalf of each Acquiring Fund (severally and not
jointly), represents and warrants to RSF Inc. as follows:
(a) Enterprise Funds is a corporation duly organized, validly existing
and in good standing under the laws of the State of Maryland and has the power
to carry on its business as it is now being conducted and to consummate the
transactions contemplated by this Agreement.
A-5
<PAGE>
(b) Enterprise Funds is registered under the 1940 Act as an open-end,
management investment company, and such registration has not been revoked or
rescinded and is in full force and effect.
(c) Enterprise Funds is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of
Enterprise Funds' Articles of Incorporation or Bylaws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which any
Acquiring Fund is a party or by which it is bound.
(d) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its knowledge
threatened against Enterprise Funds or any Acquiring Fund or any of the
properties or assets of an Acquiring Fund, which, if adversely determined, would
materially and adversely affect the financial condition or the conduct of the
business of such Acquiring Fund. Enterprise Funds knows of no facts which might
form the basis for the institution of such proceedings, and is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects the business of any
Acquiring Fund or its ability to consummate the transactions contemplated
herein.
(e) The current prospectus and statement of additional information of
each Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(f) The Statement[s] of Assets and Liabilities of each Acquiring Fund
at December 31, 1995 [and 1996], [have] been audited by Coopers & Lybrand
L.L.P., independent auditors, and [have] been prepared in accordance with
generally accepted accounting principles, and such statement[s] (copies of which
have been furnished to RSF Inc.) fairly reflect the financial condition of such
Acquiring Fund as of such date[s], and there are no known contingent liabilities
of such Acquiring Fund as of such date[s] not disclosed therein.
(g) Since [December 31, 1996], there has not been any material adverse
change in any Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or any
incurrence by any Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as disclosed to and
accepted by RSF Inc.
(h) At the Closing Date, all federal and other tax returns and reports
of each Acquiring Fund required by law to have been filed by such date shall
have been filed or an appropriate extension obtained, and all federal and other
taxes shall have been paid so far as due, or provision shall have been made for
the payment thereof or contest in good faith, and to the best of Enterprise
Funds' knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(i) For each fiscal year of its operation, subject to applicable
statute of limitation periods, each Acquiring Fund has met the requirements of
Subchapter M of the Code for qualification and treatment as a regulated
investment company.
(j) All issued and outstanding Acquiring Fund Shares (if any) are, and
at the Closing Date, subject to consummation of the transactions contemplated
herein, will be, duly and validly issued and outstanding, fully paid and
non-assessable. No Acquiring Fund has outstanding any options, warrants or other
rights to subscribe for or purchase any of such Acquiring Fund Shares, nor is
there outstanding any security convertible into any such Acquiring Fund Shares.
(k) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action on the part of Enterprise Funds, and,
subject to any filings required to be made with the State of Maryland to
authorize the creation of Enterprise Growth and Income Portfolio and Enterprise
Small Company Growth Portfolio (the "New Acquiring Funds") this Agreement
constitutes the valid and legally binding obligation of Enterprise Funds on
behalf of each Acquiring Fund, enforceable in
A-6
<PAGE>
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto, and to general principles of equity and the discretion of the
court (regardless of whether the enforceability is considered in a proceeding in
equity or at law).
(l) The Prospectus/Proxy Statement to be included in the Registration
Statement (only insofar as it relates to Enterprise Funds and the respective
Acquiring Fund) will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not misleading.
5. COVENANTS OF ENTERPRISE FUNDS, ON BEHALF OF EACH ACQUIRING FUND, AND RSF
INC., ON BEHALF OF EACH ACQUIRED FUND.
5.1 Each Acquiring Fund and each Acquired Fund will operate its business in
the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and distributions.
5.2 RSF Inc. will call a meeting of shareholders of each Acquired Fund to
consider and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.
5.3 Enterprise Funds will take, or cause to be taken, all action necessary
to authorize and create the New Acquiring Funds, including without limitation,
the making of any filings required by the State of Maryland and the filing of a
Post-Effective Amendment to Enterprise Funds' Registration Statement on Form
N-1A to reflect the addition of the New Acquiring Funds.
5.4 Subject to the provisions of this Agreement, Enterprise Funds and RSF
Inc. will take, or cause to be taken, all action, and do or cause to be done,
all things reasonably necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement.
5.5 As promptly as practicable after the date hereof, Enterprise Funds and
RSF Inc. shall file or cause to be filed with the Commission an application for
an order exempting Enterprise Funds from the provisions of Section 15(f)(1)(A)
of the 1940 Act.
5.6 As promptly as practicable, but in any case within sixty days after the
Closing Date, RSF Inc. shall furnish Enterprise Funds, in such form as is
reasonably satisfactory to Enterprise Funds, statements of the earnings and
profits of each Acquired Fund for federal income tax purposes which will be
carried over to each respective Acquiring Fund as a result of Section 381 of the
Code and which will be certified by the President and Treasurer of Retirement,
Inc.
5.7 RSF Inc. will provide Enterprise Funds with information with respect to
each Acquired Fund reasonably necessary for the preparation of the
Prospectus/Proxy Statement, referred to in paragraph 4.1 (o), all to be included
in a Registration Statement on Form N-14 of Enterprise Funds (the "Registration
Statement"), in compliance with the 1933 Act, the Securities Exchange Act of
1934, as amended, and the 1940 Act in connection with each meeting of Acquired
Fund Shareholders to consider approval of this Agreement and the transactions
contemplated herein with respect to each Acquired Fund.
5.8 Enterprise Funds agrees, on behalf of each Acquiring Fund (severally
and not jointly), to use all reasonable efforts to obtain the approvals and
authorizations required by the 1933 Act, the 1940 Act and such of the state Blue
Sky or securities laws as it may deem appropriate in order to continue the
operations of each Acquiring Fund after the Closing Date.
5.9 On or prior to the Valuation Date, each Acquired Fund, the assets of
which will be acquired in a reorganization within the meaning of Code section
368(a)(1)(C) as reflected in Schedule A, shall have paid a dividend or dividends
which, together with all previous dividends, shall have the effect of
distributing to its shareholders all of its investment company taxable income,
if any,
A-7
<PAGE>
plus the excess of its interest income, if any, excludable from gross income
under Code section 103(a) over its deductions disallowed under Code sections 265
and 171(a)(2) for the taxable periods or years ended on or before September 30,
1996 and for the period from said date to and including the Closing Date
(computed without regard to any deduction for dividends paid), and for all of
its net capital gain, if any, realized in taxable periods or years ended on or
before September 30, 1996 and in the period from said date to and including the
Closing Date, and such dividend or dividends shall be paid on the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF ENTERPRISE FUNDS WITH RESPECT TO EACH
ACQUIRING FUND.
The obligations of Enterprise Funds with respect to each Acquiring Fund
to complete the transactions provided for herein shall be subject, at its
election, to the performance by RSF Inc. with respect to each respective
Acquired Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of RSF Inc. contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 RSF Inc. shall have delivered to Enterprise Funds a statement of each
Acquired Fund's assets, together with a list of such Acquired Fund's portfolio
securities showing the tax cost of such securities by lot and the holding
periods of such securities, as of the Closing Date, certified by the Treasurer
of RSF Inc.
6.3 RSF Inc. shall have delivered to Enterprise Funds on the Closing Date a
certificate executed in its name by the President or Vice President and
Treasurer or Secretary of RSF Inc., in form and substance satisfactory to
Enterprise Funds, to the effect that the representations and warranties of RSF
Inc. made in this Agreement are true and correct in all material respects at and
as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement.
6.4 Enterprise Funds shall have received the exemptive order referred to in
paragraph 5.5.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF RSF Inc. WITH RESPECT TO EACH
ACQUIRED FUND.
The obligations of RSF Inc. with respect to each Acquired Fund to
consummate the transactions provided herein shall be subject, at its election,
to the performance by Enterprise Funds with respect to each respective Acquiring
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of Enterprise Funds contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
7.2 Enterprise Funds shall have delivered to RSF Inc. on the Closing Date a
certificate executed in its name by the President or Vice President and
Treasurer or Secretary of Enterprise Funds, in form and substance satisfactory
to RSF Inc., to the effect that the representations and warranties of Enterprise
Funds made in this Agreement are true and correct in all material respects at
and as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ENTERPRISE FUNDS AND RSF
Inc.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to any Acquired Fund or Acquiring Fund, either party
to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement with respect to such Acquired Fund
and respective Acquiring Fund only:
A-8
<PAGE>
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
respective Acquired Fund in accordance with the provisions of the Articles of
Incorporation of RSF Inc., Maryland law and the 1940 Act.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities) deemed
necessary by Enterprise Funds or RSF Inc. with respect to each Acquiring Fund or
Acquired Fund to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except where failure
to obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of such Acquiring Fund or
Acquired Fund, provided that either party hereto may for itself waive any of
such conditions.
8.4 The Post-Effective Amendment of Enterprise Funds described in paragraph
5.3 and the Registration Statement shall each have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5 Enterprise Funds and RSF Inc. shall have received an opinion of
Shereff, Friedman, Hoffman & Goodman, LLP or a private letter ruling from the
Internal Revenue Service substantially to the effect that for federal income tax
purposes, with respect to each Reorganization and each respective Acquiring Fund
and Acquired Fund:
(a) The transfer of all of the Acquired Fund's assets in exchange for
the Acquiring Fund Shares and the distribution of such Acquiring Fund Shares to
the Acquired Fund Shareholders in liquidation of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C) or (F)
of the Code (as indicated on Schedule A hereto); (b) No gain or loss will be
recognized by the Acquiring Fund upon the receipt of the assets of the Acquired
Fund solely in exchange for the Acquiring Fund Shares; (c) No gain or loss will
be recognized by the Acquired Fund upon the transfer of the Acquired Fund assets
to the Acquiring Fund solely in exchange for the Acquiring Fund Shares and the
assumption of its liabilities, if any, or upon the distribution (whether actual
or constructive) of the Acquiring Fund Shares to Acquired Fund Shareholders
solely in exchange for their shares of the Acquired Fund; (d) No gain or loss
will be recognized by the Acquired Fund Shareholders upon the exchange of their
Acquired Fund shares solely for the Acquiring Fund Shares; (e) The tax basis of
the Acquired Fund assets acquired by the Acquiring Fund will be the same as the
tax basis of such assets to the Acquired Fund immediately prior to the
Reorganization; (f) The tax basis of the Acquiring Fund Shares received by each
of the Acquired Fund Shareholders pursuant to the Reorganization will be the
same as the tax basis of the Acquired Fund shares held by such shareholder
immediately prior to the Reorganization; (g) The holding period of the assets of
the Acquired Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Acquired Fund; and (h) The holding
period of the Acquiring Fund Shares to be received by each Acquired Fund
Shareholder will include the period during which the Acquired Fund shares
exchanged therefor were held by such shareholder (provided the Acquired Fund
shares were held as capital assets on the date of the Reorganization).
9. TERMINATION OF AGREEMENT.
(a) This Agreement and the transactions contemplated hereby may be
terminated and abandoned with respect to any particular Reorganization by
resolution of the Board of Directors of RSF Inc. or the Board of Directors of
Enterprise Funds at any
A-9
<PAGE>
time prior to the Closing Date (and notwithstanding any vote of the respective
Acquired Fund Shareholders) if circumstances should develop that, in the opinion
of either of the parties' Board, make proceeding with the Agreement inadvisable
with respect to such Reorganization.
9.1 If this Agreement is terminated and the exchange contemplated hereby is
abandoned pursuant to the provisions of this Section 9 with respect to any
Reorganization, this Agreement shall become void and have no effect with respect
to such Reorganization, without any liability on the part of any party hereto or
the directors or officers of RSF Inc. or Enterprise Funds or the shareholders of
the respective Acquiring Fund or of the respective Acquired Fund with respect to
such Reorganization, in respect of this Agreement. Notwithstanding termination
of this Agreement with respect to any one or more Acquired Fund and respective
Acquired Fund(s), the effectiveness of this Agreement shall not be affected with
respect to any other Acquired Fund and Acquiring Fund.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board of Directors of Enterprise Funds or the Board of
Directors of RSF Inc. with respect to any Reorganization, if, in the judgment of
either, such waiver will not have a material adverse effect on the benefits
intended under this Agreement to the shareholders of the respective Acquiring
Fund or Acquired Fund, as the case may be.
11. MISCELLANEOUS.
11.1 It is agreed for purposes of this Agreement that each Acquiring Fund
and each Acquired Fund listed on Schedule A hereto, individually and not
jointly, shall be deemed to be entering into a separate agreement so that it is
if the parties hereto had signed a separate agreement with respect to each of
such entities and that a single document is being signed simply to facilitate
the execution and administration of this Agreement. None of the Acquiring Funds
or Acquired Funds is responsible for any of the obligations, or is entitled to
any of the rights, of any other Acquiring Fund or Acquired Fund, respectively.
Any failure by the parties to meet any obligations or conditions with respect to
any one or more Reorganizations shall not result in a failure of any obligation
or condition to any other Reorganization.
11.2 None of the representations and warranties included or provided for
herein shall survive consummation of the transactions contemplated hereby.
11.3 This Agreement, including Schedule A hereto, contains the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof, and merges and supersedes all prior discussions,
agreements, and understandings of every kind and nature between them relating to
the subject matter hereof. Neither party shall be bound by any condition,
definition, warranty or representation, other than as set forth or provided in
this Agreement or as may be set forth in a later writing signed by the party to
be bound thereby.
11.4 This Agreement shall be governed and construed in accordance with the
internal laws of the State of Maryland, without giving effect to principles of
conflicts of laws.
11.5 This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
11.6 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof of any rights or obligations hereunder shall be made by any
party without the written consent
A-10
<PAGE>
of the other party. Nothing herein expressed or implied is intended or shall be
construed to confer upon or give any person, firm or corporation, other than the
parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, RSF Inc., on behalf of each of the Acquired Funds,
and Enterprise Funds, on behalf of each of the Acquiring Funds, have each caused
this Agreement and Plan of Reorganization to be executed and attested on its
behalf by its duly authorized representatives as of the date first above
written.
Acquiring Fund:
THE ENTERPRISE GROUP OF FUNDS, INC.
on behalf of its portfolios,
ENTERPRISE GROWTH AND INCOME PORTFOLIO
ENTERPRISE SMALL COMPANY GROWTH
PORTFOLIO
ENTERPRISE GOVERNMENT SECURITIES
PORTFOLIO
ENTERPRISE MONEY MARKET PORTFOLIO
Attest:
By: /s/_______________________________
Name:
Title:
/s/___________________________________
Name:
Title:
Acquired Fund:
RETIREMENT SYSTEM FUND INC.
on behalf of its portfolios,
CORE EQUITY FUND
EMERGING GROWTH EQUITY FUND
INTERMEDIATE-TERM FIXED-INCOME FUND
MONEY MARKET FUND
Attest:
By: /s/_______________________________
Name:
Title:
/s/___________________________________
Name:
Title:
A-11
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
CODE SECTION OF THE
ACQUIRED FUND ACQUIRING FUND WITH WHICH ACQUIRED FUND WILL REORGANIZE REORGANIZATION
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Core Equity Fund Enterprise Growth and Income Portfolio 368(a)(1)(F)
- ------------------------------------------------------------------------------------------------------------------
Emerging Growth Equity Fund Enterprise Small Company Growth Portfolio 368(a)(1)(F)
- ------------------------------------------------------------------------------------------------------------------
Intermediate-Term Fixed-Income Fund Enterprise Government Securities Portfolio 368(a)(1)(C)
- ------------------------------------------------------------------------------------------------------------------
Money Market Fund Enterprise Money Market Portfolio 368(a)(1)(C)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
A-12
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 27, 1997
ACQUISITION OF THE ASSETS OF
CORE EQUITY FUND
EMERGING GROWTH EQUITY FUND
INTERMEDIATE-TERM FIXED-INCOME FUND
MONEY MARKET FUND,
PORTFOLIOS OF
RETIREMENT SYSTEM FUND INC.
P.O. BOX 2064
GRAND CENTRAL STATION
NEW YORK, NEW YORK 10163-2064
TELEPHONE NUMBER: 1-800-772-3615
BY AND IN EXCHANGE FOR CLASS Y SHARES OF
ENTERPRISE GROWTH AND INCOME PORTFOLIO
ENTERPRISE SMALL COMPANY GROWTH PORTFOLIO
ENTERPRISE GOVERNMENT SECURITIES PORTFOLIO
ENTERPRISE MONEY MARKET PORTFOLIO,
PORTFOLIOS OF
THE ENTERPRISE GROUP OF FUNDS, INC.
3343 PEACHTREE ROAD, N.E.
SUITE 450
ATLANTA, GEORGIA 30326
TELEPHONE NUMBER: 1-800-432-4320
This Statement of Additional Information dated May 27, 1997 is not a
prospectus. A Prospectus/Proxy Statement dated May 27, 1997 related to the
above-referenced matter may be obtained from The Enterprise Group of Funds, 3343
Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326. This Statement of
Additional Information should be read in conjunction with such Prospectus/Proxy
Statement.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Statement of Additional Information of Enterprise Growth and Income Portfolio,
Enterprise Small Company Growth Portfolio, Enterprise Government Securities
Portfolio, and Enterprise Money Market Portfolio, portfolios of The Enterprise
Group of Funds, Inc. dated May 1, 1997.
2. Statement of Additional Information of Core Equity Fund, Emerging Growth Equity
Fund, Intermediate-Term Fixed-Income Fund, and Money Market Fund, portfolios of
Retirement System Fund Inc., dated January 28, 1997.
3. Annual Report to Shareholders of Enterprise Growth and Income Portfolio,
Enterprise Small Company Growth Portfolio, Enterprise Government Securities
Portfolio, and Enterprise Money Market Portfolio, portfolios of The Enterprise
Group of Funds, Inc., for the year ended December 31, 1996.
4. Annual Report to Shareholders of Core Equity Fund, Emerging Growth Equity Fund,
Intermediate-Term Fixed-Income Fund, and Money Market Fund, portfolios of
Retirement System Fund Inc., for the year ended September 30, 1996.
5. Semi-Annual Report to Shareholders of Core Equity Fund, Emerging Growth Equity
Fund, Intermediate-Term Fixed-Income Fund, and Money Market Fund, portfolios of
Retirement System Fund Inc., for the six-month period ended March 31, 1997.
</TABLE>
2
<PAGE>
ADDITIONAL INFORMATION ABOUT ENTERPRISE FUNDS AND RSF INC.
The Statement of Additional Information of Enterprise Growth
and Income Portfolio ("Enterprise Growth and Income"),
Enterprise Small Company Growth Portfolio ("Enterprise Small
Company Growth"), Enterprise Government Securities Portfolio
("Enterprise Government"), and Enterprise Money Market
Portfolio ("Enterprise Money") (collectively the "Enterprise
Portfolios"), portfolios of The Enterprise Group of Funds,
Inc. ("Enterprise Funds"), is attached hereto and is
incorporated herein by reference.
The Statement of Additional Information of Core Equity
Fund ("RSF Inc. Core Equity"), Emerging Growth Equity Fund
("RSF Inc. Emerging Growth"), Intermediate-Term Fixed-Income
Fund ("RSF Inc. Intermediate-Term"), and Money Market Fund
("RSF Inc. Money Market") (collectively the "RSF Inc. Funds"),
portfolios of Retirement System Fund Inc. ("RSF Inc."), dated
January 28, 1997, is attached hereto and is incorporated
herein by reference.
The Annual Report to Shareholders of the Enterprise
Portfolios, for the year ended December 31, 1996, is attached
hereto and is incorporated herein by reference.
The Annual Report to Shareholders of the RSF Inc.
Funds, for the year ended September 30, 1996, is attached
hereto and is incorporated herein by reference.
The Semi-Annual Report to Shareholders of the RSF Inc.
Funds, for the six-month period ended March 31, 1997, is
attached hereto and is incorporated herein by reference.
Pro forma financial statements of RSF Inc.
Intermediate-Term and Enterprise Government, and RSF Inc.
Money Market and Enterprise Money, respectively, are not
presented, since as of April 21, 1997, the net asset value of
each of RSF Inc. Intermediate-Term and RSF Inc. Money Market
did not exceed ten percent of each of Enterprise Government
and Enterprise Money's net asset value, respectively. Pro
forma financial statements of RSF Inc. Core Equity and
Enterprise Growth and Income, and RSF Inc. Emerging Growth and
Enterprise Small Company Growth, respectively, are not
presented, since each of RSF Inc. Core Equity and RSF Inc.
Emerging Growth will be reorganized into Enterprise Growth and
Income and Enterprise Small Company Growth, respectively, each
a newly-created Portfolio of Enterprise Funds with no public
shareholders or assets (other than seed capital) prior to the
Reorganization. Following the Reorganization, the assets
previously owned by each of RSF Inc. Core Equity and RSF Inc.
Emerging Growth will represent 100% of the assets of the
respective newly-created Portfolios (other than seed capital).
3
<PAGE>
[LOGO]
Atlanta Financial Center
3343 Peachtree Road, Suite 450
Atlanta, Georgia 30326-1022
STATEMENT OF ADDITIONAL INFORMATION
EQUITY PORTFOLIOS:
GROWTH PORTFOLIO
GROWTH AND INCOME PORTFOLIO
EQUITY PORTFOLIO
EQUITY INCOME PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
SMALL COMPANY GROWTH PORTFOLIO
SMALL COMPANY VALUE PORTFOLIO
INTERNATIONAL GROWTH PORTFOLIO
INCOME PORTFOLIOS:
GOVERNMENT SECURITIES PORTFOLIO
HIGH-YIELD BOND PORTFOLIO
TAX-EXEMPT INCOME PORTFOLIO
FLEXIBLE PORTFOLIO:
MANAGED PORTFOLIO
MONEY MARKET PORTFOLIO:
MONEY MARKET PORTFOLIO
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Fund's Prospectus.
A copy of the Prospectus may be obtained by writing to the Fund at 3343
Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326, or by calling the Fund
at the following numbers:
1-800-432-4320
1-800-368-3527 (SHAREHOLDER SERVICES)
The date of the Prospectus to which this Statement of Additional
Information relates is May 1, 1997.
The date of this Statement of Additional Information is May 1, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
General Information and History
(See Prospectus--General Information)...................................................... 3
Investment Objectives and Policies
(See Prospectus--Investment Objectives and Policies of the Portfolios)..................... 3
Management of the Fund
(See Prospectus--Management of the Fund)................................................... 6
Investment Advisory and Other Services......................................................... 9
Investment Advisory Agreement.................................................................. 9
Portfolio Managers............................................................................. 10
Distributor's Agreement and Plan of Distribution............................................... 11
Miscellaneous
(See Prospectus--Management of the Fund)................................................... 11
Purchase, Redemption and Pricing of Securities
Being Offered.............................................................................. 11
Services for Investors
(See Prospectus--How to Purchase Portfolio Shares;
How to Redeem Portfolio Shares)......................................................... 12
Redemptions in Kind.......................................................................... 13
Determination of Net Asset Value............................................................. 14
Portfolio Transactions and Brokerage........................................................... 15
Performance Comparisons........................................................................ 15
Custodian...................................................................................... 16
Independent Accountants........................................................................ 16
Taxes.......................................................................................... 16
Financial Statements........................................................................... 17
Appendix....................................................................................... 18
</TABLE>
2
<PAGE>
GENERAL INFORMATION AND HISTORY
The Enterprise Group of Funds, Inc. (the "Fund") was
incorporated January 2, 1968 as Alpha Fund, Inc. Its name was
changed to The Enterprise Group of Funds, Inc. on September
14, 1987, and at that same time: (i) the Fund's Board of
Directors was authorized to establish any number of series of
common stock of the Fund, each of which series would represent
stock in a separate Portfolio; (ii) each outstanding share of
the common stock of Alpha Fund, Inc. became one share of the
newly established Growth Portfolio; and (iii) the Fund was
reincorporated as a Maryland corporation with the shares of
the Common Stock of the Fund divided into nine classes
consisting of a separate class for each Portfolio. On May 31,
1989, the Fund's GNMA and Corporate Portfolios were combined
with the Government Securities Portfolio reducing the number
of Fund Portfolios to eight. Effective May 1, 1990, the Fund
added its Money Market Portfolio. Effective April 21, 1993,
the Fund liquidated the Precious Metals Portfolio. Effective
October 1, 1993, the Fund added its Small Company Value
Portfolio and effective October 3, 1994, the Fund added its
Managed Portfolio. Effective May 1, 1995, the Fund added Class
B and Class Y shares. Effective May 1, 1997 the Fund added
Class C Shares and the Equity, Equity Income and Small Company
Growth Portfolios.
INTERNATIONAL GROWTH PORTFOLIO--Capital appreciation,
primarily through a diversified portfolio of non-U.S. equity
securities.
The International Growth Portfolio Manager believes
that, over the long term, investing across international
equity markets based upon discrepancies between market prices
and fundamental values may achieve a positive enhancement for
the Portfolio's investment performance relative to the returns
from the Benchmark.
Fundamental value is considered to be the current value
of long-term, sustainable future cash flows derived from a
given asset class or security. In determining fundamental
value, the Portfolio Manager examines the relative price to
value of the investment opportunity based upon the prospects
for relative economic growth among countries, regions or
geographic areas; expected levels of inflation; government
policies influencing business conditions; and the outlook for
currency relationships. Investment decisions are based on
comparisons of current market prices to fundamental values.
Although it may invest anywhere in the world, it is
expected that the Portfolio will primarily invest in the
equity markets included in the Morgan Stanley Capital
International Non-U.S. Equity (Free) Index which currently are
Japan, the United Kingdom, Germany, France, Canada, Italy, the
Netherlands, Australia, Switzerland, Spain, Hong Kong,
Belgium, Singapore, Malaysia, Sweden, Denmark, Norway, New
Zealand, Austria, Finland and Ireland. The composition of the
Index may change over time, according to criteria established
by Morgan Stanley.
3
<PAGE>
The "Asset Allocation Mix," set forth below, represents
the asset allocation mix based on the Benchmark as of December
31, 1996, and may shift over time as the Benchmark index
weights change.
<TABLE>
<CAPTION>
ASSET CLASS
ASSET CLASS ASSET ALLOCATION MIX STRATEGY RANGES
----------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Non-U.S. Equities 100% 80-100%
Cash and Cash
Equivalents 0% 0-20%
-----
100%
</TABLE>
The "asset class strategy ranges" indicated above are
the ranges within which the Fund expects to make its active
asset allocations to specific asset classes. Under all but
unusual market conditions, the Portfolio expects to adhere to
the strategy ranges set forth above. However, the Portfolio's
strategy ranges may be exceeded by the Portfolio under unusual
market conditions.
The investment policies of the Portfolios along with a
description of the securities in which the Portfolios invest,
certain risks connected with investments in the Portfolios,
and a description of investment techniques used by the
Portfolios are set forth in the Prospectus.
1.C INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions
which cannot be changed as to any individual Portfolio without
approval by the holders of a majority of the outstanding
shares of the relevant Portfolio. (As used - in this Statement
of Additional Information, "a majority of the outstanding
shares of the relevant Portfolio" means the lessor of (i) 67%
of the shares of the relevant Portfolio represented at a
meeting at which more than 50% of the outstanding shares of
that Portfolio are represented in person or by proxy or (ii)
more than 50% of the outstanding shares of the relevant
Portfolio.) Except as otherwise set forth, none of the
Portfolios may:
1. As to 75% of the assets of any Portfolio, purchase the
securities of any issuer if such purchase would cause more
than 5% of the value of its assets to be invested in the
securities of such issuer (except U.S. Government
securities or those of its agencies or instrumentalities),
or purchase more than 10% of the outstanding securities,
or more than 10% of the outstanding voting securities, of
any issuer.
2. Purchase securities of any company with a record of less
than three years continuous operation (including that of
predecessors) if such securities would cause the
Portfolio's investment in such companies taken at cost to
exceed 5% of the value of the Portfolio's total assets.
(The High Yield Bond and Tax-Exempt Income Portfolios are
not subject to this restriction.)
3. Purchase securities on margin, but it may obtain such
short-term credits as may be necessary for the clearance
of purchases and sales of securities and may make initial
and maintenance margin deposits in connection with options
and futures contracts as permitted by its investment
program.
4. Make short sales of securities, unless at the time of such
sale, it owns, or has the right to acquire at no
additional cost to the Portfolio as the result of the
ownership of convertible or exchange securities, an equal
amount of such securities, and it will retain such
securities so long as it is in a
4
<PAGE>
short portion as to them. In no event will a Portfolio
make short sales of securities in such a manner that the
value of its net assets used to cover such sales would
exceed 15% of the value of its net assets at any time. The
short sales of the type described above, which are called
"sales against the box," may be used by a Portfolio when
management believes that they will protect profits or
limit losses in investments and would be used chiefly in
deferring a tax gain or loss.
5. Borrow money, except that a Portfolio may borrow from
banks as a temporary measure for emergency purposes and
not for investment, in which case such borrowings may not
be in excess of the lesser of: (a) 5% of its total assets
taken at cost; or (b) 5% of the value of its assets at the
time that the loan is made. A Portfolio will not purchase
securities while borrowings are outstanding. A Portfolio
will not pledge, mortgage or hypothecate its assets taken
at market value to an extent greater than the lesser of
10% of the value of its net assets or 15% of the value of
its total assets taken at cost.
6. Purchase or retain the securities of any issuer if those
officers and directors of the Fund or of its investment
advisor holding individually more than 1/2 of 1% of the
securities of such issuer together own more than 5% of the
securities of such issuer.
7. Purchase the securities of any other investment company
except in the open market in a transaction involving no
commission or profit to a sponsor or dealer (other than
the customary sales load or broker's commission) or as a
part of a merger, consolidation, acquisition or
reorganization.
8. Invest in real estate; this restriction does not prohibit
the Fund from investing in the securities of real estate
investment trusts.
9. Invest for the purpose of exercising control of management
of any company.
10. Underwrite securities issued by others except to the
extent that the disposal of an investment position may
qualify the Portfolio or the Fund as an underwriter as
that term is defined under the Securities Act of 1933, as
amended,
11. Except for the Money Market Portfolio, make any
investment which would cause more than 25% of the total
assets of the Portfolio to be invested in securities
issued by companies principally engaged in any one
industry; provided, however, that: (i) this limitation
does not apply to investments in U.S. Government
Securities as well as its agencies and instrumentalities,
general obligation bonds, municipal securities other than
industrial development bonds issued by non-governmental
users, and (ii) utility companies will be divided
according to their services (for example, gas, gas
transmission, electric, electric and gas, and telephone
will each be considered a separate industry). The Money
Market Portfolio may invest more that 25% of its total
assets in U.S. Government Securities as well as its
agencies and instrumentalities and certain bank
instruments issued by domestic banks. The instruments in
which the Money Market Portfolio may invest in excess of
25%, in the aggregate, of its total assets are letters of
credit and guarantees, negotiable certificates of
deposit, time deposits, commercial paper and bankers
acceptances meeting the investment criteria for the Money
Market Portfolio.
12. Participate with others in any trading account. This
restriction does not prohibit the Fund or any Portfolio
from combining portfolio orders with those of other
Portfolios or other clients of the
5
<PAGE>
investment adviser or Portfolio Managers when to do so
would permit the Fund and one or more Portfolios to
obtain a large-volume discount from ordinary brokerage
commissions when negotiated rates are available. (See
"Portfolio Transactions and Brokerage" below.)
13. Invest more than 10% of the value of its assets in
securities which are subject to legal or contractual
restrictions on resale or are otherwise not readily
saleable.
In addition, management of the Fund has adopted the
following restrictions which apply to all of the Portfolios
and may be changed only by the Board of Directors of the Fund.
No Portfolio will: (i) lend its assets to any person or
individual, except by the purchase of bonds or other debt
obligations customarily sold to institutional investors, (ii)
invest more than 5% of the value of its net assets, valued at
the lower of cost or market, in warrants (Included in that
amount, but not to exceed 2% of the value of the Portfolio's
net assets, may be warrants which are not listed on the New
York or American Stock Exchanges. Warrants acquired by a
Portfolio in units or attached to securities may be deemed to
be without value.), or (iii) invest in oil, gas, or other
mineral leases or engage in arbitrage transactions.
MANAGEMENT OF THE FUND
The directors and officers of the Fund, and their principal
occupations during the past five years, are set forth below.
Directors who are "interested persons", as defined in the 1940
Act, are denoted by an asterisk. As to their duties relative
to the Fund, the address of each is Atlanta Financial Center,
3343 Peachtree Road, N.E., Ste. 450, Atlanta, GA 30326.
<TABLE>
<CAPTION>
NAME, AGE AND POSITION WITH THE FUND PRINCIPAL OCCUPATION PAST FIVE YEARS
-------------------------------------- ----------------------------------------
<S> <C> <C>
Arthur T. Dietz (73) Member of the Audit Committee President,
Director ATD Advisory Services, Inc. since 1996;
President and Chief Chief Executive
Officer, Strategic Portfolio Management,
Inc., 1987-1996; Mills B. Lane Pro-
fessor of Finance and Banking, Emory
University, 1954-1988; Trustee,
Enterprise Accumulation Trust; Director,
Medical Synergies, Inc.
*Samuel J. Foti (45) President and Chief Operating Officer,
Director MONY since 1994; Executive Vice
President, MONY (1991-1994); Trustee,
MONY since 1993; Senior Vice President
and Chief Marketing Officer, MONY (1989
-1991); Trustee, Enterprise Accumulation
Trust.
Arthur Howell (78) Of Counsel, law firm of Alston Director
& Bird, Atlanta, Georgia; President
Chairman of the Audit Committee and
Chairman of the Board, Summit
Industries, Inc.; Secretary of the
Executive Committee, Crescent Banking
Co., Inc.; Trustee, Enterprise
Accumulation Trust.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
William A. Mitchell, Jr. (59) President, Carter & Associates (real
Director estate development), Atlanta, Georgia;
Trustee, Enterprise Accumulation Trust.
Lonnie H. Pope (63) President and Chief Executive Officer of
Director AFF, Inc. (creator and manufacturer of
Member of the Audit Committee aromatics, flavors and fragrances),
Marietta, Georgia; Trustee, Enterprise
Accumulation Trust.
*Michael I. Roth (51) Chairman and Chief Executive Officer,
Director MONY since 1993; President and Chief
Executive officer, MONY (1991-1993);
Executive Vice President and Chief
Financial Officer, MONY (1989-1991);
Executive Vice President and Chief
Financial Officer, Primerica Corporation
(1987); Executive Vice President,
Primerica Corporation (1982-1987);
Trustee, Enterprise Accumulation Trust;
Director, American Council of Life
Insurance (ACLI).
*Victor Ugolyn (49) Chairman, President and Chief Executive
Director Officer, The Enterprise Group of Funds,
Inc. since 1991; Chairman, President and
Chief Executive Officer, Enterprise
Capital and Enterprise Fund Distribu-
tors, Inc. since 1991; Chairman,
President and Chief Executive Officer,
Enterprise Accumulation Trust; Vice
Chairman and Chief Marketing Officer,
Value Line Securities, Inc. (1986-1991).
Catherine R. McClellan (41) Secretary, Enterprise Accumulation
Secretary Trust; Senior Vice President, Secretary
and Chief Counsel, Enterprise Capital
Management, Inc.; Senior Vice President,
Secretary and Chief Counsel, Enterprise
Fund Distributors, Inc.
Herbert M. Williamson (46) Assistant Secretary and Treasurer,
Treasurer Enterprise Accumulation Trust,
Enterprise Capital Management, Inc. and
Enterprise Fund Distributors, Inc.
Phillip G. Goff (33) Vice President and Chief Financial
Vice President Officer, Enterprise Accumulation Trust,
Enterprise Capital Management, Inc. and
Enterprise Fund Distributors, Inc. 1995
-present; Audit Manager, Coopers &
Lybrand, L.L.P., 1986 - 1995.
</TABLE>
* Messrs. Foti, Roth and Ugolyn are "interested persons" of the
Fund, of Enterprise Capital Management, Inc. (the Fund's
investment adviser), and of Enterprise Fund Distributors, Inc.
(the distributor of the Fund's Shares), as that term is defined
in the Investment Company Act of 1940.
7
<PAGE>
At December 31, 1996, the officers and directors of the
Fund as a group owned less than one percent of the shares of
each Portfolio.
The Fund pays fees to those directors who are not
"interested persons" of the Fund at the rate of $10,000 per
director per year plus $1,000 for each special or committee
meeting attended. The Fund pays no salaries, fees or
compensation to any of its officers, since these expenses are
borne by the Fund's investment adviser, Enterprise Capital
Management, Inc. No fees were paid to the "interested"
directors of the Fund.
The following sets forth compensation paid to each of
the Directors during 1996:
<TABLE>
<CAPTION>
(3)
PENSION
OR TOTAL
RETIREMENT COMPENSATION
(2) BENEFITS FROM
AGGREGATE ACCRUED (4)(5) REGISTRANT
COMPENSATION AS PART ESTIMATED AND FUND
(1) FROM OF FUND ANNUAL BENEFITS COMPLEX PAID
NAME REGISTRANT EXPENSES UPON RETIREMENT TO DIRECTORS*
<S> <C> <C> <C> <C> <C>
Arthur T. Dietz $ 14,500 None None $ 23,350
Arthur Howell $ 14,500 None None $ 23,350
William A.
Mitchell, Jr. $ 13,000 None None $ 21,250
Lonnie H. Pope $ 14,500 None None $ 23,350
</TABLE>
* Each Director received fees for services as a Trustee of
Enterprise Accumulation Trust.
8
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
The Fund has entered into an Investment Advisory
Agreement (the "Adviser's Agreement") with Enterprise Capital
Management, Inc. ("Enterprise Capital") which, in turn, has
entered into Portfolio Manager's Agreements with each of the
Portfolio Managers as discussed in the Prospectus. Enterprise
Capital functions as the adviser to the Money Market
Portfolio. Enterprise Capital is a subsidiary of The Mutual
Life Insurance Company of New York ("MONY"), one of the
nation's largest insurance companies. Enterprise Capital was
incorporated in 1986. Enterprise Capital's address is Suite
450, 3343 Peachtree Road, Atlanta, Georgia 30326. Victor
Ugolyn, who is President of the Fund, is also Chairman of the
Board and President of Enterprise Capital.
The Adviser's Agreement obligates Enterprise Capital to
provide investment advisory services to the Portfolios of the
Fund, to furnish the fund with certain administrative,
clerical, bookkeeping and statistical services, office space
and facilities, and to pay the compensation of the officers of
the Fund. Each Portfolio pays all other expenses incurred in
its operation, and a portion of the Fund's general
administrative expenses are allocated to the Portfolios either
on the basis of their asset size, on the basis of special
needs of any Portfolio, or equally as is deemed appropriate.
The Fund's Board of Directors annually reviews allocation of
expenses among the Portfolios.
The Adviser's Agreement authorizes Enterprise Capital
to enter into subadvisory agreements with various investment
advisers as Portfolio Managers for the Portfolios of the Fund.
The Portfolio Manager's Agreements are substantially the same
in all material respects except for the names of the Portfolio
Managers and the rates of compensation, which consist of a
portion of the management fee that is paid by the Fund to
Enterprise Capital and which Enterprise Capital pays to the
Portfolio Managers.
Enterprise Capital is the Portfolio Manager of the
Money Market Portfolio. It utilizes the services of The Mutual
Life Insurance Company of New York employees for certain
services relating to management of the Portfolio. These
services include but are not limited to the initial credit
review of approved issuers and trading. All such services are
provided on a cost reimbursement basis.
Expenses that are borne directly by the Portfolios
incurring such costs include redemption expenses, expenses of
portfolio transactions, shareholder servicing costs, mailing
costs, expenses of registering the shares under federal and
state securities laws, accounting and pricing costs (including
the daily calculation of net asset value and daily dividends),
interest, certain taxes, legal services, auditing services,
charges of the custodian and transfer agent, and other
expenses attributable to an individual account. Expenses which
are generally allocated either on the basis of size or equally
among the respective Portfolios include director fees, legal
expenses, state franchise taxes, costs of printing of proxies,
prospectuses, registration statements and shareholder reports,
printing and issuance of stock certificates and other expenses
properly payable by the Fund that are allocable to the
respective Portfolios. Litigation costs, if any, may be
directly allocable to the Portfolios or allocated on the basis
of the size of the respective Portfolios. The Board of
Directors has determined that this is an appropriate method of
allocation of expenses.
9
<PAGE>
Enterprise Capital has advised the Fund that it will
reimburse such portion of the fees due to it under the
Adviser's Agreement as is necessary to assure, for the period
commencing January 1, 1997 and ending no earlier than December
31, 1997 that expenses incurred by the Portfolios will not
exceed those which appear as part of the Expense table, page
2, to the Prospectus. This commitment was also in effect from
January 1, 1989 through December 31, 1996.
The table below sets forth the 1996 breakdown by
Portfolio of (1) the investment advisory fee paid to
Enterprise Capital, (2) the percentage of the Management Fee
to be paid by Enterprise Capital to the Portfolio Manager, (3)
the portfolio management fee paid by Enterprise Capital to the
Portfolio Manager, (4) the net advisory fee left to Enterprise
Capital after payment of the portfolio management fee, and (5)
the amount of the expense reimbursement paid by Enterprise
Capital to the Portfolio to assure that expenses incurred by
the Portfolio did not exceed 2.0% of average annual net assets
for the Equity Portfolios and 1.3% of average annual net
assets for the Income Portfolios. To the extent that the
Management Fee equals or exceeds .75% of the average daily net
asset values of a Portfolio, such fee is higher than the fee
charged to most investment companies. However, the Board of
Directors has determined that such fees are reasonable in
light of the services, investment decisions and investment
techniques employed by the Portfolios.
<TABLE>
<CAPTION>
PORTFOLIO (1) (2) (3) (4) (5)
----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth.................................. $1,282,393 40%(1) 474,978 807,415 37,407(2)
Equity Income........................... 523,261 40% 209,391 313,870 126,447
Capital Appreciation.................... 935,780 66%(3) 611,348 324,432 21,601(2)
Small Company Value..................... 153,784 40%(4) 72,105 81,679 128,396
International Growth.................... 353,427 50% 187,181 166,246 80,932
Government Securities................... 490,882 50%(5) 229,645 261,237 94,868
High-Yield Bond......................... 339,960 50% 170,056 169,904 114,041
Tax-Exempt Income....................... 162,828 50% 81,452 81,376 51,959
Managed................................. 1,164,633 53% 568,181 596,452 --
Money Market............................ 160,844 -- -- 160,844 82,594
</TABLE>
(1)33% of assets $100,000,001 - $200,000,000
(2)
Reflects total expenses before reduction for
brokerage commission credits which are
reflected as expense reimbursement.
(3)60% of assets in excess of $100,000,001 -
$200,000,000
(4)42% of assets in excess of $500,000,001
(5)53% of assets in excess of $20,000,001
PORTFOLIO MANAGERS
MONTAG & CALDWELL, INC.
Montag & Caldwell was established in 1945 as an
investment adviser.
10
<PAGE>
TCW FUNDS MANAGEMENT, INC.
TCW Funds Management, Inc. was established for the sole
purpose of managing investment portfolios. The 1997 Money
Market Directory of Pension Funds and their Investment
Managers ranks TCW as the 13th largest investment counselling
firm in the United States of the 1,261 firms surveyed.
Additional information concerning the Portfolio
Managers and their annual rate of compensation is set forth in
the Prospectus.
DISTRIBUTOR'S AGREEMENT AND PLAN OF DISTRIBUTION
The Distributor's Agreements and Plans of Distribution
(the "12b-1 Plans") between the Fund and Enterprise Fund
Distributors, Inc. ("Enterprise Distributors"), pursuant to
which Enterprise Distributors serves as principal underwriter
of the Fund's shares, is described in the Prospectus. The
12b-1 Plans provide for the payment by the Fund to Enterprise
Distributors of a daily distribution fee.
TOTAL CONTINGENT DEFERRED SALES CHARGES
<TABLE>
<CAPTION>
TRAVEL,
TELEPHONE
DISTRIBUTION COMMISSION & MARKETING & & OTHER
FEES PAID TO SALES FEES CDSC COLLECTED CDSC PAID ADVERTISING AUTHORIZED
EFD PAID TO EFD & PAID TO EFD TO DEALERS FEES PAID FEES PAID
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $ 3,696,663 $692,305 $ 6,916 $1,725,493 $1,045,791 $328,418
1995 $ 2,487,595 $505,970 $ 3,074 $1,255,109 $ 585,683 $301,269
1994 $ 2,232,408 $627,245 $23,779 $2,322,408 $ 866,155 $535,608
</TABLE>
MISCELLANEOUS
The terms of each of the Investment Adviser's Agreement, the
Distributor's Agreements and Plans of Distribution, the
Transfer Agent Agreement, the Accounting Agreement and the
Portfolio Manager's Agreements (collectively, the
"Agreements") provide that each such Agreement: (i) will
automatically terminate upon "assignment," as such term is
defined in the Investment Company Act of 1940 (the "1940
Act"); (ii) must be approved annually by the Fund's Board of
Directors or by vote of a majority of the outstanding voting
securities; and (iii) must be approved annually in person by
vote of a majority of the directors of the Fund who are not
parties to such contract or "interested persons" (as such term
is defined in the 1940 Act) of such party. Each Agreement
further provides that it can be terminated without penalty by
either party thereto upon 60 days written notice to the other
party. The Distributor's Agreement and Plan of Distribution
were most recently approved by the shareholders at the Special
Meeting of Shareholders held April 26, 1995. The Investment
Adviser's Agreement was most recently approved by the
shareholders at the Annual Meeting of Shareholders held July
25, 1988. The Fund's Board of Directors most recently approved
continuance of the Investment Adviser's Agreement and the
Portfolio Manager's Agreements on February 20, 1997.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
Information concerning purchase and redemption of shares of
the Fund's Portfolios, as well as information concerning
computation of net asset value per share is set forth in the
Fund's Prospectus.
11
<PAGE>
SERVICES FOR INVESTORS
For the convenience of investors, the following plans are
available. Investors should realize that none of these plans
can guarantee profit or insure against loss. The costs of
these shareholder plans (exclusive of the employee benefit
plans) are paid by Enterprise Distributors, except for the
normal cost of issuing shares, which is paid by the Fund.
AUTOMATIC REINVESTMENT PLAN. All shareholders, unless they
request otherwise, are enrolled in the Automatic Reinvestment
Plan under which dividends and capital gains distributions on
their shares are automatically reinvested in shares of the
same Class of Portfolio(s) at the net asset value per share
computed on the record date of such dividends and capital
gains distributions. The Automatic Reinvestment Plan may be
terminated by participants or by the Fund at any time. No
sales charge is applied upon reinvestment of dividends or
capital gains.
AUTOMATIC BANK DRAFT PLAN. An Automatic Bank Draft Plan is
available for investors who wish to purchase shares of one or
more of the Portfolios in amounts of $25 or more on a regular
basis by having the amount of the investment automatically
deducted from the investor's checking account. The minimum
initial investment for this Plan is $100. Forms authorizing
this service are available from the Fund.
AUTOMATIC INVESTMENT PLAN. An investor may debit any Class of
a Portfolio Account on a monthly basis for automatic
investments into one or more of the other Portfolios of the
same Class. The Portfolio from which the investment will be
made is subject to the $1,000 minimum. The investor may then
choose to have $50 or more transferred to either an
established Enterprise Portfolio, or they may open a new
account subject to an initial minimum investment of $100.
LETTER OF INTENT INVESTMENTS. Any investor may execute a
Letter of Intent covering purchases of Class A shares of
$100,000 or more, at the public offering price, of Fund shares
to be made within a period of 13 months. A reduced sales
charge will be applicable to the total dollar amount of Class
A shares purchased in the 13-month period provided at least
$100,000 is purchased. The minimum initial investment under a
Letter of Intent is 5% of the amount indicated in the Letter
of Intent. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in the name
of the investor) to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased, and such escrowed shares will be
involuntarily redeemed to pay the additional sales charge, if
necessary. When the full amount indicated has been purchased,
the escrow will be released.
Investors wishing to enter into a Letter of Intent in
conjunction with their investment in Class A shares of the
Portfolios should complete the appropriate portion of the new
account application.
RIGHT OF ACCUMULATION DISCOUNT. Investors who make an
additional purchase of Class A shares of the Fund which, when
combined with the value of their existing aggregate holdings
of shares of the Portfolios of the Fund, each calculated at
the then applicable net asset value per share, at the time of
the additional purchase, equals $100,000 or more, will be
entitled to the reduced sales charge shown under "How to
Purchase Portfolio Shares" in the Prospectus on the full
amount of each additional purchase.
12
<PAGE>
For purposes of determining the discount, holdings of Fund
shares of the investor's spouse, immediate family or accounts
controlled by the investor, whether as a single investor or
trustee of, or participant in, pooled and similar accounts,
will be aggregated.
CHECKWRITING. A check redemption feature is available on the
Money Market Portfolio Class A shares with opening balances of
$5,000 or more. Redemption checks may be made payable to the
order of any person in any amount from $500 to $100,000. Up to
five redemption checks per month may be written without
charge. Each additional redemption check over five in a given
month will be subject to a $5 fee. Redemption checks are free
and may be obtained from the Transfer Agent or by contacting
Enterprise Capital Management. A $25 fee will be imposed on
any account for stopping payment of a redemption check upon
request of the shareholder. It is not possible to use a
redemption check to close out an account since additional
shares accrue daily.
SYSTEMATIC WITHDRAWAL PLAN. Investors may elect a Systematic
Withdrawal Plan under which a fixed sum will be paid monthly,
quarterly, or annually. There is no minimum withdrawal payment
required. Shares in the Plan are held on deposit in
noncertificate form and any capital gain distributions and
dividends from investment income are invested in additional
shares of the Portfolio(s)at net asset value. Shares in the
Plan account are then redeemed at net asset value to make each
withdrawal payment. Redemptions for the purpose of withdrawals
are made on or about the 15th day of the month of payment at
that day's closing net asset value, and checks are mailed
within five days of the redemption date. Such distributions
are subject to applicable taxation.
Because withdrawal payments may include a return of
principal, redemptions for the purpose of making such payments
may reduce or even use up the investment, depending upon the
size of the payments and the fluctuations of the market price
of the underlying portfolio securities. For this reason, the
payments cannot be considered as a yield of income on the
investment.
RETIREMENT PLANS. The Fund offers various Retirement Plans:
IRA (for all individuals with employment income); 403(b)(7)
(for employees of certain tax-exempt organizations and
schools); and corporate pension and profit sharing (including
a 401(k) option) plans. For full details as to these plans,
you should request a copy of the plan document from Enterprise
Distributors. After reading the plan, you may wish to consult
a competent financial or tax adviser if you are uncertain that
the plan is appropriate for your needs.
REDEMPTIONS IN KIND
The Fund's Articles of Incorporation provide that it may
redeem its shares in cash or with a pro rata portion of the
assets of the Fund. To date, all redemptions have been made in
cash, and the Fund anticipates that all redemptions will be
made in cash in the future. In order to meet the requirements
of certain state laws, the Fund has elected, pursuant to Rule
18f-1 under the 1940 Act, to commit itself to pay in cash all
requests for redemption by any shareholder of record, limited
in amount with respect to each shareholder during any 90-day
period to the lesser of: (i) $250,000; or (ii) 1% of the net
asset value of the Fund at the beginning of such period. If
shares are redeemed through a distribution of portfolio
securities, the recipient would incur brokerage commissions
upon the sale of such securities.
13
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value of each Portfolio's shares is determined
once daily as of the close of the New York Stock Exchange
(usually 4 p.m. Eastern time) on each day on which the
Exchange is open for trading. The net asset value of a share
is computed by dividing the value of the net asset of the
Portfolio by the total number of shares outstanding.
MONEY MARKET PORTFOLIO
The net asset value of the Money Market Portfolio is
computed by dividing the total value of the Portfolio's
assets, less liabilities (including dividends payable), by the
number of shares outstanding. The assets are determined by
valuing the portfolio securities at amortized cost, pursuant
to Rule 2a-7. The amortized cost method of valuation involves
valuing a security at cost at the time of purchase and
thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument.
The purpose of the amortized cost method of valuation
is to attempt to maintain a constant net asset value per share
of $1.00. While this method provides certainty in valuation,
it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the
Portfolio would receive if it sold its portfolio securities.
Under the direction of the Board of Directors, certain
procedures have been adopted to monitor and stabilize the
price per share. Calculations are made to compare the value of
the portfolio securities, valued at amortized cost, with
market values. Market valuations are obtained by using actual
quotations provided by market makers, estimates of market
value, or values obtained from yield data relating to classes
of money market instruments published by reputable sources at
the bid prices for those instruments. If a deviation of 1/2 of
1% or more between the $1.00 per share net asset value and the
net asset value calculated by reference to market valuations
has occurred, or if there are any other deviations which the
Board of Directors believes will result in dilution or other
unfair results material to shareholders, the Board of
Directors will consider what action, if any, should be
initiated.
The market value of debt securities usually reflects
yields generally available on securities of similar quality.
When yields decline, the market value of a portfolio holding
higher yielding securities can be expected to increase; when
yields increase, the market value of a portfolio invested at
lower yields can be expected to decline. In addition, if the
Portfolio has net redemptions at a time when interest rates
have increased, the Portfolio may be forced to sell portfolio
securities prior to maturity at a price below the Portfolio's
carrying value. Also, rather than market value, any yield
quoted may be different from the yield that would result if
the entire Portfolio were valued at market value, since the
amortized cost method does not take market fluctuations into
consideration.
OTHER PORTFOLIOS
The net asset value of Portfolios other than the Money
Market Portfolio is computed by dividing the total value of
the series' securities and other assets, less liabilities, by
the number of series shares then outstanding. Securities other
than money market instruments maturing in 60 days or less
which are traded on a national exchange are valued at the last
sale price as of the close of business on the day the
securities are being valued, or, lacking any sales, at the
last bid price. Securities other than money market instruments
maturing in 60 days or less traded in the over-the-counter
market are
14
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valued at the last bid price or at yield equivalent as
obtained from one or more dealers that make markets in the
securities. Securities which are traded both in the
over-the-counter market and on a national exchange are valued
according to the broadest and most representative market, and
it is expected that for debt securities this ordinarily will
be the over-the-counter market. Securities and assets for
which market quotations are not readily available are valued
at fair value as determined in good faith by or under the
supervision of the Board of Directors. Money market
instruments with maturities of 60 days or less are valued
using the amortized cost method of valuation.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The portfolio transactions and brokerage policies of the Fund
are set forth in the Prospectus. In the last three fiscal
years ended December 31, the Fund has paid the following
aggregate amounts for brokerage commissions on transactions in
portfolio securities: 1994 - $601,596; 1995 - $489,729; 1996 -
$762,622
PERFORMANCE COMPARISONS
From time to time the Fund may advertise a Portfolio's "yield"
as "total return." See the Prospectus under "Performance
Comparisons" for an explanation of the method of calculation
of "yield" or "total return."
From time to time, a portfolio's performance and
performance of comparable investments may be compared to that
of the Consumer Price Index or various unmanaged indexes such
as the Dow Jones Industrial Average, the Standard & Poor's 500
Stock Index, the Lehman Brothers Government/ Corporate Bond
Index, the Salomon Brothers Low Grade Index, the Lehman
Brothers Government Bond Index, Lehman Brothers Mortgage
Backed Index, Lehman Brothers Municipal Bond Index, Morgan
Stanley Goldmine Index, the Salomon Brothers Analytical Record
of Yield and Yield Spreads, and the Salomon Brothers World
Money Market Index; and it may also be compared to the
performance of other appropriate fixed income or equity mutual
funds or mutual fund indexes as reported by Lipper Analytical
Services, Inc. ("Lipper") or CDA Investment Technologies, Inc.
("CDA"). Lipper and CDA are widely recognized independent
mutual fund reporting services. Lipper and CDA performance
calculations are based upon changes in net asset value with
all dividends reinvested and do not include the effect of any
sales charges. Also, a portfolio's performance may be compared
to the historical returns of various investments, performances
indexes of those investments or economic indicators, included
but not limited to stocks, bonds, certificates of deposit,
money market deposit accounts, money market funds and US
Treasury Bills. Certain of these alternative investments may
offer fixed rates of return and guaranteed principal and may
be insured. Betas utilized will be calculated by CDA
Investment Technologies, Inc.
15
<PAGE>
The Fund's performance may be compared in advertising
to the performance of other mutual funds in general or the
performance of particular types of mutual funds, especially
those with similar objectives. Lipper Analytical Services,
Inc. ("Lipper"), an independent mutual fund performance rating
service headquartered in Summit, New Jersey, provides rankings
which may be used from time to time.
The Fund may be compared in advertising to Certificates
of Deposit ("CDs") or other investments issued by banks. The
Fund differs from bank investments in that bank products offer
fixed or variable rates; principal is fixed and may be
insured. Money markets seek to maintain a stable net asset
value and yield fluctuates. Further, the Fund may offer
greater liquidity or higher potential returns than CDs.
From time to time, the Fund may provide hypothetical
illustrations based on past performance for a particular time
period. Performance information for any Portfolio reflects
only the performance of a hypothetical investment in the
Portfolio during a particular time period on which the
calculations are based. Performance information should be
considered in light of the Portfolio's investment objectives
and policies, characteristics and qualities of the Portfolio
and the market conditions during the given time period, and
should not be considered as a representation of what may be
achieved in the future.
The Fund may advertise examples of the effects of
periodic investment plans, including the principal of dollar
cost averaging. Dollar cost averaging programs provide an
opportunity to invest a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when the
price is high and more shares when the price is low. While
such a strategy does not assure a profit guard against loss in
a declining market, the investor's cost per share can be lower
if fixed numbers of shares had been purchased at periodic
intervals. In evaluating such a plan, consideration should be
given to the shareholder's ability to continue purchasing
shares through periods of low price levels.
CUSTODIAN
State Street Bank and Trust Company of Boston, Massachusetts,
has been retained to act as custodian of the assets of the
Fund.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. whose address is 1100 Campanile
Building, Atlanta, Georgia, 30309, has been retained to serve
as the Fund's independent accountants.
TAXES
See the Prospectus for information concerning taxes.
16
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FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ANNUAL REPORT
PAGE NUMBER
-------------
<S> <C>
Financial Statements
Portfolios of Investment Securities, December 1, 1996........................................... 4
Statement of Assets and Liabilities, December 31, 1996.......................................... 52
Statements of Operations for the Year Ended December 31, 1996................................... 54
Statements of Changes in Net Assets for Each of the Two Years Ended December 31, 1995 and
1996........................................................................................... 56
Financial Highlights............................................................................ 60
Notes to Financial Statements................................................................... 74
Report of Independent Accountants............................................................... 83
</TABLE>
17
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APPENDIX
RATINGS OF CORPORATE DEBT SECURITIES
MOODY'S INVESTORS SERVICE, INC.(1)
Aaa -- Bonds rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge."
Aa -- Bonds rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds.
A -- Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations.
Baa -- Bonds rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds rated Ba are judged to have speculative
elements: their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterize bonds in this case.
B -- Bonds rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments of or maintenance of other terms of the contract over
any long period of time may be small.
Caa -- Bonds rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca -- Bonds rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked short-comings.
---------------------------------
(1)Moody's applies numerical modifiers, 1, 2 and 3 in generic
rating classification from Aa through B in its corporate bond
rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
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<PAGE>
STANDARD & POOR'S CORPORATION(2)
AAA -- Bonds rated AAA have the highest rating assigned
by Standard & Poor's to a debt obligation. Capacity to pay
interest and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest-rated
issues only in a small degree.
A -- Bonds rated A have a strong capacity to pay
interest and repay principal, although they are somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than bonds in higher-rated categories.
BBB -- Bonds rated BBB are regarded as having an
adequate capacity to pay principal and interest. Whereas they
normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in
higher-rated categories.
BB,B,CCC,CC -- Bonds rated BB, B, CCC, and CC are
regarded, on balance, as predominately speculative with
respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest
degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse
conditions.
---------------------------------
(2)Plus (+) or Minus (-): The ratings from AA to BB may be
modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
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STATEMENT OF ADDITIONAL INFORMATION
RETIREMENT SYSTEM FUND INC.
This Statement of Additional Information sets forth
certain information with respect to shares offered by
Retirement System Fund Inc. ("Fund"), an open-end diversified
management investment company.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUS DATED JANUARY 28, 1997. A COPY OF THE PROSPECTUS
MAY BE OBTAINED, WITHOUT CHARGE, BY WRITING TO RETIREMENT
SYSTEM FUND INC., P.O. BOX 2064, GRAND CENTRAL STATION, NEW
YORK, NEW YORK 10163-2064, ATTENTION: STEPHEN P. POLLAK, ESQ.
Dated: January 28, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
The Fund..................................................................... 2
Additional Information About Investment Policies and Restrictions............ 2
Federal Tax Treatment of Dividends and Distributions......................... 12
Miscellaneous Considerations................................................. 15
Valuation of Shares.......................................................... 17
Performance Information...................................................... 17
Administration of the Fund................................................... 21
Advisory and Other Services.................................................. 24
Distribution Agreement....................................................... 25
Brokerage Allocation and Portfolio Turnover.................................. 26
Description of Shares........................................................ 27
Counsel and Auditors......................................................... 28
Control Persons.............................................................. 28
Financial Statements......................................................... 32
</TABLE>
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<PAGE>
THE FUND
Retirement System Fund Inc. ("Fund") is an open-end
diversified management investment company which was organized
under the laws of the State of Maryland on November 14, 1990.
The Fund consists of seven diversified investment funds each
with a different set of investment objectives and policies
("Investment Funds" or "Funds"). Currently investors may
purchase shares of the Core Equity Fund, Emerging Growth
Equity Fund, Intermediate-Term Fixed-Income Fund and Money
Market Fund. In the future, the Fund expects to offer shares
of the Value Equity Fund, International Equity Fund and
Actively Managed Fixed-Income Fund and has the authority to
create additional funds as well. There can be no assurance
that the investment objective of any Investment Fund can be
attained.
Retirement System Investors Inc. (the "Investment
Advisor") acts as the Fund's investment advisor. The
Investment Advisor is a subsidiary of Retirement System Group
Inc. ("Group"), a company formed as part of a reorganization,
effective August 1, 1990, that externalized the management
functions of RSI Retirement Trust (the "Trust"), an open-end
diversified management investment company.
ADDITIONAL INFORMATION
ABOUT INVESTMENT POLICIES
AND RESTRICTIONS
The Fund's investment objectives and general investment
policies are described in the Prospectus. This Statement of
Additional Information provides additional information about
the investment policies and strategies which may be used by
the Fund. Additional investment restrictions are set forth
below.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with
broker-dealers or financial institutions deemed creditworthy
under guidelines approved by the Board of Directors. A
repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at
a future time and set price, usually not more than seven days
from the date of purchase, thereby determining the yield
during the purchaser's holding period. The value of underlying
securities will be at least equal at all times to the total
amount of the repurchase obligation, including the interest
factor. The Fund makes payment for such securities only upon
physical delivery or evidence of book entry transfer to the
account of a custodian or bank acting as agent. The underlying
securities may have maturity dates exceeding one year. The
Fund does not bear the risk of a decline in value of the
underlying securities unless the seller defaults under its
repurchase obligation. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could
experience both delays in liquidating the underlying
securities and loss including (i) possible decline in the
value of the underlying security while the Fund seeks to
enforce its rights thereto, (ii) possible subnormal levels of
income and lack of access to income during this period, and
(iii) expenses of enforcing its rights.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements with
broker-dealers or financial institutions deemed creditworthy
under guidelines approved by the Board of Directors up to an
aggregate value of not more than 5% of the Fund's total
assets. Such agreements involve the sale of securities held by
the Fund pursuant to the Fund's agreement to repurchase the
securities at an agreed-upon date and price reflecting a
market rate of interest. Such agreements are considered to be
borrowings, and may be entered into only for temporary or
emergency purposes. While a reverse repurchase transaction is
2
<PAGE>
outstanding, the Fund will maintain with its custodian in a
segregated account cash, United States government securities
or other liquid, high-grade debt obligations, marked to market
daily, in an amount at least equal to the Fund's obligations
under the reverse repurchase agreement.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, the
Fund may make purchases of securities, at the current market
value of the securities, on a forward commitment basis.
"When-issued" securities are securities which have not been
issued at the time they are purchased and thus delivery of and
payment for these securities may be delayed for several weeks
or more, as compared to the timing of a normal settlement.
Delayed delivery securities are outstanding securities the
settlement for which is negotiated, the price is fixed at the
time of the commitment, but delivery and payment will take
place after the date of the commitment. While the Fund will
purchase securities on a forward commitment basis only with
the intention of acquiring the securities, the Fund may sell
the securities before the settlement date, if it is deemed
advisable. The securities so purchased or sold are subject to
market fluctuation and no interest accrues to the purchaser
during this period. At the time the Fund makes the commitment
to purchase or sell securities on a forward commitment basis,
it will record the transaction and thereafter reflect the
value of such securities purchased or the proceeds to be
received in determining its net asset value. Because
subsequent changes in the market price will affect the value
of the security to be delivered, the purchase of "when-issued"
or delayed delivery securities creates the potential for
profit or loss to the Fund without any investment by the Fund.
At the time of delivery of the securities, their value may be
more or less than the purchase or sale price.
LENDING FUND SECURITIES
The Fund may also lend portfolio securities to broker-dealers
or financial institutions deemed creditworthy under guidelines
approved by the Fund's Board of Directors. The Fund will lend
portfolio securities only against collateral consisting of
cash or United States government securities with an aggregate
value at all times equal to or greater than the value of the
securities loaned. The borrower would pay to the Fund an
amount equal to any dividends or interest received on the
securities lent. The Fund would retain all or a portion of the
interest received on investment of the cash collateral or
receive a fee from the borrower. Either the Fund or the
borrower could terminate the Loan at any time.
OPTIONS AND FUTURES
As noted in the Prospectus, investment managers of the Funds
may engage in certain options and futures strategies primarily
in order to attempt to hedge the Fund's assets. An investment
manager may use options on equity and debt securities in which
the Fund is authorized to invest, stock index options, stock
and stock index futures contracts and interest rate futures
contracts ("futures contracts" or "futures") and options on
futures contracts. The foregoing instruments are sometimes
referred to collectively as "Hedging Instruments." Certain
special characteristics of and risks associated with using
Hedging Instruments are discussed below. In addition to the
investment guidelines (described below) adopted by the Board
of Directors to govern investment in Hedging Instruments, use
of these instruments is subject to the applicable regulations
of the Securities and Exchange Commission (the "SEC"), the
several options and futures exchanges upon which options and
futures are traded, the Commodity Futures Trading Commission
("CFTC") and the various state regulatory authorities.
The Fund will not use leverage in its hedging
strategies. In the case of transactions entered into as a
hedge, the Fund will hold securities or other options or
futures positions whose values are
3
<PAGE>
expected to offset ("cover") its obligations under the hedging
strategies. The Fund will not enter into a hedging or option
income strategy that exposes it to an obligation to another
party unless it owns either (1) an offsetting ("covered")
position in securities or other options or futures contracts
or (2) cash, receivables and short-term debt securities with a
value sufficient to cover its potential obligations. The Fund
will comply with guidelines established by the SEC with
respect to coverage of hedging strategies by mutual funds, and
will set aside cash and/or liquid, high-grade debt securities
in a segregated account with its custodian in the amount
prescribed. Securities or other options or futures positions
used for cover and securities held in a segregated account
cannot be sold or closed out while the hedging strategy is
outstanding, unless they are replaced with similar assets. As
a result, there is a possibility that the use of cover or
segregation involving a large percentage of the Fund's assets
could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
A call option is a short-term contract pursuant to
which the purchaser of the option, in return for a premium,
has the right to buy the security underlying the option at a
specified price at any time during the term of the option. The
writer of the call option, who receives the premium, has the
obligation, upon exercise of the option during the option
term, to deliver the underlying security against payment of
the exercise price. A put option is a similar contract that
gives its purchaser, in return for a premium, the right to
sell the underlying equity security at a specified price
during the option term. The writer of the put option, who
receives the premium, has the obligation upon exercise during
the option term, to buy the underlying security at the
exercise price.
A stock index assigns relative values to the stocks
included in the index and fluctuates with changes in the
market values of those stocks. A stock index option operates
in the same way as a more traditional stock option, except
that exercise of a stock index option is effected with cash
payment and does not involve delivery of securities. Thus,
upon exercise of a stock index option, the purchaser will
realize, and the writer will pay, an amount based on the
difference between the exercise price and the closing price of
the stock index.
The Fund may purchase call options on debt securities
that an investment manager intends to include in its portfolio
in order to fix the cost of a future purchase. Call options
also may be used as a means of participating in an anticipated
price increase of a security on a more limited risk basis than
would be possible if the security itself were purchased. In
the event of a decline in the price of the underlying
security, use of this strategy would serve to limit the
potential loss to the Fund to the option premium paid;
conversely, if the market price of the underlying security
increases above the exercise price and the Fund either sells
or exercises the option, any profit eventually realized will
be reduced by the premium. The Fund may purchase put options
in order to hedge against a decline in the market value of
securities it holds. The put option enables the Fund to sell
the underlying security at the predetermined exercise price;
thus, the potential for loss to the Fund below the exercise
price is limited to the option premium paid. If the market
price of the underlying security is higher than the exercise
price of the put option, any profit the Fund realizes on the
sale of the security would be reduced by the premium paid for
the put option less any amount for which the put option may be
sold.
The Fund may write covered call and put options on
securities in which it is authorized to invest for hedging or
to increase income in the form of premiums received from the
purchasers of the options. Because it can be expected that a
call option will be exercised if the market value of the
underlying security increases to a level greater than the
exercise price, the Fund will write covered call options on
securities generally when an investment manager believes that
the premium received by the
4
<PAGE>
Fund, plus anticipated appreciation in the market price of the
underlying security up to the exercise price of the option,
will be greater than the total appreciation in the price of
the security. The strategy may be used to provide limited
protection against a decrease in the market price of the
security, in an amount equal to the premium received for
writing the call option less any transactions costs. Thus, in
the event that the market price of the underlying security
held by the Fund declines, the amount of such decline will be
offset wholly or in part by the amount of the premium received
by the Fund. If, however, there is an increase in the market
price of the underlying security and the option is exercised,
the Fund would be obligated to sell the security at less than
its market value.
A put option gives the purchaser of the option the
right to sell, and the writer (seller) the obligation to buy,
the underlying security at the exercise price during the
option period. So long as the obligation continues, the writer
may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring it to make
payment of the exercise price against delivery of the
underlying security. The operation of put options in other
respects, including their related risks and rewards, is
substantially identical to that of call options. Generally,
the Fund would write covered put options on securities when an
investment manager believes that the market price of the
securities will not decline below the exercise price less the
premiums received. If the put option is not exercised, the
Fund will realize income in the amount of the premium
received. This technique could be used to enhance current
return during periods of market uncertainty. The risk in such
a transaction would be that the market price of the underlying
security would decline below the exercise price less the
premiums received, in which case the Fund would expect to
suffer a loss.
OPTIONS GUIDELINES
In view of the risks involved in using the options strategies
described above, the Board of Directors has adopted the
following investment guidelines to govern the Fund's use of
such strategies (which guidelines may be modified by the Board
without shareholder vote):
(1) options on equity securities and stock
indexes will be purchased or written only on those
securities and stock indexes with respect to which options
are traded on recognized United States options exchanges;
on debt securities will be purchased or written only when
an investment manager believes that there exists a liquid
secondary market in such options,
(2) the Fund will write only covered options, and
each such option will remain covered so long as the Fund
is obligated under the option, and
(3) the Fund will not purchase put options on
securities not held in its portfolio.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
The Fund may effectively terminate its right or obligation
under an option by entering into a closing transaction. If the
Fund wishes to terminate its obligation to purchase or sell
securities under a put or call option it has written, it may
purchase a put or call option of the same series (i.e., an
option identical in its terms to the option previously
written); this is known as a closing purchase transaction.
Conversely, in order to terminate its right to purchase or
sell specified securities under a call or put option it has
purchased, the Fund may write an option of the same series as
the option held; this is known as a closing sale transaction.
Closing transactions essentially permit the Fund to realize
profits or
5
<PAGE>
limit losses on its options positions prior to the exercise or
expiration of the option. Whether a profit or loss is realized
from a closing transaction depends on the price movement of
the underlying security and the market value of the option.
In considering the use of options to enhance income or
to hedge the Fund, particular note should be taken of the
following:
(1) The value of an option position will reflect,
among other things, the current market price of the
underlying security, the time remaining until expiration,
the relationship of the exercise price to the market
price, the historical price volatility of the underlying
security and general market conditions. For this reason,
the successful use of options as a hedging or income-
enhancing strategy depends upon an investment manager's
ability to forecast the direction of price fluctuations in
the underlying securities.
(2) Options normally have expiration dates of up
to nine months. The exercise price of an option may be
below, equal to or above the current market value of the
underlying security. Options that expire unexercised have
no value. Unless an option purchased by the Fund is
exercised or unless a closing transaction is effected with
respect to that position, a loss will be realized in the
amount of the premium paid.
(3) A position in an exchange-listed option may
be closed out only on an exchange that provides a
secondary market for identical options. Most
exchange-listed options relate to stocks. Exchange markets
for options on debt securities exist but are relatively
new, and the ability to establish and close out positions
on the exchanges is subject to the maintenance of a liquid
secondary market will exist for any particular option at
any specific time. In such event, it may not be possible
to effect closing transactions with respect to certain
options, with the result that the Fund would have to
exercise those options which it has purchased in order to
realize any profit. With respect to options written by the
Fund, the inability to enter into a closing transaction
may result in material losses to the Fund. For example,
because the Fund must maintain a covered position with
respect to any call option it writes on a security, it may
not sell the underlying security during the period it is
obligated under such option. This requirement may impair
the Fund's ability to sell a portfolio security or make an
investment at a time when such a sale or investment might
be advantageous.
(4) The Fund's activities in the options market
may result in a higher portfolio turnover rate and
additional brokerage costs; however, the Fund also may
save on commissions by using options as a hedge rather
than buying or selling individual securities in
anticipation of market movements.
FUTURES STRATEGIES
The Fund may engage in futures strategies to attempt to reduce
the overall investment risk that would normally be expected to
be associated with ownership of the securities in which it
invests. The Fund may use interest rate futures contracts and
options thereon to hedge its portfolio against changes in the
general level of interest rates.
6
<PAGE>
A stock index futures contract is a bilateral agreement
pursuant to which one party agrees to accept, and the other
party agrees to make, delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock
index value at the close of trading of the contract and the
price at which the futures contract is originally struck. No
physical delivery of the stocks comprising the index is made.
Generally, contracts are closed out prior to the expiration
date of the contract.
An interest rate futures contract is a bilateral
agreement pursuant to which one party agrees to make, and the
other party agrees to accept, delivery of the specified type
of debt security called for in the contract at a specified
future time and at a specified price. The Fund may purchase an
interest rate futures contract when it intends to purchase
debt securities but has not yet done so. This strategy may
minimize the effect of all or part of an increase in the
market price of the debt security which the Fund intends to
purchase in the future. A rise in the price of the debt
security prior to its purchase may either be offset by an
increase in the value of the futures contract purchased by the
Fund, or avoided by taking delivery of the debt securities
under the futures contract. Conversely, a fall in the market
price of the underlying debt security may result in a
corresponding decrease in the value of the futures position.
The Fund may sell an interest rate futures contract in order
to continue to receive the income from a debt security, while
endeavoring to avoid part or all of the decline in the market
value of that security which would accompany an increase in
interest rates.
Options on futures contracts are similar to options on
securities, except that an option on a futures contract gives
the purchaser the right, in return for the premium, to assume
a position in a futures contract (a long position if the
option is a call and a short position if the option is a put),
rather than to purchase or sell a security, at a specified
price at any time during the option term. Upon exercise of the
option, the delivery of the futures position to the holder of
the option will be accompanied by delivery of the accumulated
balance that represents the amount by which the market price
of the futures contract exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the
option on the future. The writer of an option, upon exercise,
will assume a short position in the case of a call and a long
position in the case of a put.
The Fund may purchase a call option on an interest rate
futures contract to hedge against a market advance in debt
securities that the Fund plans to acquire at a future date.
The purchase of a call option on an interest rate futures
contract is analogous to the purchase of a call option on an
individual debt security which can be used as a temporary
substitute for a position in the security itself. The Fund
also may write covered call options on interest rate futures
contracts as a partial hedge against a decline in the price of
debt securities held by the Fund or purchase put options on
interest rate futures contracts in order to hedge against a
decline in the value of debt securities held by the Fund.
FUTURES GUIDELINES
In view of the risks involved in using the futures strategies
described above, the Board of Directors has adopted the
following investment guidelines to govern the Fund's use of
such strategies (which guidelines may be modified by the board
without shareholder vote):
(1) the Fund will use interest rate futures
contracts and options thereon solely in bona fide hedging
transactions or under other circumstances permitted by the
CFTC;
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(2) the Fund will not purchase or sell futures
contracts or related options if, immediately thereafter,
the sum of the amount of initial margin deposits on the
Fund's existing futures positions and premiums paid for
related options would exceed 5% of the market value of the
Fund's total assets;
(3) in instances involving the purchase by the
Fund of futures contracts or the writing of related
options, an amount of cash, United States Government
securities or other liquid, high-grade debt instruments
equal to the market value of the futures positions held
(or the Fund's exposure in the case of futures-related
options) less any initial margin deposits thereon held by
the custodian will be deposited in a segregated account
with the Fund's custodian to collateralize the position
and thereby insure that the use of such futures contracts
or related options is unleveraged;
(4) the value of all futures contracts sold will
not exceed the total market value of the Fund's total
assets;
(5) futures contracts and related options will
not be purchased if immediately thereafter more than 25%
of the Fund's total assets would be so invested; and
(6) the Fund will not write put options on
futures contracts except to effect closing transactions.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES TRADING
No price is paid upon entering into futures contracts.
Instead, upon entering into a futures contract, the Fund is
required to deposit with the Fund's custodian in a segregated
account in the name of the futures broker through whom the
transaction is effected an amount of cash, United States
government securities or other liquid, high-grade debt
instruments generally equal to 10% or less of the contract
value. This amount is known as "initial margin." When writing
a call option on a futures contract, options premium also must
be deposited in accordance with applicable exchange rules.
Subsequent payments, called "variation margin," to and from
the broker, are made on a daily basis as the value of the
futures position varies, a process known as "marking to the
market." For example, when the Fund purchases a contract and
the value of the contract rises, the Fund receives from the
broker a variation margin payment equal to that increase in
value. Conversely, if the value of the futures position
declines, the Fund is required to make a variation margin
payment to the broker equal to the decline in value. Unlike
margin in securities transactions, margin on futures contracts
does not involve borrowing to finance the futures
transactions. Rather, margin on futures contracts is in the
nature of a performance bond or good faith deposit on the
contract that is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been
satisfied.
Holders and writers of futures positions and options on
futures positions can enter into offsetting closing
transactions by selling or purchasing, respectively, a futures
position or related options position with the same terms as
the position or option held or written. Positions in future
contracts may be closed only on an exchange or board of trade
providing a secondary market for such futures contracts.
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Under certain circumstances, futures exchanges may
establish daily limits on the amount that the price of a
futures contract or related option may vary either up or down
from the previous day's settlement price. Once the daily limit
has been reached in a particular contract, no trades may be
made that day at a price beyond the limit. The daily limit
governs only price movements during a particular trading day
and therefore does not limit potential losses because the
limit may prevent the liquidation of unfavorable positions.
Futures or related options prices could move to the daily
limit for several consecutive trading days with little or no
trading and thereby prevent prompt liquidation of positions
and subject some traders to substantial losses. In such event,
it may not be possible for the Fund to close a position and in
the event of adverse price movements, the Fund would have to
make daily cash payments of variation margin (except in the
case of purchased options). However, in the event futures
contracts have been used to hedge portfolio securities, such
securities will not be sold until the contracts can be
terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset
losses on the futures contract. However, there is no guarantee
that the price of the securities will, in fact, correlate with
the price movements in the contracts and thus provide an
offset to losses on the contracts.
In considering the use of futures contracts and related
options by the Fund, particular note should be taken of the
following:
(1) Successful use by the Fund of futures
contracts and related options will depend upon an
investment manager's ability to predict movements in the
direction of the interest rate markets, which requires
different skills and techniques than predicting changes in
the prices of individual securities. Moreover, futures
contracts relate not to the current price level of the
underlying instrument but to the anticipated levels at
some point in the future. There is, in addition, the risk
that the movements in the price of the futures contract
will not correlate with the movements in prices of the
securities being hedged. For example, if the price of the
securities being hedged has moved in a favorable
direction, this advantage may be partially offset by
losses in the futures position. If the price of the
futures contract moves more than the price of the
underlying securities, the Fund will experience either a
loss or a gain on the future which may or may not be
completely offset by movements in the price of the
securities that are the subject of the hedge.
(2) In addition to the possibility that there may
be an imperfect correlation, or no correlation at all,
between price movements in the futures position and the
securities being hedged, movements in the prices of
futures contracts may not correlate perfectly with
movements in the prices of the hedged securities due to
price distortions in the futures markets. There may be
several reasons unrelated to the value of the underlying
securities that cause this situation to occur. First, as
noted above, all participants in the futures market are
subject to initial and variation margin requirements. If,
to avoid meeting additional margin deposit requirements or
for other reasons, investors choose to close a significant
number of futures contracts through offsetting
transactions, distortions in the normal price relationship
between the securities and the futures markets may occur.
Second, because the deposit requirements in the futures
market are less onerous than margin requirements in the
securities market, there may be increased participation by
speculators in the futures market; such speculative
activity in the futures market also may cause temporary
price distortions. As a result, correct forecast of
general market trends
9
<PAGE>
may not result in successful hedging through the use of
futures contracts over the short term. In addition,
activities of large traders in both the futures and
securities markets involving arbitrage and other
investment strategies may result in temporary price
distortions.
(3) Positions in futures contracts may be closed
out only on an exchange or board of trade which provides a
secondary market for such futures contracts. Although the
Fund intends to purchase or sell futures only on exchanges
or boards of trade where there appears to be an active
secondary market, there is no assurance that a liquid
secondary market on an exchange or board of trade will
exist for any particular contract at any particular time.
In such event, it may not be possible to close a futures
position, and in the event of adverse price movements, the
Fund would continue to be required to make variation
margin payments.
(4) Like options on securities, options on
futures contracts have a limited life. The ability to
establish and close out options on futures will be subject
to the development and maintenance of liquid secondary
markets on the relevant exchanges or boards of trade.
There can be no certainty that liquid secondary markets
for all options on futures contracts will develop.
However, the Fund will not trade options on futures
contracts on any exchange or board of trade unless and
until, in an investment manager's opinion, the market for
such options has developed sufficiently that the risks in
connection with options on futures transactions are not
greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts
pay a premium in cash at the time of purchase. This amount
and the transaction costs are all that is at risk. Sellers
of options on futures contracts, however, must post an
initial margin and are subject to additional margin calls
which could be substantial in the event of adverse price
movements. In addition, although the maximum amount at
risk when the Fund purchases an option is the premium paid
for the option and the transaction costs, there may be
circumstances when the purchase of an option on a futures
contract would result in a loss to the Fund when the use
of a futures contract would not, such as when there is no
movement in the value of the securities being hedged.
(6) As is the case with options, the Fund's
activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs
in the form of added brokerage commissions; however, the
Fund also may save on commissions by using such contracts
as a hedge rather than buying or selling individual
securities in anticipation or as a result of market
movements.
ADDITIONAL INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of
investment restrictions which reflect self-imposed standards
as well as Federal and state regulatory limitations. The
investment restrictions recited below are matters of
fundamental policy which cannot be changed for any Investment
Fund without the approval of the holders of a majority of the
outstanding shares of the affected Investment Fund or Funds.
Each Investment Fund may not:
(1) Concentrate 25% or more of its total assets in
securities of issuers in any one industry (for this
purpose the United States Government, its agencies and
instrumentalities are not considered an industry);
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(2) With respect to 75% of its total assets, invest more
than 5% of its total assets in the securities of any
single issuer (for this purpose the United States
Government, its agencies and instrumentalities are not
considered a single issuer);
(3) Borrow money, except that the Fund may borrow from
banks as a temporary measure for extraordinary or
emergency purposes in an amount not exceeding 10% of
the value of the total assets of the Fund at the time
of such borrowing, provided that, while borrowings of
the Fund (including reverse repurchase agreements)
equaling 5% or more of its assets are outstanding, the
Fund will not purchase securities;
(4) Invest more than 10% of its total assets in illiquid
securities, including repurchase agreements with
maturities greater than seven days;
(5) Pledge, mortgage or hypothecate the assets of any
Investment Fund to any extent greater than 10% of the
value of the total assets of that Investment Fund;
(6) Issue senior securities;
(7) Act as an underwriter of securities within the meaning
of the Federal securities laws except insofar as it
might be deemed to be an underwriter upon disposition
of certain portfolio securities;
(8) Purchase or sell real estate, but this shall not
prevent investments in instruments secured by real
estate or interest therein or in marketable securities
of issuers which invest in real estate or engage in
real estate operations;
(9) Make loans to other persons, except the Fund may make
time or demand deposits with banks, may purchase bonds,
debentures or similar obligations that are publicly
distributed or of a type customarily purchased by
institutional investors, may loan portfolio securities
and may enter into repurchase and reverse repurchase
agreements;
(10)Purchase securities on margin or make short sales of
securities;
(11)Purchase or sell commodities or commodity contracts
except futures contracts on financial instruments,
foreign currencies and stock indexes; or
(12)Enter into foreign currency transactions if, as a
result, more than 25% of the value of the Fund's total
assets would be committed to such contracts.
The following are investment restrictions which may be
changed with respect to an Investment Fund or Funds by a vote
of a majority of the Board of Directors of the Fund. Each
Investment Fund may not:
(1) Invest in companies for the purpose of exercising
control or management; or
(2) Invest in securities of other investment companies
except as part of a merger, consolidation,
reorganization or purchase of assets approved by the
Fund's shareholders.
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If a percentage restriction referred to in one of the
above investment restrictions is adhered to at the time of
investment, a later increase or decrease in percentage
resulting from a change in values or assets will not
constitute a violation of that restriction.
FEDERAL TAX TREATMENT OF
DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its
shareholders that are not described in the Fund's Prospectus.
No attempt is made to present a detailed explanation of the
tax treatment of any Investment Fund or its shareholders, and
the discussion here and in the Fund's Prospectus is not
intended as a substitute for careful tax planning.
DISTRIBUTION REQUIREMENT
Each Fund intends to be taxed as a regulated investment
company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a qualifying regulated
investment company, each Fund will be exempt from income tax
on that part of its net investment income and capital gains
that it distributes to shareholders.
To qualify for this favorable treatment, each Fund must
meet certain requirements described below and must distribute
to its shareholders an amount equal to at least 90% of the sum
of its investment company taxable income and its net
excludable interest income (the "Distribution Requirement").
If, in any taxable year, a Fund is unable to meet the
Distribution Requirement because it had previously made
distributions to avoid liability for the federal excise tax
(discussed below), the Internal Revenue Service may waive the
Distribution Requirement for that year if the Fund
satisfactorily establishes its inability to meet the
requirement.
INCOME REQUIREMENTS
To qualify as a regulated investment company each Fund must
derive at least 90% of its gross income from its business of
investing in stocks, securities or currencies (The "Income
Requirement"). This income may consist of dividends, interest,
payments with regard to securities loans, gain from sales or
other dispositions of stocks, securities or foreign
currencies, or other income (including but not limited to
gains from options, futures or forward contracts), derived
with regard to its business of investing in such stocks,
securities or currencies.
In addition, each Fund must derive less than 30% of its
gross income from the sale or disposition of any of the
following investments if held for less than three months (the
"Short-Short Gain Test"): stocks or securities, options,
futures or forward contracts (other than options, futures or
forward contracts on foreign currencies), and foreign
currencies (or options, futures or forward contracts on
foreign currencies) not directly related to the Fund's
principal business of investing in stock or securities (or
options or futures on stocks or securities).
The Short-Short Gain Test will not prevent a Fund from
disposing of investments at a loss, since the recognition of a
loss before the expiration of the three-month holding period
is disregarded.
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SPECIAL RULES
If a Fund derives income from a partnership or trust, that
income will satisfy the Income Requirement only to the extent
that it is attributable to items of income of the partnership
or trust that would satisfy the Income Requirement if the Fund
had realized them directly in the same manner as the
partnership or trust.
Future Treasury regulations may provide that foreign
currency gains that are not "directly related" to a Fund's
principal business of investing in stocks or securities (or in
options and futures with respect to stocks or securities) will
not satisfy the Income Requirement. It is not clear how the
regulations will apply to certain currency-related
transactions or whether the regulations, when issued, will
have only prospective effect. Consequently, each Fund will
attempt to operate so that the gross income from certain
currency-related transactions will be less than 10% of the
Fund's gross income in any taxable year to which these
Treasury regulations could apply. Each Fund will continue to
operate in this way until the applicable Treasury regulations
are issued or the Fund receives a private letter ruling from
the Internal Revenue Service that income from such currency
transactions will satisfy the Income Requirement.
Because of the Short-Short Gain Test, the Fund may have
to limit the sale of appreciated securities or currencies that
it has held for less than three months. In addition, there are
presently no Treasury regulations that indicate when the
writing and purchasing of options on foreign currency or
investment in forward foreign currency exchange contracts and
currencies directly relates to a regulated investment
company's principal business of investing in stocks or
securities (or options and futures with respect to stocks or
securities). Until such Treasury regulations are issued, the
Fund may have to limit (i) the sale or offsetting of forward
foreign currency exchange contracts that it has held for less
than three months; (ii) the exercise or closing of appreciated
options on foreign currency that it has held for less than
three months; and (iii) certain other transactions involving
foreign currencies.
SECTION 1256 CONTRACTS
Certain options that a Fund may write or purchase and certain
forward foreign currency exchange contracts that a Fund enters
into may be subject to special tax treatment as "Section 1256
contracts." Section 1256 contracts are treated as if they are
sold for their fair market value on the last business day of
the taxable year, regardless of whether the Fund's obligations
(or rights) thereunder have yet terminated (by delivery,
exercise, entering into a closing transaction or otherwise).
Any gain or loss recognized as a consequence of this year-end
deemed disposition is combined with any other gain or loss
that the Fund previously recognized upon the termination of
other Section 1256 contracts during that taxable year.
In the case of certain Section 1256 contracts that are
forward foreign currency exchange contracts, the net amount of
Section 1256 gain or loss for the entire taxable year
(including gain or loss arising as a consequence of the
year-end deemed sale of such forward contracts and options) is
treated as ordinary income or loss. In the case of other
Section 1256 contracts, however, net Section 1256 gain or loss
is treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss. Each Fund may elect not to
have the year-end deemed sale rule apply to Section 1256
contracts that are part of a "mixed straddle" with other
investments of the Fund that are not section 1256 contracts.
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ASSET DIVERSIFICATION TEST
At the close of each quarter of its taxable year, at least 50%
of the value of each Fund's assets must consist of cash and
cash items, United States government securities, securities of
other regulated investment companies, and other securities.
For this purpose, such other securities are limited, in
respect to any one issuer, to an amount that does not exceed
5% of the value of the Fund's total assets and does not
represent more than 10% of the outstanding voting securities
of the issuer. In addition, no more than 25% of the value of
the Fund's total assets may be invested in the securities of
any one issuer (other than United States government securities
and securities of other regulated investment companies), or in
two or more issuers that the Fund controls and that are
engaged in the same or similar trades or businesses or related
trades or businesses.
FUND DISTRIBUTIONS
Each Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable
year. Such distributions will be taxable to shareholders as
ordinary income, regardless of whether the distributions are
paid in cash or in additional Shares. Each Fund will advise
shareholders annually as to the United States federal income
tax consequences of distributions made during the year.
Corporate shareholders will be entitled to the
dividends received deduction on Fund distributions to the
extent that a Fund receives qualifying dividends each year.
Generally, a dividend is a qualifying dividend if it has been
received from a domestic corporation. For purposes of the
alternative minimum tax and the environmental tax, however,
corporate shareholders must generally take the full amount of
any dividend received from a Fund into account in determining
"alternative minimum taxable income."
Each Fund intends to distribute to shareholders as a
capital gains distribution the excess of its net long-term
capital gain over its net short-term capital loss ("net
capital gain") for each taxable year. However, under
Subchapter M of the Code, a Fund is not required to distribute
net capital gain. If a Fund makes a capital gains
distribution, it is taxable to shareholders as long-term
capital gain, regardless of how long the shareholder has held
Fund Shares and regardless of whether the distribution is paid
in cash or in Shares. The aggregate amount of a Fund's capital
gains distributions may not exceed the Fund's net capital gain
for any taxable year. A Fund's net capital gain is determined
by excluding any net capital loss or net long-term capital
loss attributable to transactions occurring after October 31
of the taxable year. Instead, any such loss is treated as if
it arose on the first day of the following taxable year.
Conversely, if a Fund elects to retain its net capital
gain for any taxable year, it will be taxed thereon (except to
the extent of any available capital loss carryovers) at the
35% corporate capital gains tax rate. In such event, it is
expected that the Fund also will elect to have shareholders
treated as having received a distribution of such gain.
Shareholders must then report their respective shares of such
gain on their returns as long-term capital gains and will
receive a refundable tax credit for their allocable share of
the capital gains tax paid by the Fund on the gain. In
addition, shareholders will increase the tax basis for their
Shares by an amount equal to the deemed distribution less the
tax credit.
Investors should be careful to consider the tax
implications of purchasing shares just prior to the next
dividend date of any ordinary income dividend or capital gains
distribution. Investors who
14
<PAGE>
purchase just prior to an ordinary income dividend or capital
gains distribution will be taxable on the entire amount of the
distribution received, even though the net asset value per
share on the date of purchase reflected the amount of such
distribution.
MISCELLANEOUS
CONSIDERATIONS
FEDERAL EXCISE TAX
A 4% non-deductible excise tax is imposed on regulated
investment companies that fail to distribute in each calendar
year an amount equal to 98% of ordinary taxable income for the
calendar year and 98% of "capital gain net income" (excess of
capital gains over capital losses) for the one-year period
ending on October 31 of such calendar year. The excise tax is
imposed on the undistributed part of this required
distribution. In addition, the balance of such income must be
distributed during the next calendar year to avoid liability
for the excise tax in that year. For the foregoing purposes, a
regulated investment company is treated as having distributed
any amount on which it is subject to income tax for any
taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment
company must reduce capital gain net income by the amount of
any net ordinary loss for the calendar year, but not below the
net capital gain for the one-year period ending on October 31.
In addition, a regulated investment company must exclude
certain foreign currency gains and losses incurred after
October 31 of any year in determining the amount of ordinary
taxable income for the current calendar year. Instead, such
gains and losses are included in determining ordinary taxable
income for the succeeding calendar year.
Each Fund intends to make sufficient distributions of
its ordinary income and capital gain net income before the end
of each calendar year to avoid liability for the excise tax.
However, investors should note that a Fund may in certain
circumstances be required to liquidate Fund investments in
order to make sufficient distributions to avoid excise tax
liability. Liquidation of investments in such circumstances
may affect the ability of the Fund to satisfy the Short-Short
Gain test.
SALE OF SHARES
Generally, gain or loss on the sale of Shares will be capital
gain or loss, which will be long-term if the Shares have been
held for more than one year. However, investors should be
aware that any loss realized upon the sale, exchange, or
redemption of Shares held for six months or less will be
treated as a long-term capital loss to the extent that any
capital gains distributions have been paid with respect to
such Shares (or any undistributed net capital gain of the Fund
with respect to such Shares has been included in determining
the investor's long-term capital gain). In addition, any loss
realized on a sale or other disposition of Shares will be
disallowed to the extent an investor repurchases (or enters
into a contract or option to repurchase) Shares within a
61-day period, beginning 30 days before and ending 30 days
after the disposition of the Shares. Investors should
particularly note that this loss disallowance rule will apply
to Shares received through the reinvestment of dividends
during the 61-day period.
FAILURE TO QUALIFY AS A REGULATED INVESTMENT COMPANY
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income will be subject
to tax at regular corporate rates without any deduction for
distributions to
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shareholders. Distributions will then be taxable as ordinary
dividends to the extent of the Fund's current and accumulated
earnings and profits. Such distributions will generally be
eligible for the dividends received deduction in the case of
corporate shareholders.
BACK-UP WITHHOLDING
In certain cases, a Fund will be required to withhold and
remit to the United States Treasury 31% of distributions paid
to any shareholder if (i) the shareholder has not provided a
correct tax identification number, (ii) the shareholder is
subject to back-up withholding by the Internal Revenue Service
for failure to report the receipt of interest or dividend
income properly, or (iii) the shareholder has failed to
certify to the Fund that the shareholder is not subject to
back-up withholding.
FOREIGN INCOME TAXES
As described in the Prospectus, if the International Equity
Fund receives investment income from foreign sources,
applicable foreign income taxes may be withheld at the source.
The United States has entered into tax treaties with many
foreign countries that entitle the Fund to a reduced rate of,
or exemption from, taxes on such income. It is impossible to
determine the effective rate of foreign tax in advance, since
the amount of the International Equity Fund's assets to be
invested in various countries is not known.
If more than 50% of the value of the International
Equity Fund's total assets at the close of its taxable year
consists of the stocks or securities of foreign corporations,
the Fund may elect to "pass through" to its shareholders the
amount of foreign income taxes the Fund has paid (the "Foreign
Tax Election"). If the International Equity Fund makes the
Foreign Tax Election, shareholders would be required to
include in gross income, even though not actually received,
their respective pro-rata shares of the foreign income taxes
paid by the Fund. In addition, shareholders would either have
to deduct their pro rata share of foreign taxes in computing
their taxable income, or would have to use it (subject to
various Code limitations) as a foreign tax credit against
United States Federal income tax (but not both). If the Fund
makes the Foreign Tax Election, its shareholders would be
required to treat their pro rata shares of such foreign taxes
and allocable portions of Fund distributions as foreign source
income for purposes of the foreign tax credit limitation rules
of the Code.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of United States Federal
income tax consequences is based on the Code and the
regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes
or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
State and local rules of taxation of dividend and
capital gain distributions from regulated investment companies
often differ from the rules of United States Federal income
taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other
state and local tax rules regarding any investment in a Fund.
Shareholders should also consult their advisers regarding the
application of the federal rules described above to their
specific circumstances.
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VALUATION OF SHARES
A Fund determines its net asset value per share as of the
close of trading (currently 4:00 p.m., eastern time) on the
New York Stock Exchange ("NYSE") on each Business Day, which
is defined as each Monday through Friday when the NYSE is
open. Currently, the NYSE is closed on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, July 4th, Labor
Day, Thanksgiving and Christmas.
Securities which are listed on United States and
foreign stock exchanges are valued at the last sale price on
the day the securities are being valued or, lacking any sales
on such day, at the last available bid price. In cases where
securities are traded on more than one exchange, the
securities are generally valued on the exchange considered by
the investment manager as the primary market. Securities
traded in the OTC market and listed on the National
Association of Securities Dealers Automatic Quotation System
("NASDAQ") are valued at the last available sale price on
NASDAQ at 4:00 p.m.; other OTC securities are valued at the
last bid price available prior to valuation.
When market quotations for options and futures
positions held by a Fund are readily available, those
positions are valued based upon the sale price at the close of
trading on the applicable exchange. Securities, options and
futures positions, and other assets for which market
quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the
Board of Directors. The amortized cost method of valuation may
also be used with respect to debt obligations with remaining
maturities of 60 days or less. Other securities and assets
will be valued at fair value by or under the direction of the
Board of Directors of the Fund.
PERFORMANCE INFORMATION
YIELD
Current and effective yield are computed using standardized
methods required by the SEC. The annualized yield for the
Money Market Fund is computed by: (a) determining the net
change in the value of a hypothetical account having a balance
of one share at the beginning of a seven-calendar day period;
(b) dividing the net change by the value of the account at the
beginning of the period to obtain the base period return; and
(c) annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account
reflects the value of additional shares purchased with
dividends declared on both the original share and such
additional shares, but does not include realized gains and
losses or unrealized appreciation and depreciation. Compound
effective yields are computed by adding 1 to the base period
return (calculated as described above), raising the sum to a
power equal to 365/7 and subtracting 1.
Yield may fluctuate daily and does not provide a basis
for determining future yields. Because the yields of the Funds
will fluctuate, they cannot be compared with yields on savings
accounts or other investment alternatives that provide an
agreed to or guaranteed fixed yield for a stated period of
time. However, yield information may be useful to an investor
considering temporary investments in money market instruments.
In comparing the yield of one money market fund to another,
consideration should be given to each fund's investment
policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by
each fund to compute the yield (methods may differ) and
whether there are any special account charges which may reduce
the effective yield.
17
<PAGE>
For the seven day period ended September 30, 1996, the
yield and compound yield for the Money Market Fund were 4.77%
and 4.88%, respectively.
The yield of Funds other than the Money Market Fund is
calculated by dividing the net investment income per share (as
described below) earned by the Fund during a 30-day (or one
month) period by the net asset value per share on the last day
of the period and analyzing the result on a semi-annual basis
by adding one to the quotient, raising the sum to the power of
six, subtracting one from the result and then doubling the
difference. The Fund's net investment income per share earned
during the period is based on the average daily number of
shares outstanding during the period entitled to receive
dividends and includes dividends and interest earned during
the period minus expenses accrued for the period, net of
reimbursements. This calculation can be expressed as follows:
<TABLE>
<C> <S>
Yield = 2 [(a-b+ 1)to the 6th power -1]
---------------------------
cd
Where: a = dividends and interest earned during the
period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = net asset value per share on the last day of
the period
</TABLE>
Except as noted below, for the purpose of determining
net investment income earned during the period (variable "a"
in the formula), interest earned on debt obligations held by a
Fund is calculated by computing the yield to maturity of each
obligation based on the market value of the obligation
(including actual accrued interest) at the close of business
on the last business day of each month, or, with respect to
obligations purchased during the month, based on the purchase
price (plus actual accrued interest), dividing the result by
360 and multiplying the quotient by the market value of the
obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day
of the subsequent month that the obligation is held by a Fund.
For purposes of this calculation, it is assumed that each
month contains 30 days. The maturity of an obligation with a
call provision is the next call date on which the obligation
reasonably may be expected to be called or, if none, the
maturity date.
Undeclared earned income will be subtracted from the
net asset value per share (variable "d" in the formula).
Undeclared earned income is net investment income which, at
the end of the base period, has not been declared as a
dividend, but is reasonably expected to be and is declared as
a dividend shortly thereafter.
The yields on certain obligations, including the money
market instruments in which the Funds invest (such as
commercial paper and bank obligations), are dependent on a
variety of factors, including general money market conditions,
conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering,
the maturity of the obligation and the ratings of the issue.
The ratings of Moody's Investors Service and Standard & Poor's
Corporation represent their respective opinions as to the
quality of the obligations they undertake to rate. Ratings,
however, are general and are not absolute standards of
quality. Consequently, obligations with the same rating,
18
<PAGE>
maturity and interest rate may have different market prices.
In addition, subsequent to its purchase by a Fund, an issue
may cease to be rated or may have its rating reduced below the
minimum required for purchase. In such event, the investment
manager will consider whether a Fund should continue to hold
the obligation.
For the 30 day period ended September 30, 1996, the
yield for the Core Equity Fund was 1.26%, the Emerging Growth
Fund was -0.81% and the Intermediate-Term Fixed-Income Fund
was 5.06%.
TOTAL RETURN
Average annual total return quotes ("Standardized Return")
used in a Fund's performance are calculated according to the
following formula:
<TABLE>
<S> <C> <C> <C>
P(1 + T)to the nth power = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (exponent)
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of that period.
</TABLE>
Under the foregoing formula, the time periods used will
be based on rolling calendar quarters, updated to the last day
of the most recent quarter prior to submission of the
advertising for publication and will cover one, five and ten
year periods or a shorter period dating from the effectiveness
of a Fund's registration statement. During its first year of
operations, a Fund may, in lieu of annualizing its total
return, use an aggregate total return calculated in the same
manner. Average annual total return, or "T" in the formula
above, is computed by finding the average annual change in the
value of an initial $1,000 investment over the period. In
calculating the ending redeemable value the applicable sales
load, if any, is deducted and all dividends and distributions
are assumed to have been reinvested at net asset value.
Calculated according to the SEC rules for the fiscal
year ended September 30, 1996, the ending redeemable value of
a hypothetical $1,000 investment in each of the Fund's
investment funds in operation during such period, and the
resulting total return for each such investment fund were as
follows:
<TABLE>
<CAPTION>
ENDING REDEEMABLE
VALUE OF
$1,000
INVESTMENT FUND RETURN* INVESTMENT* TOTAL
- ----------------------------------------- ----------------- ----------
<S> <C> <C>
Core Equity Fund......................... $1,222.06 22.21%
Emerging Growth Equity Fund.............. $1,420.74 42.07%
Intermediate-Term Fixed-Income Fund...... $1,038.18 3.82%
Money Market Fund........................ $1,051.93 5.19%
</TABLE>
----------------------------------
* Assumes the reinvestment of all dividends and
distributions.
19
<PAGE>
Calculated according to the SEC rules for the 5-year
period ended September 30, 1996, the ending redeemable value
of a hypothetical $1,000 investment in each of the Fund's
investment funds in operation during such period, and the
resulting average annual total return for each such investment
fund were as follows:
<TABLE>
<CAPTION>
ENDING REDEEMABLE
VALUE OF AVERAGE
$1,000 ANNUAL
INVESTMENT FUND RETURN* INVESTMENT* TOTAL
- ---------------------------------------- ----------------- -----------
<S> <C> <C>
Core Equity Fund........................ $2,292.55 18.05%
Emerging Growth Equity Fund............. $3,476.68 28.30%
Intermediate-Term Fixed-Income Fund..... $1,363.70 6.40%
Money Market Fund....................... $1,217.28 4.01%
</TABLE>
----------------------------------
* Assumes the reinvestment of all dividends and
distributions.
Calculated according to the SEC rules for the period
from the respective dates of commencement of operations, as
indicated below, to September 30, 1996, the ending redeemable
value of a hypothetical $1,000 investment in each of the
Fund's investment funds in operation during such period, and
the resulting average annual total return for each such
investment fund were as follows:
<TABLE>
<CAPTION>
ENDING REDEEMABLE
VALUE OF AVERAGE
$1,000 ANNUAL
INVESTMENT FUND RETURN* INVESTMENT* TOTAL
- ---------------------------------------- ----------------- -----------
<S> <C> <C>
Core Equity Fund (5/10/91).............. $2,395.71 17.80%
Emerging Growth Equity Fund (5/10/91)... $3,664.42 27.57%
Intermediate-Term Fixed-Income Fund
(5/10/91).............................. $1,453.47 7.26%
Money Market Fund (2/7/91).............. $1,257.47 4.19%
</TABLE>
----------------------------------
* Assumes the reinvestment of all dividends and
distributions.
OTHER INFORMATION
The performance of a Fund, as well as the composite
performance of all fixed-income funds and all equity funds,
may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc.,
Morningstar, Inc., the Donoghue Organization, Inc. or other
independent services which monitor the performance of
investment companies, and may be quoted in advertising in
terms of their rankings in each applicable universe. In
addition, a Fund may use performance data reported in
financial and industry publications, including Barron's,
Business Week, Forbes, Investor's Daily, IBC/ Donoghue's Money
Fund Report, Money Magazine, The Wall Street Journal and USA
Today.
20
<PAGE>
ADMINISTRATION OF THE FUND
The overall business affairs of the Fund are managed by its
Board of Directors. The Fund has seven members of the Board of
Directors. The Fund's officers are responsible for the
operation of the Fund under the supervision of the Board of
Directors. The officers of the Fund are the President, one or
more Vice Presidents, a Secretary and a Treasurer. There may
also be a Chairman.
The Fund's Board of Directors meets four times a year
and currently has two standing committees: an Audit Committee
and a Nominating Committee. These committees meet from time to
time between meetings of the Board of Directors to consider
matters concerning the Fund. The Fund pays to each member of
the Board of Directors who is not an officer of the Fund a fee
of $800 for each board meeting and each committee meeting
which they attend, with the chairman of the committee, who is
not an officer of the Fund, receiving an additional $100 for
each committee meeting. A fee of $400 is paid to each
non-officer Director who participates in a telephonic meeting.
In addition, the Fund pays an annual fee of $7,000 to each
Director who is not an officer of the Fund, a Director of
Retirement System Group Inc., or a Trustee of RSI Retirement
Trust.
The Directors and officers are reimbursed for
reasonable expenses incurred in attending meetings or
otherwise in connection with their attention to the affairs of
the Fund. For the fiscal year ended September 30, 1996, the
foregoing persons accrued total fees and expenses of $36,399.
The directors and executive officers of the Fund, their
respective ages, their principal occupations for the last five
years and their affiliations, if any, with the Fund are set
forth below. An asterisk (*) indicates officers and/or
directors who are "interested persons" of the Fund as defined
in the Investment Company Act.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
AGE POSITIONS WITH FOR LAST FIVE YEARS AND
NAME -- FUND AFFILIATION WITH FUND
- ------------------- ----------------- --------------------------------------
<S> <C> <C> <C>
William Dannecker* 57 President and President and Chief Executive Officer
Director of Retirement System Group Inc. since
January 1990 and Director since March
1989; President of Retirement System
Consultants Inc. since January 1990
and Director since March 1989;
Director of Retirement System
Investors Inc. since March 1989;
President of Retirement System
Distributors Inc. since December 1990
and Director since July 1989; Director
of RSG Insurance Agency Inc. since
March 1996; President of RSI
Retirement Trust since May 1986.
Edward J. Brown* 64 Director Consultant since December 1993;
President and Chief Operating Officer
of Apple Bank for Savings and Apple
Bancorp, Inc., New York, New York,
from January 1987 to November 30,
1993; Chief Executive Officer from
October 1990 to February 1991. Also,
Director of Retirement System Group
Inc.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
AGE POSITIONS WITH FOR LAST FIVE YEARS AND
NAME -- FUND AFFILIATION WITH FUND
- ------------------- ----------------- --------------------------------------
<S> <C> <C> <C>
Candace Cox 45 Director President and Chief Investment
Officer, NYNEX Asset Management
Company, New York, New York; since
November 1995, Vice President, Public
Markets Strategy, NYNEX Asset
Management Co., from September, 1992
to October 1995; Principal Investment
Officer, New York City Controller's
Office, New York, New York from July
1989 to August 1992. Also Trustee of
RSI Retirement Trust.
Eugene C. Ecker 72 Director Consultant since January 1988, Pension
and Group Insurance. Also Trustee of
RSI Retirement Trust.
Joseph P. Gemmell* 61 Director Chairman of the Board of Bankers
Savings, Perth Amboy, New Jersey since
1989; President and Chief Executive
Officer of Bankers Savings since 1983.
Also, Director or Trustee of
Retirement System Group Inc., New
Jersey League of Community and Savings
Banks, Middlesex County College
Foundation, Middlesex County Blue
Badge Association #1, Garden State
Hospitalization Plan, Federal Reserve
Bank of New York Thrift Advisory
Board, New Jersey Chairman of
Conference of State Bank Supervisors,
and Vice Chairman, Woodbridge Economic
Development Corp.
Covington Hardee 77 Director Chairman of the Board Emeritus from
1984 to April 1990, The Lincoln
Savings Bank, FSB, New York, NY. Also
Trustee of RSI Retirement Trust.
Raymond L. Willis 61 Director Private investments since March 1989.
Also Trustee of RSI Retirement Trust.
James P. Coughlin* 60 Executive Vice President Executive Vice President of
Retirement System Group Inc. since
January 1993, Senior Vice
President-Investments from January
1990 to December 1992, Chief
Investment Officer since January 1991,
and Director since May 1990; President
of Retirement System Investors Inc.
since February 1990; Registered
Principal of Retirement System
Distributors Inc. since February 1990
and President from February 1990 to
December 1990.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
AGE POSITIONS WITH FOR LAST FIVE YEARS AND
NAME -- FUND AFFILIATION WITH FUND
- ------------------- ----------------- --------------------------------------
<S> <C> <C> <C>
Stephen P. Pollak* 51 Executive Vice Executive Vice President, Counsel and
President, Secretary of Retirement System Group
Counsel and Inc. since January 1993; Senior Vice
Secretary President, Counsel and Secretary from
January 1990 through December 1992 and
Director since March 1989; President
and Director of RSG Insurance Agency
Inc. since March 1996; Vice President,
and Secretary of Retirement System
Consultants Inc. since January 1990
and Director since March 1989; Vice
President and Secretary of Retirement
System Distributors Inc. since
February 1990 and Director since July
1989; Vice President and Secretary of
Retirement System Investors Inc. since
February 1990 and Director since March
1989.
John F. Meuser* 61 Vice President Senior Vice President of Retirement
and Treasurer System Group Inc. since January 1996,
Vice President from January 1993 to
December 1995, First Vice President
from August 1990 to December 1992;
Financial and Operations Principal
since October 1993 and Registered
Representative since February 1990 of
Retirement System Dis-tributors Inc.;
Vice President of Retirement System
Investors Inc. since February 1990;
Vice President and Treasurer of RSI
Retirement Trust since October 1992.
</TABLE>
The Directors of the Fund received the compensation
shown below for services to the Fund during the fiscal year
ended September 30, 1996. Fund officers received no
compensation from the Fund during the fiscal year ended
September 30, 1996. The Fund Complex consists of the Fund and
another mutual fund advised by the Investment Advisor.
<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT
AGGREGATE COMPENSATION FROM BENEFITS ACCRUED
COMPENSATION FROM THE FUND AND THE AS PART OF FUND
NAME OF TRUSTEE THE FUND COMPLEX FUND EXPENSES
- ------------------------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C>
William Dannecker........................................... $ -0 - $ -0 - $ -0 -
Edward J. Brown............................................. 6,450.00 6,450.00 -0 -
Candace Cox................................................. 4,800.00 20,475.00* -0 -
Eugene. C. Ecker............................................ 2,400.00 15,125.00* -0 -
Joseph P. Gemmell........................................... 7,650.00 7,650.00 -0 -
Covington Hardee............................................ 4,800.00 19,875.00* -0 -
Raymond L. Willis........................................... 5,000.00 24,375.00* -0 -
</TABLE>
----------------------------------
* Ms. Cox and Messrs. Ecker, Hardee and Willis receive
compensation for services to the Fund and one other mutual
fund.
23
<PAGE>
The Fund does not provide Directors or officers,
directly or indirectly, with any pension or retirement
benefits for their services to the Fund. William Dannecker,
the President of the Fund, is an officer of Group, Retirement
System Distributors Inc. ("Distributor") and Retirement System
Consultants Inc. ("Service Company"), and receives
compensation in such capacities. James P. Coughlin, Executive
Vice President of the Fund, is an officer of the Group and the
Investment Advisor, and receives compensation in such
capacities. Stephen P. Pollak, Executive Vice President,
Counsel and Secretary of the Fund, is an officer of Group, the
Service Company the Investment Advisor, the Distributor and
RSG Insurance Agency Inc., and receives compensation in such
capacities. John F. Meuser, Vice President and Treasurer of
the Fund, is an officer of Group and the Investment Advisor,
and receives compensation in such capacities.
The Distributor is wholly-owned by Retirement System
Group Inc., P.O. Box 2064, Grand Central Station, New York,
New York 10163-2064, a holding company organized under the
laws of the State of Delaware. The Investment Advisor and
administrator are also wholly-owned subsidiaries of Retirement
System Group Inc.
ADVISORY AND OTHER SERVICES
The Investment Advisor, a wholly-owned subsidiary of
Retirement System Group Inc., acts as the investment advisor
to each Investment Fund. Certain Investment Funds have engaged
independent investment managers to make and effect decisions
on buying and selling portfolio securities. The Investment
Advisor acts as investment manager to the remaining Funds and
in the case of all Investment Funds, exercises general
oversight with respect to portfolio management and reports to
the Board of Directors with respect thereto. The fees which
the Investment Advisor and each investment manager is entitled
to receive for services on behalf of the Fund is set forth in
the Prospectus.
For investment advisory services to the Money Market
Fund, the Core Equity Fund, the Emerging Growth Equity Fund
and the Intermediate-Term Fixed-Income Fund, respectively, for
the fiscal year ended September 30, 1994, the Investment
Advisor received fees (net of fee waivers) of $0, $0, $14,681
and $0, respectively, and waived fees of $3,444, $20,124, $0
and $11,099, respectively. For the fiscal year ended September
30, 1995, the Investment Advisor received fees (net of fee
waivers) of $0, $0, $27,019, and $0, respectively, and waived
fees of $2,885, $26,842, $0, and $18,262, respectively. For
the fiscal year ended September 30, 1996, the Investment
Advisor received fees (net of fee waivers) of $0, $0, $39,330
and $0, respectively, and waived fees of $3,245, $41,833, $0
and $22,308, respectively
For the fiscal years ended September 30, 1994,
September 30, 1995, and September 30, 1996, the Investment
Advisor paid all of the fees it received for advisory services
for the Emerging Growth Equity Fund to the Putnam Advisory
Company, Inc., for its services as an independent investment
manager to such Fund.
The Fund's agreements with the Investment Advisor and
with each investment manager had an initial term of two years
and were approved by the initial shareholder of the Fund on
February 28, 1991. These agreements may be continued from year
to year after the initial term provided each annual
continuance is approved in the manner provided in the
Investment Company Act. Any such agreement will automatically
terminate if "assigned" (as defined by the Investment Company
Act), and may be terminated without penalty at any time (a)
either by vote of the Board of Directors, or by vote of a
24
<PAGE>
majority of the outstanding shares of the Fund, on not more
than 60 nor less than 30 days' written notice to the
Investment Advisor or the investment manager, as the case may
be, unless a shorter period is otherwise agreed to, or (b) by
the Investment Advisor or the investment manager, as the case
may be, upon not more than 60 nor less than 30 days' written
notice to the Fund, unless a shorter period is otherwise
agreed to.
Pursuant to a Service Agreement, as amended effective
January 28, 1995, Retirement System Consultants Inc. (the
"Service Company") will perform general administrative and
related services, including transfer agent and registrar
services, to each Investment Fund. The Service Company is a
wholly-owned subsidiary of Retirement System Group Inc.
For the fiscal years ended September 30, 1994,
September 30, 1995, and September 30, 1996, the Service
Company waived all fees due it under the Service Agreement.
In addition, the Service Company has voluntarily agreed
to reimburse each Investment Fund to the extent required so
that "Total Annual Operating Expenses" do not exceed the
following ratios of each Investment Fund's average daily net
assets:
<TABLE>
<S> <C>
Core Equity Fund.......................................... 1.00%
Emerging Growth Equity Fund............................... 2.00%
Value Equity Fund......................................... 1.42%
International Equity Fund................................. 2.21%
Actively Managed Fixed-Income Fund........................ .74%
Intermediate-Term Fixed Income Fund....................... 1.00%
Money Market Fund......................................... .50%
</TABLE>
For the period ended September 30, 1994, such
reimbursement for the Core Equity Fund, Emerging Growth Equity
Fund, Intermediate-Term Fixed-Income Fund and Money Market
Fund was $44,692, $60,887, $46,119, and $47,866, respectively.
For the period ended September 30, 1995, such reimbursement
for the Core Equity Fund, Emerging Growth Equity Fund,
Intermediate-Term Fixed-Income Fund and Money Market Fund was
$58,183, $74,265, $49,727, and $42,954, respectively. For the
period ended September 30, 1996, such reimbursement for the
Core Equity Fund, Emerging Growth Equity Fund,
Intermediate-Term Fixed-Income Fund and Money Market Fund was
$75,067, $64,413, $56,361 and $47,155, respectively. See "Fee
Table" in the Prospectus for additional information with
respect to fee waivers.
DISTRIBUTION AGREEMENT
Pursuant to the Distribution Agreement, the Distributor will
distribute and promote the sale of shares in the Fund's
Investment Funds in accordance with the Fund's Rule 12b-1
Plan. The maximum amount payable under the Plan is equal to
.25% of the average daily net assets of a Fund but the Board
of Directors currently limits such expenditures to .20% of
average daily net assets. The Plan does not provide for any
charges to a Fund for excess amounts expended by the
Distributor and, if the Plan is terminated, the obligation of
the Fund to make payments to the Distributor will cease and
the Fund will not be required to make any payments thereafter.
If the Distributor's costs in connection with its distribution
services to a Fund are less than .20% of net assets, the
Distributor may nevertheless retain the difference. If the
Distributor's costs exceed .20% of net assets, the Distributor
will assume the
25
<PAGE>
difference and will not be reimbursed therefor. Pursuant to
the Distribution Agreement, the Distributor will prepare and
furnish to the Board of Directors for its review quarterly, a
written report of the amounts expended under the Distribution
Agreement and the purposes for which such expenditures were
made.
As compensation for providing distribution services for
the Money Market Fund, the Core Equity Fund, the Emerging
Growth Equity Fund and the Intermediate-Term Fixed-Income
Fund, respectively, for the fiscal year ended September 30,
1994, the Distributor received from the Fund aggregate fees
and commissions of $2,755, $6,708, $2,964, and $5,550, and
waived fees of $689, $1,677, $741, and $1,388. For the fiscal
year ended September 30, 1995, the Distributor received from
the Fund aggregate fees and commissions of $2,308, $8,947,
$4,504, and $9,131, and waived fees of $577, $2,237, $1,126,
and $2,283. For the fiscal year ended September 30, 1996, the
Distributor received from the Fund aggregate fees and
commissions of $2,596, $13,944, $8,041 and $11,154,
respectively and waived fees of $649, $3,486, $2,010 and
$2,789. From the fees it received during such periods, the
Distributor paid no fees or commissions either to its
representatives or to outside broker-dealers. Registered
Representatives employed by the Distributor received
commissions of $639.
The Distribution Agreement, which had an initial
two-year term, may be continued from year to year after its
initial term if such continuance is approved in the manner
required by Rule 12b-1 under the Investment Company Act. The
Distribution Agreement may be terminated by the Fund or the
Distributor without penalty, on not more than 60 days' nor
less than 30 days' written notice. The Distribution Agreement
will also terminate automatically in the event of its
"assignment" (as defined in the Investment Company Act). The
Distribution Plan does not have an initial two-year term and
must be approved annually in the manner required by Rule 12b-1
under the Investment Company Act. The Plan and Distribution
Agreement were most recently approved in the foregoing manner
by the Board of Directors on July 25, 1996.
BROKERAGE ALLOCATION AND
PORTFOLIO TURNOVER
Each investment manager determines the broker to be used, if
any, in each specific securities transaction executed on
behalf of the Fund with the objective of negotiating a
combination of the most favorable commission and the best
price obtainable on each transaction, taking into
consideration the quality of execution (generally defined as
best execution). When consistent with the objective of
obtaining best execution, brokerage may be directed to persons
or firms supplying information to an investment manager. The
investment information provided to an investment manager is of
the type described in Section 28(e) of the Securities Exchange
Act of 1934 and is designed to augment the manager's own
internal research and investment strategy capabilities.
Research services furnished by brokers through which the Fund
effects securities transactions are used by those investment
managers to whom such services are furnished in carrying out
their investment management responsibilities with respect to
all their client accounts and not all such services may be
used by such investment managers in connection with the Fund.
There may be occasions where the transaction costs charged by
a broker may be greater than those which another broker may
charge if the investment manager determines in good faith that
the amount of such transaction cost is reasonable in
relationship to the value of the
26
<PAGE>
brokerage and research services provided by the executing
broker. No investment manager has entered into agreements with
any brokers regarding the placement of securities transactions
because of research services they provide.
The Fund's investment managers deal in some instances
in securities which are not listed on a national securities
exchange but are traded in the over-the-counter market or the
third market. Investment managers may also purchase listed
securities through the third market (i.e., transactions
effected off the exchange with brokers). Where securities
transactions are executed in the over-the-counter market or
third market, each investment manager seeks to deal with
primary market makers except in those circumstances where, in
their opinion, better prices and executions may be available
elsewhere.
During the fiscal years ended September 30, 1995 and
September 30, 1996, the Investment Managers directed no
transactions to broker-dealers and paid no commissions to
broker-dealers for research services. During the same period,
the Fund paid no brokerage commissions to the Distributor.
The Fund is required to identify any securities of its
"regular brokers or dealers" (as such term is defined in the
Investment Company Act) which the Fund has acquired during its
most recent fiscal year. As of September 30, 1996, the Core
Equity Fund held a 5.60% repurchase agreement issued by Bear,
Stearns & Co. Inc. valued at $340,000, the Emerging Growth
Equity Fund held a 5.60% repurchase agreement issued by Bear,
Stearns & Co. Inc. valued at $242,494, and the Intermediate-
Term Fixed-Income Fund held a 5.60% repurchase agreement
issued by Bear, Stearns & Co. Inc. valued at $47,022. Bear,
Stearns & Co. Inc. is a "regular broker or dealer" of the
Fund.
DESCRIPTION OF SHARES
The Fund's Articles of Incorporation authorize the Board of
Directors to issue up to two billion full and fractional
shares of common stock. The Fund presently offers shares in
four portfolios, as described in the Prospectus.
The Board of Directors may classify or reclassify any
authorized but unissued shares of the Fund into one or more
additional classes by setting or changing in any one or more
respects their respective preferences, conversion or other
rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of
redemption.
Shares have no subscription or pre-emptive rights and
only such conversion or exchange rights as the Board of
Directors may grant in its discretion. When issued for payment
as described in the Fund's Prospectus and this Statement of
Additional Information, the Fund's shares will be fully paid
and non-assessable. In the event of a liquidation or
dissolution of an Investment Fund, shares are entitled to
receive the assets available for distribution belonging to
that Investment Fund, and a proportionate distribution, based
upon the relative asset value of the Investment Fund and the
Fund's other Investment Funds, of any general assets not
belonging to any particular Investment Fund which are
available for distribution. A meeting of shareholders may be
called for any purpose on the written request of the holders
of at least 10% of the outstanding shares of the Fund. Voting
rights are not cumulative and, accordingly, the holders of
more than 50% of the aggregate number of shares of the Fund
may elect all of the directors if they choose to do so and, in
such event, the holders of the
27
<PAGE>
remaining shares would not be able to elect any person or
persons to the Board of Directors. Under Maryland law, a
director may be removed by the affirmative vote of the holders
of more than 50% of the aggregate number of shares of the
Fund.
Rule 18f-2 under the Investment Company Act of 1940
provides that any matter required to be submitted to the
holders of the outstanding voting securities of an investment
company such as the Fund shall not be deemed to have been
effectively acted upon unless approved by the holders of a
majority of the outstanding shares of each Investment Fund
affected by the matter. An Investment Fund is affected by a
matter unless it is clear that the interests of each
Investment Fund in the matter are identical, or that the
matter does not affect any interest of the Investment Fund.
Under Rule 18f-2, the approval of an investment advisory
agreement or Rule 12b-1 Plan or any change in a fundamental
investment policy would be effectively acted upon with respect
to an Investment Fund only if approved by a majority of the
outstanding shares of such Fund. However, Rule 18f-2 also
provides that the ratification of independent auditors, the
approval of principal underwriting contracts, and the election
of directors may be effectively acted upon by shareholders of
the Fund voting together without regard to class.
Notwithstanding any provision of Maryland law requiring
a greater vote of the Fund's shares (or of any class voting as
a class) in connection with any corporate action, unless
otherwise provided by law or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon
the favorable vote of the holders of more than 50% of the
outstanding common stock of the Fund (voting together without
regard to class).
COUNSEL AND AUDITORS
Morgan, Lewis & Bockius, LLP, 2000 One Logan Square,
Philadelphia, Pennsylvania 19103-6993 acts as counsel for the
Fund and has rendered its opinion as to certain legal matters
regarding the validity of shares offered by the Prospectus.
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York
10017, has been selected as auditors of the Fund.
CONTROL PERSONS
The following information is given as of December 31, 1996.
The names and addresses of the holders of 5% or more of
the outstanding shares of each of the Fund's Investment Funds
in operation on December 31, 1996 and the percentage of
outstanding shares of each such Investment Fund owned by such
shareholders as of such date, to Fund Management's knowledge,
are as follows:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF FUND AND NAME NUMBER OF SHARES PERCENT OWNED OF SHARES OWNED
AND ADDRESS OF RECORD OWNED OF RECORD RECORD AND OF RECORD PERCENT OWNED
OR BENEFICIAL OWNER AND BENEFICIALLY BENEFICIALLY ONLY OF RECORD ONLY
- ------------------------- ----------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Core Equity Fund
IBJ Schroder as -- -- 191,529 37.5%
Trustee for various
accounts
One State Street
New York, NY 10004
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF FUND AND NAME NUMBER OF SHARES PERCENT OWNED OF SHARES OWNED
AND ADDRESS OF RECORD OWNED OF RECORD RECORD AND OF RECORD PERCENT OWNED
OR BENEFICIAL OWNER AND BENEFICIALLY BENEFICIALLY ONLY OF RECORD ONLY
- ------------------------- ----------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Marine Midland as -- -- 62,679 12.3%
Trustee for various
accounts P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
The Dime Savings 30,105 5.9% -- --
Bank of Williamsburgh
209 Havemeyer Street
Brooklyn, NY 11211
Independence Savings Bank 27,399 5.4% -- --
195 Montague Street
Brooklyn, NY 11201
ALBANK, FSB 102,492 20.01% -- --
10 North Pearl Street
Albany, NY 12207
First Union National Bank 136,331 26.7%* -- --
301 South College Street
Charlotte, NC 28288
Flushing Savings Bank 43,155 8.4% -- --
144-51 Northern Boulevard
Flushing, NY 11354
Emerging Growth Equity
Fund
IBJ Schroder as -- -- 112,952 28.1%
Trustee for various
accounts
One State Street
New York, NY 10004
Marine Midland as -- -- 41,563 10.4%
Trustee for various
accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
ALBANK, FSB 46,225 11.5% -- --
10 North Pearl Street
Albany, NY 12207
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF FUND AND NAME NUMBER OF SHARES PERCENT OWNED OF SHARES OWNED
AND ADDRESS OF RECORD OWNED OF RECORD RECORD AND OF RECORD PERCENT OWNED
OR BENEFICIAL OWNER AND BENEFICIALLY BENEFICIALLY ONLY OF RECORD ONLY
- ------------------------- ----------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Flushing Savings Bank 25,761 6.4% -- --
144-51 Northern Boulevard
Flushing, NY 11354
Raritan Savings Bank 21,391 5.3% -- --
9 West Somerset Street
Raritan, NJ 08869-0129
Independence Savings Bank 23,222 5.8% -- --
195 Montague Street
Brooklyn, NY 11201
First Union National Bank 27,068 6.7% -- --
301 South College Street
Charlotte, NC 28288
Ridgewood Savings Bank 42,981 10.7% -- --
Myrtle & Forest Avenues
Ridgewood, New York 11385
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Intermediate-Term
Fixed-Income Fund
IBJ Schroder as -- -- 196,359 31.9%
Trustee for various
accounts
One State Street
New York, NY 10004
Marine Midland as -- -- 83,762 13.6%
Trustee for various
accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
ALBANK, FSB 58,797 9.5% -- --
10 North Pearl Street
Albany, NY 12207
First Union National Bank 75,689 12.3% -- --
301 South College Street
Charlotte, NC 28288
Flushing Savings Bank 49,677 8.1% -- --
144-51 Northern Boulevard
Flushing, NY 11354
Institutional Securities 128,900 20.9% -- --
Corp.
200 Park Avenue -
6th Floor West
New York, New York 10166
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF FUND AND NAME NUMBER OF SHARES PERCENT OWNED OF SHARES OWNED
AND ADDRESS OF RECORD OWNED OF RECORD RECORD AND OF RECORD PERCENT OWNED
OR BENEFICIAL OWNER AND BENEFICIALLY BENEFICIALLY ONLY OF RECORD ONLY
- ------------------------- ----------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
The Dime Savings 43,132 7.0% -- --
Bank of Williamsburgh
209 Havemeyer Street
Brooklyn, NY 11211
The Roslyn Savings Bank 57,477 9.3% -- --
1400 Old Northern
Boulevard
Roslyn, NY 11576
Money Market Fund
IBJ Schroder as -- -- 714,638 42.8%
Trustee for various
accounts
One State Street
New York, NY 10004
Marine Midland as -- -- 284,954 17.1%
Trustee for various
accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
ALBANK, FSB 657,633 39.4%* -- --
10 North Pearl Street
Albany, NY 12207
Marianne C. Hansen 100,149 6.0% -- --
949 S. Ogden Street
Denver, CO 80209
Flushing Savings Bank 135,478 8.1% -- --
144-51 Northern Boulevard
Flushing, NY 11354
Charter Trust Company 228,241 13.7% -- --
Trustee of Mid-Maine
Savings Bank
95 North Main Street
PO Box 1374
Concord, NH 03302
North Fork Bank 90,629 5.4% -- --
275 Broad Hollow Road
Melville, NY 11747
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Poughkeepsie Savings Bank 149,476 9.0% -- --
249 Main Mall
Poughkeepsie, NY 12602
</TABLE>
----------------------------------
* Total ownership is less than 25% of total Fund assets.
FINANCIAL STATEMENTS
The financial statements required to be included in this
Statement of Additional Information are incorporated herein by
reference from the Fund's Annual Report to shareholders for
the fiscal year ended September 30, 1996. Other portions of
the Fund's Annual Report, including Highlights of the Year,
President's Message and Investment Performance and Asset
Values, are not incorporated by reference and therefore do not
constitute a part of this Registration Statement. A copy of
the Fund's Annual Report must accompany this Statement of
Additional Information.
33
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
The Enterprise Growth Portfolio
Manager's Comments................................................................................. 4
Portfolio of Investments........................................................................... 7
The Enterprise Equity Income Portfolio
Manager's Comments................................................................................. 9
Portfolio of Investments........................................................................... 11
The Enterprise Capital Appreciation Portfolio
Manager's Comments................................................................................. 14
Portfolio of Investments........................................................................... 16
The Enterprise Small Company Portfolio
Manager's Comments................................................................................. 18
Portfolio of Investments........................................................................... 21
The Enterprise International Growth Portfolio
Manager's Comments................................................................................. 23
Portfolio of Investments........................................................................... 26
The Enterprise Government Securities Portfolio
Manager's Comments................................................................................. 30
Portfolio of Investments........................................................................... 32
The Enterprise High-Yield Bond Portfolio
Manager's Comments................................................................................. 33
Portfolio of Investments........................................................................... 36
The Enterprise Tax-Exempt Income Portfolio
Manager's Comments................................................................................. 39
Portfolio of Investments........................................................................... 41
The Enterprise Managed Portfolio
Manager's Comments................................................................................. 44
Portfolio of Investments........................................................................... 47
The Enterprise Money Market Portfolio
Manager's Comments................................................................................. 49
Portfolio of Investments........................................................................... 50
Statement of Assets and Liabilities.................................................................. 52
Statement of Operations.............................................................................. 54
Statement of Changes in Net Assets................................................................... 56
Financial Highlights................................................................................. 60
Notes to Financial Statements........................................................................ 74
</TABLE>
Returns in this report are historical and do not guarantee future performance of
any fund. Investment return and principal value will fluctuate so that shares,
when redeemed, may be worth more or less than their cost.
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
MESSAGE FROM THE CHAIRMAN
Dear Fellow Shareholder:
1996 was a tremendous year for investors in U.S. stock mutual funds.
According to Lipper Analytical Services, Inc., the average diversified U.S.
stock fund returned 19.5% last year. On the fixed income side, while Lipper
reported that the average bond fund gained a less overwhelming 4.7%, it still
surpassed the 3.3% CPI level of inflation. The Enterprise Group of Funds
shareholders, fortunately, also shared in the exuberance of the equity markets
while experiencing the relative calm of the bond marketplace.
1996 In Review
Propelled by solid earnings gains, moderate economic growth, and a record
flow of money into equity mutual funds combined with a tight trading range for
bonds, stocks produced a second consecutive year of gratifying performance for
investors. Stocks, as measured by the S&P 500 Composite Index, rose 22.9%. This
gain marked the fourteenth calendar year advance for the Index in fifteen years.
Combined with 1995's 37.6% gain, the two year cumulative return of 69.1% was the
best since the 69.8% recorded in 1975-76.
However, not all sections of the market performed equally well. Small growth
stocks, represented by the Russell 2000 Index, advanced 16.5%. This was the
third successive year that small stocks have underperformed.
Overseas, there were several impressive performances in the smaller equity
markets of Spain, Finland, the Netherlands and Sweden. Each performed better in
dollar hedged terms than the U.S. Offsetting these convincing results was the
weak performance of Japan -- the world's second largest stock market.
In 1996, bond price movements followed the economic climate very closely.
Throughout most of the first nine months of the year bond prices declined as
economic expansion accelerated but then rallied as growth diminished. The
volatility, however, commonly expected with these moves was limited as a
consistent thread of favorable inflationary conditions favored the fixed income
markets for the entire year.
Looking To 1997
During this successful investment period, the Enterprise Growth, Managed,
International Growth and Government Securities Portfolios, in particular,
received favorable media recognition relative to their mutual fund peer groups
due to their performance. We believe, as do our portfolio managers, that despite
the gains of the past two years, continued positive returns may still be
achievable in 1997. A cautionary warning, however, is if the economy does
demonstrate above average growth or experiences a resurgence of inflationary
pressures, a correction in the investment markets would in all likelihood occur.
The strong performance of the equity markets over the past two years emphasizes
why investors should have patience through some of the slow growth periods in
order to enjoy the expansion portion of the secular market cycle.
2 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
In this investment environment, we continue to emphasize to our shareholders
the need for long-term investment planning over short-term trading to help
achieve financial goals. No two individual's financial goals, of course, are
exactly alike. Each requires specific investment products tailored to the
investor's individual asset allocation parameters and risk tolerance level.
Enterprise provides investors with a wide selection of mutual funds to cover the
complete spectrum of investment needs. It is particularly important to remember
to diversify your investments. An almost certain way to court disaster is to
place all your investment dollars in one basket. Allocating your investment
portfolio across a wide variety of stocks and bonds both in the U.S. and abroad
may help insulate it from a downturn in any one market.
Enterprise shareholders are fortunate to be able
to gain special access to several of the most
respected institutional investment management firms
in the industry, in contrast to other mutual fund
organizations who offer only in-house investment
management. Each of these asset management firms
which guide the various Enterprise portfolios is a
recognized leader in its field and each manages to a
specific investment style, whether "growth" or
"value." Collectively, they manage over $250 billion
of client assets, primarily from major institutions.
These institutional money managers' usual investment
minimums range from $1 million to $35 million. It is no wonder that their
expertise has been out of reach for the small, private investor. However,
through Enterprise, our shareholders gain access to these same institutional
managers with a minimum investment of only $1,000 per Portfolio. For Individual
Retirement Accounts and Automatic Bank Draft Plans, the minimums are even lower
($250 and $100, respectively).
We encourage you to review Enterprise's portfolio managers' comments in this
Annual Report. You will find insightful commentaries and a variety of investment
strategies for 1997. We continue to encourage diversification and long-term
investment among these funds based upon your own personal investment objectives.
Enterprise has worked diligently to create funds that invest in market
sectors that offer our shareholders the potential for attractive performance in
relation to their investment objectives. We are proud of our success to date and
appreciate your confidence in The Enterprise Group of Funds as we continue our
primary mission to add value to your investment portfolio by providing you with
special access to some of the most accomplished investment firms in the
industry.
Sincerely,
/s/ VICTOR UGOLYN
Victor Ugolyn
Chairman, President and Chief Executive Officer
THE ENTERPRISE GROUP OF FUNDS, INC. 3
<PAGE>
The Enterprise Growth Portfolio
Montag & Caldwell, Inc.
Atlanta, Georgia
INVESTMENT MANAGEMENT
Montag & Caldwell served as investment adviser to Alpha Fund, Inc., the
predecessor of the Growth Portfolio, since the Fund was organized in 1967.
Montag & Caldwell currently manages over $8.5 billion for institutional clients.
Their normal investment minimum is $20 million.
INVESTMENT OBJECTIVE
The objective of the Enterprise Growth Portfolio is to seek appreciation of
capital primarily through investments in common stocks.
INVESTMENT PHILOSOPHY
Montag & Caldwell's equity selection process is a low risk, growth stock
approach. Valuation is the key selection criterion which makes their investment
style risk averse. Montag & Caldwell also emphasize growth characteristics
because they are seeking not only companies with shares that are attractively
priced but also those which should experience strong earnings growth relative to
other companies.
1996 PERFORMANCE REVIEW
The Enterprise Growth Portfolio had a strong year in 1996. The Portfolio's focus
on steady growth stocks such as consumer staples and multinationals as well as
technology firms contributed to its good results throughout the year. Top
holdings in the Portfolio at year end included Intel Corporation, Seagate
Technology, Procter & Gamble Company, Microsoft Corporation and Coca-Cola.
Industry concentrations targeted computer hardware, pharmaceuticals, consumer
non-durables, computer software and computer services.
FUTURE INVESTMENT STRATEGY
The outlook for the shares of growth companies continues to be particularly
good. In a steady to lower bond yield environment, the valuations of growth
companies' shares are enhanced more over time than the valuation of the
Class A
<TABLE>
<C> <S>
[GRAPH] ** The S&P 500 Index is an
unmanaged index which
includes 500 companies
which tend to be leaders in
important industries within
the U.S. economy and
excludes any transaction or
holding charges. Enterprise
performance numbers include
the maximum sales charge
and all fees. Remember that
historic performance does
not predict future
performance. Shares may be
worth more or less at
redemption than at original
purchase.
</TABLE>
4 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
average company's shares. Moreover, the superior earnings growth rates of these
companies will be particularly attractive in a setting of more moderate
corporate profit growth. In terms of stock selection, Montag & Caldwell
continues to emphasize the shares of global growth companies in the consumer,
healthcare and technology sectors. These companies are well positioned to
benefit from the expansion of global markets both in the period ahead and over
the long term as the triumph of capitalism continues to penetrate more of the
world's underdeveloped economies.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER
CONDITIONS.
THE ENTERPRISE GROUP OF FUNDS, INC. 5
<PAGE>
GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Common Stocks -- 95.00% Amount Value
<S> <C> <C>
- --------------------------------------------------------
Business Services -- 4.26%
- ---------------------------------------------------------------------------------
Interpublic Group of Companies Inc..................................................................... 88,000 $ 4,180,000
Manpower Inc........................................................................................... 180,000 5,850,000
------------
10,030,000
Computer Hardware -- 15.38%
- ---------------------------------------------------------------------------------
Adaptec Inc. (a)....................................................................................... 144,000 5,760,000
Cisco Systems Inc.(a).................................................................................. 107,000 6,807,875
Compaq Computer Corporation (a)........................................................................ 92,000 6,831,000
Seagate Technology (a)................................................................................. 252,800 9,985,600
United States Robotics Corporation (a)................................................................. 95,000 6,840,000
------------
36,224,475
Computer Services -- 7.69%
- ---------------------------------------------------------------------------------
Electronic Data Systems Corporation.................................................................... 140,000 6,055,000
First Data Corporation................................................................................. 155,100 5,661,150
Solectron Corporation (a).............................................................................. 120,000 6,405,000
------------
18,121,150
Computer Software -- 7.83%
- ---------------------------------------------------------------------------------
Electronic Arts (a).................................................................................... 137,000 4,101,438
Microsoft Corporation (a).............................................................................. 102,000 8,427,750
Oracle System Corporation (a).......................................................................... 141,975 5,927,456
------------
18,456,644
Consumer Basics -- 1.77%
- ---------------------------------------------------------------------------------
Sysco Corporation...................................................................................... 128,000 4,176,000
Consumer Durables -- 1.60%
- ---------------------------------------------------------------------------------
Harley Davidson Inc.................................................................................... 80,000 3,760,000
Consumer Non-Durables -- 8.15%
- ---------------------------------------------------------------------------------
Gillette Company....................................................................................... 80,000 6,220,000
Mattel Inc............................................................................................. 150,000 4,162,500
Procter & Gamble Company............................................................................... 82,000 8,815,000
------------
19,197,500
Electrical Equipment -- 1.41%
- ---------------------------------------------------------------------------------
Duracell International Inc............................................................................. 47,400 3,312,075
Entertainment & Leisure -- 2.66%
- ---------------------------------------------------------------------------------
Walt Disney Company.................................................................................... 90,000 6,266,250
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- --------------------------------------------------------
Finance -- 4.89%
- ---------------------------------------------------------------------------------
American Express Company............................................................................... 130,000 $ 7,345,000
Federal National Mortgage Association.................................................................. 112,000 4,172,000
------------
11,517,000
Food & Beverages & Tobacco -- 7.09%
- ---------------------------------------------------------------------------------
Coca-Cola Company...................................................................................... 156,000 8,209,500
Pioneer Hi Bred International Inc...................................................................... 65,000 4,550,000
Wrigley William Junior Company......................................................................... 70,000 3,937,500
------------
16,697,000
Health Care -- 2.89%
- ---------------------------------------------------------------------------------
Medtronic Inc.......................................................................................... 100,000 6,800,000
Hotels & Restaurants -- 5.30%
- ---------------------------------------------------------------------------------
Cracker Barrel Old Country Store....................................................................... 140,000 3,552,500
Marriott International Inc............................................................................. 80,000 4,420,000
McDonalds Corporation.................................................................................. 100,000 4,525,000
------------
12,497,500
Pharmaceuticals -- 11.14%
- ---------------------------------------------------------------------------------
Johnson & Johnson...................................................................................... 135,000 6,716,250
Lilly Eli & Company.................................................................................... 90,000 6,570,000
Merck & Company Inc.................................................................................... 80,000 6,340,000
Pfizer Inc............................................................................................. 80,000 6,630,000
------------
26,256,250
Retail -- 5.95%
- ---------------------------------------------------------------------------------
Cuc International Inc. (a)............................................................................. 174,000 4,132,500
Gap Inc................................................................................................ 140,000 4,217,500
Home Depot Inc......................................................................................... 113,000 5,664,125
------------
14,014,125
Technology -- 5.00%
- ---------------------------------------------------------------------------------
Intel Corporation...................................................................................... 90,000 11,784,375
Telecommunications -- 1.99%
- ---------------------------------------------------------------------------------
Ericsson L M Tel Company (ADR)......................................................................... 155,200 4,685,100
Total Common Stocks
(Identified cost $146,299,430).......................................................................................
223,795,444
- -----------------------------------------------------------------------
Commercial Paper -- 2.12%............................................................................................
- -----------------------------------------------------------------------
Ford Motor Credit Company
5.72% due 01/03/97..................................................................................... $ 5,000,000 4,998,411
Total Commercial Paper
(Identified cost $4,998,411).........................................................................................
4,998,411
- -----------------------------------------------------------------------
</TABLE>
6 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
GROWTH PORTFOLIO -- (Continued)
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Repurchase Agreement -- 2.40% Amount Value
<S> <C> <C>
- --------------------------------------------------------
State Street Bank & Trust Repurchase Agreement, 4.75% due 01/02/97
Collateral: U.S. Treasury Note
$5,685,000, 6.25% due 4/30/01
Value $5,763,527....................................................................................... $ 5,650,000 $ 5,650,000
------------
Total Repurchase Agreement
(Identified cost $5,650,000).........................................................................................
5,650,000
- -----------------------------------------------------------------------
Total Investments
(Identified cost $156,947,841).......................................................................................
$234,443,855
Other Assets Less Liabilities -- 0.48%...............................................................................
1,130,727
------------
Net Assets -- 100%...................................................................................................
$235,574,582
- -----------------------------------------------------------------------
</TABLE>
(a) Non-income Producing
(ADR) American Depository Receipt
<PAGE>
The Enterprise Equity Income Portfolio
1740 Advisers, Inc.
New York, New York
INVESTMENT MANAGEMENT
1740 Advisers has been an investment adviser to the Enterprise Equity Income
Portfolio since its inception. 1740 Advisers currently manages over $1 billion
for institutional clients. Their normal investment minimum is $20 million.
INVESTMENT OBJECTIVE
The objective of the Enterprise Equity Income Portfolio is to seek a combination
of growth and income to achieve an above average and consistent total return,
primarily from investments in dividend paying common stocks.
INVESTMENT PHILOSOPHY
Above average returns can be achieved by buying undervalued, out of favored
stocks and selling them after the market has recognized and corrected their
under valuation. Dividend yield relative to the S&P 500 is the measure of the
value used in this strategy. It provides a disciplined approach to buy and sell
decisions, enhanced stability in the portfolio and lessens overall market risk.
1996 PERFORMANCE REVIEW
Overall performance in 1996 benefited from the Portfolio's holdings of
financial, capital goods and energy stocks. Technology stocks which were strong
for most of the year were underweight in the Portfolio. Their tepid yields
prevented their inclusion and hurt relative performance. Among the top positions
in the Portfolio at year end were General Electric, Emerson Electric, Avon
Products, Bank America and McGraw Hill. Primary industry concentrations at this
time were energy, capital goods and services, pharmaceuticals, finance and
telecommunications.
Class A
<TABLE>
<C> <S>
[GRAPH] ** The S&P 500/Barra Value
Index is an unmanaged index
which excludes transaction
or holding charges. Enter-
prise performance numbers
include the maximum sales
charge and all fees.
Remember that historic
performance does not
predict future performance.
Shares may be worth more or
less at redemption than at
original purchase.
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 9
<PAGE>
Class B
<TABLE>
<C> <S>
[GRAPH] ** The S&P 500/Barra Value
Index is an unmanaged index
is which excludes
transaction or holding
charges. Enterprise
performance numbers include
all fees and CDSC charges.
Remember that historic
performance does not
predict future performance.
Shares may be worth more or
less at redemption than at
original purchase.
</TABLE>
FUTURE INVESTMENT STRATEGY
The stock market has enjoyed two very strong years in a row and expectations are
high. At the same time, if slow growth continues, earnings are at risk.
In this environment a more cautious strategy with emphasis on defensive names
seems appropriate. The Equity Income Portfolio is, by nature, defensive and
increasing the less volatile sectors can increase the downside protection.
There are several groups which may do well in both a slow growth or a stronger
economy if that occurs. For example, energy stocks began to strengthen in the
second half as oil prices rose and they finished the year strong. The
international oils are an overweight group in the Portfolio and the holdings of
natural gas pipelines and utilities have been increased.
The basic material stocks also have high relative yields and low valuations. If
the U.S. or international economies should strengthen more than currently
anticipated, these very economy sensitive names would become offensive. The
capital goods stocks outperformed last year but are not particularly extended
and could offer the same opportunity as the basic materials. Positions have
slowly been increased in aluminum, chemicals, paper and forest products stocks.
The financial area is being gradually de-emphasized. The banks have been strong
performers for five years and are at the top of their historical valuation
range. The fundamentals are good and earnings are growing but much of the good
news is already in the prices. They are being reduced in the Portfolio, while
insurance and REITs are being increased.
The Portfolio's strategy is to continue to be relatively fully invested to
respect the power of the fund inflows and "not fight the tape." At the same
time, however, this strategy recognizes that the market has already had a
substantial move and may need to consolidate. Stocks with moderate valuations
and low investor expectations could enhance the Portfolio's ability to ride out
any correction.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER
CONDITIONS.
10 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Common Stocks -- 89.75% Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Aerospace -- 3.06%
- ---------------------------------------------------------------------------------
Northrop Grumman Corporation...................... 10,000 $ 827,500
Timken Company.................................... 14,000 642,250
United Technologies Corporation................... 14,000 924,000
-------------
2,393,750
Automotive -- 1.87%
- ---------------------------------------------------------------------------------
Chrysler Corporation.............................. 10,000 330,000
Eaton Corporation................................. 7,000 488,250
Ford Motor Company Delaware....................... 8,000 255,000
General Motors Corporation........................ 7,000 390,250
-------------
1,463,500
Banking -- 5.00%
- ---------------------------------------------------------------------------------
Bankers Trust New York Corporation................ 7,000 603,750
Chase Manhattan Corporation....................... 9,000 803,250
First Union Corporation........................... 11,000 814,000
NationsBank Corporation........................... 9,000 879,750
Wells Fargo & Company............................. 3,000 809,250
-------------
3,910,000
Business Services -- 0.72%
- ---------------------------------------------------------------------------------
Ogden Corporation................................. 30,000 562,500
Capital Goods & Services -- 8.82%
- ---------------------------------------------------------------------------------
Cooper Industries Inc............................. 12,000 505,500
Deere & Company................................... 18,000 731,250
General Electric Company.......................... 20,000 1,977,500
General Signal Corporation........................ 18,000 769,500
Goulds Pumps Inc.................................. 15,000 344,062
Harsco Corporation................................ 10,000 685,000
Textron Inc....................................... 10,000 942,500
Xerox Corporation................................. 18,000 947,250
-------------
6,902,562
Chemicals -- 3.77%
- ---------------------------------------------------------------------------------
Dow Chemical Company.............................. 6,000 470,250
Du Pont E I De Nemours & Company.................. 8,000 755,000
Monsanto Company.................................. 25,000 971,875
Olin Corporation.................................. 20,000 752,500
-------------
2,949,625
Consumer Durables -- 2.52%
- ---------------------------------------------------------------------------------
Dana Corporation.................................. 25,000 815,625
Emerson Electric Company.......................... 12,000 1,161,000
-------------
1,976,625
Consumer Non-Durables -- 2.59%
- ---------------------------------------------------------------------------------
Avon Products Inc................................. 20,000 1,142,500
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Eastman Kodak Company............................. 11,000 $ 882,750
-------------
2,025,250
Consumer Products -- 1.18%
- ---------------------------------------------------------------------------------
Colgate Palmolive Company......................... 10,000 922,500
Electronics -- 1.08%
- ---------------------------------------------------------------------------------
Amp Inc........................................... 22,000 844,250
Energy -- 13.34%
- ---------------------------------------------------------------------------------
Amoco Corporation................................. 9,000 724,500
Atlantic Richfield Company........................ 5,000 662,500
British Petroleum PLC (ADR)....................... 5,545 783,924
Chevron Corporation............................... 12,000 780,000
Consolidated Natural Gas Company.................. 12,000 663,000
Dresser Industries Inc............................ 20,000 620,000
El Paso Natural Gas Company....................... 13,837 698,769
Exxon Corporation................................. 8,000 784,000
Mobil Corporation................................. 6,000 733,500
Questar Corporation............................... 16,000 588,000
Royal Dutch Petroleum Company..................... 5,000 853,750
Sonat Inc......................................... 14,000 721,000
Texaco Inc........................................ 10,000 981,250
Williams Companies Inc............................ 22,500 843,750
-------------
10,437,943
Finance -- 6.44%
- ---------------------------------------------------------------------------------
American Express Company.......................... 15,000 847,500
Banc One Corporation.............................. 17,000 731,000
Bank Of New York Company Inc...................... 20,000 675,000
BankAmerica Corporation........................... 11,000 1,097,250
Great Western Financial Corporation............... 25,000 725,000
H F Ahmanson & Company............................ 25,000 812,500
Redwood Trust Inc................................. 4,000 149,000
-------------
5,037,250
Food & Beverages & Tobacco -- 1.89%
- ---------------------------------------------------------------------------------
American Brands Inc............................... 14,000 694,750
Philip Morris Companies Inc....................... 7,000 788,375
-------------
1,483,125
Hotels & Restaurants -- 0.32%
- ---------------------------------------------------------------------------------
Felcor Suite Hotels Inc........................... 7,000 247,625
Insurance -- 3.31%
- ---------------------------------------------------------------------------------
Aetna Inc......................................... 7,000 560,000
Allstate Corporation.............................. 10,000 578,750
Cigna Corporation................................. 6,000 819,750
Lincoln National Corporation...................... 12,000 630,000
-------------
2,588,500
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 11
<PAGE>
EQUITY INCOME PORTFOLIO -- (Continued)
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Machinery -- 1.56%
- ---------------------------------------------------------------------------------
Pitney Bowes Inc.................................. 15,000 $ 817,500
Tenneco Inc. New.................................. 9,000 406,125
-------------
1,223,625
Misc. Financial Services -- 0.71%
- ---------------------------------------------------------------------------------
Federal National Mortgage Association............. 15,000 558,750
Paper & Forest Products -- 0.98%
- ---------------------------------------------------------------------------------
Georgia Pacific Corporation....................... 5,000 360,000
International Paper Company....................... 10,000 403,750
-------------
763,750
Pharmaceuticals -- 8.71%
- ---------------------------------------------------------------------------------
American Home Products Corporation................ 16,000 938,000
Baxter International Inc.......................... 12,000 492,000
Bristol Myers Squibb Company...................... 7,000 761,250
Lilly Eli & Company............................... 12,000 876,000
Merck & Company Inc............................... 12,000 951,000
Pfizer Inc........................................ 6,000 497,250
Schering Plough Corporation....................... 7,000 453,250
Smithkline Beecham P L C (ADR).................... 14,000 952,000
Warner-Lambert Company............................ 12,000 900,000
-------------
6,820,750
Publishing -- 1.60%
- ---------------------------------------------------------------------------------
Dun & Bradstreet Corporation...................... 10,000 237,500
McGraw Hill Inc................................... 22,000 1,014,750
-------------
1,252,250
Raw Materials -- 4.40%
- ---------------------------------------------------------------------------------
Carpenter Technology Corporation.................. 10,000 366,250
Freeport McMoRan Copper & Gold Inc................ 12,000 337,500
Minnesota Mining & Manufacturing Company.......... 10,000 828,750
Phelps Dodge Corporation.......................... 4,000 270,000
Reynolds Metals Company........................... 7,000 394,625
Union Camp Corporation............................ 10,000 477,500
USX Corporation................................... 8,000 251,000
Weyerhaeuser Company.............................. 11,000 521,125
-------------
3,446,750
Real Estate -- 2.70%
- ---------------------------------------------------------------------------------
Avalon Properties Inc............................. 10,000 287,500
Bay Apartment Communities......................... 7,000 252,000
Crescent Real Estate Equities..................... 6,000 316,500
Developers Diversified Reality.................... 5,000 185,625
Equity Residential Properties Trust............... 6,000 247,500
Health Care Property Investors Inc................ 8,000 280,000
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Healthcare Realty Trust........................... 5,000 $ 132,500
Irvine Apartment Communities Inc.................. 10,000 250,000
Meditrust......................................... 4,000 160,000
-------------
2,111,625
Technology -- 2.90%
- ---------------------------------------------------------------------------------
Harris Corporation Delaware....................... 10,000 686,250
Honeywell Inc..................................... 12,000 789,000
Thomas & Betts Corporation........................ 18,000 798,750
-------------
2,274,000
Telecommunications -- 5.31%
- ---------------------------------------------------------------------------------
Ameritech Corporation............................. 10,000 606,250
Bell Atlantic Corporation......................... 8,000 518,000
BellSouth Corporation............................. 15,000 605,625
GTE Corporation................................... 12,000 546,000
Nynex Corporation................................. 7,000 336,875
Pacific Telesis Group............................. 15,000 551,250
SBC Communications Inc............................ 10,000 517,500
Sprint Corporation................................ 12,000 478,500
-------------
4,160,000
Transportation -- 2.07%
- ---------------------------------------------------------------------------------
Conrail Inc....................................... 3,827 381,265
GATX Corporation.................................. 6,000 291,000
Norfolk Southern Corporation...................... 6,000 525,000
Union Pacific Corporation......................... 7,000 420,875
-------------
1,618,140
Utilities -- 2.90%
- ---------------------------------------------------------------------------------
American Electric Power Inc....................... 12,000 493,500
Carolina Power & Light Company.................... 13,000 474,500
FPL Group Inc..................................... 10,000 460,000
Southern Company.................................. 20,000 452,500
U.S. West Communications Group.................... 12,000 387,000
-------------
2,267,500
Total Common Stocks
(Identified cost $49,745,318)....................................
70,242,145
- ---------------------------------------------------------------------------------
Commercial Paper -- 10.58%
- ---------------------------------------------------------------------------------
American Express Credit Corporation, 5.32% due
01/02/97.......................................... $ 1,000,000 999,852
American Express Credit Corporation, 5.32% due
01/06/97.......................................... 300,000 299,778
American Express Credit Corporation, 5.38% due
01/29/97.......................................... 300,000 298,745
Associates Corporation Of North America, 5.48% due
01/31/97.......................................... 600,000 597,260
Chevron Oil Finance Company 5.40% due 01/07/97.... 200,000 199,820
</TABLE>
12 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
EQUITY INCOME PORTFOLIO -- (Continued)
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
CIT Group Holdings Inc. 5.33% due 01/06/97........ 1,500,000 $ 1,498,890
CIT Group Holdings Inc. 5.35% due 02/25/97........ 400,000 396,731
CIT Group Holdings Inc. 5.48% due 01/31/97........ 500,000 497,717
General Electric Capital Corporation, 5.50% due
01/27/97.......................................... 1,000,000 996,028
Household Finance Corporation 5.45% due
01/14/97.......................................... 600,000 598,819
Merrill Lynch & Company Inc. 5.34% due 01/27/97... 1,000,000 996,143
Sears Roebuck Acceptance Corporation, 5.58% due
01/10/97.......................................... 900,000 898,744
-------------
Total Commercial Paper
(Identified cost $8,278,527).....................................
8,278,527
- ---------------------------------------------------------------------------------
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Repurchase Agreement -- 0.52%
- ---------------------------------------------------------------------------------
State Street Bank & Trust Repurchase Agreement,
2.00% due 01/02/97..Collateral: U.S. Treasury Note
$415,000, 5.625% due 11/30/98 Value $415,433 $ 405,000 $ 405,000
-------------
Total Repurchase Agreement
(Identified cost $405,000).......................................
405,000
- ---------------------------------------------------------------------------------
Total Investments
(Identified cost $58,428,845)....................................
$ 78,925,672
Other Assets Less Liabilities -- (0.85)%.........................
(663,892)
-------------
Net Assets -- 100%...............................................
$ 78,261,780
- ---------------------------------------------------------------------------------
</TABLE>
(a) Non-income Producing
(ADR) American Depository Receipts
See notes to financial statements.
THE ENTERPRISE GROUP OF FUNDS, INC. 13
<PAGE>
The Enterprise Capital Appreciation Portfolio
Provident Investment Counsel, Inc.
Pasadena, California
INVESTMENT MANAGEMENT
Provident Investment Counsel has been investment adviser to the Enterprise
Capital Appreciation Portfolio since inception. Provident Investment Counsel
currently manages over $18 billion for institutional clients. Their usual
investment minimum is $5 million.
INVESTMENT OBJECTIVE
The objective of the Enterprise Capital Appreciation Portfolio is to seek
maximum capital appreciation, primarily through investment in common stock of
companies that demonstrate accelerating earnings momentum and consistently
strong financial characteristics.
INVESTMENT PHILOSOPHY
Provident Investment Counsel's investment philosophy is based on the belief
that, over time, the reason the price of a company's stock increases is because
its earnings are increasing. Their investment strategy seeks to create a
portfolio of companies that, in aggregate, is growing its earnings at a faster
and more consistent rate than the overall market.
1996 PERFORMANCE REVIEW
The Enterprise Capital Appreciation Portfolio delivered a year of solid
performance reflecting that 1996 was a remarkable year. Throughout the year,
strong mutual fund cash flows fueled the demand for the largest capitalization,
most liquid securities. Large capitalization stocks outperformed mid and small
cap shares particularly in the second half of the year as investors sought
liquidity and were willing to pay a significant premium for it. On average,
these companies are projecting a two year earnings growth rate of a modest 14%.
In contrast, mid-capitalization growth in the Enterprise Capital Appreciation
Portfolio boast, on average, earnings growth forecasts well above 20%. These
mid-cap companies performed well, yet on a relative basis, did not advance as
much as larger capitalization names.
At year end MBNA Corp., First Data Corp., Tyco Limited, HFS Inc., and Pfizer,
Inc. were the largest positions in the Portfolio. Major sector concentrations
were in healthcare, business services, finance, communications and computer
software.
Class A
<TABLE>
<C> <S>
[GRAPH] ** The S&P 500/Barra Growth
Index is an unmanaged index
which excludes any
transaction or holding
charges. Enterprise
performance numbers in-
clude the maximum sales
charge and all fees.
Remember that historic per-
formance does not predict
future performance. Shares
may be worth more or less
at redemption than original
purchase.
</TABLE>
14 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
Class B
<TABLE>
<C> <S>
[GRAPH] ** The S&P 500/Barra Growth
Index is an unmanaged index
which excludes any
transaction or holding
charges. Enterprise
performance numbers in-
clude all fees and CDSC
charges. Remember that
historic performance does
not predict future
performance. Shares may be
worth more or less at
redemption than original
purchase.
</TABLE>
FUTURE INVESTMENT STRATEGY
The outlook for 1997 is for less exciting returns from the overall market. While
Provident Investment Counsel does not make top down economic forecasts, the
consensus view is for a slowing economy and for slower profit growth. This
economic environment would result in relatively stable interest rates and
inflation rates. These factors would support current P/E ratios in the market.
However, the P/E ratios are not expected to continue to expand from current
levels. Therefore, the bulk of market returns will come from underlying earnings
growth. If this outlook is correct, this should be positive for high and
consistent growth companies. In this environment, a shift is expected away from
the very large but slower growing companies toward companies of smaller size but
higher growth rates -- similar to the companies held in this Portfolio.
The earnings growth in this portfolio is supported by excellent revenue growth,
high profit margins, high returns to equity and low debt levels. This type of
potential earnings growth is more visible and sustainable than that of the
average company. Despite the gains of the last two years, these companies still
offer reasonable P/E ratio valuations.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER
CONDITIONS.
THE ENTERPRISE GROUP OF FUNDS, INC. 15
<PAGE>
CAPITAL APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Common Stocks -- 100.48% Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Apparel & Textiles -- 0.93%
- ---------------------------------------------------------------------------------
Gucci Group N V (ADR)............................. 17,500 $ 1,117,813
Broadcasting -- 2.55%
- ---------------------------------------------------------------------------------
British Sky Broadcast Group PLC (ADR) (a)......... 58,500 3,071,250
Business Services -- 11.95%
- ---------------------------------------------------------------------------------
Accustaff Inc. (a)................................ 84,731 1,789,942
Alco Standard Corporation......................... 28,200 1,455,825
Automatic Data Processing Inc..................... 10,800 463,050
Ceridian Corporation (a).......................... 40,900 1,656,450
Computer Sciences Corporation (a)................. 27,000 2,217,375
Cuc International Inc. (a)........................ 29,100 691,125
Danka Business Systems (ADR)...................... 16,800 594,300
First Data Corporation............................ 104,468 3,813,082
Paychex Inc....................................... 33,000 1,697,438
-------------
14,378,587
Capital Goods & Services -- 7.06%
- ---------------------------------------------------------------------------------
American Standard Companies Inc. (a).............. 61,900 2,367,675
Republic Industries Inc. (a)...................... 56,000 1,746,500
Tyco International Ltd............................ 67,600 3,574,350
USA Waste Services Inc. (a)....................... 25,000 796,875
-------------
8,485,400
Computer Hardware -- 2.66%
- ---------------------------------------------------------------------------------
Cisco Systems Inc. (a)............................ 45,400 2,888,575
DST Systems Inc. (a).............................. 10,000 313,750
-------------
3,202,325
Computer Services -- 2.94%
- ---------------------------------------------------------------------------------
Affiliated Computer Services Inc. (a)............. 10,000 297,500
Ascend Communications Inc. (a).................... 24,000 1,491,000
BDM International Inc. (a)........................ 14,000 759,500
Sungard Data Systems Inc. (a)..................... 25,000 987,500
-------------
3,535,500
Computer Software -- 7.98%
- ---------------------------------------------------------------------------------
Computer Associates International Inc............. 56,000 2,786,000
Microsoft Corporation (a)......................... 21,200 1,751,650
Oracle System Corporation (a)..................... 69,750 2,912,062
Parametric Technology Corporation (a)............. 28,000 1,438,500
Sterling Commerce Inc. (a)........................ 20,000 705,000
-------------
9,593,212
Consumer Non-Durables -- 3.10%
- ---------------------------------------------------------------------------------
Gillette Company.................................. 27,200 2,114,800
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Price Costco Inc. (a)............................. 64,300 $ 1,615,538
-------------
3,730,338
Drugs & Medical Products -- 1.75%
- ---------------------------------------------------------------------------------
Boston Scientific Corporation (a)................. 35,000 2,100,000
Electronics -- 1.51%
- ---------------------------------------------------------------------------------
Andrew Corporation (a)............................ 34,275 1,818,717
Energy -- 4.42%
- ---------------------------------------------------------------------------------
AES Corporation (a)............................... 35,000 1,627,500
Enron Corporation................................. 34,100 1,470,563
Global Marine Inc. (a)............................ 50,000 1,031,250
Tosco Corporation................................. 15,000 1,186,875
-------------
5,316,188
Entertainment & Leisure -- 1.00%
- ---------------------------------------------------------------------------------
Circus Circus Enterprises Inc. (a)................ 35,000 1,203,125
Finance -- 10.74%
- ---------------------------------------------------------------------------------
Associates First Capital Corporation (a).......... 44,900 1,981,212
Federal Home Loan Mortgage Corporation............ 8,700 958,088
Federal National Mortgage Association............. 55,600 2,071,100
First USA Inc..................................... 73,000 2,527,625
Green Tree Financial Corporation.................. 19,000 733,875
MBNA Corporation.................................. 92,075 3,821,112
Money Store Inc................................... 30,000 828,750
-------------
12,921,762
Health Care -- 18.12%
- ---------------------------------------------------------------------------------
Amerisource Health Corporation (a)................ 50,000 2,412,500
Amgen Inc. (a).................................... 35,000 1,903,125
Cardinal Health Inc............................... 47,400 2,761,050
Healthsouth Corporation (a)....................... 45,300 1,749,713
Idexx Labs Inc. (a)............................... 41,000 1,476,000
Medtronic Inc..................................... 35,300 2,400,400
Omnicare Inc...................................... 58,000 1,863,250
Oxford Health Plans Inc. (a)...................... 49,400 2,892,987
Pfizer Inc........................................ 39,200 3,248,700
Tenet Healthcare Corporation (a).................. 50,000 1,093,750
-------------
21,801,475
Hotels & Restaurants -- 4.21%
- ---------------------------------------------------------------------------------
HFS Inc. (a)...................................... 57,400 3,429,650
Mirage Resorts Inc. (a)........................... 27,800 601,175
Promus Hotel Corporation (a)...................... 35,000 1,036,875
-------------
5,067,700
Insurance -- 3.05%
- ---------------------------------------------------------------------------------
</TABLE>
16 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
CAPITAL APPRECIATION PORTFOLIO -- (Continued)
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
American International Group Inc.................. 9,850 $ 1,066,263
MGIC Investment Corporation....................... 20,000 1,520,000
PMI Group Inc..................................... 19,500 1,079,812
-------------
3,666,075
Machinery -- 1.32%
- ---------------------------------------------------------------------------------
United States Filter Corporation (a).............. 50,000 1,587,500
Oil Services -- 1.16%
- ---------------------------------------------------------------------------------
Schlumberger Ltd.................................. 14,000 1,398,250
Paper Products -- 0.75%
- ---------------------------------------------------------------------------------
Staples Inc. (a).................................. 50,000 903,125
Pharmaceuticals -- 1.46%
- ---------------------------------------------------------------------------------
Elan PLC (ADR) (a)................................ 20,000 665,000
Lilly Eli & Company............................... 15,000 1,095,000
-------------
1,760,000
Retail -- 4.40%
- ---------------------------------------------------------------------------------
Home Depot Inc.................................... 32,000 1,604,000
Kohls Corporation (a)............................. 12,000 471,000
Petsmart Inc. (a)................................. 30,000 656,250
Safeway Inc. (a).................................. 35,000 1,496,250
Tiffany & Company................................. 16,000 586,000
Tommy Hilfiger Corporation (ADR) (a).............. 10,000 480,000
-------------
5,293,500
Technology -- 1.73%
- ---------------------------------------------------------------------------------
Lucent Technologies Inc........................... 45,000 2,081,250
Telecommunications -- 5.69%
- ---------------------------------------------------------------------------------
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
ADC Telecommunications Inc. (a)................... 30,000 933,750
Asia Satellite Telecom Holdings (ADR) (a)......... 30,000 $ 701,250
Aspect Telecommunications Corporation (a)......... 25,000 1,587,500
Checkpoint Systems Inc. (a)....................... 25,000 618,750
Ericsson L M Tel Company (ADR).................... 58,300 1,759,931
Worldcom Inc. (a)................................. 47,600 1,240,575
-------------
6,841,756
Total Common Stocks
(Identified cost $84,955,043)....................................
120,874,848
- ---------------------------------------------------------------------------------
Repurchase Agreement -- 0.75%
- ---------------------------------------------------------------------------------
State Street Bank & Trust Repurchase Agreement,
2.00% due 01/02/97
Collateral: U.S. Treasury Note, $930,000 5.625%
due 11/30/98 Value $930,971....................... $ 910,000 910,000
-------------
Total Repurchase Agreement
(Identified cost $910,000).......................................
910,000
- ---------------------------------------------------------------------------------
Total Investments
(Identified cost $85,865,043)....................................
$ 121,784,848
Other Assets Less Liabilities -- (1.23)%.........................
(1,484,829)
-------------
Net Assets -- 100%...............................................
$ 120,300,019
- ---------------------------------------------------------------------------------
</TABLE>
(a) Non-income Producing
(ADR) American Depository Receipts
See notes to financial statements.
THE ENTERPRISE GROUP OF FUNDS, INC. 17
<PAGE>
The Enterprise Small Company Portfolio
GAMCO Investors, Inc.
Rye, New York
INVESTMENT MANAGEMENT
GAMCO Investors, Inc., which currently manages over $5 billion for institutional
clients, became manager of the Portfolio on July 1, 1996. Their normal
investment minimum is $1 million.
INVESTMENT OBJECTIVE
The objective of the Enterprise Small Company Portfolio is to seek maximum
capital appreciation, primarily through investment in the equity securities of
companies which have a market capitalization of no more than $1 billion.
INVESTMENT PHILOSOPHY
GAMCO's focus is on free cash flow. They believe free cash flow is the best
barometer of a business' value. Rising free cash flow often foreshadows net
earnings improvement. They also look at long-term earnings trends and analyze on
and off balance sheet assets and liabilities. GAMCO wants to know everything
that will add to or detract from private market value estimates. Finally they
look for a catalyst: something happening in the company's industry or indigenous
to the company itself that will surface value.
1996 PERFORMANCE REVIEW
The Small Company Portfolio made substantial progress during the year without
taking on undue risk. Several themes worked well in 1996 particularly during the
second half of the year. Among the best performers during this period were
companies tied to the commercial aircraft cycle, including suppliers to Boeing.
Class A
<TABLE>
<C> <S>
[GRAPH] ** The Wilshire Small Cap
Index is an unmanaged index
which excludes any
transaction or holding
charges. Enterprise
performance numbers include
the maximum sales charge
and all fees. Remember that
historic performance does
not predict future
performance. Shares may be
worth more or less at
redemption than at original
price.
</TABLE>
18 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
Class B
<TABLE>
<C> <S>
[GRAPH] ** The Wilshire Small Cap
Index is an unmanaged index
which excludes any
transaction or holding
charges. Enterprise
performance numbers include
all fees and CDSC charges.
Remember that historic
performance does not
predict future performance.
Shares may be worth more or
less at redemption than at
original price.
</TABLE>
Class Y
<TABLE>
<C> <S>
[GRAPH] ** The Wilshire Small Cap
Index is an unmanaged index
which excludes any
transaction or holding
charges. Enterprise
performance numbers include
all fees. Remember that
historic performance does
not predict future perform-
ance. Shares may be worth
more or less at redemption
than at original price.
</TABLE>
Media and communication stocks remain undervalued, as investors are focusing on
companies with visible earnings growth. Regulatory changes as well as strong
cash flows will benefit many of these companies in future quarters. Cable
stocks, for example, declined on fear of competition from direct broadcast
satellite but may enjoy strong cash flows and revenue streams from such services
as Internet access.
Top holdings in the Portfolio at year end included Wynns International, United
Television, Culbro, SPS Technologies and BHC Communications with major industry
concentrations in the broadcasting/media, aerospace, publishing, machinery and
food/beverage sectors.
FUTURE INVESTMENT STRATEGY
GAMCO will continue to focus on value. The Portfolio favors industries and
individual companies in the early stages of sustainable earnings uptrends and
other fundamentally attractive opportunities that participated only marginally
in the 1996 bull market. Aerospace component manufacturers are positioned to
post superior earnings gains for the next three to five years should airlines
throughout the world continue to rebuild and refurbish their fleets. Auto
aftermarket companies may grow earnings as the economy and new car sales slow.
As Personal Communication Services (PCS) systems come on-line in the year ahead,
cellular telephone companies, which have been under the cloud of future
competition from PCS, will have an opportunity to demonstrate the long term
viability of what GAMCO believes will remain a good growth business.
Entertainment software and cable network stocks, which were panned in 1996, may
get more favorable reviews from investors in the year ahead.
Finally, and perhaps most importantly for 1997, corporate restructurings in the
form of mergers and sales and spin-offs of assets may continue at a feverish
pace. There is strong global appetite for extending product lines and
distribution systems via acquisitions. The world is awash in liquidity and stock
is an increasingly valuable currency. In response, corporate managements that
hope to remain independent are under pressure to surface the value of their
businesses by selling underperforming divisions, spinning off undervalued assets
and repurchasing shares. Deals and corporate events of this nature may trigger
some of the biggest small company stock advances in 1997.
THE ENTERPRISE GROUP OF FUNDS, INC. 19
<PAGE>
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER
CONDITIONS.
20 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
SMALL COMPANY PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Common Stocks -- 96.61% Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Advertising -- 2.69%
- ---------------------------------------------------------------------------------
Ackerley Inc...................................... 50,000 $ 587,500
Aerospace -- 12.64%
- ---------------------------------------------------------------------------------
Coltec Industries Inc............................. 25,000 471,875
Curtiss Wright Corporation........................ 4,000 201,500
Gencorp Inc....................................... 20,000 362,500
Mafco Consolidated Group Inc...................... 17,000 431,375
Sequa Corporation (a)............................. 12,000 471,000
SPS Technologies Inc.............................. 10,000 642,500
UNC Inc........................................... 15,000 180,000
-------------
2,760,750
Apparel & Textiles -- 2.20%
- ---------------------------------------------------------------------------------
Fieldcrest Cannon Inc............................. 30,000 480,000
Automotive -- 5.54%
- ---------------------------------------------------------------------------------
Scheib Earl Inc................................... 60,000 420,000
Wynns International Inc........................... 25,000 790,625
-------------
1,210,625
Broadcasting -- 15.55%
- ---------------------------------------------------------------------------------
BET Holdings Inc.................................. 12,000 345,000
BHC Communications Inc............................ 6,000 608,250
Chris Craft Industries Inc........................ 10,403 435,626
Gaylord Entertainment Company..................... 8,000 183,000
HSN Inc........................................... 25,000 593,750
International Family..............................
Entertainment Inc................................. 35,000 542,500
United Television Inc............................. 8,000 689,000
-------------
3,397,126
Cable -- 1.40%
- ---------------------------------------------------------------------------------
Cablevision Systems Corporation................... 10,000 306,250
Capital Goods & Services -- 1.38%
- ---------------------------------------------------------------------------------
AAR Corporation................................... 10,000 302,500
Chemicals -- 1.95%
- ---------------------------------------------------------------------------------
Church & Dwight Inc............................... 12,000 274,500
Lawter International Inc.......................... 12,000 151,500
-------------
426,000
Consumer Durables -- 2.12%
- ---------------------------------------------------------------------------------
Dynamics Corporation of America................... 10,000 282,500
Oneida Limited.................................... 10,000 180,000
-------------
462,500
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Consumer Products -- 0.71%
- ---------------------------------------------------------------------------------
TVX Gold Inc...................................... 20,000 $ 155,000
Consumer Services -- 3.63%
- ---------------------------------------------------------------------------------
Berlitz International Inc......................... 7,500 155,625
Rollins Inc....................................... 25,000 500,000
Wackenhut Corporation............................. 8,000 138,000
-------------
793,625
Electrical Equipment -- 2.18%
- ---------------------------------------------------------------------------------
Ametek Inc........................................ 12,000 267,000
Thomas Industries Inc............................. 10,000 208,750
-------------
475,750
Entertainment & Leisure -- 5.55%
- ---------------------------------------------------------------------------------
Aztar Corporation (a)............................. 50,000 350,000
GC Companies Inc.................................. 12,000 415,500
Spelling Entertainment Group Inc.................. 50,000 368,750
Trans Lux Corporation............................. 7,000 77,000
-------------
1,211,250
Finance -- 0.49%
- ---------------------------------------------------------------------------------
Advest Group Inc.................................. 10,000 107,500
Food & Beverages & Tobacco -- 5.09%
- ---------------------------------------------------------------------------------
Celestial Seasonings Inc.......................... 15,000 296,250
Culbro Corporation................................ 10,000 648,750
Eskimo Pie Corporation............................ 15,000 166,875
-------------
1,111,875
Insurance -- 1.26%
- ---------------------------------------------------------------------------------
Liberty Corporation............................... 7,000 274,750
Machinery -- 5.60%
- ---------------------------------------------------------------------------------
Goulds Pumps Inc.................................. 15,000 344,062
Idex Corporation.................................. 7,000 279,125
Katy Industries Inc............................... 30,000 435,000
Kollmorgen Corporation............................ 15,000 165,000
-------------
1,223,187
Manufacturing -- 1.94%
- ---------------------------------------------------------------------------------
Aptargroup Inc.................................... 12,000 423,000
Misc. Financial Services -- 2.21%
- ---------------------------------------------------------------------------------
Data Broadcasting Corporation..................... 25,000 175,000
Midland Company................................... 8,000 308,000
-------------
483,000
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 21
<PAGE>
SMALL COMPANY PORTFOLIO -- (Continued)
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Pharmaceuticals -- 2.15%
- ---------------------------------------------------------------------------------
Carter Wallace Inc................................ 30,000 $ 468,750
Printing & Publishing -- 7.67%
- ---------------------------------------------------------------------------------
Lee Enterprises Inc............................... 15,000 348,750
Media General Inc................................. 13,000 393,250
Meredith Corporation.............................. 9,000 474,750
Providence Journal Company........................ 15,000 459,375
-------------
1,676,125
Publishing -- 1.04%
- ---------------------------------------------------------------------------------
Houghton Mifflin Company.......................... 4,000 226,500
Retail -- 2.34%
- ---------------------------------------------------------------------------------
Neiman Marcus Group Inc........................... 20,000 510,000
Security & Investigation Services -- 0.98%
- ---------------------------------------------------------------------------------
Pittway Corporation Delaware...................... 4,000 214,000
Telecommunications -- 4.83%
- ---------------------------------------------------------------------------------
Aerial Communications Inc......................... 30,000 243,750
Atlantic Tele Network Inc......................... 5,000 76,250
Centennial Cellular Corporation................... 20,000 242,500
Comsat Corporation................................ 20,000 492,500
-------------
1,055,000
Transportation -- 3.47%
- ---------------------------------------------------------------------------------
GATX Corporation.................................. 11,000 533,500
Hudson General Corporation........................ 6,000 223,500
-------------
757,000
Total Common Stocks
(Identified cost $19,608,818)....................................
21,099,563
- ---------------------------------------------------------------------------------
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
U.S. Treasury Bills -- 4.85%
- ---------------------------------------------------------------------------------
United States Treasury Bill
4.25% due 01/09/97................................ $ 94,000 $ 93,911
United States Treasury Bill
4.51% due 01/23/97................................ 123,000 122,661
United States Treasury Bill
4.66% due 01/30/97................................ 24,000 23,910
United States Treasury Bill
4.94% due 01/16/97................................ 150,000 149,691
United States Treasury Bill
4.95% due 01/16/97................................ 95,000 94,804
United States Treasury Bill
4.97% due 01/16/97................................ 200,000 199,586
United States Treasury Bill
4.97% due 01/23/97................................ 150,000 149,545
United States Treasury Bill
4.98% due 01/16/97................................ 225,000 224,533
Total U.S. Treasury Bills
(Identified cost $1,058,641).....................................
1,058,641
- ---------------------------------------------------------------------------------
Repurchase Agreement -- 0.46%
- ---------------------------------------------------------------------------------
State Street Bank & Trust Repurchase Agreement,
2.00% due 01/02/97
Collateral: U.S. Treasury Note $100,000, 6.25% due
7/31/98, Value $103,333........................... 100,000 100,000
-------------
Total Repurchase Agreement
(Identified cost $100,000).......................................
100,000
- ---------------------------------------------------------------------------------
Total Investments
(Identified cost $20,767,459)....................................
$ 22,258,204
Other Assets Less Liabilities -- (1.92)%.........................
(418,599)
-------------
Net Assets -- 100%...............................................
$ 21,839,605
- ---------------------------------------------------------------------------------
</TABLE>
(a) Non-income Producing
See notes to financial statements.
22 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
The Enterprise International Growth Portfolio
Brinson Partners, Inc.
Chicago, Illinois
INVESTMENT MANAGEMENT
Brinson Partners is a global investment management firm with offices in Chicago,
London and Tokyo and became manager of the Enterprise International Growth
Portfolio on October 1, 1994. Brinson Partners, Inc. currently manages over $60
billion for institutional clients. Their normal investment minimum is $25
million.
INVESTMENT OBJECTIVE
The objective of the Enterprise International Growth Portfolio is to seek
capital appreciation, primarily through a diversified portfolio of non-U.S.
equity securities.
INVESTMENT PHILOSOPHY
Brinson Partners believes that discrepancies exist between prices and
fundamental values, both across and within the international equity markets. The
Portfolio takes advantage of these discrepancies by using a disciplined approach
to measure fundamental value from the perspective of the long term investor.
Brinson Partners' international equity strategy reflects their decisions about
the relative attractiveness of the asset class, the individual equity markets,
currencies, the industries across and within those markets, other common risk
factors within those markets and individual international companies.
1996 PERFORMANCE REVIEW
Throughout 1996, the Enterprise International Growth Portfolio benefited from
its active strategies in currency allocation and security selection. Market
allocation slightly detracted from performance during the year. The underweight
in the Japanese yen, Swiss franc, German deutschemark and offsetting overweights
primarily in the U.S. dollar, were all successful strategies. Stock selection
was very strong within the Japanese equity market. Honda and Toyota hit record
highs in Japan in 1996. Underweighting the financials and overweighting the
pharmaceuticals, precision instruments and electrical machinery industries all
contributed to portfolio returns. The Portfolio's overweight in cash and
underweight market positions in Sweden, Hong Kong and Switzerland detracted
slightly from performance. This was partially offset by positive results from
overweights in the Netherlands, Spain, and Belgium and underweights in Japan and
Singapore.
Class A
<TABLE>
<C> <S>
[GRAPH] ** The EAFE Index is an
unmanaged index which
excludes transaction or
holding charges. Enterprise
performance numbers include
the maximum sales charge
and all fees. Remember that
historic performance does
not predict future
performance. Shares may be
worth more or less at
redemption than at original
purchase.
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 23
<PAGE>
At year end the Portfolio's largest holdings included Royal Dutch Petroleum
(Netherlands), Unilever (United Kingdom and Netherlands), Telecom Corporation of
NZ (New Zealand), British Telecom (United Kingdom) and Toray Industries (Japan).
Major country concentrations focused on Japan, United Kingdom, France, Germany
and the Netherlands.
FUTURE INVESTMENT STRATEGY
While 1997 economic growth expectations are picking up for most countries,
several markets are not expected to maintain last year's strong growth into
1997. The inflation outlook remains relatively benign for most developed
markets. Despite an environment of good GDP growth, the combination of fiscal
restraint and downward wage pressures may help to keep inflation under control.
The Portfolio continues to target a 5% strategic cash position, reflecting the
view that non-U.S equity markets are overpriced. The Japanese equity market is
notably more overpriced than most of the other non-U.S. markets. Given the
valuation analysis and fundamental considerations, the Portfolio is underweight
in Japan by 6.5%.
The other non-U.S. equity markets (excluding Japan) are overweight by 1.5%.
Brinson Partners continues to emphasize New Zealand, Australia and, in Europe,
France, Netherlands, Belgium and Finland. The Portfolio remains modestly
overeweight in Spain and the United Kingdom and are neutrally positioned in
Italy. The outlook for German earnings has become more favorable. Throughout
Europe, there is growing evidence of an awareness by company managements of
shareholder value. This has been pronounced in Germany, where a number of
companies have started to restructure.
Canada has enjoyed a period of declining interest rates, an improving fiscal
picture and a somewhat undervalued Canadian dollar that has supported its
exporters. At this point, however, we view interest rates as being unsustainably
low and we find currency at or close to fair value. Fundamental analysis
indicates that this market has become more expensive. The Portfolio is invested
but quite underweight, in Hong Kong and Switzerland; with lesser underweights
held in Canada and Malaysia. Currency strategy continues to favor the U.S.
dollar over the less attractive Japanese yen, German deutschemark, Swiss franc
and French franc.
As with all international growth funds, Enterprise International Growth
Portfolio carries additional risks such as possibly less stable foreign
securities and currencies, lack of uniform accounting standards and political
instability.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER
CONDITIONS.
24 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
INTERNATIONAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Common Stocks -- 94.07% Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Australia -- 4.71%
- ---------------------------------------------------------------------------------
Amcor LTD......................................... 15,800 $ 101,599
Boral LTD......................................... 30,600 87,074
Broken Hill Proprietary........................... 37,500 534,139
CRA LTD........................................... 12,100 189,949
David Jones LTD................................... 61,500 85,546
Lend Lease Corporation............................ 4,665 90,475
MIM Holdings LTD.................................. 70,187 98,187
National Australia Bank........................... 20,000 235,275
News Corporation.................................. 40,064 211,450
Pacific Dunlop LTD................................ 28,500 72,490
Qantas Airways LTD................................ 40,226 67,145
Santos LTD........................................ 22,000 89,182
Westpac Bank Corporation.......................... 38,500 219,108
WMC LTD........................................... 17,000 107,154
Woolworths LTD.................................... 28,000 67,435
-------------
2,256,208
Belgium -- 3.26%
- ---------------------------------------------------------------------------------
Bruxelles Lambert Groupe.......................... 600 77,252
Delhaize Le Lion.................................. 1,650 98,030
Electrabel........................................ 1,140 269,842
Fortis AG......................................... 1,119 179,520
Fortis AG......................................... 19 9
Generale De Banque................................ 200 71,704
Generale De Banque (Wts).......................... 300 4,349
Kredietbank....................................... 580 190,119
Petrofina SA...................................... 625 198,960
Society General De Belgique....................... 1,050 82,405
Solvay............................................ 270 165,306
Tractebel CAP..................................... 300 139,705
Union Miniere (a)................................. 1,300 88,094
-------------
1,565,295
Canada -- 2.80%
- ---------------------------------------------------------------------------------
Alcan Aluminum LTD................................ 3,000 101,329
Bank Montreal Quebec.............................. 2,500 79,603
Barrick Gold Corporation.......................... 1,700 48,729
Bce Inc........................................... 1,400 67,429
Canadian National Railway Company................. 1,900 72,292
Canadian Pacific LTD.............................. 6,400 168,495
Hudson Bay Company................................ 3,900 64,938
Imperial Oil LTD.................................. 2,300 108,340
Moore Corporation LTD............................. 2,500 51,851
Noranda Inc....................................... 2,900 64,701
Northern Telecom LTD.............................. 1,100 $ 68,444
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Nova Corporation Alberta.......................... 4,700 41,704
Royal Bank Canada Montreal Quebec................. 2,800 98,357
Seagram LTD....................................... 2,600 103,009
Thomson Corporation............................... 6,300 139,177
Transcanada Pipelines LTD......................... 3,800 66,603
-------------
1,345,001
Finland -- 1.38%
- ---------------------------------------------------------------------------------
Merita A LTD (a).................................. 22,000 68,391
Nokia Oy.......................................... 5,300 307,400
Outokumpu Oy...................................... 3,400 58,022
Pohjola........................................... 1,400 31,500
Sampo Vakuutusosak................................ 900 71,022
Upm Kymmene Oy.................................... 5,900 123,772
-------------
660,107
France -- 9.47%
- ---------------------------------------------------------------------------------
Accor............................................. 1,324 167,653
Alcatel Alsthom................................... 1,452 116,641
Axa............................................... 700 44,521
Banque National Paris............................. 5,980 231,432
Cep Communications................................ 480 33,906
Cep Communications (Wts).......................... 880 1,009
Cie De St Gobain.................................. 1,951 276,001
Cie De Suez....................................... 2,266 96,344
Cie Generale Des Eaux............................. 3,005 372,403
Colas (Rts)....................................... 332 47,991
Compagnie Bancaire................................ 1,443 170,763
Credit Local de France............................ 2,512 218,835
Danone............................................ 500 69,673
L'Oreal........................................... 300 112,981
Lafarge Coppee SA................................. 1,200 71,998
LVMH Moet Hennessy................................ 1,325 370,035
Michelin (a)...................................... 3,428 185,060
Pechiney.......................................... 2,726 114,220
Peugeot SA (a).................................... 2,760 310,656
Rhone Poulenc SA.................................. 6,400 218,206
Seita............................................. 2,500 104,558
Societe Generale.................................. 2,446 264,471
Society Elf Aquitaine............................. 2,836 258,156
Total SA.......................................... 4,485 364,782
Union Assured Paris............................... 4,654 117,953
Usinor Sacilor.................................... 13,600 197,899
-------------
4,538,147
Germany -- 7.35%
- ---------------------------------------------------------------------------------
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 25
<PAGE>
INTERNATIONAL GROWTH PORTFOLIO -- (Continued)
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Allianz AG Holdings............................... 185 $ 336,626
BASF AG........................................... 4,800 184,913
Bayer AG.......................................... 6,500 265,272
Bayer Motoren Werk................................ 255 177,811
Commerzbank AG.................................... 5,100 129,588
Daimler Benz AG (a)............................... 2,750 189,433
Deutsche Bank AG.................................. 5,400 252,313
Deutsche Telekom.................................. 7,500 158,159
Hochtief AG....................................... 1,450 57,480
Hoechst AG........................................ 2,300 108,662
Manitoba AG....................................... 290 70,295
Mannesmann AG..................................... 470 203,724
Metro AG.......................................... 1,320 106,369
Muenchener Ruckvers............................... 80 199,896
PreussAG AG....................................... 560 126,826
Rwe AG............................................ 3,500 148,297
Schering AG....................................... 2,250 189,937
Siemens AG........................................ 1,650 77,739
Thyssen AG........................................ 900 159,670
Veba AG........................................... 4,080 235,976
Volkswagen AG..................................... 350 145,568
-------------
3,524,554
Hong Kong -- 1.23%
- ---------------------------------------------------------------------------------
Cheung Kong (Holdings)............................ 7,000 62,221
China Light & Power............................... 14,500 64,490
Guoco Group....................................... 8,000 44,786
Hang Seng Bank.................................... 5,000 60,767
Hong Kong Telecommunications...................... 20,000 32,194
Hutchison Whampoa................................. 13,000 102,108
New World Devel Company........................... 8,000 54,044
Sun Hung Kai Props................................ 4,000 49,001
Swire Pacific..................................... 7,000 66,746
Wharf Holdings.................................... 11,000 54,897
-------------
591,254
Ireland -- 0.17%
- ---------------------------------------------------------------------------------
Smurfit Jefferson................................. 29,000 83,716
Italy -- 2.73%
- ---------------------------------------------------------------------------------
Assic Generali.................................... 7,810 148,014
Danieli Di Risp................................... 10,000 41,859
Edison............................................ 9,000 56,955
Eni(ADR).......................................... 3,400 175,525
Eni SPA........................................... 15,000 76,978
IMI............................................... 19,000 162,821
INA............................................... 19,000 24,749
Italgas........................................... 11,000 $ 45,936
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Mediobanca SPA.................................... 3,000 16,187
Montedison SPA (a)................................ 179,820 122,567
Rinascente........................................ 8,000 46,407
Rinascente (Wts)*................................. 400 176
Rinascente Louisiana.............................. 14,000 35,807
SAI............................................... 7,000 24,895
Telecom Italia.................................... 92,000 179,512
Telecom Italia Mobile............................. 105,000 149,852
-------------
1,308,240
Japan -- 25.76%
- ---------------------------------------------------------------------------------
Amada Company..................................... 21,000 163,198
Asahi Glass Company............................... 25,000 235,299
Bank of Tokyo Mits................................ 20,800 386,150
Canon Inc......................................... 18,000 397,893
Canon Sales Company Inc........................... 7,700 171,540
Citizen Watch Company............................. 21,000 150,505
Dai Nippon Printing............................... 19,000 333,045
Daiichi Pharm Company............................. 15,000 240,912
Daikin Kogyo...................................... 21,000 186,771
Daiwa House Industries............................ 12,000 154,391
Fanuc............................................. 8,300 265,892
Fujitsu........................................... 14,000 130,559
Hitachi........................................... 43,000 401,002
Honda Motor Company............................... 6,000 171,488
Inax Corporation.................................. 27,000 200,035
Isetan Company.................................... 7,000 90,666
Ito Yokado Company................................ 8,000 348,156
Kaneka Corporation................................ 10,000 51,205
Keio Teito Electric Railway....................... 27,000 131,957
Kintetsu.......................................... 27,000 168,561
Kirin Brewery Company............................. 23,000 226,405
Kokuyo Company.................................... 6,000 148,174
Kuraray Company................................... 21,000 194,025
Kyocera Corporation............................... 2,000 124,687
Maeda Road Construction........................... 5,000 57,853
Matsushita Electric Industrial Indiana............ 33,000 538,555
Mitsubishi Paper.................................. 29,000 113,436
NGK Insulators.................................... 34,000 322,943
Nintendo Company.................................. 1,900 136,007
Nippon Denso...................................... 14,000 337,277
Nippon Meat Packer................................ 14,000 181,331
Nippon Steel Corporation.......................... 15,000 44,297
Okumura Corporation............................... 22,000 133,736
Osaka Gas Company................................. 86,000 235,403
Sankyo Company.................................... 15,000 424,834
Sanwa Bank........................................ 11,000 $ 150,073
</TABLE>
26 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
INTERNATIONAL GROWTH PORTFOLIO -- (Continued)
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Secom Company..................................... 5,000 302,651
Seino Transportation.............................. 7,000 77,368
Sekisui House..................................... 40,000 407,564
Shinmaywa Industries.............................. 21,000 154,676
Sony Corporation.................................. 6,400 419,446
Sumitomo Bank..................................... 22,000 317,244
Sumitomo Electric Industries...................... 19,000 265,780
Takeda Chemical Industries........................ 16,000 335,722
TDK Corporation................................... 4,000 260,772
Tokio Marine & Fire............................... 19,000 178,827
Tokyo Electric Power.............................. 9,300 203,972
Tokyo Steel Manufacturing......................... 15,700 223,685
Tonen Corporation................................. 15,000 174,855
Toray Industries Inc.............................. 88,000 543,304
Toshiba Corporation............................... 48,000 301,736
Toyo Suisan Kaisha................................ 13,000 130,213
Toyota Motor Corporation.......................... 5,000 143,770
Yamazaki Baking Company........................... 10,000 159,744
-------------
12,349,590
Malaysia -- 1.34%
- ---------------------------------------------------------------------------------
Hume Industries................................... 11,000 69,254
Kuala Lumpur Kepong............................... 21,500 54,484
Land & General.................................... 24,000 57,494
Malayan Bank Berhad............................... 4,000 44,348
Malaysia International Shipping................... 13,000 38,606
Nestle Malay Berhad............................... 2,000 16,076
Public Bank Berhad................................ 24,333 51,547
Resorts World Berhad.............................. 11,000 50,089
Sime Darby Berhad................................. 20,000 78,796
Telekom Malaysia.................................. 5,000 44,546
Tenaga Nasional................................... 23,000 110,196
YTL Corporation................................... 5,000 26,925
-------------
642,361
Netherlands -- 6.00%
- ---------------------------------------------------------------------------------
Abn Amro Holdings................................. 3,698 240,750
Akzo Nobel NV..................................... 400 54,677
DSM............................................... 950 93,762
ING NTFL.......................................... 9,827 354,034
Klm............................................... 2,200 61,929
Kon Hoogovensnv................................... 1,200 50,043
KPN............................................... 6,131 234,018
Philips Electronic................................ 3,200 129,742
Royal Dutch Petroleum............................. 5,520 968,438
Royal Dutch Petroleum Company (ADR)............... 300 51,225
Unilever.......................................... 2,240 $ 396,492
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Vendex International.............................. 3,125 133,761
Ver Ned Uitgevers................................. 5,200 108,729
-------------
2,877,600
New Zealand -- 3.13%
- ---------------------------------------------------------------------------------
Brierley Investment LTD........................... 262,000 242,644
Carter Holt Harvey................................ 89,000 201,972
Fletcher Challenge Building....................... 29,000 89,183
Fletcher Challenge Energy......................... 29,000 84,058
Fletcher Challenge Forest Division................ 64,513 108,092
Fletcher Challenge Paper.......................... 59,000 121,379
Telecom Corporation of New Zealand................ 115,000 586,992
Telecom Corporation of New Zealand (ADR).......... 800 64,800
-------------
1,499,120
Singapore -- 0.07%
- ---------------------------------------------------------------------------------
Jardine Matheson.................................. 4,800 31,680
Spain -- 3.34%
- ---------------------------------------------------------------------------------
Acerinox SA....................................... 500 72,251
Banco Bilbao Vizcaya.............................. 2,700 145,789
Banco Central Hispanoamericano.................... 2,050 52,661
Banco Intercontinental............................ 330 51,168
Banco Popular..................................... 480 94,281
Banco Santander SA................................ 1,650 105,615
Corporacion Mapfre................................ 1,200 73,114
Emp Nac Electricid................................ 2,550 181,490
Fomento De Construcciones......................... 700 65,242
Gas Natural SDG SA................................ 300 69,786
Iberdrola SA...................................... 13,900 197,004
Repsol SA (ADR)................................... 4,540 174,151
Sevillana De Electric............................. 2,165 24,597
Telefonica De Espana.............................. 9,800 227,591
Vallehermoso SA................................... 1,600 34,693
Viscofan Envoltura................................ 2,300 33,661
-------------
1,603,094
Switzerland -- 1.95%
- ---------------------------------------------------------------------------------
ABB AG............................................ 40 49,757
CS Holding........................................ 561 57,630
Nestle SA......................................... 259 278,060
Novartis AG....................................... 199 227,917
Roche Holdings AG................................. 20 155,622
Schweiz Bankgesellschaft.......................... 48 42,065
Societe General Surveillance Holding.............. 16 $ 39,327
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 27
<PAGE>
INTERNATIONAL GROWTH PORTFOLIO -- (Continued)
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Zurich Verischerung............................... 302 83,933
-------------
934,311
United Kingdom -- 19.38%
- ---------------------------------------------------------------------------------
Abbey National.................................... 12,000 157,067
Bank Of Scotland.................................. 20,000 105,534
Bass.............................................. 7,200 101,395
BAT Industries.................................... 40,300 334,165
Booker............................................ 7,600 51,821
British Energy.................................... 88,000 220,113
British Gas....................................... 84,500 324,276
British Petroleum................................. 38,126 457,225
British Steel..................................... 68,000 186,397
British Telecom................................... 81,000 548,141
Charter........................................... 9,876 125,544
Coats Viyella..................................... 52,800 121,213
FKI............................................... 46,750 162,588
General Electric.................................. 79,600 522,302
Glaxo Holdings.................................... 13,200 214,836
Grand Metropolitan................................ 51,000 400,171
Guinness.......................................... 43,300 340,495
Hanson............................................ 83,500 117,303
Hillsdown Holdings................................ 61,000 209,011
House of Fraser................................... 65,500 170,567
HSBC Holdings..................................... 13,000 290,646
Imperial Chemical Industries...................... 5,000 65,916
Legal & General Group............................. 32,500 207,405
Lloyds TSB Group.................................. 68,232 503,820
Marks & Spencer................................... 33,000 278,157
Mirror Group PLC.................................. 37,800 139,232
National Power.................................... 19,500 163,029
National Westminster Bank......................... 12,000 141,031
Northern Foods.................................... 36,000 124,585
Peninsular and Oriental Steam..................... 32,500 329,065
Reckitt & Colman.................................. 6,650 82,370
Redland........................................... 12,500 79,022
RJB Mining........................................ 28,000 204,730
Royal Sun Alliance................................ 22,005 167,950
RTZ Corporation................................... 13,100 210,516
Sainsbury J....................................... 27,000 179,013
Scottish Hydro.................................... 21,500 120,447
Sears............................................. 91,200 146,870
Sedgwick Group.................................... 53,400 119,846
Smithkline Beecham................................ 15,200 210,409
TESCO............................................. 21,800 132,212
Thames Water...................................... 16,300 $ 170,624
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Unilever.......................................... 8,400 203,632
Vodafone Group.................................... 18,400 77,862
Yorkshire Water................................... 6,000 72,469
-------------
9,291,022
Total Common Stocks
(Identified cost $40,886,567)....................................
45,101,300
- ---------------------------------------------------------------------------------
Preferred Stock -- 0.51%
- ---------------------------------------------------------------------------------
Australia -- 0.09%
- ---------------------------------------------------------------------------------
News Corporation.................................. 10,000 44,512
Germany -- 0.22%
- ---------------------------------------------------------------------------------
Henkel Kgaa....................................... 2,100 105,491
Italy -- 0.20%
- ---------------------------------------------------------------------------------
Fiat SPA.......................................... 56,000 92,472
Total Preferred Stock
(Identified cost $264,125).......................................
242,475
- ---------------------------------------------------------------------------------
Commercial Paper -- 4.82%
- ---------------------------------------------------------------------------------
Browning Ferris Industries Inc.
6.40%, due 01/02/97............................... $ 1,200,000 1,199,786
Duracell
6.75%, due 01/02/97............................... 1,111,000 1,110,792
-------------
2,310,578
Total Commercial Paper
(Identified cost $2,310,578)..................................... 2,310,578
- ---------------------------------------------------------------------------------
Total Investments
(Identified cost $43,461,270)....................................
$ 47,654,353
Other Assets Less Liabilities -- 0.60%...........................
287,744
-------------
Net Assets -- 100%...............................................
$ 47,942,097
- ---------------------------------------------------------------------------------
</TABLE>
(a) Non-income Producing
(Rts) Rights
(Wts) Warrants
ADR American Depository Receipts
AG Aktien Gesellschaft
CAP Only part of company's capital trades as stock
LTD Limited
SA Societe Anonyme
SDG Sociedad de Gas
SPA Societa Per Azoine
See notes to financial statements.
28 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
The Enterprise Government Securities Portfolio
TCW Funds Management, Inc.
Los Angeles, California
INVESTMENT MANAGEMENT
TCW Funds Management, a wholly owned subsidiary of TCW Management Company, has
been managing the Enterprise Government Securities Portfolio since May 1, 1992.
TCW currently manages over $54 billion for institutional clients. Their normal
investment minimum is $35 million.
INVESTMENT OBJECTIVE
The objective of the Enterprise Government Securities Portfolio is to seek
current income and safety of principal, primarily from securities that are
obligations of the U.S. Government, its agencies or its instrumentalities.
INVESTMENT PHILOSOPHY
The investment process is grounded in long term value considerations. TCW does
not attempt to forecast short term trends in interest rates and, therefore, does
not frequently alter average portfolio maturities. The process focuses on
controlling the variables that are known and can be managed, such as the term
structure of interest rates, mortgage prepayment rates and security structure.
Portfolios remain substantially invested in mortgage-backed products under the
great majority of market conditions.
1996 PERFORMANCE REVIEW
Mortgage-backed securities, which are the primary holding of the Enterprise
Government Securities Portfolio, were once again a top performing fixed income
asset in 1996. Moderately increasing interest rates, low volatility and strong
technicals pushed the total rate of return of the mortgage sector over 250 basis
points above the aggregate fixed income market. During the first six months,
news of a strengthening economy stimulated inflationary fears and drove interest
rates steadily higher. By July 1, the treasury yield curve had moved up well
over 100 basis points. However, as evidence of slowing economic growth and
minimal inflationary pressures mounted in the third quarter, interest rates
reversed. These falling interest rates during the early fall months reignited
prepayment fears among mortgage investors causing mortgages to underperform
slightly. But during December, this trend once again reversed. News of
widespread economic strength drove interest rates higher, spreads tightened and
mortgages outperformed.
Class A
<TABLE>
<C> <S>
[GRAPH] ** The Lehman Brothers
Intermediate Government
Corporate Bond Index is an
unmanaged index which
excludes transaction and
holding charges. En-
terprise performance
numbers include the maximum
sales charge and all fees.
Remember that historic
performance does not
predict future perform-
ance. Shares may be worth
more or less at redemption
than at original purchase.
</TABLE>
30 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
A number of technical factors contributed positively to the performance of the
mortgage sector in 1996. Most significantly, there was an increase in the demand
for mortgage product at the same time that the supply of new securities
decreased. The increase in investor demand was driven, at least in part, by
tight spreads in other sectors of the fixed income market. This supply/demand
imbalance was especially pronounced in the adjustable rate mortgage sector where
demand for short duration assets increased as new production declined. The
collateralized mortgage obligation sub-sector continued to revive in 1996.
Increase demand drove new issuance up but volume of new product remained well
below the levels seen three years ago.
FUTURE INVESTMENT STRATEGY
The mortgage sector ended the year on a sound note and mortgage-backed
securities may continue to be among the top performing dollar denominated fixed
income classes in 1997. Mortgages remain attractive on a relative basis in
contrast to the corporate sector, where yield spreads have been narrow for the
past few years. Strong technicals remain in place and may persist well into 1997
contributing positively to mortgage performance in the coming months. Looking
ahead, greater reliance is foreseen on fixed rate pass throughs and adjustable
rate mortgages as misvaluations in seasoning are exploited. As 1997 begins at
relatively low rate levels, the mortgage sector may continue to provide
incremental yield and credit quality. The Portfolio's goal continues to be to
reap the incremental yield of mortgage assets without taking on the full measure
of prepayment risk.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER
CONDITIONS.
THE ENTERPRISE GROUP OF FUNDS, INC. 31
<PAGE>
GOVERNMENT SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
U.S. Government & Agency Obligations -- 92.01% Amount Value
<S> <C> <C>
- ----------------------------------------------------------------------------------
Federal Home Loan Participation Certificates -- 8.99%
- ----------------------------------------------------------------------------------
FHLPC 9.00%, due 10/01/22......................... $ 1,738,268 $ 1,833,455
FHLPC 10.00%, due 10/01/18........................ 1,478,549 1,600,633
FHLPC 10.00%, due 07/01/20........................ 2,484,748 2,694,261
FHLPC 10.00%, due 10/01/20........................ 929,066 1,010,898
-------------
7,139,247
Government National Mortgage Association -- 27.19%
- ----------------------------------------------------------------------------------
GNMA 6.625%, due 11/15/28......................... 4,882,505 4,667,724
GNMA 7.00%, due 10/15/33.......................... 14,980,292 14,577,172
GNMA 7.50%, due 04/15/23.......................... 776,271 776,512
GNMA 7.50%, due 05/15/23.......................... 799,175 799,423
GNMA 7.50%, due 05/15/23.......................... 748,220 748,452
GNMA 9.00%, due 08/15/16.......................... 9,319 9,778
-------------
21,579,061
Federal Housing Administration -- 43.77%
- ----------------------------------------------------------------------------------
FHA 6.75%, due 11/01/28........................... 2,247,434 2,109,778
FHA 7.00%, due 10/01/28........................... 2,346,563 2,240,967
FHA 7.18%, due 02/20/29........................... 3,445,090 3,341,737
FHA 7.625%, due 06/01/28.......................... 3,742,166 3,737,489
FHA 7.75%, due 05/01/18........................... 6,470,460 6,502,813
FHA 7.75%, due 04/01/28........................... 3,911,176 3,930,732
FHA 7.80%, due 09/01/23........................... 2,805,354 2,819,381
FHA 8.25%, due 03/01/28........................... 3,427,414 3,530,237
FHA 8.65%, due 06/01/27........................... 3,692,005 3,830,455
FHA 8.70%, due 12/01/27........................... 2,596,700 2,700,568
-------------
34,744,157
Federal National Mortgage Association -- 12.06%
- ----------------------------------------------------------------------------------
FNMA 5.50%, due 01/01/09.......................... 2,316,513 2,199,042
FNMA 5.50%, due 02/01/09.......................... 3,976,941 3,776,543
FNMA 9.50%, due 08/01/20.......................... 1,051,973 1,130,124
FNMA 9.50%, due 10/01/20.......................... 1,469,044 1,578,224
FNMA 10.00%, due 07/01/20......................... 351,919 384,647
FNMA 10.00%, due 07/01/20......................... 460,291 502,003
-------------
9,570,583
Total U.S. Government & Agency Obligations (Identified cost
$74,364,801)...................................................... 73,033,048
- ----------------------------------------------------------------------------------
<CAPTION>
Principal
Collateralized Mortgage Obligations (v) -- 3.79% Amount Value
<S> <C> <C>
- ----------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation 7.595%, due
01/01/97.......................................... $ 1,291,553 $ 975,123
Federal Home Loan Mortgage Corporation 8.80%, due
01/01/97.......................................... 2,222,727 1,933,772
Federal National Mortgage Association 15.50%, due
03/25/23.......................................... 100,127 100,127
-------------
Total Collateralized Mortgage Obligations (Identified cost
$3,413,211)....................................................... 3,009,022
- ----------------------------------------------------------------------------------
Repurchase Agreements -- 3.76%
- ----------------------------------------------------------------------------------
State Street Bank & Trust Repurchase Agreement
4.00%, due 01/02/97
Collateral: U.S. Treasury Note, $3,005,000 6.25%
due 4/30/01 Value $3,046,508...................... 2,985,000 2,985,000
-------------
Total Repurchase Agreements
(Identified cost $2,985,000)...................................... 2,985,000
- ----------------------------------------------------------------------------------
Total Investments
(Identified cost $80,763,012)..................................... $ 79,027,070
Other Assets Less Liabilities -- 0.44%............................ 348,506
-------------
Net Assets -- 100%................................................ $ 79,375,576
- ----------------------------------------------------------------------------------
</TABLE>
(v) Variable interest rate securities; interest rates shown are as of December
31, 1996. The maturity date shown is the next interest reset.
See notes to financial statements.
32 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
The Enterprise High-Yield Bond Portfolio
Caywood-Scholl Capital Management
San Diego, California
INVESTMENT MANAGEMENT
Caywood-Scholl has been investment adviser to the Enterprise High-Yield Bond
Portfolio since its inception in 1987. Caywood-Scholl currently manages over
$732 million for institutional clients. Their normal investment minimum is $1
million.
INVESTMENT OBJECTIVE
The objective of the Enterprise High-Yield Bond Portfolio is to seek maximum
current income, primarily from debt securities that are rated Ba or lower by
Moody's Investors Service or BB or lower by Standard & Poor's Corporation.
INVESTMENT PHILOSOPHY
Caywood-Scholl's investment philosophy of seeking relative value and avoiding
risk is credit research driven. The discipline of credit research facilitates
the informed use of a variety of lower rated securities in aggressive fixed
income investing.
1996 PERFORMANCE REVIEW
Five elements helped the high yield bond market, and specifically the Enterprise
High-Yield Bond Portfolio, to post solid returns in 1996. Investors poured $16.0
billion of new money into the high yield market in 1996 which helped keep the
market technicals favorably balanced through much of the year. Secondly, for the
second year in a row the investment grade buyer was evident in the high yield
market. With spreads on investment grade bonds remaining historically tight,
corporate fixed income buyers participated heavily in many BB new issues. Also,
new issues for 1996 totaled $72 billion, more than doubling the $31 billion
issued in 1995. The quality of the new issues continued to deteriorate,
approximately 72% of the new issuance was rated single B or lower. The
telecommunications sector dominated the new issuance accounting for 28% of the
merchandise. In addition, a receptive initial public offering environment and /
or strong stock market generally is supportive to the high yield market for it
provided the ability of an issuer to improve their balance sheet through
issuance of equity. This potential financial flexibility reduces credit risk.
Finally, defaults were surprisingly light in 1996 with 16 defaults representing
$4.2 billion. This compares to 30 issues and $8.2 billion in 1995. Defaults as a
percent of the market have been less than 3% for five consecutive years. This
trend has bolstered the legitimacy of the high yield market as an asset class
for pension funds and fiduciary investors.
Class A
<TABLE>
<C> <S>
[GRAPH] ** The Lehman BB Index is
an unmanaged index which
excludes transaction and
holding charges. Enterprise
performance numbers include
the maximum sales charge
and all fees. Remember that
historic performance does
not predict future
performance. Shares may be
worth more or less at
redemption than at original
purchase.
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 33
<PAGE>
FUTURE INVESTMENT STRATEGY
In 1997, high yield bond performance may be primarily influenced by three
factors. Credit risk is expected to increase somewhat and the yield advantage of
high yield bonds over treasuries may also increase modestly. Overall growth of
corporate profitability is expected to moderate with business's experiencing
more difficulty in passing along production cost increases. Next, new issuance
for 1997 is estimated to decline to $40 to $50 billion level due to a smaller
calendar of offerings by the telecommunications industry. Finally, capital flows
into the high yield market may continue to grow contingent on the absolute yield
advantage and return over treasuries and the perceived credit risk. Interest
among pension funds and foundations has been increasing. Sales of new mutual
fund shares has brought the sector to prominence, owning approximately 20% of
the universe. During the relatively low interest rates of the past several
years, the insurance industry has also remained a steady buyer of high yield
bonds. Reinvestment of coupons has been a stabilizing factor which should repeat
in 1997.
The economic and monetary climate for high yield bonds is expected to be
somewhat less favorable in 1997 while still offering substantial relative
performance opportunities over treasuries and investment grade bonds. The
relative performance of high yield bonds is not expected to be quite as
outstanding for 1997, as was the case in 1996 but still very rewarding. High
yield bonds would not perform as well relatively if interest rates were to
substantially decline. The high yield sector has historically performed very
well during periods of moderately rising interest rates.
Managing this sector in 1997 for competitive returns could be more difficult
requiring greater scrutiny of credit quality. Caywood-Scholl's investment policy
of maintaining broad diversification among favorable industries and issuers
should help the Portfolio in seeking to capture solid risk adjusted returns in
this investment environment.
An investment in the High-Yield Bond Portfolio carries an increased risk that
issuers of securities in which the High-Yield Bond Portfolio invests may default
in the payment of principal and interest as compared to the risk of such
defaults in other Income Portfolios. In addition, an investment in the
High-Yield Bond Portfolio may be subject to certain other risks relating to the
market price, relative liquidity in the secondary market and sensitivity to
interest rate and economic changes on the noninvestment grade securities in
which the High-Yield Bond Portfolio invests that are higher than may be
associated with higher rated, investment grade securities.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER
CONDITIONS.
34 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
HIGH-YIELD BOND PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
Corporate Bonds, Convertible Securities & Common or Principal
Stocks -- 90.38% Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Advertising -- 0.42%
- ---------------------------------------------------------------------------------
Universal Outdoor Inc. 9.75%, due 10/15/06........ $ 250,000 $ 258,125
Aerospace -- 1.44%
- ---------------------------------------------------------------------------------
Rohr Inc. 11.625%, due 05/15/03................... 800,000 892,000
Automotive -- 1.96%
- ---------------------------------------------------------------------------------
Safelite Glass Corporation 9.875%, due 12/15/06... 350,000 359,625
Speedy Muffler King Inc. 10.875%, due 10/01/06.... 800,000 856,000
-------------
1,215,625
Basic Industries -- 1.74%
- ---------------------------------------------------------------------------------
Maxxam Group Inc. 11.25%, due 08/01/03............ 550,000 563,750
Unifrax Investment Corporation 10.50%, due
11/01/03.......................................... 500,000 516,875
-------------
1,080,625
Broadcasting -- 7.20%
- ---------------------------------------------------------------------------------
Comcast UK Cable LP Zero Coupon, due 11/15/07..... 850,000 600,312
Echostar Communications Corporation Zero Coupon,
due 06/01/04...................................... 1,000,000 830,000
Jacor Communications Company 9.75%, due
12/15/06.......................................... 250,000 256,875
Kabelmedia Holding Zero Coupon, due 08/01/06...... 750,000 418,125
Rogers Communications Inc. Zero Coupon, due
05/20/13.......................................... 1,000,000 387,500
Rogers Communications Inc. 9.125%, due 01/15/06... 250,000 246,875
Rogers Communications Inc. 10.875%, due
04/15/04.......................................... 500,000 525,000
Telewest PLC Zero Coupon, due 10/01/07............ 550,000 382,250
Telewest PLC 9.625%, due 10/01/06................. 800,000 820,000
-------------
4,466,937
Cable -- 3.44%
- ---------------------------------------------------------------------------------
Cablevision Systems Corporation 9.25%, due
11/01/05.......................................... 500,000 493,750
Century Communications Corporation 9.50%, due
03/01/05.......................................... 500,000 512,500
Century Communications Corporation 9.75%, due
02/15/02.......................................... 350,000 359,625
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Lodgenet Entertainment Corporation 10.25%, due
12/15/06.......................................... $ 450,000 $ 450,000
TCI Communications Inc. 6.875%, due 02/15/06...... 350,000 316,190
-------------
2,132,065
Chemicals -- 5.95%
- ---------------------------------------------------------------------------------
Freedom Chemical Company 10.625%, due 10/15/06.... 800,000 834,000
General Chemical Corporation 9.25%, due
08/15/03.......................................... 200,000 205,000
Pioneer Americas Acquisition Corporation 13.375%,
due 04/01/05...................................... 800,000 914,000
Rexene Corporation 11.75%, due 12/01/04........... 250,000 280,313
Terra Industries Inc. 10.50%, due 06/15/05........ 350,000 381,062
Texas Petrochemical Corporation 11.125%, due
07/01/06.......................................... 1,000,000 1,075,000
-------------
3,689,375
Conglomerates -- 0.92%
- ---------------------------------------------------------------------------------
Quixote Corporation Convertible Subordinated
Debenture 8.00%, due 04/15/11..................... 650,000 572,000
Consumer Durables -- 1.06%
- ---------------------------------------------------------------------------------
Samsonite Corporation 11.125%, due 07/15/05....... 600,000 658,500
Consumer Products -- 0.73%
- ---------------------------------------------------------------------------------
Brown Group Inc. 9.50%, due 10/15/06.............. 450,000 453,110
Containers -- 2.78%
- ---------------------------------------------------------------------------------
MVE Inc. 12.50%, due 02/15/02..................... 750,000 787,500
Plastic Containers Inc. 10.00%, due 12/15/06...... 300,000 309,750
Printpack Inc. 10.625%, due 08/15/06.............. 600,000 625,500
-------------
1,722,750
Energy -- 6.14%
- ---------------------------------------------------------------------------------
Clark USA Inc. 10.875%, due 12/01/05.............. 650,000 674,375
Kelley Oil & Gas Corporation 10.375%, due
10/15/06.......................................... 600,000 622,500
Maxus Energy Corporation 9.375%, due 11/01/03..... 900,000 915,750
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 35
<PAGE>
HIGH-YIELD BOND PORTFOLIO -- (Continued)
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Maxus Energy Corporation 11.25%, due 05/01/13..... $ 45,000 $ 46,687
Mesa Operating Company 10.625%, due 07/01/06...... 850,000 924,375
YPF Sociedad Anonima 8.00%, due 02/15/04.......... 650,000 625,625
-------------
3,809,312
Entertainment & Leisure -- 3.89%
- ---------------------------------------------------------------------------------
AMF Group Inc. 10.875%, due 03/15/06.............. 900,000 949,500
Cobblestone Golf Group Inc. 11.50%, due
06/01/03.......................................... 400,000 417,000
E & S Holdings Corporation 10.375%, due
10/01/06.......................................... 1,000,000 1,045,000
-------------
2,411,500
Finance -- 1.51%
- ---------------------------------------------------------------------------------
First Nationwide Escrow Corporation 10.625%, due
10/01/03.......................................... 350,000 377,125
Homeside Inc. 11.25%, due 05/15/03................ 500,000 559,375
-------------
936,500
Food & Beverages & Tobacco -- 1.62%
- ---------------------------------------------------------------------------------
Cott Corporation 9.375%, due 07/01/05............. 400,000 412,000
Keebler Corporation 10.75%, due 07/01/06.......... 550,000 594,000
-------------
1,006,000
Gaming -- 1.98%
- ---------------------------------------------------------------------------------
Casino Magic Corporation 11.50%, due 10/15/01..... 350,000 315,000
Harrahs Jazz (b) 14.25%, due 11/15/01............. 250,000 123,125
Trump Atlantic City Associates 11.25%, due
05/01/06.......................................... 800,000 790,000
-------------
1,228,125
Health Care -- 6.30%
- ---------------------------------------------------------------------------------
Dade International Inc. 11.125%, due 05/01/06..... $ 600,000 648,000
Fresenius Med Care Capital Trust Trust Preferred
Securities........................................ 500 511,250
Mariner Health Group Inc. 9.50%, due 04/01/06..... $ 550,000 536,250
Maxxim Medical Inc. 144A 10.50%, due 08/01/06..... 850,000 888,250
Mediq Inc. Convertible Debenture 7.50%, due
07/15/03.......................................... 840,000 743,400
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Quest Diagnostics Inc. 10.75%, due 12/15/06....... $ 550,000 $ 577,500
-------------
3,904,650
Hotels & Restaurants -- 3.87%
- ---------------------------------------------------------------------------------
Foodmaker Corporation 9.75%, due 11/01/03......... $ 350,000 339,938
Foodmaker Inc. (Wts) (a).......................... 250 2,000
H M H Properties Inc. 9.50%, due 05/15/05......... $ 800,000 834,000
Hammon John Q. Hotels 8.875%, due 02/15/04........ 700,000 691,250
Wyndham Hotel Corporation 10.50%, due 05/15/06.... 500,000 530,000
-------------
2,397,188
Machinery -- 1.10%
- ---------------------------------------------------------------------------------
Mettler Toledo Inc. 9.75%, due 10/01/06........... 650,000 684,125
Metals & Mining -- 7.93%
- ---------------------------------------------------------------------------------
AK Steel Corporation 9.125%, due 12/15/06......... 350,000 359,625
Euramax International PLC 11.25%, due 10/01/06.... 250,000 258,750
Kaiser Aluminum & Chemical Corporation 10.875%,
due 10/15/06...................................... 500,000 528,125
Kaiser Aluminum & Chemical Corporation 12.75%, due
02/01/03.......................................... 500,000 534,375
Oregon Steel Mills Inc. 11.00%, due 06/15/03...... 900,000 951,750
United States Can Corporation 10.125%, due
10/15/06.......................................... 750,000 787,500
WCI Steel Inc. 10.00%, due 12/01/04............... 800,000 810,000
Wheeling Pittsburgh Corporation 9.375%, due
11/15/03.......................................... 700,000 689,500
-------------
4,919,625
Paper & Forest Products -- 5.66%
- ---------------------------------------------------------------------------------
Crown Paper Company 11.00%, due 09/01/05.......... 700,000 656,250
Four M Corporation 12.00%, due 06/01/06........... 750,000 789,375
Riverwood International Corporation 10.25%, due
04/01/06.......................................... 800,000 784,000
SD Warren Company 12.00%, due 12/15/04............ 650,000 702,813
</TABLE>
36 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
HIGH-YIELD BOND PORTFOLIO -- (Continued)
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Stone Container Corporation 10.75%, due
10/01/02.......................................... $ 550,000 $ 578,875
-------------
3,511,313
Retail -- 7.15%
- ---------------------------------------------------------------------------------
Ann Taylor Inc. 8.75%, due 06/15/00............... 440,000 430,650
Brunos Inc. 10.50%, due 08/01/05.................. 500,000 528,750
Cole National Group Inc. 9.875%, due 12/31/06..... 800,000 824,000
Corporate Express Inc. 9.125%, due 03/15/04....... 650,000 662,187
Penn Traffic Company 11.50%, due 04/15/06......... 350,000 307,125
Ralphs Grocery Company 10.45%, due 06/15/04....... 750,000 796,875
Smiths Food & Drug 11.25%, due 05/15/07........... $ 800,000 886,000
-------------
4,435,587
Telecommunications -- 10.82%
- ---------------------------------------------------------------------------------
American Communications Services Inc. (Wts) (a)... 800 75,200
American Communications Services Inc. Zero Coupon,
due 11/01/05...................................... $ 1,000,000 595,000
Brooks Fiber Properties Inc. Zero Coupon, due
11/01/06.......................................... 900,000 573,750
ICG Holdings Inc. Zero Coupon, due 05/01/06....... 950,000 619,875
MFS Communications Inc. Zero Coupon, due
01/15/04.......................................... 500,000 433,750
Pagemart Zero Coupon, due 11/01/03................ $ 375,000 299,062
Pagemart (Wts) (a)................................ 3,450 24,150
Pagemart Nationwide Inc........................... 1,750 19,688
Pagemart Nationwide Units Zero Coupon, due
02/01/05.......................................... $ 500,000 337,500
Paging Network Inc. 8.875%, due 02/01/06.......... 500,000 477,500
Phonetel Technologies Inc. 12.00%, due 12/15/06... 250,000 258,750
Sprint Spectrum L P Zero Coupon, due 08/15/06..... 1,000,000 677,500
Sprint Spectrum L P 11.00%, due 08/15/06.......... 650,000 703,625
Teleport Communications Group Zero Coupon, due
07/01/07.......................................... 650,000 447,687
Teleport Communications Group 9.875%, due
07/01/06.......................................... 1,100,000 1,168,750
-------------
6,711,787
Textiles -- 1.40%
- ---------------------------------------------------------------------------------
Carter William Company 10.375%, due 12/01/06...... 850,000 871,250
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Utilities -- 1.67%
- ---------------------------------------------------------------------------------
Ferrellgas Partners L P 9.375%, due 06/15/06...... $ 550,000 $ 555,500
Midland Cogeneration Venture L P 10.33%, due
07/23/02.......................................... 216,149 231,009
Midland Funding Corporation I 10.33%, due
07/23/02.......................................... 232,745 248,747
-------------
1,035,256
Waste Management -- 1.70%
- ---------------------------------------------------------------------------------
Allied Waste North America Inc. 10.25%, due
12/01/06.......................................... 1,000,000 1,052,500
Total Corporate Bonds, Convertible Securities & Common Stocks
(Identified cost $53,890,779)....................................
56,055,830
- ---------------------------------------------------------------------------------
Foreign Bonds -- 5.93%
- ---------------------------------------------------------------------------------
Basic Industries -- 1.98%
- ---------------------------------------------------------------------------------
Cemex S A 12.75%, due 07/15/06.................... 1,100,000 1,229,250
Broadcasting -- 1.47%
- ---------------------------------------------------------------------------------
Grupo Televisa S A 11.375%, due 05/15/03.......... 850,000 909,500
Government Bond -- 1.42%
- ---------------------------------------------------------------------------------
United Mexican States 9.75%, due 02/06/01......... 850,000 880,812
Transportation -- 1.06%
- ---------------------------------------------------------------------------------
Transportacion Maritima Mexica 10.00%, due
11/15/06.......................................... 650,000 655,688
Total Foreign Bonds
(Identified cost $3,548,178).....................................
3,675,250
- ---------------------------------------------------------------------------------
Repurchase Agreement -- 1.77%
- ---------------------------------------------------------------------------------
State Street Bank & Trust Repurchase Agreement
4.00%, due 01/02/97
Collateral: U.S. Treasury Note $1,125,000 5.625%
due 11/30/98 Value $1,126,175..................... 1,100,000 1,100,000
-------------
Total Repurchase Agreement
(Identified cost $1,100,000).....................................
1,100,000
- ---------------------------------------------------------------------------------
Total Investments
(Identified cost $58,538,957)....................................
$ 60,831,080
Other Assets Less Liabilities -- 1.92%...........................
1,189,798
-------------
Net Assets -- 100%...............................................
$ 62,020,878
- ---------------------------------------------------------------------------------
</TABLE>
(a) Non-income Producing
(b) In bankruptcy; Portfolio has ceased accrual of interest.
(Wts) Warrants
See notes to financial statements.
THE ENTERPRISE GROUP OF FUNDS, INC. 37
<PAGE>
The Enterprise Tax-Exempt Income Portfolio
Morgan Stanley Asset Management, Inc.
New York, New York
INVESTMENT MANAGEMENT
Morgan Stanley Asset Management, Inc. is a wholly owned subsidiary of the Morgan
Stanley Group, Inc. and has managed the Enterprise Tax-Exempt Income Portfolio
since January 1, 1992. Morgan Stanley manages over $67 billion for institutional
clients. Their normal investment minimum is $25 million.
INVESTMENT OBJECTIVE
The investment objective of the Enterprise Tax-Exempt Income Portfolio is to
seek a high level of current income exempt from federal income tax, with
consideration given to preservation of principal, primarily from investment in a
diversified portfolio of long term investment grade municipal bonds.
INVESTMENT PHILOSOPHY
Morgan Stanley's management style is risk averse and conservative. Morgan
Stanley strives to add value by concentrating on high quality tax exempt
municipal securities and capitalizing on investment opportunities that arise
because of volatility, changes in the yield curve and sector analysis that
reveals pricing inefficiencies.
1996 PERFORMANCE REVIEW
The 1996 performance of the Enterprise Tax-Exempt Income Portfolio was favorably
influenced by the elimination of the threat of major tax reform, including the
potential for a consumption based or flat tax structure. This caused yield
ratios versus U.S. Treasuries to decline dramatically from January through
August. A decline in interest rates and increased supply caused the ratios to
creep slightly higher in September through the end of the year. New issue supply
topped $180 billion in 1996, the highest volume level since the peak refunding
years of 1992 and 1993. Issuers sold more new money issues than in any year
since 1985. On the demand side, insurance company interest remained strong and
individual investors continued to support the one to ten year maturity range.
Demand for long term municipal bond funds continued to wane, never quite
recovering from a combination of the poor bond market performance of 1994, the
flat tax scare of 1995 and the competition coming from the roaring U.S. equity
market.
Class A
<TABLE>
<C> <S>
[GRAPH] ** The Lehman Municipal
Bond Index is an unmanaged
index which excludes
transaction and holding
charges. Enterprise
performance numbers include
the maximum sales charge
and all fees. Remember that
historic performance does
not predict future
performance. Shares may be
worth more or less at
redemption than at original
purchase.
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 39
<PAGE>
Class B
<TABLE>
<C> <S>
[GRAPH] ** The Lehman Municipal
Bond Index is an unmanaged
index which excludes
transaction and holding
charges. Enterprise
performance numbers include
all fees and CDSC charges.
Remember that historic per-
formance does not predict
future performances. Shares
may be worth more or less
at redemption than at
original purchase.
</TABLE>
FUTURE INVESTMENT STRATEGY
Indications of a strengthening economy during the 4th quarter of 1996 cast a
cautious tone on the bond market as 1997 began. The bond markets may tread
slowly during the 1st quarter of 1997, as investors continue to wrestle with
whether recent signs of strength in the economy are a temporary aberration or a
trend that has some momentum. The focus will be on how much of an inflationary
threat the Federal Reserve perceives at current growth levels and what the
implications are for Fed policy over the next few months. If the economy does
show above trend growth, a correction in the bond markets would probably push
yields up to levels last seen during the summer of 1996. In the near term, we do
not anticipate making any major changes to the current portfolio structure.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER
CONDITIONS.
40 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
TAX-EXEMPT INCOME PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Municipal Bonds -- 98.19%
<S> <C> <C>
Principal
Amount Value
- ----------------------------------------------------------------------------------
Arizona -- 2.92%
- ----------------------------------------------------------------------------------
Salt River Project, Arizona Agriculture Import
and Power District Electric System Revenue
5.00% due 01/01/30............................ $ 1,000,000 $ 889,750
California -- 2.36%
- ----------------------------------------------------------------------------------
California State General Obligation Bonds
6.10% due 09/01/04............................ 150,000 162,981
Los Angeles County, California Sales Tax
Series A Revenue 6.75% due 07/01/18
Prerefunded 07/01/01 at 102................... 500,000 556,670
-------------
719,651
Connecticut -- 1.81%
- ----------------------------------------------------------------------------------
Connecticut State Health & Education Facility
Revenue Hospital MBIA 7.10% due 07/01/25...... 500,000 553,490
Delaware -- 2.27%
- ----------------------------------------------------------------------------------
Delaware Transportation Authority Systems
Revenue 6.50% due 07/01/11 Prerefunded
07/01/01 at 102............................... 630,000 692,332
Florida -- 9.00%
- ----------------------------------------------------------------------------------
Broward County, Broward Recovery Revenue 7.95%
due 12/01/08.................................. 325,000 357,445
Broward County, South Recovery Revenue 7.95%
due 12/01/08.................................. 175,000 192,470
Florida State Board Education Capital Outlay
Series C 5.50% due 06/01/23................... 1,500,000 1,473,570
Florida State Board Education Capital Outlay
Series A 7.25% due 06/01/23................... 170,000 186,602
<CAPTION>
Principal
Amount Value
<S> <C> <C>
Orange County, Florida Health Facilities
Authority Pooled Hospital Loan Series A
Refunding 7.875% due 12/01/25................. $ 235,000 $ 243,448
Orlando Florida Utilities Commission Water and
Electric Revenue Refunding Sub Series D 6.75%
due 10/01/17.................................. 250,000 291,488
-------------
2,745,023
Georgia -- 1.72%
- ----------------------------------------------------------------------------------
Atlanta Downtown Development Authority
Underground Atlanta Project 6.25% due
10/01/12...................................... 500,000 525,605
Idaho -- 1.36%
- ----------------------------------------------------------------------------------
Idaho Housing Agency Single Family Mortgage
Revenue Series F-2 (AMT) 7.80% due 01/01/23... 395,000 413,620
Illinois -- 2.70%
- ----------------------------------------------------------------------------------
Du Page County, Illinois Revenue 6.50% due
01/01/12 Prerefunded 01/01/02 at 102.......... 750,000 824,798
Kansas -- 1.73%
- ----------------------------------------------------------------------------------
Kansas State Department Transportation Highway
Revenue Series A 5.50% due 09/01/03........... 500,000 527,520
Louisiana -- 1.08%
- ----------------------------------------------------------------------------------
Louisiana State Offshore Term Authority
Deepwater Port Revenue Series E 7.60% due
09/01/10...................................... 300,000 329,670
Maryland -- 3.41%
- ----------------------------------------------------------------------------------
Maryland State General Obligation Bonds 5.50%
due 02/01/07.................................. 1,000,000 1,039,810
Massachusetts -- 2.61%
- ----------------------------------------------------------------------------------
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 41
<PAGE>
TAX-EXEMPT INCOME PORTFOLIO -- (Continued)
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
Massachusetts State Housing Finance Agency
Revenue Residential FNMA Collateral-A 6.90%
due 11/15/24.................................. $ 750,000 $ 796,980
Michigan -- 3.54%
- ----------------------------------------------------------------------------------
Michigan State Building Authority Revenue
Series I 6.40% due 10/01/04................... 1,000,000 1,080,440
Missouri -- 0.48%
- ----------------------------------------------------------------------------------
Missouri State Housing Development Community
Mortgage Single Family GNMA Revenue Series B
(AMT) 8.25% due 05/01/19...................... 140,000 145,461
Nebraska -- 3.31%
- ----------------------------------------------------------------------------------
Omaha Public Power District Nebraska Electric
Revenue 5.60% due 02/01/12.................... 1,000,000 1,010,990
Nevada -- 6.32%
- ----------------------------------------------------------------------------------
Clark County School District Series A MBIA
7.00% due 06/01/11............................ 750,000 871,245
Nevada State General Obligation Bonds 6.25%
due 07/01/12.................................. 1,000,000 1,056,550
-------------
1,927,795
New Mexico -- 1.47%
- ----------------------------------------------------------------------------------
New Mexico Mortgage Finance Authority Single
Family Mortgage 7.80% due 09/01/17............ 435,000 448,437
New York -- 10.94%
- ----------------------------------------------------------------------------------
New York State Local Government Assistance
Prerefunded 04/01/01 at 102 7.00% due
04/01/21...................................... 500,000 556,985
New York State Mortgage Agency Revenue 7.95%
due 10/01/14.................................. 200,000 206,656
<CAPTION>
Principal
Amount Value
<S> <C> <C>
New York State Power Authority Revenue &
General Purpose Series CC 5.00% due
01/01/09...................................... $ 1,200,000 $ 1,167,876
Triborough Bridge & Tunnel Authority, New York
General Purpose Series A 6.00% due 01/01/10... 1,300,000 1,408,485
-------------
3,340,002
Ohio -- 0.57%
- ----------------------------------------------------------------------------------
Ohio Housing Finance Agency Single Family
Mortgage Revenue GNMA 8.25% due 12/15/19...... 70,000 73,123
Ohio State Air Quality Development Authority
(Cincinnati Gas & Electric Project) Series A
Daily Variable Rate Demand Note (v) 4.70% due
01/02/97...................................... 100,000 100,000
-------------
173,123
Oklahoma -- 5.17%
- ----------------------------------------------------------------------------------
Tulsa, Oklahoma General Obligation Bonds 6.30%
due 06/01/17.................................. 1,500,000 1,576,770
Oregon -- 1.40%
- ----------------------------------------------------------------------------------
Oregon State General Obligation Bonds 7.00%
due 12/01/11.................................. 400,000 426,884
Pennsylvania -- 2.71%
- ----------------------------------------------------------------------------------
Philadelphia Pennsylvania Hospitals & Higher
Education Facilities Hospital Revenue 6.50%
due 02/15/09 Prerefunded 02/15/02 at 102...... 750,000 826,058
South Carolina -- 0.17%
- ----------------------------------------------------------------------------------
Charleston County South Carolina Resource
Recovery Revenue 9.25% due 01/01/10........... 50,000 53,458
Texas -- 9.13%
- ----------------------------------------------------------------------------------
</TABLE>
42 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
TAX-EXEMPT INCOME PORTFOLIO -- (Continued)
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
Brazos River Authority Texas Revenue 8.25% due
05/01/15...................................... $ 150,000 $ 159,480
Harris County, Texas Health Facility Revenue
Texas Medical Center Project MBIA 7.375% due
05/15/20...................................... 500,000 555,400
Houston Texas General Obligation Bonds 6.00%
due 03/01/05.................................. 500,000 526,280
San Antonio, Revenue Refunding General
Obligation Bonds 5.75% due 08/01/13........... 975,000 985,471
Texas Housing Agency Residential Development
Revenue Series A GNMA Collateral 7.60% due
07/01/16...................................... 120,000 124,481
Texas State Department Housing Community
Affairs Home Mortgage Revenue GNMA Collateral
Series A 6.95% due 07/01/23................... 415,000 435,464
-------------
2,786,576
Utah -- 0.32%
- ----------------------------------------------------------------------------------
Utah State Housing Finance Agency Single
Family Mortgage Series E (AMT) 9.00% due
01/01/19...................................... 95,000 98,966
Virginia -- 9.95%
- ----------------------------------------------------------------------------------
Fairfax County, Virginia General Obligation
Bonds 5.40% due 05/01/11...................... 1,000,000 1,006,750
Fairfax County, Virginia Water Authority
Revenue 5.75% due 04/01/29.................... 1,000,000 993,030
Virginia State Transportation Board Revenue
6.00% due 04/01/10............................ 1,000,000 1,036,010
-------------
3,035,790
<CAPTION>
Principal
Amount Value
<S> <C> <C>
Washington -- 7.30%
- ----------------------------------------------------------------------------------
Tacoma, Washington Electric Systems Revenue
AMBAC 6.15% due 01/01/08...................... $ 1,000,000 $ 1,054,990
Washington State General Obligation Series 93A
5.75% due 10/01/17............................ 1,000,000 1,009,210
Washington State Public Power Supply (Nuclear
Project # 1) Revenue Refunding Series B 7.25%
due 07/01/15..................................
Prerefunded 01/01/00 at 102 150,000 164,696
-------------
2,228,896
West Virginia -- 0.90%
- ----------------------------------------------------------------------------------
Kanawha County Building Community Hospital
Charleston Medical Center Series A Revenue
7.50% due 11/01/08............................
Prerefunded 11/01/99 at 102 250,000 275,090
Wisconsin -- 1.54%
- ----------------------------------------------------------------------------------
Wisconsin Housing & Economic Development
Authority Home Ownership Revenue Series A
7.75% due 09/01/17............................ 450,000 469,242
Total Municipal Bonds
(Identified Cost $28,431,554).....................................
29,962,227
- ----------------------------------------------------------------------------------
Total Investments
(Identified cost $28,431,554).....................................
29,962,227
Other Assets Less Liabilities -- 1.81%............................
553,325
-------------
Net Assets -- 100%................................................
$ 30,515,552
- ----------------------------------------------------------------------------------
</TABLE>
AMT Securities subject to Alternative Minimum Tax
(v) Variable interest rate security; Interest rate is as of December 31, 1996,
and is adjusted daily. The maturity date shown is the next interest rate
reset.
See notes to financial statements.
THE ENTERPRISE GROUP OF FUNDS, INC. 43
<PAGE>
The Enterprise Managed Portfolio
OpCap Advisors
New York, New York
INVESTMENT MANAGEMENT
OpCap Advisors, a wholly owned subsidiary of Oppenheimer Capital, became
investment adviser to this new Enterprise fund on October 1, 1994. Oppenheimer
Capital currently manages over $48 billion for institutional clients. Their
normal investment minimum is $10 million.
INVESTMENT OBJECTIVE
The objective of the Enterprise Managed Portfolio is to seek growth of capital
over time through investment in a portfolio consisting of common stocks, bonds
and cash equivalents, the percentages of which will vary based on the assessment
of relative investment values.
INVESTMENT PHILOSOPHY
OpCap Advisors' investment process allows us to take advantage of opportunities
in all market sectors by shifting the investment mix among stock, bonds and
money market instruments. The focus of our investment process is to identify
quality companies that are undervalued in the market. The average annual return
on equity of these companies is in excess of the average return on equity of the
companies in the S&P 500 Index, while the average price-earnings ratio of these
companies is significantly below the price-earnings ratio for those companies.
This combination of high returns on equity and low security valuations helps
preserve capital in down markets and provides opportunity for investment profit
over time.
1996 PERFORMANCE REVIEW
The strong advance of the S&P 500 Index during 1996 was a surprise to us.
Earlier in the year we had concerns about the direction of inflation and
monetary growth as well as the election results. However, in the end, the
elections ended satisfactorily, inflation stayed below the horizon, monetary
growth was about right and even international economies remained safely between
boom and bust. In this environment the Enterprise Managed Portfolio produced
solid performance lead by exposure to stocks in the financial (banks and
government sponsored entities such as Freddie Mac) and aerospace industries but
diluted by cash investments averaging somewhat in excess of 15% of asset value
during 1996.
Class A
<TABLE>
<C> <S>
[GRAPH] ** The S&P 500 Index is an
unmanaged index which
includes 500 companies
which tend to be leaders in
important industries within
the U.S. economy and
excludes any transaction or
holding charges. Enterprise
performance numbers include
the maximum sales charge
and all fees. Remember that
historic performance does
not predict future
performance. Shares may be
worth more or less at
redemption than at original
purchase.
</TABLE>
44 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
Year end found the Portfolio with substantial holdings of high quality financial
stocks, including banks and insurance companies. These companies included Wells
Fargo, Citicorp, Federal Home Loan Mortgage and Exel Ltd. The Portfolio also
held a significant position in McDonnell Douglas and Du Pont. Major industry
positions were in financial services, banks, aerospace, insurance and machinery.
FUTURE INVESTMENT STRATEGY
OpCap continues to focus on preservation of capital. Given the level of the
overall market, cash will generally range from the low teens to 20% in 1997.
Stock selection criteria remains unchanged targeted towards high return on
capital businesses, well protected by barriers to entry, run by managements who
consider caring for the shareholder "job #1," and OpCap wants to buy them at
prices which do not fairly reflect the foregoing attributes.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER
CONDITIONS.
THE ENTERPRISE GROUP OF FUNDS, INC. 45
<PAGE>
MANAGED PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Common Stocks -- 88.43% Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Aerospace -- 9.44%
Lockheed Martin Corporation....................... 53,600 $ 4,904,400
Loral Space & Communications...................... 45,000 826,875
McDonnell Douglas Corporation..................... 190,000 12,160,000
Northrop Grumman Corporation...................... 30,000 2,482,500
-------------
20,373,775
Apparel & Textiles -- 1.56%
- ---------------------------------------------------------------------------------
V F Corporation................................... 50,000 3,375,000
Automotive -- 1.70%
- ---------------------------------------------------------------------------------
LucasVarity PLC (ADR)............................. 96,600 3,670,800
Banking -- 11.76%
- ---------------------------------------------------------------------------------
Citicorp.......................................... 99,000 10,197,000
First Empire State Corporation.................... 10,900 3,139,200
Wells Fargo & Company............................. 44,633 12,039,752
-------------
25,375,952
Broadcasting -- 0.14%
- ---------------------------------------------------------------------------------
TCI Satellite Entertainment Inc................... 30,000 296,250
Building & Construction -- 0.27%
- ---------------------------------------------------------------------------------
Newport News Shipbuilding Inc..................... 39,340 590,100
Chemicals -- 6.37%
- ---------------------------------------------------------------------------------
Du Pont (E I) de Nemours & Company................ 100,000 9,437,500
Hercules Inc...................................... 54,600 2,361,450
Monsanto Company.................................. 50,000 1,943,750
-------------
13,742,700
Consumer Products -- 3.80%
- ---------------------------------------------------------------------------------
Mattel, Inc....................................... 295,600 8,202,900
Drugs & Medical Products -- 2.77%
- ---------------------------------------------------------------------------------
Becton, Dickinson & Company....................... 137,800 5,977,075
Electronics -- 4.50%
- ---------------------------------------------------------------------------------
National Semiconductor Corporation (a)............ 240,000 5,850,000
Unitrode Corporation (a).......................... 62,300 1,830,062
Varian Associates Inc............................. 40,000 2,035,000
-------------
9,715,062
Energy -- 2.05%
- ---------------------------------------------------------------------------------
Triton Energy Ltd. (a)............................ 91,000 4,413,500
Entertainment & Leisure -- 0.46%
- ---------------------------------------------------------------------------------
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Harrahs Entertainment, Inc........................ 50,000 $ 993,750
Insurance -- 7.04%
- ---------------------------------------------------------------------------------
Ace Ltd........................................... 40,000 2,405,000
EXEL Ltd.......................................... 178,800 6,772,050
Travelers Aetna Property Casualty.................
Corporation....................................... 170,000 6,013,750
-------------
15,190,800
Machinery -- 6.45%
- ---------------------------------------------------------------------------------
Caterpillar Inc................................... 66,100 4,974,025
Tenneco Inc. New.................................. 198,400 8,952,800
-------------
13,926,825
Metals & Mining -- 3.28%
- ---------------------------------------------------------------------------------
Freeport McMoRan Copper & Gold, Inc. (Class B).... 237,000 7,080,375
Misc. Financial Services -- 12.28%
- ---------------------------------------------------------------------------------
American Express Company.......................... 71,000 4,011,500
Countrywide Credit Industries, Inc................ 202,400 5,793,700
Federal Home Loan Mortgage Corporation............ 91,900 10,120,487
Federal National Mortgage Association............. 176,600 6,578,350
-------------
26,504,037
Paper Products -- 1.97%
- ---------------------------------------------------------------------------------
Champion International Corporation................ 98,300 4,251,475
Printing & Publishing -- 0.79%
- ---------------------------------------------------------------------------------
Donnelley R R & Sons Company...................... 54,600 1,713,075
Restaurants -- 3.23%
- ---------------------------------------------------------------------------------
McDonalds Corporation............................. 154,300 6,982,075
Technology -- 2.25%
- ---------------------------------------------------------------------------------
Intel Corporation................................. 37,100 4,857,781
Telecommunications -- 3.34%
- ---------------------------------------------------------------------------------
Tele-Communications, Inc. (a)..................... 551,200 7,200,050
Transportation -- 2.98%
- ---------------------------------------------------------------------------------
Union Pacific Corporation......................... 107,100 6,439,388
Total Common Stocks
(Identified cost $156,601,633)...................................
190,872,745
- ---------------------------------------------------------------------------------
Commercial Paper -- 7.85%
- ---------------------------------------------------------------------------------
</TABLE>
46 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
MANAGED PORTFOLIO -- (Continued)
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Beneficial Corporation 5.50% due 01/27/97......... $ 6,000,000 $ 5,976,167
Ford Motor Credit Company 5.38% due 01/09/97...... 6,000,000 5,992,827
General Electric Capital Corporation, 5.35% due
01/30/97.......................................... 5,000,000 4,978,451
Total Commercial Paper
(Identified cost $16,947,445)....................................
16,947,445
- ---------------------------------------------------------------------------------
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Repurchase Agreement -- 2.94%
- ---------------------------------------------------------------------------------
State Street Bank & Trust Repurchase Agreement,
4.75% due 01/02/97
Collateral: U.S. Treasury Bond $6,465,000 5.625%
due 11/30/98 Value $6,471,749..................... $ 6,340,000 $ 6,340,000
-------------
Total Repurchase Agreement
(Identified cost $6,340,000).....................................
6,340,000
- ---------------------------------------------------------------------------------
Total Investments
(Identified cost $179,889,078)...................................
$ 214,160,190
Other Assets Less Liabilities -- 0.78%...........................
1,693,387
-------------
Net Assets -- 100%...............................................
$ 215,853,577
- ---------------------------------------------------------------------------------
</TABLE>
(a) Non-income Producing
ADR American Depository Receipt
See notes to financial statements.
THE ENTERPRISE GROUP OF FUNDS, INC. 47
<PAGE>
The Enterprise Money Market Portfolio
Enterprise Capital Management, Inc.
Atlanta, Georgia
INVESTMENT MANAGEMENT
Enterprise Capital Management is a wholly owned subsidiary of the Mutual Life
Insurance Company of New York. They have managed the Enterprise Money Market
Portfolio since May 1, 1992.
INVESTMENT OBJECTIVE
The objective of the Enterprise Money Market Portfolio is the highest possible
level of current income consistent with the preservation of capital and
liquidity in obligations maturing in one year or less from the time of purchase.
INVESTMENT PHILOSOPHY
The Portfolio invests primarily in high quality (A-1/P-1) short term money
market instruments, principally commercial paper. While interest rate projection
is not a key component of our management style Enterprise Capital Management
emphasizes purchases primarily in a maturity range of 60 to 120 days so as to
provide flexibility to respond to significant changes in the market.
1996 PERFORMANCE REVIEW
The Federal Reserve appears to have been very pleased with the soft landing of
the economy in 1996 that resulted from interest rate changes in 1995. With one
last tweak of interest rates in early 1996, placing the Fed Funds rate at 5.25%,
the Fed has sat back and watched the economy show overall moderate growth
throughout 1996. Employment and wages remain strong but have not skyrocketed out
of control. Consumers have generally been restrained although somewhat more
optimistic in their buying patterns this year as housing sales were sluggish
until rates dropped toward the end of 1996 and as consumers made only moderate
increases in Christmas purchases.
The economy continues on its relatively steady moderate growth path. Federal
Reserve members are watching closely for a turn in the economy but, overall,
they seem to be relatively happy with the current economic course. With no
pitfalls in sight, the Fed is expected to remain steady with interest rates
through most of 1997. Late 1997 data may provide information that will lead to a
very modest change in interest rates as another preemptive move by the Fed.
FUTURE INVESTMENT STRATEGY
The interest rate curve remains relatively flat. Investors expect a steady
course in interest rates by the Federal Reserve. The Portfolio is therefore
generally running an average portfolio maturity of 45 days, while taking
advantage of market anomalies that periodically occur in one particular maturity
or another. At year end, the average maturity was 30 days, shorter than usual to
take advantage of any year end spike in short maturity rates.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER
CONDITIONS.
THE ENTERPRISE GROUP OF FUNDS, INC. 49
<PAGE>
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Certificate of Deposit -- 3.31% Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Bank Of Nova Scotia 5.50% due 01/03/97............ $ 2,000,000 $ 2,000,000
-------------
Total Certificate of Deposit
(Identified cost $2,000,000).....................................
2,000,000
Commercial Paper -- 91.43%
- ---------------------------------------------------------------------------------
American Express Credit Corporation, 5.30% due
01/27/97.......................................... 700,000 697,321
American Express Credit Corporation, 5.30% due
02/28/97.......................................... 400,000 396,584
American Express Credit Corporation, 5.32% due
01/08/97.......................................... 1,000,000 998,966
American Express Credit Corporation, 5.33% due
01/09/97.......................................... 300,000 299,645
American Telephone & Telegraph Company, 5.50% due
02/05/97.......................................... 2,700,000 2,685,563
Associates Corporation North America, 5.33% due
01/10/97.......................................... 500,000 499,334
Associates Corporation North America, 5.48% due
01/31/97.......................................... 2,000,000 1,990,867
Avco Financial Services Inc. 5.32% due 01/23/97... 1,500,000 1,495,123
Avco Financial Services Inc. 5.41% due 03/13/97... 1,000,000 989,330
Banc One Funding Corporation 5.46% due 01/06/97... 2,000,000 1,998,483
Bank of New York 5.30% due 01/10/97............... 2,000,000 1,997,350
Barclays US Funding 5.52% due 01/21/97............ 1,000,000 996,933
British Province of Columbia 5.34% due 04/01/97... 2,000,000 1,973,300
Chevron Oil Finance Company 5.40% due 01/07/97.... 1,000,000 999,100
CIT Group Holdings Inc. 5.35% due 02/25/97........ 500,000 495,913
CIT Group Holdings Inc. 5.46% due 01/24/97........ 2,000,000 1,993,023
Coca Cola Company 5.55% due 01/17/97.............. 2,000,000 1,995,067
Commercial Credit Company 5.30% due 01/06/97...... 2,500,000 2,498,160
Conagra Inc. 5.60% due 01/03/97................... 500,000 499,844
Disney Walt Company 5.31% due 02/14/97............ 1,000,000 993,510
Enterprise Funding Corporation 5.46% due
01/10/97.......................................... 560,000 559,236
Exxon Funding 5.23% due 01/13/97.................. 1,487,000 1,484,408
Ford Motor Credit Company 5.30% due 01/08/97...... 1,000,000 998,970
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Ford Motor Credit Company 5.32% due 01/23/97...... $ 1,000,000 $ 996,749
General Electric Capital Corporation, 5.31% due
01/06/97.......................................... 500,000 499,631
General Electric Capital Corporation, 5.41% due
01/09/97.......................................... 1,200,000 1,198,557
General Motors Acceptance Corporation, 5.40% due
01/13/97.......................................... 500,000 499,100
Goldman Sachs Group LP 5.32% due 04/21/97......... 2,000,000 1,967,489
Household Finance Corporation 5.29% due
02/07/97.......................................... 2,500,000 2,486,408
Merrill Lynch & Company Inc. 5.34% due 01/27/97... 1,300,000 1,294,986
Merrill Lynch & Company Inc. 5.44% due 01/21/97... 1,000,000 996,978
Metropolitan Life Funding Inc. 5.45% due
01/10/97.......................................... 1,500,000 1,497,956
National Westminster Bank PLC 5.45% due
02/28/97.......................................... 1,000,000 991,219
Norwest Corporation 5.40% due 01/09/97............ 1,300,000 1,298,440
PHH Corporation 5.68% due 01/17/97................ 800,000 797,980
Philip Morris Companies Inc. 5.30% due 01/13/97... 1,300,000 1,297,703
Province De Quebec 5.30% due 01/23/97............. 1,300,000 1,295,790
Prudential Funding Corporation 5.30% due
01/07/97.......................................... 2,000,000 1,998,233
Republic New York Corporation Discount, 5.35% due
01/08/97.......................................... 1,500,000 1,498,440
Sanwa Business Credit Corporation, 5.58% due
01/15/97.......................................... 500,000 498,915
Sears Roebuck Acceptance Corporation, 5.50% due
01/30/97.......................................... 500,000 497,785
Transamerica Finance Group Inc. 5.33% due
01/13/97.......................................... 1,000,000 998,223
Transamerica Finance Group Inc. 5.43% due
01/13/97.......................................... 500,000 499,095
Weyerhauser Mortgage 5.45% due 01/16/97........... 1,000,000 997,729
Xerox Corporation 5.30% due 01/24/97.............. 1,600,000 1,594,582
-------------
Total Commercial Paper
(Identified cost $55,238,018)....................................
55,238,018
- ---------------------------------------------------------------------------------
</TABLE>
50 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
MONEY MARKET PORTFOLIO -- (Continued)
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Amount Value
<S> <C> <C>
- ---------------------------------------------------------------------------------
Short Term Government Securities -- 1.66%
- ---------------------------------------------------------------------------------
Federal Home Loan Bank 5.85% due 11/06/97......... $ 1,000,000 $ 1,000,000
Total Short Term Government Securities
(Identified cost $1,000,000).....................................
1,000,000
- ---------------------------------------------------------------------------------
Repurchase Agreement -- 0.84%
- ---------------------------------------------------------------------------------
State Street Bank & Trust Repurchase
Agreement,.....2.00% due 01/02/97 Collateral: U.S.
Treasury Note $520,000 5.625% due 11/30/98 Value
$520,543 510,000 510,000
-------------
Total Repurchase Agreement
(Identified cost $510,000).......................................
510,000
- ---------------------------------------------------------------------------------
Total Investments
(Identified cost $58,748,018)....................................
$ 58,748,018
Other Assets Less Liabilities -- 2.76%...........................
1,669,033
-------------
Net Assets -- 100%...............................................
$ 60,417,051
- ---------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
THE ENTERPRISE GROUP OF FUNDS, INC. 51
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Equity Capital Small
Growth Income Appreciation Company
Portfolio Portfolio Portfolio Portfolio
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Assets:
- --------------------------------------------------------------------------------------------
Investments at value $ 234,443,855 $ 78,925,672 $ 121,784,848 $ 22,258,204
- --------------------------------------------------------------------------------------------
Foreign currency at value
(identified cost-$294,018) -- -- -- --
- --------------------------------------------------------------------------------------------
Receivable for fund shares
sold 2,087,466 34,017 62,713 49,813
- --------------------------------------------------------------------------------------------
Receivable for investments
sold -- -- 696,456 --
- --------------------------------------------------------------------------------------------
Dividends and interest
receivable 115,348 135,867 37,590 16,649
- --------------------------------------------------------------------------------------------
Due from investment adviser -- 12,929 -- 8,611
- --------------------------------------------------------------------------------------------
Forward currency contracts
(net) receivable -- -- -- --
- --------------------------------------------------------------------------------------------
Cash and other assets 44,646 4,175 49,611 16,431
- --------------------------------------------------------------------------------------------
Total assets $ 236,691,315 $ 79,112,660 $ 122,631,218 $ 22,349,708
- --------------------------------------------------------------------------------------------
Liabilities:
- --------------------------------------------------------------------------------------------
Payable for fund shares
redeemed 68,356 3,557 1,438,896 13,866
- --------------------------------------------------------------------------------------------
Payable for investments
purchased -- 499,629 -- 281,250
- --------------------------------------------------------------------------------------------
Dividends and distributions
payable 683,494 212,614 680,798 146,385
- --------------------------------------------------------------------------------------------
Investment advisory fee
payable 149,421 49,765 78,531 13,784
- --------------------------------------------------------------------------------------------
Distribution fee payable 104,589 32,391 49,466 8,690
- --------------------------------------------------------------------------------------------
Other accrued expenses 110,873 52,924 83,508 46,128
- --------------------------------------------------------------------------------------------
Total liabilities $ 1,116,733 $ 850,880 $ 2,331,199 $ 510,103
- --------------------------------------------------------------------------------------------
Net assets $ 235,574,582 $ 78,261,780 $ 120,300,019 $ 21,839,605
- --------------------------------------------------------------------------------------------
Analysis of net assets
- --------------------------------------------------------------------------------------------
Accumulated paid-in capital 157,571,722 56,953,007 83,002,799 19,948,629
- --------------------------------------------------------------------------------------------
Undistributed net investment
income (loss) -- 20,883 -- --
- --------------------------------------------------------------------------------------------
Accumulated net realized gain
(loss) on investments 506,846 791,063 1,377,415 400,231
- --------------------------------------------------------------------------------------------
Accumulated net realized
(loss) on futures -- -- -- --
- --------------------------------------------------------------------------------------------
Unrealized appreciation
(depreciation) of investments
and foreign currencies
denominated amounts 77,496,014 20,496,827 35,919,805 1,490,745
- --------------------------------------------------------------------------------------------
Net assets $ 235,574,582 $ 78,261,780 $ 120,300,019 $ 21,839,605
- --------------------------------------------------------------------------------------------
Class A: Net assets $ 196,751,809 $ 72,646,889 $ 115,252,520 $ 17,308,122
- --------------------------------------------------------------------------------------------
Shares outstanding 15,023,499 3,237,312 3,368,944 3,013,526
- --------------------------------------------------------------------------------------------
Net asset value and redemption
price per share $13.10 $22.44 $34.21 $5.74
- --------------------------------------------------------------------------------------------
Sales charge per share $0.65 $1.12 $1.71 $0.29
- --------------------------------------------------------------------------------------------
Maximum offering price per
share, including sales charge
of 4.75% $13.75 $23.56 $35.92 $6.03
- --------------------------------------------------------------------------------------------
Class B: Net assets $ 36,483,336 $ 5,614,891 $ 5,047,499 $ 2,605,524
- --------------------------------------------------------------------------------------------
Shares outstanding 2,812,263 251,794 149,075 458,104
- --------------------------------------------------------------------------------------------
Net asset value and offering
price per share $12.97 $22.30 $33.86 $5.69
- --------------------------------------------------------------------------------------------
Class Y: Net assets $ 2,339,437 -- -- $ 1,925,959
- --------------------------------------------------------------------------------------------
Shares outstanding 178,301 -- -- 333,912
- --------------------------------------------------------------------------------------------
Net asset value, offering and
redemption price per share $13.12 -- -- $5.77
- --------------------------------------------------------------------------------------------
Investments at cost $ 156,947,841 $ 58,428,845 $ 85,865,043 $ 20,767,459
- --------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
52 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
<TABLE>
<CAPTION>
International Government High-Yield Tax-Exempt Money
Growth Securities Bond Income Managed Market
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
- -------------------------------------------------------------------------------------------------------------------------
Investments at value $ 47,654,353 $ 79,027,070 $ 60,831,080 $ 29,962,227 $ 214,160,190 $ 58,748,018
- -------------------------------------------------------------------------------------------------------------------------
Foreign currency at value
(identified cost-$294,018) 299,017 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Receivable for fund shares
sold 59,681 49,513 122,670 2,989 1,130,807 2,725,649
- -------------------------------------------------------------------------------------------------------------------------
Receivable for investments
sold -- -- -- -- 964,430 --
- -------------------------------------------------------------------------------------------------------------------------
Dividends and interest
receivable 148,084 577,093 1,268,098 561,471 153,452 37,115
- -------------------------------------------------------------------------------------------------------------------------
Due from investment adviser 6,415 2,868 9,884 -- -- 7,712
- -------------------------------------------------------------------------------------------------------------------------
Forward currency contracts
(net) receivable 178,957 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Cash and other assets 12,795 11,808 3,134 69,584 38,468 70,032
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 48,359,302 $ 79,668,352 $ 62,234,866 $ 30,596,271 $ 216,447,347 $ 61,588,526
- -------------------------------------------------------------------------------------------------------------------------
Liabilities:
- -------------------------------------------------------------------------------------------------------------------------
Payable for fund shares
redeemed 1,362 76,152 -- 7,554 60,672 973,133
- -------------------------------------------------------------------------------------------------------------------------
Payable for investments
purchased 204,806 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
payable 91,872 95,896 114,905 24,289 176,207 129,043
- -------------------------------------------------------------------------------------------------------------------------
Investment advisory fee
payable 34,047 40,319 31,067 17,670 135,234 15,816
- -------------------------------------------------------------------------------------------------------------------------
Distribution fee payable 16,609 32,820 26,864 12,616 84,941 14,270
- -------------------------------------------------------------------------------------------------------------------------
Other accrued expenses 68,509 47,589 41,152 18,590 136,716 39,213
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities $ 417,205 $ 292,776 $ 213,988 $ 80,719 $ 593,770 $ 1,171,475
- -------------------------------------------------------------------------------------------------------------------------
Net assets $ 47,942,097 $ 79,375,576 $ 62,020,878 $ 30,515,552 $ 215,853,577 $ 60,417,051
- -------------------------------------------------------------------------------------------------------------------------
Analysis of net assets
- -------------------------------------------------------------------------------------------------------------------------
Accumulated paid-in capital 43,271,454 85,177,352 62,248,758 28,992,587 180,787,263 60,417,051
- -------------------------------------------------------------------------------------------------------------------------
Undistributed net investment
income (loss) 5,385 6,299 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain
(loss) on investments 286,777 (4,072,133) (2,503,597) (7,708) 795,202 --
- -------------------------------------------------------------------------------------------------------------------------
Accumulated net realized
(loss) on futures -- -- (16,406) -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation
(depreciation) of investments
and foreign currencies
denominated amounts 4,378,481 (1,735,942) 2,292,123 1,530,673 34,271,112 --
- -------------------------------------------------------------------------------------------------------------------------
Net assets $ 47,942,097 $ 79,375,576 $ 62,020,878 $ 30,515,552 $ 215,853,577 $ 60,417,051
- -------------------------------------------------------------------------------------------------------------------------
Class A: Net assets $ 34,837,373 $ 73,692,645 $ 54,128,734 $ 28,478,453 $ 101,021,684 $ 59,073,500
- -------------------------------------------------------------------------------------------------------------------------
Shares outstanding 2,036,798 6,247,610 4,570,204 2,058,828 12,671,624 59,073,500
- -------------------------------------------------------------------------------------------------------------------------
Net asset value and redemption
price per share $17.10 $11.80 $11.84 $13.83 $7.97 $1.00
- -------------------------------------------------------------------------------------------------------------------------
Sales charge per share $0.85 $0.59 $0.59 $0.69 $0.40 --
- -------------------------------------------------------------------------------------------------------------------------
Maximum offering price per
share, including sales charge
of 4.75% $17.95 $12.39 $12.43 $14.52 $8.37 $1.00
- -------------------------------------------------------------------------------------------------------------------------
Class B: Net assets $ 4,276,255 $ 5,682,931 $ 7,892,144 $ 2,037,099 $ 57,037,403 $ 1,343,551
- -------------------------------------------------------------------------------------------------------------------------
Shares outstanding 251,937 481,863 666,355 147,266 7,192,519 1,343,551
- -------------------------------------------------------------------------------------------------------------------------
Net asset value and offering
price per share $16.97 $11.79 $11.84 $13.83 $7.93 $1.00
- -------------------------------------------------------------------------------------------------------------------------
Class Y: Net assets $ 8,828,469 -- -- -- $ 57,794,490 --
- -------------------------------------------------------------------------------------------------------------------------
Shares outstanding 516,233 -- -- -- 7,239,473 --
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, offering and
redemption price per share $17.10 -- -- -- $7.98 --
- -------------------------------------------------------------------------------------------------------------------------
Investments at cost $ 43,461,270 $ 80,763,012 $ 58,538,957 $ 28,431,554 $ 179,889,078 $ 58,748,018
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 53
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Equity Capital Small
Growth Income Appreciation Company
Portfolio Portfolio Portfolio Portfolio
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Investment income:
- -----------------------------------------------------------------------------------------
Dividends $ 1,479,482 $ 1,987,966 $ 560,762 $ 280,021
- -----------------------------------------------------------------------------------------
Interest 430,987 373,486 330,090 51,685
- -----------------------------------------------------------------------------------------
Total 1,910,469 2,361,452 890,852 331,706
- -----------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------
Management fees 1,282,393 523,261 935,780 153,784
- -----------------------------------------------------------------------------------------
Distribution fees, Class A 690,381 299,864 544,739 75,252
- -----------------------------------------------------------------------------------------
Distribution fees, Class B 164,357 31,317 37,175 14,686
- -----------------------------------------------------------------------------------------
Transfer agent fees 357,472 183,514 320,187 111,303
- -----------------------------------------------------------------------------------------
Custodian and accounting
fees 81,399(1) 77,562 82,311(1) 69,326
- -----------------------------------------------------------------------------------------
Audit and legal fees 36,428 22,324 30,849 14,892
- -----------------------------------------------------------------------------------------
Reports to shareholders 42,734 23,755 33,957 15,273
- -----------------------------------------------------------------------------------------
Registration fees 23,343 17,505 17,436 15,711
- -----------------------------------------------------------------------------------------
Directors' fees 5,281 5,281 5,281 5,281
- -----------------------------------------------------------------------------------------
Other expenses 26,863 13,712 13,831 9,359
- -----------------------------------------------------------------------------------------
Total expenses 2,710,651 1,198,095 2,021,546 484,867
- -----------------------------------------------------------------------------------------
Less: Expense
reimbursement (37,407 (1) (126,447) (21,601 (1) (128,396)
- -----------------------------------------------------------------------------------------
Total expenses, net of
reimbursement 2,673,244 1,071,648 1,999,945 356,471
- -----------------------------------------------------------------------------------------
Net investment income (loss) (762,775) 1,289,804 (1,109,093) (24,765)
- -----------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments:
- -----------------------------------------------------------------------------------------
Net realized gain on
security transactions 11,317,236 5,664,492 10,763,909 1,473,114
- -----------------------------------------------------------------------------------------
Net realized gain of foreign
currency transactions -- -- -- --
- -----------------------------------------------------------------------------------------
Net realized (loss) from
futures transactions -- -- -- --
- -----------------------------------------------------------------------------------------
Net change in unrealized
gain (loss) of investments
and foreign currency
related transactions 36,890,580 4,614,269 9,326,093 795,406
- -----------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 48,207,816 10,278,761 20,090,002 2,268,520
- -----------------------------------------------------------------------------------------
Increase (decrease) in net
assets resulting from
operations $ 47,445,041 $ 11,568,565 $ 18,980,909 $ 2,243,755
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Reflects total expense before reduction for brokerage commission credits
which are reflected as expense reimbursement.
(2) Net of foreign taxes withheld of $148,756 for International Growth.
(3) Net of foreign taxes withheld of $4,769 for High-Yield Bond.
See notes to financial statements.
54 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
<TABLE>
<CAPTION>
International Government High-Yield Tax-Exempt Money
Growth Securities Bond Income Managed Market
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
- --------------------------------------------------------------------------------------------------------------------
Dividends $ 972,764(2) $ -- $ 562 $ -- $ 2,779,921 $ --
- --------------------------------------------------------------------------------------------------------------------
Interest 112,592 6,258,170 5,390,991(3) 1,919,018 1,384,914 2,488,630
- --------------------------------------------------------------------------------------------------------------------
Total 1,085,356 6,258,170 5,391,553 1,919,018 4,164,835 2,488,630
- --------------------------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------------------------
Management fees 353,427 490,882 339,960 162,828 1,164,633 160,844
- --------------------------------------------------------------------------------------------------------------------
Distribution fees, Class A 144,773 350,233 231,787 139,290 336,067 134,847
- --------------------------------------------------------------------------------------------------------------------
Distribution fees, Class B 26,468 39,843 51,518 16,122 359,391 8,556
- --------------------------------------------------------------------------------------------------------------------
Transfer agent fees 141,777 160,283 112,471 48,267 345,491 125,639
- --------------------------------------------------------------------------------------------------------------------
Custodian and accounting
fees 169,688 68,802 77,189 52,886 86,034 49,594
- --------------------------------------------------------------------------------------------------------------------
Audit and legal fees 18,260 23,786 20,237 15,758 34,895 16,496
- --------------------------------------------------------------------------------------------------------------------
Reports to shareholders 14,756 19,574 15,049 9,032 33,883 12,801
- --------------------------------------------------------------------------------------------------------------------
Registration fees 16,469 15,977 20,031 16,040 33,406 24,722
- --------------------------------------------------------------------------------------------------------------------
Directors' fees 5,281 5,281 5,281 5,281 5,281 5,281
- --------------------------------------------------------------------------------------------------------------------
Other expenses 5,760 5,699 5,432 2,398 43,412 8,905
- --------------------------------------------------------------------------------------------------------------------
Total expenses 896,659 1,180,360 878,955 467,902 2,442,493 547,685
- --------------------------------------------------------------------------------------------------------------------
Less: Expense
reimbursement (80,932) (94,868) (114,041) (51,959) -- (82,594)
- --------------------------------------------------------------------------------------------------------------------
Total expenses, net of
reimbursement 815,727 1,085,492 764,914 415,943 2,442,493 465,091
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 269,629 5,172,678 4,626,639 1,503,075 1,722,342 2,023,539
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments:
- --------------------------------------------------------------------------------------------------------------------
Net realized gain on
security transactions 1,360,255 342,253 746,203 54,614 4,191,029 --
- --------------------------------------------------------------------------------------------------------------------
Net realized gain of foreign
currency transactions 1,296,232 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net realized (loss) from
futures transactions -- -- (16,406) -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net change in unrealized
gain (loss) of investments
and foreign currency
related transactions 2,020,264 (754,744) 1,549,219 (497,297) 25,922,892 --
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 4,676,751 (412,491) 2,279,017 (442,683) 30,113,921 --
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets resulting from
operations $ 4,946,380 $ 4,760,187 $ 6,905,655 $ 1,060,392 $ 31,836,263 $ 2,023,539
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 55
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Equity
Growth Income
Portfolio Portfolio
------------------------------ ------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (762,775) $ (378,776) $ 1,289,804 $ 1,300,216
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments 11,317,236 6,794,506 5,664,492 1,598,560
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) on
futures and options -- -- -- --
- ----------------------------------------------------------------------------------------------
Net change in unrealized
gain (loss) of investments 36,890,580 28,354,972 4,614,269 13,200,967
- ----------------------------------------------------------------------------------------------
Increase (decrease) in net
assets resulting from
operations 47,445,041 34,770,702 11,568,565 16,099,743
- ----------------------------------------------------------------------------------------------
Distributions to shareholders
from:
- ----------------------------------------------------------------------------------------------
Net investment income, Class
A -- -- (1,197,980) (1,306,465)
- ----------------------------------------------------------------------------------------------
Net investment income, Class
B -- -- (63,375) (12,321)
- ----------------------------------------------------------------------------------------------
Net investment income, Class
Y -- -- -- --
- ----------------------------------------------------------------------------------------------
Net realized gains on
investments Class A (10,559,038) (4,773,412) (4,726,758) (1,999,775)
- ----------------------------------------------------------------------------------------------
Net realized gains on
investments Class B (1,957,665) (178,422) (369,926) (34,959)
- ----------------------------------------------------------------------------------------------
Net realized gains on
investments Class Y (124,046) -- -- --
- ----------------------------------------------------------------------------------------------
Total dividends and
distributions to shareholders (12,640,749) (4,951,834) (6,358,039) (3,353,520)
- ----------------------------------------------------------------------------------------------
From capital share
transactions:
- ----------------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------------
Shares sold 106,776,181 45,641,846 9,911,599 6,311,340
- ----------------------------------------------------------------------------------------------
Reinvestment of
distributions 10,017,857 4,691,077 5,727,817 3,211,683
- ----------------------------------------------------------------------------------------------
Shares redeemed (74,805,079) (45,909,409) (10,005,618) (11,254,005)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) --
Class A 41,988,959 4,423,514 5,633,798 (1,730,982)
- ----------------------------------------------------------------------------------------------
Class B
- ----------------------------------------------------------------------------------------------
Shares sold 28,798,411 4,393,535 4,189,055 1,004,412
- ----------------------------------------------------------------------------------------------
Reinvestment of
distributions 1,812,775 173,874 392,623 47,260
- ----------------------------------------------------------------------------------------------
Shares redeemed (1,074,883) (54,414) (155,615) (1,282)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) --
Class B 29,536,303 4,512,995 4,426,063 1,050,390
- ----------------------------------------------------------------------------------------------
Class Y
- ----------------------------------------------------------------------------------------------
Shares sold 5,950,078 -- -- --
- ----------------------------------------------------------------------------------------------
Reinvestment of
distributions 124,046 -- -- --
- ----------------------------------------------------------------------------------------------
Shares redeemed (3,959,203) -- -- --
- ----------------------------------------------------------------------------------------------
Net increase (decrease) --
Class Y 2,114,921 -- -- --
- ----------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets resulting from
capital share transactions 73,640,183 8,936,509 10,059,861 (680,592)
- ----------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets 108,444,475 38,755,377 15,270,387 12,065,631
- ----------------------------------------------------------------------------------------------
Net assets:
- ----------------------------------------------------------------------------------------------
Beginning of period $ 127,130,107 $ 88,374,730 $ 62,991,393 $ 50,925,762
- ----------------------------------------------------------------------------------------------
End of period $ 235,574,582 $ 127,130,107 $ 78,261,780 $ 62,991,393
- ----------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
56 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
<TABLE>
<CAPTION>
Capital Small International
Appreciation Company Growth
Portfolio Portfolio Portfolio
------------------------------ ---------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1996 1995 1996 1995 1996 1995
-------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (1,109,093) $ (954,847) $ (24,765) $ 77,479 $ 269,629 $ 188,326
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments 10,763,909 14,667,515 1,473,114 540,493 2,656,487 1,144,555
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on
futures and options -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Net change in unrealized
gain (loss) of investments 9,326,093 11,787,574 795,406 1,467,446 2,020,264 2,852,133
- --------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets resulting from
operations 18,980,909 25,500,242 2,243,755 2,085,418 4,946,380 4,185,014
- --------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders
from:
- --------------------------------------------------------------------------------------------------------------------------
Net investment income, Class
A -- -- -- (58,837) (173,156) (155,426)
- --------------------------------------------------------------------------------------------------------------------------
Net investment income, Class
B -- -- -- (2,838) (13,172) (6,393)
- --------------------------------------------------------------------------------------------------------------------------
Net investment income, Class
Y -- -- -- (18,232) (79,688) (25,605)
- --------------------------------------------------------------------------------------------------------------------------
Net realized gains on
investments Class A (11,466,091) (11,321,192) (868,453) (711,443) (1,684,658) (1,283,151)
- --------------------------------------------------------------------------------------------------------------------------
Net realized gains on
investments Class B (501,250) (182,690) (131,977) (31,195) (208,721) (49,215)
- --------------------------------------------------------------------------------------------------------------------------
Net realized gains on
investments Class Y -- -- (100,931) (106,095) (424,530) (138,950)
- --------------------------------------------------------------------------------------------------------------------------
Total dividends and
distributions to shareholders (11,967,341) (11,503,882) (1,101,361) (928,640) (2,583,925) (1,658,740)
- --------------------------------------------------------------------------------------------------------------------------
From capital share
transactions:
- --------------------------------------------------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------------------------------------------------
Shares sold 19,727,741 40,980,067 4,307,659 4,616,227 9,214,469 4,583,946
- --------------------------------------------------------------------------------------------------------------------------
Reinvestment of
distributions 10,709,311 10,974,833 831,465 731,050 1,776,922 1,401,593
- --------------------------------------------------------------------------------------------------------------------------
Shares redeemed (43,391,759) (46,152,644) (8,474,210) (8,913,867) (6,715,142) (7,270,812)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) --
Class A (12,954,707) 5,802,256 (3,335,086) (3,566,590) 4,276,249 (1,285,273)
- --------------------------------------------------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------------------------------------------------
Shares sold 2,946,771 1,965,319 1,845,129 875,292 3,267,075 1,030,189
- --------------------------------------------------------------------------------------------------------------------------
Reinvestment of
distributions 466,933 176,796 122,778 32,375 213,154 54,311
- --------------------------------------------------------------------------------------------------------------------------
Shares redeemed (331,951) (18,795) (260,393) (15,478) (393,878) (1,195)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) --
Class B 3,081,753 2,123,320 1,707,514 892,189 3,086,351 1,083,305
- --------------------------------------------------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------------------------------------------------
Shares sold -- -- 847,748 2,875,817 6,700,676 3,108,334
- --------------------------------------------------------------------------------------------------------------------------
Reinvestment of
distributions -- -- 1,728 616 504,218 164,552
- --------------------------------------------------------------------------------------------------------------------------
Shares redeemed -- -- (1,938,659) (64,876) (1,819,421) (288,315)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) --
Class Y -- -- (1,089,183) 2,811,557 5,385,473 2,984,571
- --------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets resulting from
capital share transactions (9,872,954) 7,925,576 (2,716,755) 137,156 12,748,073 2,782,603
- --------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets (2,859,386) 21,921,936 (1,574,361) 1,293,934 15,110,528 5,308,877
- --------------------------------------------------------------------------------------------------------------------------
Net assets:
- --------------------------------------------------------------------------------------------------------------------------
Beginning of period $ 123,159,405 $ 101,237,469 $ 23,413,966 $ 22,120,032 $ 32,831,569 $ 27,522,692
- --------------------------------------------------------------------------------------------------------------------------
End of period $ 120,300,019 $ 123,159,405 $ 21,839,605 $ 23,413,966 $ 47,942,097 $ 32,831,569
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Government
Securities
Portfolio
------------------------------
Year Ended Year Ended
December 31, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
From operations:
Net investment income (loss) $ 5,172,678 $ 5,727,267
- ------------------------------------------------------------------------------
Net realized gain (loss) on
investments 342,253 (108,087)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) on
futures and options -- --
- --------------------------------------------------------------------------------------------------------------
Net change in unrealized
gain (loss) of investments (754,744) 9,333,710
- --------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets resulting from
operations 4,760,187 14,952,890
- --------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders
from:
- --------------------------------------------------------------------------------------------------------------------------
Net investment income, Class
A (4,942,104) (5,695,090)
- --------------------------------------------------------------------------------------------------------------------------
Net investment income, Class
B (230,737) (32,004)
- --------------------------------------------------------------------------------------------------------------------------
Net investment income, Class
Y -- --
- --------------------------------------------------------------------------------------------------------------------------
Net realized gains on
investments Class A -- --
- --------------------------------------------------------------------------------------------------------------------------
Net realized gains on
investments Class B -- --
- --------------------------------------------------------------------------------------------------------------------------
Net realized gains on
investments Class Y -- --
- --------------------------------------------------------------------------------------------------------------------------
Total dividends and
distributions to shareholders (5,172,841) (5,727,094)
- --------------------------------------------------------------------------------------------------------------------------
From capital share
transactions:
- --------------------------------------------------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------------------------------------------------
Shares sold 8,082,041 9,695,011
- --------------------------------------------------------------------------------------------------------------------------
Reinvestment of
distributions 3,653,159 4,225,438
- --------------------------------------------------------------------------------------------------------------------------
Shares redeemed (23,815,232) (21,313,935)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) --
Class A (12,080,032) (7,393,486)
- --------------------------------------------------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------------------------------------------------
Shares sold 4,496,001 2,124,239
- --------------------------------------------------------------------------------------------------------------------------
Reinvestment of
distributions 177,788 21,390
- --------------------------------------------------------------------------------------------------------------------------
Shares redeemed (1,153,825) (60,182)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) --
Class B 3,519,964 2,085,447
- --------------------------------------------------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------------------------------------------------
Shares sold -- --
- --------------------------------------------------------------------------------------------------------------------------
Reinvestment of
distributions -- --
- --------------------------------------------------------------------------------------------------------------------------
Shares redeemed -- --
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) --
Class Y -- --
- --------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets resulting from
capital share transactions (8,560,068) (5,308,039)
- --------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets (8,972,722) 3,917,757
- --------------------------------------------------------------------------------------------------------------------------
Net assets:
- --------------------------------------------------------------------------------------------------------------------------
Beginning of period $ 88,348,298 $ 84,430,541
- --------------------------------------------------------------------------------------------------------------------------
End of period $ 79,375,576 $ 88,348,298
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 57
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS -- (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High-Yield Tax-Exempt
Bond Portfolio Income Portfolio
------------------------------ ------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ 4,626,639 $ 4,460,864 $ 1,503,075 $ 1,660,529
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments 746,203 98,195 54,614 (62,322)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) on
futures and options (16,406) (20,528) -- --
- ----------------------------------------------------------------------------------------------
Net change in unrealized
gain (loss) of investments 1,549,219 2,865,091 (497,297) 3,201,486
- ----------------------------------------------------------------------------------------------
Increase (decrease) in net
assets resulting from
operations 6,905,655 7,403,622 1,060,392 4,799,693
- ----------------------------------------------------------------------------------------------
Distributions to shareholders
from:
- ----------------------------------------------------------------------------------------------
Net investment income, Class
A (4,227,766) (4,375,039) (1,437,694) (1,652,187)
- ----------------------------------------------------------------------------------------------
Net investment income, Class
B (398,943) (85,755) (65,432) (8,291)
- ----------------------------------------------------------------------------------------------
Net investment income, Class
Y -- -- -- --
- ----------------------------------------------------------------------------------------------
Net realized gains on
investments Class A -- -- -- (57,270)
- ----------------------------------------------------------------------------------------------
Net realized gains on
investments Class B -- -- -- (1,441)
- ----------------------------------------------------------------------------------------------
Net realized gains on
investments Class Y -- -- -- --
- ----------------------------------------------------------------------------------------------
Total dividends and
distributions to shareholders (4,626,709) (4,460,794) (1,503,126) (1,719,189)
- ----------------------------------------------------------------------------------------------
From capital share
transactions:
- ----------------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------------
Shares sold 12,189,056 11,047,929 2,501,597 2,165,696
- ----------------------------------------------------------------------------------------------
Reinvestment of
distributions 3,065,474 3,181,327 1,077,601 1,296,292
- ----------------------------------------------------------------------------------------------
Shares redeemed (15,310,792) (9,796,098) (8,294,043) (7,202,770)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) --
Class A (56,262) 4,433,158 (4,714,845) (3,740,782)
- ----------------------------------------------------------------------------------------------
Class B
- ----------------------------------------------------------------------------------------------
Shares sold 5,149,262 2,908,963 1,482,068 897,621
- ----------------------------------------------------------------------------------------------
Reinvestment of
distributions 269,854 50,351 57,257 9,311
- ----------------------------------------------------------------------------------------------
Shares redeemed (754,001) (23,860) (403,587) (6,392)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) --
Class B 4,665,115 2,935,454 1,135,738 900,540
- ----------------------------------------------------------------------------------------------
Class Y
- ----------------------------------------------------------------------------------------------
Shares sold -- -- -- --
- ----------------------------------------------------------------------------------------------
Reinvestment of
distributions -- -- -- --
- ----------------------------------------------------------------------------------------------
Shares redeemed -- -- -- --
- ----------------------------------------------------------------------------------------------
Net increase (decrease) --
Class Y -- -- -- --
- ----------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets resulting from
capital share transactions 4,608,853 7,368,612 (3,579,107) (2,840,242)
- ----------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets 6,887,799 10,311,440 (4,021,841) 240,262
- ----------------------------------------------------------------------------------------------
Net assets:
- ----------------------------------------------------------------------------------------------
Beginning of period $ 55,133,079 $ 44,821,639 $ 34,537,393 $ 34,297,131
- ----------------------------------------------------------------------------------------------
End of period $ 62,020,878 $ 55,133,079 $ 30,515,552 $ 34,537,393
- ----------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
58 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
<TABLE>
<CAPTION>
Managed Money Market
Portfolio Portfolio
----------------------------- --------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
-------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ 1,722,342 $ 443,577 $ 2,023,539 $ 1,715,817
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments 4,191,029 845,958 -- --
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) on
futures and options -- -- -- --
- -----------------------------------------------------------------------------------------------
Net change in unrealized
gain (loss) of investments 25,922,892 8,465,164 -- --
- -----------------------------------------------------------------------------------------------
Increase (decrease) in net
assets resulting from
operations 31,836,263 9,754,699 2,023,539 1,715,817
- -----------------------------------------------------------------------------------------------
Distributions to shareholders
from:
- -----------------------------------------------------------------------------------------------
Net investment income, Class
A (799,735) (214,318) (1,984,743) (1,714,261)
- -----------------------------------------------------------------------------------------------
Net investment income, Class
B (286,048) (63,848) (38,796) (1,556)
- -----------------------------------------------------------------------------------------------
Net investment income, Class
Y (643,498) (175,299) -- --
- -----------------------------------------------------------------------------------------------
Net realized gains on
investments Class A (1,790,459) (213,842) -- --
- -----------------------------------------------------------------------------------------------
Net realized gains on
investments Class B (1,012,095) (75,104) -- --
- -----------------------------------------------------------------------------------------------
Net realized gains on
investments Class Y (1,018,912) (119,052) -- --
- -----------------------------------------------------------------------------------------------
Total dividends and
distributions to shareholders (5,550,747) (861,463) (2,023,539) (1,715,817)
- -----------------------------------------------------------------------------------------------
From capital share
transactions:
- -----------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------
Shares sold 48,360,893 36,943,421 155,780,333 127,849,845
- -----------------------------------------------------------------------------------------------
Reinvestment of
distributions 2,491,364 406,123 1,843,341 1,635,878
- -----------------------------------------------------------------------------------------------
Shares redeemed (10,298,814) (3,992,116) (138,874,791) (121,495,592)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) --
Class A 40,553,443 33,357,428 18,748,883 7,990,131
- -----------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------
Shares sold 35,850,528 16,257,715 4,456,552 604,172
- -----------------------------------------------------------------------------------------------
Reinvestment of
distributions 1,222,567 133,775 35,289 1,198
- -----------------------------------------------------------------------------------------------
Shares redeemed (2,767,399) (347,918) (3,542,604) (211,056)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) --
Class B 34,305,696 16,043,572 949,237 394,314
- -----------------------------------------------------------------------------------------------
Class Y
- -----------------------------------------------------------------------------------------------
Shares sold 30,665,682 26,548,228 -- --
- -----------------------------------------------------------------------------------------------
Reinvestment of
distributions 1,662,410 294,328 -- --
- -----------------------------------------------------------------------------------------------
Shares redeemed (8,914,287) (1,714,136) -- --
- -----------------------------------------------------------------------------------------------
Net increase (decrease) --
Class Y 23,413,805 25,128,420 -- --
- -----------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets resulting from
capital share transactions 98,272,944 74,529,420 19,698,120 8,384,445
- -----------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets 124,558,460 83,422,656 19,698,120 8,384,445
- -----------------------------------------------------------------------------------------------
Net assets:
- -----------------------------------------------------------------------------------------------
Beginning of period $ 91,295,117 $ 7,872,461 $ 40,718,931 $ 32,334,486
- -----------------------------------------------------------------------------------------------
End of period $ 215,853,577 $ 91,295,117 $ 60,417,051 $ 40,718,931
- -----------------------------------------------------------------------------------------------
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 59
<PAGE>
GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:___________________
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
Growth Portfolio (CLASS A) 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 10.44 $ 7.76 $ 8.26 $ 7.96
Net Investment Income (Loss) (0.04) (0.03) (0.02) 0.01
Net Realized and Unrealized Gain (Loss) on Investments 3.44 3.13 (0.06) 0.84
--------- --------- --------- ---------
Total from Investment Operations 3.40 3.10 (0.08) 0.85
--------- --------- --------- ---------
Dividends from Net Investment Income 0.00 0.00 0.00 0.01
Distributions from Capital Gains 0.74 0.42 0.42 0.54
--------- --------- --------- ---------
Total Distributions 0.74 0.42 0.42 0.55
--------- --------- --------- ---------
Net Asset Value End of Period $ 13.10 $ 10.44 $ 7.76 $ 8.26
--------- --------- --------- ---------
Total ReturnC 32.60% 39.99% (0.99)% 10.59%
Net Assets End of Period (in thousands) $ 196,752 $ 122,559 $ 88,375 $ 90,902
Ratio of Expenses to Average Net Assets 1.53%F 1.60% 1.56% 1.60%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.53%F 1.60% 1.56% 1.61%
Ratio of Net Investment Income (Loss) to Average Net Assets (0.39)% (0.35)% (0.30)% 0.10%
Ratio of Net Investment Income (Loss) to Average Net Assets (Excluding Waivers) (0.39)% (0.35)% (0.30)% 0.06%
Portfolio Turnover Rate 29.90% 45.30% 64.50% 107.90%
Average commission per shareE $ 0.0636
<CAPTION>
Growth Portfolio (CLASS A) 1992G
- --------------------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period $ 8.22
Net Investment Income (Loss) (0.02)
Net Realized and Unrealized Gain (Loss) on Investments 0.55
---------
Total from Investment Operations 0.53
---------
Dividends from Net Investment Income 0.00
Distributions from Capital Gains 0.79
---------
Total Distributions 0.79
---------
Net Asset Value End of Period $ 7.96
---------
Total ReturnC 6.46%
Net Assets End of Period (in thousands) $ 84,200
Ratio of Expenses to Average Net Assets 1.60%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.67%
Ratio of Net Investment Income (Loss) to Average Net Assets (0.30)%
Ratio of Net Investment Income (Loss) to Average Net Assets (Excluding Waivers) (0.31)%
Portfolio Turnover Rate 61.20%
Average commission per shareE
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD
------------------ ------------------------
Growth Portfolio (CLASS B) DECEMBER 31, 1996 5/1/95 THROUGH 12/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period $ 10.41 $ 8.69
Net Investment Income (Loss) (0.06) (0.02)
Net Realized and Unrealized Gain (Loss) on Investments 3.36 2.16
------- --------
Total from Investment Operations 3.30 2.14
------- --------
Dividends from Net Investment Income 0.00 0.00
Distributions from Capital Gains 0.74 0.42
------- --------
Total Distributions 0.74 0.42
------- --------
Net Asset Value End of Period $ 12.97 $ 10.41
------- --------
Total ReturnD 31.73% 24.66%B
Net Assets End of Period (in thousands) $ 36,483 $ 4,572
Ratio of Expenses to Average Net Assets 2.10% F 2.15% A
Ratio of Expenses to Average Net Assets (Excluding Waivers) 2.10% F 2.15% A
Ratio of Net Investment Income (loss) to Average Net Assets (0.96)% (0.82)% A
Ratio of Net Investment Income (loss) to Average Net Assets (Excluding Waivers) (0.96)% (0.82)% A
Portfolio Turnover Rate 29.90% 45.30% A
Average commission per shareE $ 0.0636
<CAPTION>
Growth Portfolio (CLASS B)
- --------------------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period
Net Investment Income (Loss)
Net Realized and Unrealized Gain (Loss) on Investments
Total from Investment Operations
Dividends from Net Investment Income
Distributions from Capital Gains
Total Distributions
Net Asset Value End of Period
Total ReturnD
Net Assets End of Period (in thousands)
Ratio of Expenses to Average Net Assets
Ratio of Expenses to Average Net Assets (Excluding Waivers)
Ratio of Net Investment Income (loss) to Average Net Assets
Ratio of Net Investment Income (loss) to Average Net Assets (Excluding Waivers)
Portfolio Turnover Rate
Average commission per shareE
</TABLE>
A Annualized.
B Not Annualized.
C Total returns do not include one time sales charge.
D Total return does not include contingent deferred sales charge.
E Disclosure not applicable to periods prior to 1996. Represents average
commission rate per share charged to the fund on purchases and sales of equity
investments on which commissions are charged during the period.
F Effective September 1, 1995, ratio includes expenses paid indirectly.
G Based on average monthly shares outstanding.
See notes to financial statements.
60 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:___________________
<TABLE>
<CAPTION>
FOR THE PERIOD
----------------------
8/8/96 THROUGH
Growth Portfolio (CLASS Y) 12/31/96
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period $ 11.96
Net Investment Income (Loss) 0.00
Net Realized and Unrealized Gain (Loss) on Investments 1.90
-------
Total from Investment Operations 1.90
-------
Dividends from Net Investment Income 0.00
Distributions from Capital Gains 0.74
-------
Total Distributions 0.74
-------
Net Asset Value End of Period $ 13.12
-------
Total Return 15.91%B
Net Assets End of Period (in thousands) $ 2,339
Ratio of Expenses to Average Net Assets 1.10% AD
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.10% AD
Ratio of Net Investment Income (loss) to Average Net Assets 0.04% A
Ratio of Net Investment Income (loss) to Average Net Assets (Excluding
Waivers) 0.04% A
Portfolio Turnover Rate 29.90% A
Average commission per shareC $ 0.0636
<CAPTION>
Growth Portfolio (CLASS Y)
- --------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period
Net Investment Income (Loss)
Net Realized and Unrealized Gain (Loss) on Investments
Total from Investment Operations
Dividends from Net Investment Income
Distributions from Capital Gains
Total Distributions
Net Asset Value End of Period
Total Return
Net Assets End of Period (in thousands)
Ratio of Expenses to Average Net Assets
Ratio of Expenses to Average Net Assets (Excluding Waivers)
Ratio of Net Investment Income (loss) to Average Net Assets
Ratio of Net Investment Income (loss) to Average Net Assets (Excluding
Waivers)
Portfolio Turnover Rate
Average commission per shareC
</TABLE>
A Annualized.
B Not Annualized.
C Disclosure not applicable to periods prior to 1996. Represents average
commission rate per share charged to the fund on purchases and sales of equity
investments on which commissions were charged during the period.
D Effective September 1, 1995, ratio includes expenses paid indirectly.
See notes to financial statements.
THE ENTERPRISE GROUP OF FUNDS, INC. 61
<PAGE>
EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:___________________
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
Equity Income Portfolio (CLASS A) 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 20.73 $ 16.43 $ 17.75 $ 16.93
Net Investment Income (Loss) 0.41 0.45 0.44 0.52
Net Realized and Unrealized Gain (Loss) on Investments 3.27 5.00 (0.53) 1.74
--------- --------- --------- ---------
Total from Investment Operations 3.68 5.45 (0.09) 2.26
--------- --------- --------- ---------
Dividends from Net Investment Income 0.40 0.45 0.44 0.50
Distributions from Capital Gains 1.57 0.70 0.79 0.94
--------- --------- --------- ---------
Total Distributions 1.97 1.15 1.23 1.44
--------- --------- --------- ---------
Net Asset Value End of Period $ 22.44 $ 20.73 $ 16.43 $ 17.75
--------- --------- --------- ---------
Total ReturnC 17.86% 33.38% (0.49)% 13.45%
Net Assets End of Period (in thousands) $ 72,647 $ 61,906 $ 50,926 $ 49,920
Ratio of Expenses to Average Net Assets 1.50% 1.50% 1.50% 1.50%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.68% 1.78% 1.73% 1.91%
Ratio of Net Investment Income to Average Net Assets 1.87% 2.33% 2.50% 2.90%
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 1.69% 2.06% 2.30% 2.51%
Portfolio Turnover Rate 33.22% 25.60% 41.40% 39.90%
Average commission per shareE $ 0.0615
<CAPTION>
Equity Income Portfolio (CLASS A) 1992
- ----------------------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period $ 16.00
Net Investment Income (Loss) 0.43
Net Realized and Unrealized Gain (Loss) on Investments 0.92
---------
Total from Investment Operations 1.35
---------
Dividends from Net Investment Income 0.41
Distributions from Capital Gains 0.01
---------
Total Distributions 0.42
---------
Net Asset Value End of Period $ 16.93
---------
Total ReturnC 8.48%
Net Assets End of Period (in thousands) $ 40,918
Ratio of Expenses to Average Net Assets 1.50%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.95%
Ratio of Net Investment Income to Average Net Assets 2.80%
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 2.22%
Portfolio Turnover Rate 38.30%
Average commission per shareE
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD
------------------ ------------------------
Equity Income Portfolio (CLASS B) DECEMBER 31, 1996 5/1/95 THROUGH 12/31/95
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period $ 20.67 $ 18.12
Net Investment Income (Loss) 0.24 0.29
Net Realized and Unrealized Gain (Loss) on Investments 3.30 3.40
------- --------
Total from Investment Operations 3.54 3.69
------- --------
Dividends from Net Investment Income 0.34 0.44
Distributions from Capital Gains 1.57 0.70
------- --------
Total Distributions 1.91 1.14
------- --------
Net Asset Value End of Period $ 22.30 $ 20.67
------- --------
Total ReturnD 17.22% 20.57%B
Net Assets End of Period (in thousands) $ 5,615 $ 1,086
Ratio of Expenses to Average Net Assets 2.05% 2.05% A
Ratio of Expenses to Average Net Assets (Excluding Waivers) 2.23% 2.23% A
Ratio of Net Investment Income to Average Net Assets 1.32% 1.56% A
Ratio of Net Investment Income to Average Net Assets (Excluding
Waivers) 1.14% 1.33% A
Portfolio Turnover Rate 33.22% 25.60% A
Average commission per shareE $ 0.0615
<CAPTION>
Equity Income Portfolio (CLASS B)
- --------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period
Net Investment Income (Loss)
Net Realized and Unrealized Gain (Loss) on Investments
Total from Investment Operations
Dividends from Net Investment Income
Distributions from Capital Gains
Total Distributions
Net Asset Value End of Period
Total ReturnD
Net Assets End of Period (in thousands)
Ratio of Expenses to Average Net Assets
Ratio of Expenses to Average Net Assets (Excluding Waivers)
Ratio of Net Investment Income to Average Net Assets
Ratio of Net Investment Income to Average Net Assets (Excluding
Waivers)
Portfolio Turnover Rate
Average commission per shareE
</TABLE>
A Annualized.
B Not Annualized.
C Total returns do not include one time sales charge.
D Total return does not include contingent deferred sales charge.
E Disclosure not applicable to periods prior to 1996. Represents average
commission rate per share charged to the fund on purchases and sales of equity
investments on which commissions were charged during the period.
See notes to financial statements.
62 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
CAPITAL APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:___________________
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
Capital Appreciation Portfolio (CLASS A) 1996 1995 1994 1993 1992F
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 32.54 $ 28.54 $ 31.10 $ 29.42 $ 27.80
Net Investment Income (Loss) (0.31) (0.25) (0.13) (0.15) (0.04)
Net Realized and Unrealized Gain (Loss) on Investments 5.69 7.59 (0.95) 1.83 1.66
--------- --------- --------- --------- ---------
Total from Investment Operations $ 5.38 $ 7.34 $ (1.08) $ 1.68 $ 1.62
--------- --------- --------- --------- ---------
Dividends from Net Investment Income 0.00 0.00 0.00 0.00 0.00
Distributions from Capital Gains 3.71 3.34 1.48 0.00 0.00
--------- --------- --------- --------- ---------
Total Distributions 3.71 3.34 1.48 0.00 0.00
--------- --------- --------- --------- ---------
Net Asset Value End of Period $ 34.21 $ 32.54 $ 28.54 $ 31.10 $ 29.42
--------- --------- --------- --------- ---------
Total ReturnB 16.52% 25.72% (3.46)% 5.71% 5.83%
Net Assets End of Period (in thousands) $ 115,253 $ 121,207 $ 101,237 $ 103,187 $ 72,569
Ratio of Expenses to Average Net Assets 1.60%G 1.65% 1.66% 1.64% 1.72%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.60%G 1.65% 1.66% 1.64% 1.72%
Ratio of Net Investment Income (Loss) to Average Net Assets (0.87)% (0.82)% (0.50)% (0.60)% (0.20)%
Ratio of Net Investment Income (Loss) to Average Net Assets (Excluding
Waivers) (0.87)% (0.82)% (0.50)% (0.60)% (0.20)%
Portfolio Turnover Rate 66.42% 65.20% 74.40% 61.90% 32.50%
Average commission per shareA $ 0.0486
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD
------------------- ------------------------
Capital Appreciation Portfolio (CLASS B) DECEMBER 31, 1996 5/1/95 THROUGH 12/31/95
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period $ 32.42 $ 30.04
Net Investment Income (Loss) (0.35) (0.12)
Net Realized and Unrealized Gain (Loss) on Investments 5.50 5.84
------- --------
Total from Investment Operations 5.15 5.72
------- --------
Dividends from Net Investment Income 0.00 0.00
Distributions from Capital Gains 3.71 3.34
------- --------
Total Distributions 3.71 3.34
------- --------
Net Asset Value End of Period $ 33.86 $ 32.42
------- --------
Total ReturnC 15.87% 18.99%D
Net Assets End of Period (in thousands) $ 5,047 $ 1,953
Ratio of Expenses to Average Net Assets 2.14% G 2.08% E
Ratio of Expenses to Average Net Assets (Excluding Waivers) 2.14% G 2.08% E
Ratio of Net Investment Income (loss) to Average Net Assets (1.43)% (1.41)% E
Ratio of Net Investment Income (loss) to Average Net Assets (Excluding
Waivers) (1.43)% (1.41)% E
Portfolio Turnover Rate 66.42% 65.20% E
Average commission per shareA $ 0.0486
<CAPTION>
Capital Appreciation Portfolio (CLASS B)
- ----------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period
Net Investment Income (Loss)
Net Realized and Unrealized Gain (Loss) on Investments
Total from Investment Operations
Dividends from Net Investment Income
Distributions from Capital Gains
Total Distributions
Net Asset Value End of Period
Total ReturnC
Net Assets End of Period (in thousands)
Ratio of Expenses to Average Net Assets
Ratio of Expenses to Average Net Assets (Excluding Waivers)
Ratio of Net Investment Income (loss) to Average Net Assets
Ratio of Net Investment Income (loss) to Average Net Assets (Excluding
Waivers)
Portfolio Turnover Rate
Average commission per shareA
</TABLE>
A Disclosure not applicable to periods prior to 1996. Represents average
commission rate per share charged to the fund on purchases and sales of equity
investments on which commissions were charged during the period.
B Total return does not include one time sales charge.
C Total return does not include contingent deferred sales charge.
D Not Annualized.
E Annualized.
F Based on average monthly shares outstanding.
G Effective September 1, 1995, ratio includes expenses paid indirectly.
See notes to financial statements.
THE ENTERPRISE GROUP OF FUNDS, INC. 63
<PAGE>
SMALL COMPANY PORTFOLIO
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:___________________
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
Small Company Portfolio (CLASS A) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value Beginning of Period $ 5.43 $ 5.17 $ 5.29
Net Investment Income (Loss) (0.01) 0.02 0.03
Net Realized and Unrealized Gain (Loss) on Investments 0.62 0.46 (0.01)
--------- --------- ---------
Total from Investment Operations 0.61 0.48 0.02
--------- --------- ---------
Dividends from Net Investment Income 0.00 0.02 0.03
Distributions from Capital Gains 0.30 0.20 0.11
--------- --------- ---------
Total Distributions 0.30 0.22 0.14
--------- --------- ---------
Net Asset Value End of Period $ 5.74 $ 5.43 $ 5.17
--------- --------- ---------
Total ReturnB 11.28% 9.28% 0.34%
Net Assets End of Period (in thousands) $ 17,308 $ 19,720 $ 22,120
Ratio of Expenses to Average Net Assets 1.75% 1.75% 1.75%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 2.38% 2.21% 2.15%
Ratio of Net Investment Income to Average Net Assets (0.13)% 0.32% 0.60%
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) (0.76)% (0.14)% 0.18%
Portfolio Turnover Rate 143.58% 36.50% 16.70%
Average commission per shareA $ 0.0483
<CAPTION>
FOR THE PERIOD
------------------------
Small Company Portfolio (CLASS A) 10/1/93 THROUGH 12/31/93
- -----------------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period $ 5.00
Net Investment Income (Loss) 0.01
Net Realized and Unrealized Gain (Loss) on Investments 0.29
--------
Total from Investment Operations 0.30
--------
Dividends from Net Investment Income 0.01
Distributions from Capital Gains 0.00
--------
Total Distributions 0.01
--------
Net Asset Value End of Period $ 5.29
--------
Total ReturnB 5.92%D
Net Assets End of Period (in thousands) $ 8,118
Ratio of Expenses to Average Net Assets 1.75% E
Ratio of Expenses to Average Net Assets (Excluding Waivers) 4.00% E
Ratio of Net Investment Income to Average Net Assets 0.10% E
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) (1.54)% E
Portfolio Turnover Rate 0.00%
Average commission per shareA
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD
------------------ ------------------------
Small Company Portfolio (CLASS B) DECEMBER 31, 1996 5/1/95 THROUGH 12/31/95
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period $ 5.41 $ 5.28
Net Investment Income (Loss) (0.03) (0.01)
Net Realized and Unrealized Gain (Loss) on Investments 0.61 0.36
---------- ----------
Total from Investment Operations 0.58 0.35
---------- ----------
Dividends from Net Investment Income 0.00 0.02
Distributions from Capital Gains 0.30 0.20
---------- ----------
Total Distributions 0.30 0.22
---------- ----------
Net Asset Value End of Period $ 5.69 $ 5.41
---------- ----------
Total ReturnC 10.77% 6.87%D
Net Assets End of Period (in thousands) $ 2,606 $ 862
Ratio of Expenses to Average Net Assets 2.30% 2.30% E
Ratio of Expenses to Average Net Assets (Excluding Waivers) 2.92% 2.78% E
Ratio of Net Investment Income (loss) to Average Net Assets (0.77)% (0.40)% E
Ratio of Net Investment Income (loss) to Average Net Assets (Excluding Waivers) (1.39)% (0.90)% E
Portfolio Turnover Rate 143.58% 36.50% E
Average commission per shareA $ 0.0483
</TABLE>
A Disclosure not applicable to periods prior to 1996. Represents average
commission rate per share charged to the fund on purchases and sales of equity
investments on which commissions were charged during the period.
B Total return does not include one time sales charge.
C Total return does not include contingent deferred sales charge.
D Not Annualized.
E Annualized.
See notes to financial statements.
64 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
SMALL COMPANY PORTFOLIO
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:___________________
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD
------------------ ------------------------
Small Company Portfolio (CLASS Y) DECEMBER 31, 1996 5/25/95 THROUGH 12/31/95
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period $ 5.43 $ 5.37
Net Investment Income (Loss) 0.01 0.04
Net Realized and Unrealized Gain (Loss) on Investments 0.63 0.26
-------- --------
Total from Investment Operations 0.64 0.30
-------- --------
Dividends from Net Investment Income 0.00 0.04
Distributions from Capital Gains 0.30 0.20
-------- --------
Total Distributions 0.30 0.24
-------- --------
Net Asset Value End of Period $ 5.77 $ 5.43
-------- --------
Total Return 11.83% 5.55%B
Net Assets End of Period (in thousands) $ 1,926 $ 2,832
Ratio of Expenses to Average Net Assets 1.30% 1.30%C
Ratio of Expenses to Average Net Assets (Excludung Waivers) 1.92% 1.81%C
Ratio of Net Investment Income to Average Net Assets 0.35% 0.18%C
Ratio of Net Investment Income to Average Net Assets (Excluding
Waivers) (0.27)% (0.33)%C
Portfolio Turnover Rate 143.58% 36.50%C
Average commission per shareA $ 0.0483
<CAPTION>
Small Company Portfolio (CLASS Y)
- --------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period
Net Investment Income (Loss)
Net Realized and Unrealized Gain (Loss) on Investments
Total from Investment Operations
Dividends from Net Investment Income
Distributions from Capital Gains
Total Distributions
Net Asset Value End of Period
Total Return
Net Assets End of Period (in thousands)
Ratio of Expenses to Average Net Assets
Ratio of Expenses to Average Net Assets (Excludung Waivers)
Ratio of Net Investment Income to Average Net Assets
Ratio of Net Investment Income to Average Net Assets (Excluding
Waivers)
Portfolio Turnover Rate
Average commission per shareA
</TABLE>
A Disclosure not applicable to periods prior to 1996. Represents average
commission rate per share charged to the fund on purchases and sales of equity
investments on which commissions were charged during the period.
B Not Annualized.
C Annualized.
See notes to financial statements.
THE ENTERPRISE GROUP OF FUNDS, INC. 65
<PAGE>
INTERNATIONAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:___________________
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
International Growth Portfolio (CLASS A) 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 16.08 $ 14.70 $ 17.44 $ 13.23
Net Investment Income (Loss) 0.10 0.11 (0.01) (0.02)
Net Realized and Unrealized Gain (Loss) on Investments 1.88 2.12 (0.49) 4.79
--------- --------- --------- ---------
Total from Investment Operations $ 1.98 $ 2.23 $ (0.50) $ 4.77
--------- --------- --------- ---------
Dividends from Net Investment Income 0.09 0.09 0.00 0.00
Distributions from Capital Gains 0.87 0.76 2.24 0.17
OtherG 0.00 0.00 0.00 0.39
--------- --------- --------- ---------
Total Distributions 0.96 0.85 2.24 0.56
--------- --------- --------- ---------
Net Asset Value End of Period $ 17.10 $ 16.08 $ 14.70 $ 17.44
--------- --------- --------- ---------
Total ReturnB 12.32% 15.17% (2.82)% 36.05%
Net Assets End of Period (in thousands) $ 34,837 $ 28,628 $ 27,523 $ 22,900
Ratio of Expenses to Average Net Assets 2.00% 2.00% 2.00% 2.00%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 2.19% 2.40% 2.51% 3.06%
Ratio of Net Investment Income (Loss) to Average Net Assets 0.61% 0.70% (0.20)% (0.10)%
Ratio of Net Investment Income (Loss) to Average Net Assets (Excluding Waivers) 0.42% 0.30% (0.70)% (1.15)%
Portfolio Turnover Rate 23.79% 31.10% 116.10% 70.10%
Average commission per shareA $ 0.0221
<CAPTION>
International Growth Portfolio (CLASS A) 1992F
- --------------------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period $ 13.38
Net Investment Income (Loss) 0.28
Net Realized and Unrealized Gain (Loss) on Investments (0.39)
---------
Total from Investment Operations $ (0.11)
---------
Dividends from Net Investment Income 0.04
Distributions from Capital Gains 0.00
OtherG 0.00
---------
Total Distributions 0.04
---------
Net Asset Value End of Period $ 13.23
---------
Total ReturnB (0.93)%
Net Assets End of Period (in thousands) $ 11,630
Ratio of Expenses to Average Net Assets 2.00%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 3.70%
Ratio of Net Investment Income (Loss) to Average Net Assets 0.50%
Ratio of Net Investment Income (Loss) to Average Net Assets (Excluding Waivers) (1.15)%
Portfolio Turnover Rate 134.90%
Average commission per shareA
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
-------------------
International Growth Portfolio (CLASS B) DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value Beginning of Period $ 16.02
Net Investment Income (Loss) 0.01
Net Realized and Unrealized Gain (Loss) on Investments 1.87
-------
Total from Investment Operations 1.88
-------
Dividends from Net Investment Income 0.06
Distributions from Capital Gains 0.87
-------
Total Distributions 0.93
-------
Net Asset Value End of Period $ 16.97
-------
Total ReturnC 11.72%
Net Assets End of Period (in thousands) $ 4,276
Ratio of Expenses to Average Net Assets 2.55%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 2.75%
Ratio of Net Investment Income (Loss) to Average Net Assets 0.09%
Ratio of Net Investment Income (Loss) to Average Net Assets (Excluding Waivers) (0.11)%
Portfolio Turnover Rate 23.79%
Average commission per shareA $ 0.0221
<CAPTION>
FOR THE PERIOD
------------------------
International Growth Portfolio (CLASS B) 5/1/95 THROUGH 12/31/95
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period $ 14.82
Net Investment Income (Loss) (0.02)
Net Realized and Unrealized Gain (Loss) on Investments 2.08
--------
Total from Investment Operations 2.06
--------
Dividends from Net Investment Income 0.10
Distributions from Capital Gains 0.76
--------
Total Distributions 0.86
--------
Net Asset Value End of Period $ 16.02
--------
Total ReturnC 13.88%D
Net Assets End of Period (in thousands) $ 1,094
Ratio of Expenses to Average Net Assets 2.55%E
Ratio of Expenses to Average Net Assets (Excluding Waivers) 2.73%E
Ratio of Net Investment Income (Loss) to Average Net Assets (0.65)%E
Ratio of Net Investment Income (Loss) to Average Net Assets (Excluding Waivers) (0.85)%E
Portfolio Turnover Rate 31.10%E
Average commission per shareA
</TABLE>
A Disclosure not applicable to periods prior to 1996. Represents average
commission rate per share charged to the fund on purchases and sales of equity
investments on which commissions were charged during the period.
B Total returns do not include one time sales charge.
C Total return does not include contingent deferred sales charge.
D Not Annualized.
E Annualized.
F Based on average monthly shares outstanding.
G Distributions in excess of net investment income.
See notes to financial statements.
66 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
INTERNATIONAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:___________________
<TABLE>
<CAPTION>
YEAR ENDED
-------------------
International Growth Portfolio (CLASS Y) DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value Beginning of Period $ 16.07
Net Investment Income (Loss) 0.14
Net Realized and Unrealized Gain (Loss) on Investments 1.92
-------
Total from Investment Operations 2.06
-------
Dividends from Net Investment Income 0.16
Distributions from Capital Gains 0.87
-------
Total Distributions $ 1.03
-------
Net Asset Value End of Period 17.10
-------
Total Return 12.86%
Net Assets End of Period (in thousands) $ 8,828
Ratio of Expenses to Average Net Assets 1.55%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.75%
Ratio of Net Investment Income to Average Net Assets 1.03%
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 0.84%
Portfolio Turnover Rate 23.79%
Average commission per shareA $ 0.0221
<CAPTION>
FOR THE PERIOD
------------------------
International Growth Portfolio (CLASS Y) 7/5/95 THROUGH 12/31/95
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period $ 14.93
Net Investment Income (Loss) 0.02
Net Realized and Unrealized Gain (Loss) on Investments 2.02
--------
Total from Investment Operations 2.04
--------
Dividends from Net Investment Income 0.14
Distributions from Capital Gains 0.76
--------
Total Distributions $ 0.90
--------
Net Asset Value End of Period 16.07
--------
Total Return 13.65%B
Net Assets End of Period (in thousands) $ 3,109
Ratio of Expenses to Average Net Assets 1.55%C
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.75%C
Ratio of Net Investment Income to Average Net Assets 0.26%C
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 0.05%C
Portfolio Turnover Rate 31.10%C
Average commission per shareA
</TABLE>
A Disclosure not applicable to periods prior to 1996. Represents average
commission rate per share charged to the fund on purchases and sales of equity
investments on which commissions were charged during the period.
B Not Annualized.
C Annualized.
See notes to financial statements.
THE ENTERPRISE GROUP OF FUNDS, INC. 67
<PAGE>
ENTERPRISE GOVERNMENT SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:___________________
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
Enterprise Government Securities Portfolio (CLASS A) 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 11.83 $ 10.62 $ 12.44 $ 12.47
Net Investment Income (Loss) 0.74 0.76 0.87 0.92
Net Realized and Unrealized Gain (Loss) on Investments (0.03) 1.21 (1.82) 0.21
--------- --------- --------- ---------
Total from Investment Operations 0.71 1.97 (0.95) 1.13
--------- --------- --------- ---------
Dividends from Net Investment Income 0.74 0.76 0.87 0.92
Distributions from Capital Gains 0.00 0.00 0.00 0.24
--------- --------- --------- ---------
Total Distributions 0.74 0.76 0.87 1.16
--------- --------- --------- ---------
Net Asset Value End of Period $ 11.80 $ 11.83 $ 10.62 $ 12.44
--------- --------- --------- ---------
Total ReturnC 6.29% 19.00% (7.81)% 9.26%
Net Assets End of Period (in thousands) $ 73,693 $ 86,224 $ 84,431 $ 106,541
Ratio of Expenses to Average Net Assets 1.30% 1.30% 1.30% 1.30%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.42% 1.44% 1.35% 1.44%
Ratio of Net Investment Income to Average Net Assets 6.35% 6.66% 7.60% 7.20%
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 6.23% 6.52% 7.59% 7.03%
Portfolio Turnover Rate 0.17% 0.00% 27.20% 90.10%
<CAPTION>
Enterprise Government Securities Portfolio (CLASS A) 1992E
- --------------------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period $ 12.40
Net Investment Income (Loss) 0.99
Net Realized and Unrealized Gain (Loss) on Investments 0.19
---------
Total from Investment Operations 1.18
---------
Dividends from Net Investment Income 0.98
Distributions from Capital Gains 0.13
---------
Total Distributions 1.11
---------
Net Asset Value End of Period $ 12.47
---------
Total ReturnC 9.93%
Net Assets End of Period (in thousands) $ 71,515
Ratio of Expenses to Average Net Assets 1.30%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.54%
Ratio of Net Investment Income to Average Net Assets 7.90%
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 7.72%
Portfolio Turnover Rate 108.40%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
-------------------
Enterprise Government Securities Portfolio (CLASS B) DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period $ 11.83
Net Investment Income (Loss) 0.68
Net Realized and Unrealized Gain (Loss) on Investments (0.04)
------
Total from Investment Operations 0.64
------
Dividends from Net Investment Income 0.68
Distributions from Capital Gains 0.00
------
Total Distributions 0.68
------
Net Asset Value End of Period $ 11.79
------
Total ReturnD 5.61%
Net Assets End of Period (in thousands) $ 5,683
Ratio of Expenses to Average Net Assets 1.85%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.96%
Ratio of Net Investment Income to Average Net Assets 5.79%
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 5.68%
Portfolio Turnover Rate 0.17%
<CAPTION>
FOR THE PERIOD
------------------------
Enterprise Government Securities Portfolio (CLASS B) 5/1/95 THROUGH 12/31/95
- --------------------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period $ 11.12
Net Investment Income (Loss) 0.44
Net Realized and Unrealized Gain (Loss) on Investments 0.71
--------
Total from Investment Operations 1.15
--------
Dividends from Net Investment Income 0.44
Distributions from Capital Gains 0.00
--------
Total Distributions 0.44
--------
Net Asset Value End of Period $ 11.83
--------
Total ReturnD 10.47%A
Net Assets End of Period (in thousands) $ 2,124
Ratio of Expenses to Average Net Assets 1.85%B
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.91%B
Ratio of Net Investment Income to Average Net Assets 5.64%B
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 5.58%B
Portfolio Turnover Rate 0.00%B
</TABLE>
A Not Annualized.
B Annualized.
C Total returns do not include one time sales charge.
D Total return does not include contingent deferred sales charge.
E Based on average monthly shares outstanding.
See notes to financial statements.
68 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
ENTERPRISE HIGH-YIELD BOND PORTFOLIO
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:___________________
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
Enterprise High-Yield Bond Portfolio (CLASS A) 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 11.39 $ 10.72 $ 11.70 $ 10.83
Net Investment Income (Loss) 0.94 0.99 0.97 0.95
Net Realized and Unrealized Gain (Loss) on Investments 0.45 0.67 (0.97) 0.89
--------- --------- --------- ---------
Total from Investment Operations 1.39 1.66 0.00 1.84
--------- --------- --------- ---------
Dividends from Net Investment Income 0.94 0.99 0.98 0.97
Distributions from Capital Gains 0.00 0.00 0.00 0.00
--------- --------- --------- ---------
Total Distributions 0.94 0.99 0.98 0.97
--------- --------- --------- ---------
Net Asset Value End of Period $ 11.84 $ 11.39 $ 10.72 $ 11.70
--------- --------- --------- ---------
Total ReturnC 12.78% 16.00% 0.05% 17.58%
Net Assets End of Period (in thousands) $ 54,129 $ 52,182 $ 44,822 $ 44,361
Ratio of Expenses to Average Net Assets 1.30% 1.30% 1.30% 1.30%E
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.50% 1.52% 1.45% 1.59%
Ratio of Net Investment Income to Average Net Assets 8.21% 8.80% 8.60% 8.20%
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 8.01% 8.58% 8.52% 7.95%
Portfolio Turnover Rate 180.13% 88.50% 113.00% 121.20%
<CAPTION>
Enterprise High-Yield Bond Portfolio (CLASS A) 1992
- -----------------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period $ 10.19
Net Investment Income (Loss) 1.01
Net Realized and Unrealized Gain (Loss) on Investments 0.64
---------
Total from Investment Operations 1.65
---------
Dividends from Net Investment Income 1.01
Distributions from Capital Gains 0.00
---------
Total Distributions 1.01
---------
Net Asset Value End of Period $ 10.83
---------
Total ReturnC 16.69%
Net Assets End of Period (in thousands) $ 30,851
Ratio of Expenses to Average Net Assets 1.30%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.64%
Ratio of Net Investment Income to Average Net Assets 9.40%
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 8.95%
Portfolio Turnover Rate 121.70%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD
------------------- ------------------------
Enterprise High-Yield Bond Portfolio (CLASS B) DECEMBER 31, 1996 5/1/95 THROUGH 12/31/95
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period $ 11.39 $ 11.11
Net Investment Income (Loss) 0.88 0.61
Net Realized and Unrealized Gain (Loss) on Investments 0.45 0.28
------- --------
Total from Investment Operations 1.33 0.89
------- --------
Dividends from Net Investment Income 0.88 0.61
Distributions from Capital Gains 0.00 0.00
------- --------
Total Distributions 0.88 0.61
------- --------
Net Asset Value End of Period $ 11.84 $ 11.39
------- --------
Total ReturnD 12.16% 8.12%B
Net Assets End of Period (in thousands) $ 7,892 $ 2,951
Ratio of Expenses to Average Net Assets 1.85% 1.85%A
Ratio of Expenses to Average Net Assets (Excluding Waivers) 2.05% 2.09%A
Ratio of Net Investment Income to Average Net Assets 7.74% 7.84%A
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 7.55% 7.68%A
Portfolio Turnover Rate 180.13% 88.50%A
</TABLE>
A Not Annualized.
B Annualized.
C Total returns do not include one time sales charge.
D Total return does not include contingent deferred sales charge.
E Based on average monthly shares outstanding.
See notes to financial statements.
THE ENTERPRISE GROUP OF FUNDS, INC. 69
<PAGE>
ENTERPRISE TAX-EXEMPT INCOME PORTFOLIO
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:___________________
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
Enterprise Tax-Exempt Income Portfolio (CLASS A) 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 13.99 $ 12.80 $ 14.31 $ 13.60
Net Investment Income (Loss) 0.64 0.65 0.67 0.70
Net Realized and Unrealized Gain (Loss) on Investments (0.16) 1.21 (1.48) 0.73
--------- --------- --------- ---------
Total from Investment Operations 0.48 1.86 (0.81) 1.43
--------- --------- --------- ---------
Dividends from Net Investment Income 0.64 0.65 0.68 0.70
Distributions from Capital Gains 0.00 0.02 0.02 0.02
--------- --------- --------- ---------
Total Distributions 0.64 0.67 0.70 0.72
--------- --------- --------- ---------
Net Asset Value End of Period $ 13.83 $ 13.99 $ 12.80 $ 14.31
--------- --------- --------- ---------
Total ReturnC 3.54% 14.85% (5.69)% 10.76%
Net Assets End of Period (in thousands) $ 28,478 $ 33,626 $ 34,297 $ 41,702
Ratio of Expenses to Average Net Assets 1.25% 1.25% 1.25% 1.25%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.41% 1.42% 1.28% 1.39%
Ratio of Net Investment Income to Average Net Assets 4.64% 4.82% 5.00% 4.90%
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 4.48% 4.65% 4.97% 4.79%
Portfolio Turnover Rate 0.91% 0.75% 25.70% 8.30%
<CAPTION>
Enterprise Tax-Exempt Income Portfolio (CLASS A) 1992
- -----------------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period $ 13.34
Net Investment Income (Loss) 0.76
Net Realized and Unrealized Gain (Loss) on Investments 0.26
---------
Total from Investment Operations 1.02
---------
Dividends from Net Investment Income 0.76
Distributions from Capital Gains 0.00
---------
Total Distributions 0.76
---------
Net Asset Value End of Period $ 13.60
---------
Total ReturnC 7.88%
Net Assets End of Period (in thousands) $ 29,728
Ratio of Expenses to Average Net Assets 1.25%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.41%
Ratio of Net Investment Income to Average Net Assets 5.60%
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 5.49%
Portfolio Turnover Rate 16.30%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD
------------------- -----------------------
Enterprise Tax-Exempt Income Portfolio (CLASS B) DECEMBER 31, 1996 5/1/95 THROUGH 12/31/95
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period $ 13.99 $ 13.44
Net Investment Income (Loss) 0.56 0.38
Net Realized and Unrealized Gain (Loss) on Investments (0.16) 0.57
------ ------
Total from Investment Operations 0.40 0.95
------ ------
Dividends from Net Investment Income 0.56 0.38
Distributions from Capital Gains 0.00 0.02
------ ------
Total Distributions 0.56 0.40
------ ------
Net Asset Value End of Period $ 13.83 $ 13.99
------ ------
Total ReturnD 2.96% 7.18%A
Net Assets End of Period (in thousands) $ 2,037 $ 912
Ratio of Expenses to Average Net Assets 1.80% 1.80%B
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.96% 1.98%B
Ratio of Net Investment Income to Average Net Assets 4.07% 4.08%B
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 3.92% 3.94%B
Portfolio Turnover Rate 0.91% 0.75%B
</TABLE>
A Not Annualized.
B Annualized.
C Total returns do not include one time sales charge.
D Total return does not include contingent deferred sales charge.
See notes to financial statements.
70 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
ENTERPRISE MANAGED PORTFOLIO
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:___________________
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER FOR THE PERIOD
31, -----------------------
-------------------- 10/1/94 THROUGH
Enterprise Managed Portfolio (CLASS A) 1996 1995 12/31/94
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value Beginning of Period $ 6.70 $ 4.91 $ 5.00
Net Investment Income (Loss) 0.06 0.04 0.01
Net Realized and Unrealized Gain (Loss) on Investments 1.41 1.81 (0.09)
--------- --------- --------
Total from Investment Operations 1.47 1.85 (0.08)
--------- --------- --------
Dividends from Net Investment Income 0.06 0.03 0.01
Distributions from Capital Gains 0.14 0.03 0.00
--------- --------- --------
Total Distributions 0.20 0.06 0.01
--------- --------- --------
Net Asset Value End of Period $ 7.97 $ 6.70 $ 4.91
--------- --------- --------
Total ReturnB 22.08% 37.68% (1.58)%D
Net Assets End of Period (in thousands) $ 101,022 $ 47,839 $ 7,872
Ratio of Expenses to Average Net Assets 1.57% 1.75% 1.75%E
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.57% 1.90% 3.71%E
Ratio of Net Investment Income to Average Net Assets 1.12% 1.09% 1.30%E
Ratio of Net Investment to Average Net Assets (Excluding Waivers) 1.12% 0.94% (0.32)%E
Portfolio Turnover Rate 33.21% 26.40% 27.10%E
Average commission per shareA $ 0.0551
<CAPTION>
Enterprise Managed Portfolio (CLASS A)
- ----------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period
Net Investment Income (Loss)
Net Realized and Unrealized Gain (Loss) on Investments
Total from Investment Operations
Dividends from Net Investment Income
Distributions from Capital Gains
Total Distributions
Net Asset Value End of Period
Total ReturnB
Net Assets End of Period (in thousands)
Ratio of Expenses to Average Net Assets
Ratio of Expenses to Average Net Assets (Excluding Waivers)
Ratio of Net Investment Income to Average Net Assets
Ratio of Net Investment to Average Net Assets (Excluding Waivers)
Portfolio Turnover Rate
Average commission per shareA
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD
------------------- -----------------------
Enterprise Managed Portfolio (CLASS B) DECEMBER 31, 1996 5/1/95 THROUGH 12/31/95
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period $ 6.68 $ 5.68
Net Investment Income (Loss) 0.02 0.01
Net Realized and Unrealized Gain (Loss) on Investments 1.41 1.05
------- -------
Total from Investment Operations 1.43 1.06
------- -------
Dividends from Net Investment Income 0.04 0.03
Distributions from Capital Gains 0.14 0.03
------- -------
Total Distributions 0.18 0.06
------- -------
Net Asset Value End of Period $ 7.93 $ 6.68
------- -------
Total ReturnC 21.50% 18.38%D
Net Assets End of Period (in thousands) $ 57,037 $ 16,792
Ratio of Expenses to Average Net Assets 2.13% 2.30%E
Ratio of Expenses to Average Net Assets (Excluding Waivers) 2.13% 2.45%E
Ratio of Net Investment Income to Average Net Assets (1) 0.52% 0.31%E
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 0.52% 0.14%E
Portfolio Turnover Rate 33.21% 26.40%E
Average commission per shareA $ 0.0551
<CAPTION>
Enterprise Managed Portfolio (CLASS B)
- ----------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period
Net Investment Income (Loss)
Net Realized and Unrealized Gain (Loss) on Investments
Total from Investment Operations
Dividends from Net Investment Income
Distributions from Capital Gains
Total Distributions
Net Asset Value End of Period
Total ReturnC
Net Assets End of Period (in thousands)
Ratio of Expenses to Average Net Assets
Ratio of Expenses to Average Net Assets (Excluding Waivers)
Ratio of Net Investment Income to Average Net Assets (1)
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers)
Portfolio Turnover Rate
Average commission per shareA
</TABLE>
A Disclosure not applicable to periods prior to 1996. Represents average
commission rate per share charged to the fund on purchases and sales of equity
investments on which commissions were charged during the period.
B Total return does not include one time sales charge.
C Total return does not include contingent deferred sales charge.
D Not Annualized.
E Annualized.
See notes to financial statements.
THE ENTERPRISE GROUP OF FUNDS, INC. 71
<PAGE>
ENTERPRISE MANAGED PORTFOLIO
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:___________________
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD
------------------- -----------------------
Enterprise Managed Portfolio (CLASS Y) DECEMBER 31, 1996 7/5/95 THROUGH 12/31/95
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period $ 6.70 $ 6.17
Net Investment Income (Loss) 0.09 0.03
Net Realized and Unrealized Gain (Loss) on Investments 1.42 0.57
------- -------
Total from Investment Operations 1.51 0.60
------- -------
Dividends from Net Investment Income 0.09 0.04
Distributions from Capital Gains 0.14 0.03
------- -------
Total Distributions 0.23 0.07
------- -------
Net Asset Value End of Period $ 7.98 $ 6.70
------- -------
Total Return 22.63% 9.80%B
Net Assets End of Period (in thousands) $ 57,794 $ 26,664
Ratio of Expenses to Average Net Assets 1.12% 1.30%C
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.12% 1.41%C
Ratio of Net Investment Income to Average Net Assets 1.57% 1.39%C
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 1.57% 1.28%C
Portfolio Turnover Rate 33.21% 26.40%C
Average commission per shareA $ 0.0551
</TABLE>
A Disclosure not applicable to periods prior to 1996. Represents average
commission rate per share charged to the fund on purchases and sales of equity
investments on which commissions were charged during the period.
B Not Annualized.
C Annualized.
72 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
ENTERPRISE MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:___________________
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
Enterprise Money Market Portfolio (CLASS A) 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income (Loss) 0.04 0.05 0.03 0.02
Net Realized and Unrealized Gain (Loss) on Investments 0.00 0.00 0.00 0.00
--------- --------- --------- ---------
Total from Investment Operations 0.04 0.05 0.03 0.02
--------- --------- --------- ---------
Dividends from Net Investment Income 0.04 0.05 0.03 0.02
Distributions from Capital Gains 0.00 0.00 0.00 0.00
--------- --------- --------- ---------
Total Distributions 0.04 0.05 0.03 0.02
--------- --------- --------- ---------
Net Asset Value End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- ---------
Total ReturnB 4.51% 5.05% 3.34% 2.24%
Net Assets End of Period (in thousands) $ 59,074 $ 40,325 $ 32,334 $ 18,302
Ratio of Expenses to Average Net Assets 1.00% 1.00% 1.00% 1.00%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.18% 1.35% 1.33% 1.72%
Ratio of Net Investment Income to Average Net Assets 4.42% 4.92% 3.30% 2.20%
Ratio of Net Investment to Average Net Assets (Excluding Waivers) 4.24% 4.57% 3.08% 1.47%
<CAPTION>
Enterprise Money Market Portfolio (CLASS A) 1992D
- -------------------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period $ 1.00
Net Investment Income (Loss) 0.03
Net Realized and Unrealized Gain (Loss) on Investments 0.00
---------
Total from Investment Operations 0.03
---------
Dividends from Net Investment Income 0.03
Distributions from Capital Gains 0.00
---------
Total Distributions 0.03
---------
Net Asset Value End of Period $ 1.00
---------
Total ReturnB 2.92%
Net Assets End of Period (in thousands) $ 18,932
Ratio of Expenses to Average Net Assets 1.00%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.56%
Ratio of Net Investment Income to Average Net Assets 2.80%
Ratio of Net Investment to Average Net Assets (Excluding Waivers) 1.81%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
-------------------
Enterprise Money Market Portfolio (CLASS B) DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Period $ 1.00
Net Investment Income (Loss) 0.04
Net Realized and Unrealized Gain (Loss) on Investments 0.00
-------
Total from Investment Operations 0.04
-------
Dividends from Net Investment Income 0.04
Distributions from Capital Gains 0.00
-------
Total Distributions 0.04
-------
Net Asset Value End of Period $ 1.00
-------
Total ReturnC 3.94%
Net Assets End of Period (in thousands) $ 1,344
Ratio of Expenses to Average Net Assets 1.55%
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.73%
Ratio of Net Investment Income to Average Net Assets 3.85%
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 3.68%
<CAPTION>
FOR THE PERIOD
-----------------------
Enterprise Money Market Portfolio (CLASS B) 5/1/95 THROUGH 12/31/95
- --------------------------------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period $ 1.00
Net Investment Income (Loss) 0.03
Net Realized and Unrealized Gain (Loss) on Investments 0.00
-------
Total from Investment Operations 0.03
-------
Dividends from Net Investment Income 0.03
Distributions from Capital Gains 0.00
-------
Total Distributions 0.03
-------
Net Asset Value End of Period $ 1.00
-------
Total ReturnC 2.95%A
Net Assets End of Period (in thousands) $ 394
Ratio of Expenses to Average Net Assets 1.55%B
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.88%B
Ratio of Net Investment Income to Average Net Assets 4.23%B
Ratio of Net Investment Income to Average Net Assets (Excluding Waivers) 3.90%B
</TABLE>
A Not Annualized.
B Annualized.
C Total return does not include contingent deferred sales charge.
D Based on average monthly shares outstanding.
See notes to financial statements.
THE ENTERPRISE GROUP OF FUNDS, INC. 73
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
1. Organization of The Fund
The Enterprise Group of Funds, Inc. (the "Fund") is registered under The
Investment Company Act of 1940 as an open-end management investment company and
consists of the Growth, Equity Income, Capital Appreciation, Small Company,
International Growth, Government Securities, High-Yield Bond, Tax-Exempt Income,
Managed and Money Market Portfolios. Prior to May 1, 1995, the Fund only issued
one class of shares which were redesignated Class A shares. On that date, the
Fund began issuing Class B and Y shares. Shares of each Class represent an
identical interest in the investments of their respective portfolios and
generally have the same rights, but are offered with different sales charge and
distribution fee arrangements. Upon redemption, Class B shares are subject to a
maximum contingent sales charge of 5%, which declines to zero after six years
and which is based on the lesser of net asset value at the time of purchase or
redemption. Class B shares will automatically convert to Class A shares of the
same fund eight years after purchase. Class Y shares are not subject to sales
charges.
2. Significant Accounting Policies
Security Valuation -- Domestic equity securities are valued at the last sale
price or, in the absence of any sale on that date, the closing bid price.
Domestic equity securities without last trade information are valued at the last
bid price. Equity securities for which market quotations are not readily
available and other securities are valued at fair value as determined in good
faith by the Board of Directors. Debt securities and foreign securities are
valued on the basis of independent pricing services approved by the Board of
Directors, and such pricing services generally follow the same procedures in
valuing foreign equity securities as are described above as to domestic equity
securities. Securities held by the Money Market Portfolio are valued on an
amortized cost basis. Under the amortized cost method, a security is valued at
its cost and any discount or premium is amortized over the period until
maturity, without taking into account the impact of fluctuating interest rates
on the market value of the security unless the aggregate deviation from net
asset value as calculated by using available market quotations exceeds 1/2 of
1%.
Special Valuation Risks -- As part of its investment program, the Government
Securities Portfolio invests in collateralized mortgage obligations ("CMOs").
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
the Government Securities Portfolio invests, the investment may be subject to a
greater valuation risk due to prepayment than other types of mortgage-related
securities.
The high-yield securities in which the High-Yield Bond Portfolio may invest may
be considered speculative in regard to the issuer's continuing ability to meet
principal and interest payments. The value of the lower rated securities in
which the High-Yield Bond Portfolio may invest will be affected by the
creditworthiness of individual issuers, general economic and specific industry
conditions, and will fluctuate inversely with changes in interest rates. In
addition, the secondary trading market for lower quality bonds may be less
active and less liquid than the trading market for higher quality bonds.
Repurchase Agreements -- Each portfolio may acquire securities subject to
repurchase agreements. Under a typical repurchase agreement, a Portfolio would
acquire a debt security for a relatively short period (usually for one day and
not more than one week) subject to an obligation of the seller to repurchase and
of the Portfolio to resell the debt
74 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS-- (Continued)
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
security at an agreed-upon higher price, thereby establishing a fixed investment
return during the Portfolio's holding period. Under each repurchase agreement,
the Portfolio receives, as collateral, securities whose market value is at least
equal to the repurchase price.
Futures Contracts -- A futures contract is an agreement between two parties to
buy and sell a financial instrument at a set price on a future date. Upon
entering into such a contract a Portfolio is required to pledge to the broker an
amount of cash or securities equal to the minimum "initial margin" requirements
of the exchange. Pursuant to the contract, the Portfolio agrees to receive from
or pay to the broker an amount of cash equal to the daily fluctuation in value
of the contract. Such receipts or payments are known as "variation margin" and
are recorded by the Portfolio as unrealized appreciation or depreciation. When
the contract is closed the Portfolio records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed and reverses any unrealized appreciation or
depreciation previously recorded.
Foreign Currency Translation -- Securities, other assets and liabilities of the
International Growth Portfolio whose values are initially expressed in foreign
currencies are translated to U.S. dollars at the bid price of such currency
against U.S. dollars last quoted by a major bank. Dividend and interest income
and certain expenses denominated in foreign currencies are marked-to-market
daily based on daily exchange rates and exchange gains and losses are realized
upon ultimate receipt or disbursement. The fund does not isolate that portion of
its realized and unrealized gains on investments from changes in foreign
exchange rates from fluctuations arising from changes in the market prices of
the investments.
Security Transactions and Investment Income -- Security transactions are
accounted for on the trade date. Realized gains and losses from investment
transactions are determined on the basis of identified cost and realized gains
and losses from currency transactions are determined on the basis of average
cost. Dividend income received and distributions to shareholders are recognized
on the ex-dividend date, and interest income is recognized on the accrual basis.
Premium and discounts on securities are amortized for both financial and tax
purposes.
Expenses -- Each portfolio and class bears expenses incurred specifically on its
behalf as well as a portion of the common expenses of the Fund. No class has
preferential dividend rights; differences in per share dividend rates are
generally due to differences in separate class expenses.
Federal Income Taxes -- No provision for federal income or excise taxes is
required, because the Fund intends to continue to qualify as a regulated
investment company and distribute all of its taxable income to shareholders.
Use of Estimates in Preparation of Financial Statements -- Preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that may affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Transactions with Affiliates
The Portfolios are charged management fees by Enterprise Capital Management,
Inc. ("Enterprise Capital") for furnishing management and administrative
services. Enterprise Capital has also agreed to reimburse the Portfolios for
expenses incurred in excess of a percentage of average net assets. Enterprise
Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary of
Enterprise Capital, serves as principal underwriter for shares of the
THE ENTERPRISE GROUP OF FUNDS, INC. 75
<PAGE>
NOTES TO FINANCIAL STATEMENTS-- (Continued)
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
Fund. The Directors of the Fund have adopted a Distributor's Agreement and Plan
of Distribution (the "Plan") pursuant to rule 12b-1 under the Investment Company
Act of 1940. The Plan provides that each Portfolio will pay the Distributor a
distribution fee, accrued daily and payable monthly. The management fee,
distribution fee, and maximum expense amounts are equal to the following annual
percentage of average net assets for each class of shares:
<TABLE>
<CAPTION>
Maximum
Expense
Management Fee Distribution Fee Amounts
------------------------------------- ----------------------------------- -----------
Portfolio A B Y A B Y A
- ------------------------------------------- ----------- ----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth .75% .75% .75% .45% 1.00% none 1.60%
Equity Income .75% .75% .75% .45% 1.00% none 1.50%
Capital Appreciation .75% .75% .75% .45% 1.00% none 1.75%
Small Company .75% .75% .75% .45% 1.00% none 1.75%
International Growth .85% .85% .85% .45% 1.00% none 2.00%
Government Securities .60% .60% .60% .45% 1.00% none 1.30%
High-Yield Bond .60% .60% .60% .45% 1.00% none 1.30%
Tax-Exempt Income .50% .50% .50% .45% 1.00% none 1.25%
Managed .75% .75% .75% .45% 1.00% none 1.75%
Money Market .35% .35% .35% .30% .85% none 1.00%
<CAPTION>
Portfolio B Y
- ------------------------------------------- ----------- -----------
<S> <C> <C>
Growth 2.15% 1.15%
Equity Income 2.05% 1.05%
Capital Appreciation 2.30% 1.30%
Small Company 2.30% 1.30%
International Growth 2.55% 1.55%
Government Securities 1.85% .85%
High-Yield Bond 1.85% .85%
Tax-Exempt Income 1.80% .80%
Managed 2.30% 1.30%
Money Market 1.55% .70%
</TABLE>
Enterprise Capital is a wholly-owned subsidiary of The Mutual Life Insurance
Company of New York, Inc. ("MONY"). MONY and its subsidiaries had the following
investments in the portfolios as of December 31, 1996, Equity Income Portfolio,
Class A -- $556,885, Small Company Portfolio, Class A -- $119,905, International
Growth Portfolio, Class A -- $2,267,160, Government Securities Portfolio, Class
A -- $800,423 and Managed Portfolio, Class A -- $2,119,374.
Enterprise Capital has subadvisory agreements with various investment advisors
as Portfolio Managers for the Portfolios of the Fund. The management fee, as a
percentage of average net assets of a Portfolio, is paid to Enterprise Capital
which pays a portion of the fee to the Portfolio Manager. 1740 Advisers, Inc., a
wholly-owned subsidiary of MONY, is the Portfolio Manager for the Equity Income
Portfolio. For the year ended December 31, 1996 Enterprise Capital incurred
subadvisory fees payable to 1740 Advisers, Inc. related to the Equity Income
Portfolio of $209,391.
The portion of sales charges paid to MONY Securities Corporation, a wholly-owned
subsidiary of MONY, from the proceeds of the sale of fund shares was $3,998,170
for the year ended December 31, 1996. The portion of sales charges paid to the
Distributor was $684,645 for the year ended December 31, 1996.
The Distributor uses its distribution fee from the Fund to pay expenses on
behalf of the Fund related to the distribution and servicing of its shares.
These expenses include a service fee to securities dealers that enter into a
sales agreement with the Distributor. During 1996, the Distributor incurred
$810,637 of services fees payable to MONY Securities Corporation.
4. Financial Instruments
As part of its investment program, the International Growth Portfolio utilizes
forward currency exchange contracts to manage exposure to currency fluctuations
and hedge against adverse changes in connection with purchases and
76 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS-- (Continued)
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
sales of securities. The Portfolio will enter into forward contracts only for
hedging purposes. At December 31, 1996, the International Growth Portfolio had
entered into various forward currency exchange contracts under which it is
obligated to exchange currencies at specified future dates. Risks arise from the
possible inability of counterparties to meet the terms of their contracts and
from movements in currency values. Outstanding contracts at December 31, 1996
are as follows:
<TABLE>
<CAPTION>
Contract to Net Unrealized
Settlement --------------------------------------------------- Appreciation/
Date Receive Deliver (Depreciation)
- ------------ ------------------------ ------------------------- --------------
<C> <S> <C> <C>
1/17/97 USD 825,720 AUD 1,050,000 $ (8,674)
1/17/97 USD 1,063,005 BEL 32,900,000 24,784
1/17/97 BEL 6,600,000 USD 218,182 (9,907)
1/17/97 CAD 620,000 DEM 698,027 (832)
1/17/97 CHF 790,000 USD 664,312 (73,070)
1/17/97 USD 1,536,610 CHF 1,890,000 122,119
1/17/97 USD 2,524,643 DEM 3,800,000 52,440
1/17/97 DEM 1,250,000 USD 851,499 (38,274)
1/17/97 USD 636,942 ESP 81,000,000 13,302
1/17/97 USD 3,964,723 FRF 20,200,000 67,584
1/17/97 USD 646,779 GBP 420,000 (72,520)
1/17/97 USD 452,555 HKD 3,500,000 16
1/17/97 ITL 2,260,000,000 USD 1,457,030 31,377
1/17/97 USD 1,466,723 ITL 2,260,000 (21,685)
1/17/97 JPY 340,000,000 USD 3,236,246 (293,331)
1/17/97 USD 4,912,571 JPY 529,000,000 333,741
1/17/97 NLG 300,000 USD 182,637 (8,680)
1/17/97 USD 2,843,876 NLG 4,800,000 60,567
--------------
$ 178,957
--------------
--------------
</TABLE>
Net unrealized appreciation on these contracts at December 31, 1996 is included
in the accompanying financial statements.
As part of its investment program, the High-Yield Bond Portfolio enters into
futures contracts to hedge against anticipated future price and interest rate
changes. Risks of entering into futures contracts include: (1) the risk that the
price of the futures contracts may not move in the same direction as the price
of the securities in the various markets; (2) the risk that there will be no
liquid secondary market when the Portfolio attempts to enter into a closing
position, (3) the risk that the Portfolio will lose an amount in excess of the
initial margin deposit; and (4) the fact that the success or failure of these
transactions for the Portfolio depends on the ability of the Portfolio Manager
to predict movements in stock, bond, and currency prices and interest rates.
There were no open futures contracts at December 31, 1996 in the High-Yield Bond
Portfolio.
THE ENTERPRISE GROUP OF FUNDS, INC. 77
<PAGE>
NOTES TO FINANCIAL STATEMENTS-- (Continued)
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
For the year ended December 31, 1996, purchases and sales proceeds of
investments, other than short-term investments, were as follows:
<TABLE>
<CAPTION>
U.S. Government Other Investment
Obligations Securities
-------------------------------- ----------------------------------
Portfolio Purchases Sales Purchases Sales
- -------------------------------------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Growth -- -- $ 98,882,165 $ 48,849,194
Equity Income -- -- 22,418,484 20,867,089
Capital Appreciation -- -- 78,568,857 92,467,303
Small Company -- -- 28,840,840 33,291,036
International Growth -- -- 20,540,346 9,277,748
Government Securities $ 136,746 $ 7,953,548 -- --
High-Yield Bond 1,666,192 2,418,234 100,410,800 95,505,081
Tax-Exempt Income -- -- 289,443 3,650,783
Managed -- -- 123,947,769 43,091,033
</TABLE>
78 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS-- (Continued)
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
5. Fund Share Transactions
At December 31, 1996, the Fund, excluding the Money Market Portfolio, has
300,000,000 authorized shares at $.10 par value. The Money Market Portfolio has
500,000,000 authorized shares at $.10 par value. The following tables summarize
the fund share activity for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Equity Income Capital Appreciation Small Company
Growth Portfolio Portfolio Portfolio Portfolio
-------------------------- ---------------------- -------------------------- --------------------------
Year Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1996 1995 1996 1995 1996 1995
------------ ------------ ---------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
Shares sold 8,738,168 4,788,089 445,852 330,132 575,596 1,229,985 747,903 851,253
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvestment of
Distributions 764,679 449,283 255,843 158,379 312,878 336,750 144,852 134,635
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Redeemed (6,216,899) (4,885,863) (451,181) (601,132) (1,243,989) (1,389,942) (1,511,602) (1,634,212)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) 3,285,948 351,509 250,514 (112,621) (355,515) 176,793 (618,847) (648,324)
- ------------------------------------------------------------------------------------------------------------------------------------
Class B
Shares sold 2,318,350 427,735 188,604 50,306 84,267 55,311 323,495 156,252
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvestment of
Distributions 139,776 16,702 17,631 2,294 13,789 5,453 21,578 5,984
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Redeemed (85,206) (5,095) (6,975) (66) (9,219) (526) (46,439) (2,766)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) 2,372,920 439,342 199,260 52,534 88,837 60,238 298,634 159,470
- ------------------------------------------------------------------------------------------------------------------------------------
Class Y
Shares sold 467,776 -- -- -- -- -- 150,961 533,065
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvestment of
Distributions 9,455 -- -- -- -- -- 293 113
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Redeemed (298,930) -- -- -- -- -- (339,207) (11,313)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) 178,301 -- -- -- -- -- (187,953) 521,865
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net Increase
(Decrease) 5,837,169 790,851 449,774 (60,087) (266,678) 237,031 (508,166) 33,011
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 79
<PAGE>
NOTES TO FINANCIAL STATEMENTS-- (Continued)
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Growth Government Securities High-Yield Bond Tax-Exempt Income
Portfolio Portfolio Portfolio Portfolio
------------------------ ---------------------------- -------------------------- ----------------------
Year Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1996 1995 1996 1995 1996 1995
----------- ----------- ------------- ------------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
Shares sold 547,159 304,077 693,755 850,363 1,061,881 992,706 182,258 159,901
- -----------------------------------------------------------------------------------------------------------------------------------
Reinvestment of
Distributions 103,914 87,155 314,104 370,524 266,718 284,035 78,413 95,017
- -----------------------------------------------------------------------------------------------------------------------------------
Shares Redeemed (394,928) (483,305) (2,050,440) (1,881,468) (1,340,318) (874,861) (604,753) (532,434)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) 256,145 (92,073) (1,042,581) (660,531) (11,719) 401,880 (344,082) (277,516)
- -----------------------------------------------------------------------------------------------------------------------------------
Class B
Shares sold 194,193 64,994 385,535 182,937 449,539 256,766 107,623 64,926
- -----------------------------------------------------------------------------------------------------------------------------------
Reinvestment of
Distributions 12,561 3,390 15,300 1,824 23,405 4,434 4,171 671
- -----------------------------------------------------------------------------------------------------------------------------------
Shares Redeemed (23,124) (77) (98,589) (5,144) (65,696) (2,093) (29,665) (459)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) 183,630 68,307 302,246 179,617 407,248 259,107 82,129 65,138
- -----------------------------------------------------------------------------------------------------------------------------------
Class Y
Shares sold 399,982 201,020 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Reinvestment of
Distributions 29,486 10,240 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Shares Redeemed (106,743) (17,752) -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) 322,725 193,508 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Net Increase
(Decrease) 762,500 169,742 (740,335) (480,914) 395,529 660,987 (261,953) (212,378)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
80 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS-- (Continued)
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Market
Managed Portfolio Portfolio
---------------------------- --------------------------------
Year Year Year Year
Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1996 1995
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Class A
Shares sold 6,602,960 6,115,394 155,780,333 127,849,845
- -------------------------------------------------------------------------------------------
Reinvestment of Distributions 312,623 60,640 1,843,341 1,635,878
- -------------------------------------------------------------------------------------------
Shares Redeemed (1,385,991) (636,867) (138,874,791) (121,495,592)
- -------------------------------------------------------------------------------------------
Net Increase (Decrease) 5,529,592 5,539,167 18,748,883 7,990,131
- -------------------------------------------------------------------------------------------
Class B
Shares sold 4,899,330 2,547,396 4,456,552 604,172
- -------------------------------------------------------------------------------------------
Reinvestment of Distributions 154,174 20,026 35,289 1,198
- -------------------------------------------------------------------------------------------
Shares Redeemed (374,396) (54,011) (3,542,604) (211,056)
- -------------------------------------------------------------------------------------------
Net Increase (Decrease) 4,679,108 2,513,411 949,237 394,314
- -------------------------------------------------------------------------------------------
Class Y
Shares sold 4,254,875 4,200,659 -- --
- -------------------------------------------------------------------------------------------
Reinvestment of Distributions 208,342 43,930 -- --
- -------------------------------------------------------------------------------------------
Shares Redeemed (1,204,112) (264,221) -- --
- -------------------------------------------------------------------------------------------
Net Increase (Decrease) 3,259,105 3,980,368 -- --
- -------------------------------------------------------------------------------------------
Total Net Increase (Decrease) 13,467,805 12,032,946 19,698,120 8,384,445
- -------------------------------------------------------------------------------------------
</TABLE>
6. Tax Basis Unrealized Gain (Loss) of Investments and Distributions
At December 31, 1996, the cost of securities for federal income tax purposes,
the aggregate gross unrealized gain for all securities for which there was an
excess of value over tax cost and the aggregate gross unrealized loss for all
securities for which there was an excess of tax cost over value were as follows:
<TABLE>
<CAPTION>
Tax Unrealized Unrealized
Portfolio Cost Gain Loss
- --------------------------------------------------------------- ------------------ ---------------- ----------------
<S> <C> <C> <C>
Growth $ 156,947,841 $ 78,282,226 $ (786,212)
- -----------------------------------------------------------------------------------------------------------------------
Equity Income 58,441,581 20,869,439 (385,348)
- -----------------------------------------------------------------------------------------------------------------------
Capital Appreciation 85,865,043 37,759,928 (1,840,123)
- -----------------------------------------------------------------------------------------------------------------------
Small Company 20,779,006 1,985,638 (506,440)
- -----------------------------------------------------------------------------------------------------------------------
International Growth 43,576,739 6,612,592 (2,534,978)
- -----------------------------------------------------------------------------------------------------------------------
Government Securities 80,763,012 339,229 (2,075,171)
- -----------------------------------------------------------------------------------------------------------------------
High-Yield Bond 58,546,544 2,614,492 (329,956)
- -----------------------------------------------------------------------------------------------------------------------
Tax-Exempt Income 28,431,554 1,626,681 (96,008)
- -----------------------------------------------------------------------------------------------------------------------
Managed 179,891,876 36,930,853 (2,662,539)
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Net
Unrealized
Portfolio Gain (Loss)
- --------------------------------------------------------------- ----------------
<S> <C>
Growth $ 77,496,014
- ---------------------------------------------------------------
Equity Income 20,484,091
- ---------------------------------------------------------------
Capital Appreciation 35,919,805
- ---------------------------------------------------------------
Small Company 1,479,198
- ---------------------------------------------------------------
International Growth 4,077,614
- ---------------------------------------------------------------
Government Securities (1,735,942)
- ---------------------------------------------------------------
High-Yield Bond 2,284,536
- ---------------------------------------------------------------
Tax-Exempt Income 1,530,673
- ---------------------------------------------------------------
Managed 34,268,314
- ---------------------------------------------------------------
</TABLE>
THE ENTERPRISE GROUP OF FUNDS, INC. 81
<PAGE>
NOTES TO FINANCIAL STATEMENTS-- (Continued)
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for futures and
options transactions, foreign currency transactions, pay downs, market
discounts, losses deferred due to wash sales, investments in passive foreign
investment companies, and excise tax regulations.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassifications to paid in capital. Any taxable gain remaining
at fiscal year end is distributed in the following year.
At December 31, 1996, the following Portfolios had capital loss carryforwards
for federal tax purposes of:
<TABLE>
<CAPTION>
Balance
---------------
<S> <C>
Government Securities Portfolio $ 4,071,570
- ---------------------------------------------------------------------------------------------------------------------------------
High-Yield Bond Portfolio 2,512,416
- ---------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Income Portfolio 7,708
- ---------------------------------------------------------------------------------------------------------------------------------
Money Market Portfolio 3,065
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Expiring
through
-----------
<S> <C>
Government Securities Portfolio 2002
- ----------------------------------------------------------------------------------------------------------------
High-Yield Bond Portfolio 2002
- ----------------------------------------------------------------------------------------------------------------
Tax-Exempt Income Portfolio 2002
- ----------------------------------------------------------------------------------------------------------------
Money Market Portfolio 2004
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The capital gains distribution paid to shareholders for 1996, whether taken in
additional shares or cash, is as follows:
<TABLE>
<CAPTION>
Capital
Gains
-----------
<S> <C>
Growth Portfolio $11,922,241
- ----------------------------------------------------------------------------------------------------------------
Equity Income Portfolio 4,494,911
- ----------------------------------------------------------------------------------------------------------------
Capital Appreciation Portfolio 11,967,341
- ----------------------------------------------------------------------------------------------------------------
Small Company Portfolio 392,497
- ----------------------------------------------------------------------------------------------------------------
International Growth Portfolio 852,673
- ----------------------------------------------------------------------------------------------------------------
Managed Portfolio 2,433,925
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The Tax-Exempt Income Portfolio has designated all income dividends paid as
exempt interest dividends. Thus 100% of the net investment income distributions
are exempt from federal income tax.
82 THE ENTERPRISE GROUP OF FUNDS, INC.
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors of
The Enterprise Group of Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of each of the portfolios of The Enterprise Group
of Funds, Inc. (Growth, Equity Income (formerly Growth and Income), Capital
Appreciation, Small Company, International Growth, Government Securities,
High-Yield Bond, Tax-Exempt Income, Managed and Money Market Portfolios) as of
December 31, 1996 and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years (or
periods) in the period then ended, and the financial highlights for each of the
five years (or periods) in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Growth, Equity Income (formerly Growth and Income), Capital Appreciation, Small
Company, International Growth, Government Securities, High-Yield Bond,
Tax-Exempt Income, Managed and Money Market Portfolios of The Enterprise Group
of Funds, Inc. as of December 31, 1996, the results of their operations, changes
in their net assets, and their financial highlights for each of the respective
periods stated in the first paragraph, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
February 20, 1997
THE ENTERPRISE GROUP OF FUNDS, INC. 83
<PAGE>
ANNUAL REPORT
*Not yet available for sale to investors
[LOGO]
Retirement System
Fund Inc.
Core Equity Fund
Emerging Growth Equity Fund
Intermediate-Term Fixed-Income Fund
Money Market Fund
Value Equity Fund*
International Equity Fund*
Actively Managed Fixed-Income Fund*
1996
Broker/Dealer
[LOGO]
RETIREMENT SYSTEM
Distributors Inc.
P.O. Box 2064
Grand Central Station
New York, NY 10163-2064
<PAGE>
TABLE OF CONTENTS
- ------------------------------------------------------
<TABLE>
<S> <C>
President's Message...................................................... 1
Investment Review........................................................ 2
Financial Statements of Investment Funds................................. 10
Core Equity Fund..................................................... 10
Emerging Growth Equity Fund.......................................... 14
Intermediate-Term Fixed-Income Fund.................................. 19
Money Market Fund.................................................... 22
Notes to Financial Statements............................................ 25
Independent Auditor's Report............................................. 35
Officers, Consultants, Investment Managers and Custodians................ 36
Board of Directors....................................................... 37
</TABLE>
Note: Investors currently may purchase shares of the Core Equity Fund, the
Emerging Growth Equity Fund, the Intermediate-Term Fixed-Income Fund and the
Money Market Fund. Shares of the Value Equity Fund, the International Equity
Fund and the Actively Managed Fixed-Income Fund, as described in Retirement
System Fund Inc.'s Prospectus, are not yet available for sale to investors.
<PAGE>
PRESIDENT'S MESSAGE
To Our Shareholders:
While the proliferation of mutual funds makes it hard to stand
out from the crowd, nothing distinguishes a fund like
investment performance. We are understandably very proud of the
investment performances of the funds that make up Retirement
System Fund Inc., and invite you to review the specific details
of their performances in the Investment Review section of this
Annual Report, beginning on page two.
For example, for the fiscal year ended September 30, 1996,
both equity funds achieved double digit returns. They
outperformed their respective Lipper benchmarks, as well as
their market index benchmarks, by substantial margins. In fact,
for every time period covered in this Annual Report, the equity
funds outperformed their benchmarks.
On other fronts, the growth of assets under Fund management
has been another positive development during the past fiscal
year. Assets, representing the investments of non-qualified
pension plans, individuals and corporations, have increased by
more than 50%, to $23 million at September 30, 1996.
On behalf of the Board of Directors, I'd like to thank you
for choosing Retirement System Fund Inc. to help meet your
investment needs.
Sincerely,
[SIGNATURE]
William Dannecker
President and Director
November 15, 1996
1
<PAGE>
INVESTMENT REVIEW
CORE EQUITY FUND
The Core Equity Fund seeks capital appreciation over the long
term. The Fund invests in a broadly diversified group of
high-quality, medium-to-large companies which the manager,
Retirement System Investors Inc., believes to be reasonably
valued relative to their earnings growth potential.
MARKET ENVIRONMENT
Moderate economic growth, low inflation, benign interest rates,
heavy corporate stock repurchases and huge cash inflow by
mutual fund investors propelled the stock market in the fiscal
year ended September 30, 1996.
Corporate earnings and profit margin improvements benefited
from productivity gains from technological innovations,
downsizing of costs and the improved competitive position of
U.S. companies.
At the end of the reporting period, the market's valuation
at 16 times 1997 earnings estimates (i.e., price-to-earnings
ratio) was moderately above past averages, but within
historical ranges.
The Core Equity Fund's above-market performance (see below)
was positively influenced by the Fund's focus and concentration
in large growth companies, which performed well when compared
to smaller growth or value issues. The Fund's largest market
sector holdings in technology and capital goods enhanced its
performance. Also, performance benefited from the lower than
market weighting in the weak performing utilities, raw
materials and consumer cyclical groups.
The major portfolio changes during the past year involved
increasing weightings in financials and modestly in energy.
Technology holdings were reduced, but still remained relatively
large, at 28% of total assets. Moreover, utilities were reduced
to minimal levels.
The Fund's diversification and stock selections reflect the
portfolio manager's focus on such dominant investment themes as
growing globalization of demand for goods, technological
innovations, productivity, life style enhancements and
demographic factors.
PERFORMANCE RESULTS
The Core Equity Fund continued its strong performance in fiscal
year 1996. For the one-year period ended September 30, 1996,
the Fund posted a return of 22.21%, outpacing the 20.36% return
of the S&P 500 (AN UNMANAGED REPRESENTATIVE INDEX OF THE BROAD
EQUITY MARKET; ALL MARKET INDEX RESULTS THAT APPEAR IN THIS
REPORT REPRESENT GROSS RETURNS, SINCE EXPENSES ARE NOT
APPLICABLE) and the 17.24% return of the Lipper Growth & Income
Funds Average for the same period. This result placed the Core
Equity Fund in the top 11% of Lipper's Growth and Income Funds
grouping of mutual funds. (The Fund ranked 53rd out of 503
funds; rankings are based on total returns.)
2
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CORE EQUITY FUND VS S&P 500
<S> <C> <C>
5/31/91 10,000.00 10,000.00
9/30/91 10,275.32 10,057.75
9/30/92 11,109.10 11,169.99
9/30/93 13,263.17 12,622.89
9/30/94 14,253.45 13,086.98
9/30/95 19,276.11 16,975.80
9/30/96 23,556.65 20,431.69
Core Eq-
uity:
$23,557
S&P 500:
$20,432
GROWTH OF
$10,000
Core Equity S&P 500
1 year $12,221 $12,036
5 1/3 year $23,557 $20,432
CUMULA-
TIVE RE-
TURNS
1 year 22.21% 20.36%
5 1/3 year 135.57% 104.32%
AVERAGE
ANNUAL
RETURNS
1 year 22.21% 20.36%
5 1/3 year 17.43% 14.34%
</TABLE>
The Core Equity Fund also outperformed its Lipper benchmark
and the S&P 500 for all periods shown in this report. For the
five-year period ended September 30, 1996, the Core Fund
achieved an annual return of 18.05%, placing it among the top
3% of the Lipper Universe of Growth & Income Mutual Funds (5th
out of 204 funds), which reflected an average return of 13.79%
per year for the same period. For this period the Core also
outperformed the S&P 500 by 282 basis points per year, with an
annualized return of 18.05% versus 15.23% for the S&P 500. For
the period since inception (June 1, 1991 through September 30,
1996), the Core Fund provided a return of 17.43% per year,
versus 14.34% for the S&P 500 and 13.16% for its Lipper
benchmark for the same period--a top 2% ranking in the Lipper
Growth and Income Funds grouping (4th out of 200 funds). Past
performance is not a guarantee of future results.
CORE EQUITY FUND VS LIPPER GROWTH AND INCOME FUNDS AVERAGE
FOR PERIODS ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------
<TABLE>
<CAPTION>
Annualized
------------------------
Since
1 Year 5 Years Inception
---------- ---------- ------------
<S> <C> <C> <C>
CORE EQUITY FUND(1) 22.21% 18.05% 17.43%(2)
Lipper Growth & Income Funds Avg.(3) 17.24 13.79 13.16
</TABLE>
1.All performance results shown are net of management fees and
all related expenses.
2.Covers the period from 6/1/91 through 9/30/96.
3.Lipper Analytical Services is an independent reporting
service that measures the performance of most U.S. mutual
funds. The performance results reflect an unmanaged index and
are net of all expenses other than sales charges and
redemption fees.
- --------------------------------------------------------------------------------
3
<PAGE>
EMERGING GROWTH EQUITY FUND
The Emerging Growth Equity Fund, a fund that has above-average
volatility, seeks capital appreciation through investment in
quality emerging growth companies with superior growth and
financial characteristics and attractive stock market
valuations. Managed by The Putnam Advisory Company, Inc.
("Putnam"), the Fund acquires growth stocks of smaller
companies--those with market capitalizations generally between
$50 million and $750 million (at time of purchase). Companies
are evaluated according to a number of fundamental criteria
such as above-average earnings growth, above-average return on
equity, and low debt to total capitalization, in order to
identify super-achieving companies. These companies are then
screened using such valuation measures as price/earnings,
price/book and market capitalization/revenues, to determine
those stocks that are attractively priced. A rigorous buy, hold
and sell discipline is then applied.
MARKET ENVIRONMENT
For the one-year period ended September 30, 1996, economic
growth, as measured by the Gross Domestic Product ("GDP"),
started in a lackluster way at 0.5%, annualized for the fourth
quarter, 1995. During the next two quarters, however, the
economy gained momentum (GDP growing at 2.3%, annualized, and
4.7%, annualized, respectively), but reverted to slow growth
during the most recent quarter. The domestic equity markets
reflected respectable double digit returns as corporate
earnings growth continued to show solid gains and inflation
remained rather stable (3% level for this 12-month period).
This occurred even though interest rates encountered a high
level of volatility as the underlying strength of the economy
was in question for much of 1996. Corporate earnings have
benefited from productivity gains and from technological
innovations, downsizing of costs and the improved competitive
position of U.S. companies. In such an environment, investor
confidence remained very strong and this was a period in which
large capitalization growth stocks and cyclically oriented
issues, for the most part, turned in the best results for the
year.
Small capitalization companies (as represented by the
Russell 2000 Index, a representative index for this grouping)
produced a return of 13.13% for the one year ended September
30, 1996. (Most of the return was forthcoming during the nine
months ended June 30, 1996. The recent quarter return of 0.34%
was significantly influenced by the magnitude of the stock
market correction in July, when the Russell 2000 Index declined
8.73%, about double that of the broad equity market). Although
a respectable result for this index, its return was 723 basis
points under the 20.36% return of the S&P 500, the broad U.S.
equity market index. (For fiscal year 1995, the Russell 2000
Index returned 23.36%, but also trailed the S&P 500 return of
29.72%, by 636 basis points).
The Emerging Growth Equity Fund's results (see page five)
over the past fiscal year benefited from the manager's
diversified approach and the large number of holdings (173 at
September 30, 1996), as many of the stocks held, met or
exceeded earnings and growth expectations. In addition, the
consumer and business services sector was the most consistent
positive contributor to performance throughout the
4
<PAGE>
fiscal year. Within this broad-based sector, radio, outdoor
advertising, teleservices and temporary staffing were the
leaders. Technology holdings were gradually reduced throughout
the year, with many of the current holdings being information
technology consulting companies, which are higher confidence,
less volatile growth technology companies. At September 30,
1996, the top three sectors for Putnam were consumer cyclicals,
consumer staples and technology.
PERFORMANCE RESULTS
For the one-year period ended September 30, 1996, the Emerging
Growth Equity Fund posted an outstanding return of 42.07%,
exceeding the 13.13% return of the Russell 2000 Index by nearly
29 percentage points, and outperforming the 18.40% return of
the Lipper Small Company Growth Funds Average (a representative
benchmark) by more than 23 percentage points. This one-year
return placed this Fund among the top 5% of mutual funds in the
Lipper Small Company Growth Funds grouping (17th out of 349
funds; rankings are based on total return).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EMERGING GROWTH EQUITY FUND VS RUSSELL 2000 INDEX
<S> <C> <C>
5/31/91 10,000.00
9/30/91 10,518.96 10,190.19
9/30/92 11,970.97 11,100.99
9/30/93 16,526.29 14,781.18
9/30/94 18,491.34 15,175.64
9/30/95 25,740.83 18,723.90
9/30/96 36,571.09 21,182.85
Emerging Growth
Equity: $36,571
Russell 2000:
$21,183
GROWTH OF
$10,000
Emerging Growth Equity Russell 2000
1 year $14,207 $11,313
5 1/3 year $36,571 $21,183
CUMULATIVE
RETURNS
1 year 42.07% 13.13%
5 1/3 year 265.71% 111.83%
AVERAGE ANNUAL
RETURNS
1 year 42.07% 13.13%
5 1/3 year 27.52% 15.11%
</TABLE>
For the five-year period ended September 30, 1996, the
Fund's average return per year was 28.30%, well above the
17.08% return of its Lipper benchmark. This performance placed
the Fund in the top 3% (2nd out of 94 funds; rankings based on
total returns) of the Lipper Universe of Small Company Growth
Mutual Funds. For the period since inception (June 1, 1991
through September 30, 1996) the Emerging Growth Fund achieved
an annualized return of 27.52% versus the 17.10% return by the
Lipper Small Company Growth Funds Average, and the 15.11%
return of the Russell 2000 Index. For this period, the Fund
ranked in the top 4% of its Lipper grouping (3rd out of 88
funds). Past performance is not a guarantee of future results.
5
<PAGE>
EMERGING GROWTH EQUITY FUND VS LIPPER SMALL COMPANY GROWTH
FUNDS AVG.
FOR PERIODS ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------
<TABLE>
<CAPTION>
Annualized
------------------------
Since
1 Year 5 Years Inception
---------- ---------- ------------
<S> <C> <C> <C>
EMERGING GROWTH EQUITY FUND(1) 42.07% 28.30% 27.52%(2)
Lipper Small Company Growth Funds
Avg.(3) 18.40 17.08 17.10
</TABLE>
1.All performance results shown are net of management fees and
all related expenses.
2.Covers the period from 6/1/91 through 9/30/96.
3.Lipper Analytical Services is an independent reporting
service that measures the performance of most U.S. mutual
funds. The performance results reflect an unmanaged index and
are net of all expenses other than sales charges and
redemption fees.
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM FIXED-INCOME FUND
The Intermediate-Term Fixed-Income Fund, managed by Retirement
System Investors Inc., invests in high quality fixed-income
securities that mature within ten years or have expected
average lives of ten years or less. At least 65% of the
holdings in the Fund are in U.S. Government or agency issues.
MARKET ENVIRONMENT
The environment for fixed-income investors became less
favorable during the fiscal year ended September 30, 1996, and
interest rates in the intermediate and longer maturities rose
to end the year at higher levels. Last year's bond market rally
continued through the final quarter of 1995, but was reversed
early in 1996 when investors perceived that the economy was
regaining strength, and that Congress' plans to reduce
government spending and the budget deficit would be
unsuccessful. The 30-year Treasury ended the September fiscal
year at 6.9% versus 6.5% the year before; the ten-year Treasury
rose to 6.7% from 6.2%; the five year Treasury rose to 6.5%
from 6.0%; and the two year Treasury increased to 6.1% from
5.8%. Interest rates were volatile during the year and ranged
from lows in January of 5.95% for the 30-year Treasury and
5.52% for the ten-year Treasury to highs in July of 7.19% for
the Bond and 7.06% for the Note.
The performance of fixed-income investments varied
substantially with duration in fiscal 1996. Rising rates and a
steepening yield curve reduced prices and total return as
investors extended out on the curve. The yield spread between
the three-month Treasury bill and the 30-year bond widened to
176 basis points at the end of fiscal 1996, from 109 basis
points the year before. Short interest rates moved lower in the
last quarter of 1995 and early 1996, as the Federal Reserve cut
the Fed Funds Rate in several steps to 5.25%, where it has held
since January. Within fixed-income sectors, long duration
Governments and non-callable corporates underperformed
mortgages and other callable issues in fiscal 1996.
The Fund's average duration began the year at 2.8 years and
was progressively raised to 3.8 years by February, before
drifting back to 3.0 years at September 30,
6
<PAGE>
1996. This contrasted with a relatively steady duration of 3.0
years during the fiscal year for the Lehman Brothers
Government-Intermediate Bond Index. The Fund's performance was
adversely affected by its greater than average duration during
the rising interest rate environment in the first half of 1996.
The Fund maintained its emphasis on high-quality,
fixed-income investments in fiscal year 1996. At the end of the
year, 100% of holdings were in "AAA" securities consisting of
U.S. Treasury and Federal agency notes and agency mortgage
issues. All Fund holdings must have a quality rating of "A" or
better.
PERFORMANCE RESULTS
The Fund's return of 3.82% for the one-year period ended
September 30, 1996 trailed the return of the Lehman Brothers
Government-Intermediate Bond Index of 5.10% and the Lipper
Short-Intermediate (one to five years maturity) U.S. Government
Funds Average of 4.41% for the same period. Over the longer
period of five years ended September 30, 1996, the Fund posted
an annualized return of 6.40% versus the market benchmark's
return of 6.75% per year. For this period the Lipper benchmark
achieved an annualized return of 5.83%. For the period since
inception (June 1, 1991 through September 30, 1996), the Fund
outpaced its Lipper benchmark--the Lipper Short-Intermediate
(one to five years maturity) U.S. Government Funds Average--by
70 basis points per year with an annualized return of 7.08%,
compared to a return of 6.38% for the benchmark. This
performance placed the Fund in the top 12% of its Lipper
grouping (3rd out of 26 funds). (Rankings are based on total
returns.) Past performance is not a guarantee of future
results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INTERMEDIATE-TERM FIXED- LEHMAN BROTHERS GOVERNMENT-
<S> <C> <C>
Income Fund vs Intermediate
5/31/91 10,000.00 10,000.00
9/30/91 10,563.21 10,483.38
9/30/92 12,026.79 11,789.56
9/30/93 13,046.05 12,691.20
9/30/94 12,655.71 12,500.75
9/30/95 13,875.52 13,826.79
9/30/96 14,405.01 14,532.25
Interme-
diate-
Term:
$14,405
Lehman
Brothers:
$14,532
GROWTH OF
$10,000
Intermediate-Term LB Govt't-Inter.
Fixed-Income Bond Index
1 year $10,382 $10,510
5 1/3 year $14,405 $14,532
CUMULA-
TIVE RE-
TURNS
1 year 3.82% 5.10%
5 1/3 year 44.05% 45.32%
AVERAGE
ANNUAL
RETURNS
1 year 3.82% 5.10%
5 1/3 year 7.08% 7.26%
</TABLE>
7
<PAGE>
INTERMEDIATE-TERM FIXED-INCOME FUND VS LIPPER
SHORT-INTERMEDIATE
(1 TO 5 YEARS MATURITY) U.S. GOVERNMENT FUNDS AVERAGE
FOR PERIODS ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------
<TABLE>
<CAPTION>
Annualized
--------------------------
Since
1 Year 5 Years Inception
---------- ----------- -------------
<S> <C> <C> <C>
INTERMEDIATE-TERM FIXED-INCOME FUND(1) 3.82% 6.40% 7.08%(2)
Lipper Short-Intermediate (1 to 5 yrs.
maturity) U.S. Government Funds Avg.(3) 4.41 5.83 6.38
</TABLE>
1.All performance results shown are net of management fees and
all related expenses.
2.Covers the period from 6/1/91 through 9/30/96.
3.Lipper Analytical Services is an independent reporting
service that measures the performance of most U.S. mutual
funds. The performance results reflect an unmanaged index and
are net of all expenses other than sales charges and
redemption fees.
- --------------------------------------------------------------------------------
MONEY MARKET FUND
The objective of the Money Market Fund is to achieve high
current interest income while maintaining liquidity, stability
of principal and high-quality holdings. Average maturity of
portfolio holdings may not exceed 90 days. As a money market
fund, it strives to maintain a stable unit value of $1.00,
while the yield fluctuates with the market. This Fund is
managed by Retirement System Investors Inc.
MARKET ENVIRONMENT
The Fund continued to maintain a conservative posture in fiscal
1996 and was principally invested in discount Federal agency
notes of short maturities. Average maturity began the fiscal
year at 26 days, extended to 58 days in April, 1996, then
declined to 36 days at the end of September, 1996. The Fund's
benchmark, the Donoghue All-Taxable Money Funds Average, began
the fiscal year at 54 days and ended the fiscal year at 51
days.
PERFORMANCE RESULTS
For the one-year period ended September 30, 1996, the Money
Market Fund posted a return of 5.19%, comparing favorably to
the Lipper Retail Money Market Funds Average return of 4.89%
and the Donoghue All-Taxable Money Funds average of 5.05% for
the same period. The 90-Day U.S. Treasury Bill Index (an
unmanaged index which provides a representative proxy for
short-term money market instruments) returned 5.10% for this
period.
The Fund achieved a respectable five-year average return of
4.01%, outpacing the Lipper Retail Money Market Fund Average of
3.95% per annum and keeping in-line with the Donoghue Average
annual return of 4.05%. (The 90-Day U.S. Treasury Bill Index
returned 4.30% per year for the period.)
Since inception (April 1, 1991 through September 30, 1996),
the Fund achieved an annualized return of 4.13% versus 4.10%
per year for the Lipper Average and a
8
<PAGE>
4.19% annualized return for the Donoghue Average. For this
period, the market result, as measured by the 90-Day U.S.
Treasury Bill Index, was 4.42%. Past performance is not a
guarantee of future results.
MONEY MARKET FUND VS DONOGHUE ALL TAXABLE MONEY FUNDS AVERAGE
FOR PERIODS ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------
<TABLE>
<CAPTION>
Annualized
--------------------------
Since
1 Year 5 Years Inception
---------- ----------- -------------
<S> <C> <C> <C>
MONEY MARKET FUND(1) 5.19% 4.01% 4.13%(2)
Donoghue All Taxable Money Fund Avg.(3) 5.05 4.05 4.19
Lipper Retail Money Market Funds
Average(4) 4.89 3.95 4.10
</TABLE>
1.All performance results shown are net of management fees and
all related expenses. Investment in the Money Market Fund is
neither insured nor guaranteed by the U.S. Government and
there is no assurance that the Fund will maintain a steady
net asset value of $1.00 per share.
2.Covers the period from 4/1/91 through 9/30/96.
3.Reported by the Donoghue Money Fund Reporting Service. The
performance results reflect an unmanaged index and are net,
since expenses are applicable.
4.Lipper Analytical Services is an independent reporting
service that measures performance of most U.S. mutual funds.
The performance results reflect an unmanaged index and are
net of all expenses other than sales charges and redemption
fees.
- --------------------------------------------------------------------------------
9
<PAGE>
FINANCIAL STATEMENTS OF INVESTMENT FUNDS
CORE EQUITY FUND
Statement of Investments September 30, 1996
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- --------- ----------
<C> <S> <C> <C>
COMMON STOCKS 87.8%
AEROSPACE AND DEFENSE 1.9%
1,900 Lockheed Martin Corp. $ 171,238
----------
AUTOMOBILES 0.5%
1,640 Chrysler Corporation 46,945
----------
BANKING 6.5%
2,300 Bankamerica Corp. 188,888
2,576 Chase Manhattan Corp. 206,402
2,000 Citicorp 181,250
----------
576,540
----------
BUILDING PRODUCTS 2.1%
3,000 Armstrong World Industries Inc. 187,125
----------
CHEMICALS 2.9%
2,900 E.I. Du Pont De Nemours & Company 255,925
----------
COMMERCIAL SERVICES 0.5%
1,300 Robert Half International* 47,938
----------
DRUG AND HEALTH CARE 6.4%
5,800 Johnson & Johnson 297,250
3,400 Pfizer Inc. 269,025
----------
566,275
----------
ELECTRONICS AND ELECTRICAL 18.3%
2,400 Cisco Systems Inc.* 148,800
3,000 Electronic Data Systems Corp. 184,125
4,400 Emerson Electric Company 396,550
4,600 General Electric Company 418,600
5,200 Hewlett Packard Corp. 253,500
2,300 Intel Corp. 219,363
----------
1,620,938
----------
ENERGY 5.4%
2,500 Dresser Industries Inc. 74,375
3,600 Exxon Corp. 299,700
200 Royal Dutch Petroleum Company 31,225
800 Texaco Inc. 73,600
----------
478,900
----------
ENGINEERING AND CONSTRUCTION 2.9%
4,200 Fluor Corp. 258,300
----------
FINANCIAL SERVICES 5.1%
7,900 Federal National Mortgage Association 275,513
1,100 Morgan (J.P.) & Company Inc. 97,763
2,200 Sunamerica, Inc. 75,900
----------
449,176
----------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
CORE EQUITY FUND (CONTINUED)
Statement of Investments September
30, 1996
- ----------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- --------- ----------
<C> <S> <C> <C>
FOOD AND SERVICES 1.2%
2,400 Dole Food Company $ 100,800
----------
HOUSEHOLD PRODUCTS 0.7%
1,500 Black & Decker Corp. 62,250
----------
INSURANCE 3.4%
3,900 Allstate Corp. 192,075
2,250 Travelers Group, Inc 110,531
----------
302,606
----------
MACHINERY AND ENGINEERING 2.1%
2,500 Deere & Company 105,000
400 Ingersoll-Rand Company 19,000
3,100 Cincinnati Milacron Inc. 58,512
----------
182,512
----------
MERCHANDISING 0.6%
1,200 Sears Roebuck & Company 53,700
----------
METALS AND MINING 1.4%
600 Phelps Dodge Corp. 38,474
1,200 Potash Corp. of Saskatchewan 87,750
----------
126,224
----------
OFFICE AND BUSINESS EQUIPMENT 3.6%
900 International Business Machines Corp. 112,050
3,900 Xerox Corp. 209,137
----------
321,187
----------
OTHER 5.6%
4,500 Allied Signal Inc. 296,437
2,200 Philip Morris Companies Inc. 197,450
----------
493,887
----------
SOFTWARE PRODUCTS 8.7%
400 3Com Corp.* 24,000
<CAPTION>
Shares Value
- --------- ----------
<C> <S> <C> <C>
3,000 Computer Associates International, Inc. $ 179,250
9,300 Informix Corp.* 259,237
6,000 Oracle Systems Corp.* 255,000
200 Parametric Technology Corp.* 9,875
800 Structural Dynamics Research* 19,100
300 Sun Microsystems Inc.* 18,600
100 U.S. Robotics Corp.* 6,463
----------
771,525
----------
TELECOMMUNICATIONS 8.0%
100 ADC Telecommunications* 6,375
3,100 American Telephone & Telegraph Corp. 117,025
4,300 DSC Communications Corp.* 108,037
2,005 Lucent Technologies Inc. 91,964
5,400 Tellabs Inc.* 380,700
----------
704,101
----------
Total Common Stocks (Cost $4,970,892) $7,778,092
----------
<CAPTION>
Principal
Amount
- ---------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS
REPURCHASE AGREEMENT 3.8%
$340,000 Bear Stearns & Co. Dated 9/30/1996 5.60%
due 10/01/1996 collateralized by 915,000
United States Treasury Strips due
8/15/2010 (Value $347,984) 340,000
----------
Total Investments (Cost $5,310,892) 91.6% $8,118,092
Other Assets, Less Liabilities 8.4% 746,924
------ ----------
Net Assets 100.0% $8,865,016
------ ----------
------ ----------
</TABLE>
*Denotes non-income producing security.
See Notes to Financial Statements
11
<PAGE>
CORE EQUITY FUND (CONTINUED)
Statement of Assets and Liabilities September 30, 1996
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost $5,310,892)--Note
2 $8,118,092
Cash 823,038
Receivable for shares sold 17,082
Dividends and interest receivable 15,908
Other assets 5,922
----------
8,980,042
LIABILITIES:
Payable for investments purchased $ 71,536
Payable for shares redeemed 15,687
Accrued expenses and other 27,803 115,026
-------- ----------
NET ASSETS at value, applicable to 440,844 outstanding
shares--Note 5 $8,865,016
----------
----------
NET ASSET VALUE offering and redemption price per share
($8,865,016 divided by 440,844 shares) $ 20.11
----------
----------
</TABLE>
Statement of Operations Year Ended September 30, 1996
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 38,808
Dividends 114,807
--------
Total Income $ 153,615
Expenses:
Investment manager's fees--Note 3 41,833
Shareholder servicing fees and expenses--Note 3 41,833
Distribution fee--Note 3 13,944
Custodian fees and expenses 4,546
Legal and auditing fees 7,828
Directors' fees and expenses 8,218
Amortization of organizational costs 9,760
Printing and postage 7,624
Other 7,243
--------
Total expenses 142,829
Less expense reimbursement--Note 3 (75,067)
--------
Net expenses 67,762
----------
INVESTMENT INCOME--NET 85,853
REALIZED AND UNREALIZED GAIN ON INVESTMENTS--Note 4:
Net realized gain on investments 364,855
Unrealized appreciation on investments 980,258
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,345,113
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,430,966
----------
----------
</TABLE>
See Notes to Financial Statements
12
<PAGE>
CORE EQUITY FUND (CONTINUED)
Statement of Changes in Net Assets
---------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/96 9/30/95
---------- ----------
<S> <C> <C>
OPERATIONS:
Investment income--net $ 85,853 $ 68,141
Net realized gain (loss) on investments 364,855 (18,467)
Unrealized appreciation on investments 980,258 1,388,101
---------- ----------
Increase in net assets resulting from operations 1,430,966 1,437,775
---------- ----------
DIVIDEND DISTRIBUTION--Note 2:
Investment income--net (86,059) (77,331)
Realized gain on investments 0 (37,144)
---------- ----------
(86,059) (114,475)
---------- ----------
CAPITAL TRANSACTIONS--Note 5:
Value of shares sold 2,533,992 912,546
Value of shares redeemed (757,380) (332,203)
Value of shares issued in reinvestment of dividend distribution 86,059 114,475
---------- ----------
Net increase in net assets resulting from capital transactions 1,862,671 694,818
---------- ----------
Net increase 3,207,578 2,018,118
NET ASSETS at beginning of year 5,657,438 3,639,320
---------- ----------
NET ASSETS at end of year $8,865,016 $5,657,438
---------- ----------
---------- ----------
</TABLE>
See Notes to Financial Statements
13
<PAGE>
EMERGING GROWTH EQUITY FUND
Statement of Investments September 30, 1996
- ----------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- --------- ----------
<C> <S> <C> <C>
COMMON STOCKS 94.9%
APPAREL AND TEXTILE 3.7%
2,990 St. John Knits Inc. $ 149,874
1,000 Tommy Hilfiger* 59,250
2,000 Vans, Inc.* 38,250
----------
247,374
----------
AUTOMOTIVE PRODUCTS 0.2%
750 Custom Chrome* 13,500
----------
BROADCASTING AND PUBLISHING 3.6%
700 American Radio Systems Corp.* 25,725
500 Chancellor Broadcasting Corp Class A* 20,750
100 Cox Radio Inc.* 2,200
2,200 Granite Broadcasting Corp.* 31,350
1,200 Heftel Broadcasting Corp--A* 51,750
1,000 SFX Broadcasting Inc.* 45,250
600 Sinclair Broadcast Group Inc.* 23,925
1,200 Young Broadcasting Corp. Cl. A* 39,300
----------
240,250
----------
BUILDING AND CONSTRUCTION 0.6%
1,100 Apogee Enterprises Inc. 38,225
----------
BUSINESS AND PUBLIC SERVICES 13.3%
1,490 Cambridge Technology Partners Inc.* 44,700
600 Carriage Services Inc.* 11,400
900 CCC Information Services Group* 18,675
1,000 Claremont Technology Group* 34,750
1,100 Computer Task Group Inc 34,238
2,820 Concord Efs, Inc.* 72,615
2,500 Correctional Services Corp.* 35,312
2,400 Cotelligent Group Inc.* 36,000
900 Equity Corporation International* 28,238
800 Interim Services Inc.* 34,200
1,060 Keane Inc.* 50,880
350 Labor Ready, Inc.* 5,993
900 Lamar Advertising Co.* 36,675
200 Learning Tree International, Inc.* 7,350
1,500 Outdoor Systems, Inc.* 69,750
2,100 Precision Response Corp.* 79,275
500 Registry, Inc.* 18,625
2,540 Robert Half International Inc.* 93,662
1,300 Strayer Education Inc.* 21,288
1,500 Sykes Enterprises, Inc.* 70,500
900 Universal Outdoor Holdings* 32,175
700 Vincam Group, Inc.* 26,775
400 Whitman-Hart Inc.* 18,900
----------
881,976
----------
<CAPTION>
Shares Value
- --------- ----------
<C> <S> <C> <C>
COMMERCIAL SERVICES 3.0%
1,088 Corestaff Inc.* $ 28,547
1,000 FYI Incorporated* 20,000
100 International Network Services* 3,512
700 National Techteam Inc.* 18,988
800 Physician Support Systems* 18,800
2,100 PMT Services Inc.* 42,000
1,500 Wackenhut Corp Class B 23,438
1,900 Wackenhut Corrections Corp.* 42,275
----------
197,560
----------
CONSUMER GOODS AND SERVICES 12.3%
1,550 Blyth Industries Inc.* 75,175
2,500 French Fragrances Inc.* 17,500
100 Gargoyles, Inc.* 2,075
2,750 Hollywood Entertainment Corp.* 56,030
1,800 Marks Bros Jewelers Inc.* 48,600
1,878 Nautica Enterprises Inc.* 60,566
800 North Face Inc.* 22,500
1,100 Pete's Brewing Company* 7,838
1,760 Sola International Inc.* 65,560
3,000 Rexall Sundown Inc.* 109,500
3,600 Signature Resorts Inc.* 86,400
1,800 Speedway Motorsports Inc.* 47,250
1,432 Stewart Enterprises Inc. 48,330
1,600 The Finish Line- Class A* 75,600
3,360 Wolverine World Wide 93,240
----------
816,164
----------
DATA PROCESSING 1.9%
800 Alternative Resources Corp.* 22,400
750 Business Objects SA Adr* 14,438
1,700 Data Processing Resources Cp* 34,850
800 HPR Inc.* 12,400
700 Vantive Corp.* 44,625
----------
128,713
----------
ELECTRONICS AND ELECTRICAL 5.8%
3,200 Advanced Lighting Techs* 63,200
1,129 Baldor Electric Company 22,015
2,000 C.P. Clare Corp. 18,500
3,500 Computer Products Inc.* 76,562
2,763 Del Global Technologies Corp.* 23,485
703 Credence Systems Corp.* 10,897
600 Eltron International Inc.* 19,200
700 Flextronics International Ltd.* 19,075
809 Harman International Industries Inc. 39,439
1,300 Sanmina Corp.* 52,325
2,250 Thermo Voltek Corp.* 30,938
800 Transwitch Corp.* 5,000
----------
380,636
----------
</TABLE>
See Notes to Financial Statements
14
<PAGE>
EMERGING GROWTH EQUITY FUND
(CONTINUED)
Statement of Investments September 30, 1996
- ----------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- --------- ----------
EMPLOYMENT AGENCY 0.9%
<C> <S> <C> <C>
1,230 On Assignment Inc.* $ 40,898
1,200 SOS Staffing Service* 13,500
300 Staffmark, Inc.* 4,125
----------
58,523
----------
ENTERTAINMENT 3.5%
700 Anchor Gaming* 42,875
2,300 Family Golf Centers, Inc.* 64,975
300 Penn National Gaming Inc.* 9,150
1,200 Penske Motorsports Inc.* 41,550
1,200 Regal Cinemas Inc.* 29,400
1,800 Sodak Gaming Inc.* 40,500
----------
228,450
----------
FOOD AND SERVICES 1.0%
1,025 Apple South Inc. 13,580
1,360 Landry's Seafood Restaurants* 33,320
1,100 Mortons Restaurant Group Inc.* 19,250
----------
66,150
----------
FURNITURE/HOME APPLIANCES 0.7%
2,150 Cort Business Services Corp.* 43,538
----------
INSURANCE 5.1%
1,075 Compdent Corp.* 40,580
835 CRA Managed Care Inc.* 44,672
700 First Commonwealth Inc.* 15,225
4,330 HCC Insurance Holdings Inc. 125,029
1,220 Reinsurance Group of America Inc. 53,528
2,000 Riscorp Inc Class A* 33,000
765 Sierra Health Services* 26,297
----------
338,331
----------
LODGING/MOTELS 2.6%
4,000 Prime Hospitality Corp.* 66,000
1,800 Servico, Inc.* 29,250
2,460 Studio Plus Hotels, Inc.* 38,745
1,700 Suburban Lodges Of America* 35,700
----------
169,695
----------
MACHINERY AND ENGINEERING 1.3%
1,200 Miller Industries Inc./Tenn* 47,400
1,700 Rental Service Corp.* 36,550
----------
83,950
----------
MEDICAL SERVICES AND DRUGS 13.9%
850 Access Health Inc.* 47,812
800 Alternative Living Services* 11,200
1,875 American Homepatient Inc.* 40,780
1,400 Amrion, Inc.* 29,925
<CAPTION>
Shares Value
- --------- ----------
<C> <S> <C> <C>
400 Arthrocare Corp.* $ 3,700
1,600 ARV Assisted Living Inc.* 23,200
1,100 Assisted Living Concepts, Inc.* 20,900
2,750 Dura Pharmaceuticals Inc.* 101,063
800 Emeritus Corp.* 12,600
1,200 Gelman Sciences, Inc.* 33,750
1,827 Genesis Health Ventures Inc.* 51,384
1,100 Idexx Laboratories Inc.* 49,775
1,450 Igen Inc.* 10,330
1,100 Impath, Inc.* 13,475
1,800 Iridex Corp.* 13,950
540 I-Stat Corp.* 9,855
805 Lincare Holdings Inc.* 31,798
675 Lunar Corp.* 21,600
1,600 Medicis Pharmaceutical Cl-A* 77,200
1,000 Memtec Ltd. 28,000
800 Minimed, Inc.* 19,600
1,250 National Surgery Centers Inc.* 33,438
1,500 NCS Healthcare Inc Class A* 47,063
1,000 Orthologic Corp.* 10,625
500 Pediatix Medical* 25,000
700 Renal Care Group Inc.* 25,550
1,600 Respironics, Inc.* 38,800
1,000 Sabratek Corp.* 15,750
1,500 Sterling House Corp.* 24,563
600 Target Therapeutics Inc.* 25,500
600 United Dental Care Inc.* 21,450
----------
919,636
----------
RETAIL TRADE 3.9%
900 99 Cents Only Stores* 12,600
1,500 Barnett Inc.* 34,500
0.5 Corporate Express Inc.* 19
1,900 Cost Plus Inc.* 43,225
1,400 Loehmann's, Inc.* 37,450
600 Party City Corp.* 11,100
600 Petco Animal Supplies, Inc.* 16,050
2,600 The Mens Wearhouse Inc.* 63,050
1,200 West Marine Inc.* 39,300
----------
257,294
----------
SOFTWARE PRODUCTS 8.4%
700 Analysts International Corp. 32,200
850 Bisys Group Inc.* 34,850
1,100 Black Box Corp.* 36,300
2,332 Computer Horizons Corp.* 66,462
900 Gensym Corp.* 19,575
570 Inso Corp.* 29,925
1,310 McAfee Associates Inc.* 90,390
1,125 Peak Technologies Group Inc.* 23,906
</TABLE>
See Notes to Financial Statements
15
<PAGE>
EMERGING GROWTH EQUITY FUND
(CONTINUED)
Statement of Investments September 30, 1996
- ----------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- --------- ----------
SOFTWARE PRODUCTS--Continued
<C> <S> <C> <C>
425 Project Software & Development, Inc.* $ 17,850
1,400 Raptor Systems, Inc.* 23,800
1,100 Renaissance Solutions Inc.* 45,375
1,500 SPSS, Inc.* 40,500
2,800 Technology Solutions Company* 97,300
----------
558,433
----------
TELECOMMUNICATIONS 7.6%
900 Bet Holdings* 25,875
1,500 Cai Wireless Systems Inc.* 10,875
1,100 Centennial Cellular Corp.--Cl A* 14,575
400 CMG Information Services Inc.* 5,700
2,000 Coherent Communic. Systems Corp.* 37,000
740 Commnet Cellular Inc.* 21,368
1,500 Evergreen Media Corp.* 46,877
1,575 EZ Communications Inc.--Cl A* 69,300
1,075 Heartland Wireless Communications Inc.* 26,875
900 Intermedia Communications Inc.* 26,325
3,000 Midcom Communication Inc.* 40,500
1,300 P-Com Inc.* 32,175
800 RMH Teleservices Inc.* 11,800
1,506 Saga Communications Inc.--Cl A* 33,697
1,300 Spectralink, Corp.* 8,450
<CAPTION>
Shares Value
- --------- ----------
<C> <S> <C> <C>
1,400 Teltrend, Inc.* $ 58,800
2,087 Transaction Network Services* 29,740
----------
499,932
----------
TOYS 0.8%
1,800 Galoob (Lewis) Toys Inc.* 52,650
----------
TRANSPORTATION 0.8%
1,425 Expeditors International of Wash Inc. 50,230
----------
Total Common Stocks (Cost $4,456,847) $6,271,210
----------
<CAPTION>
Principal
Amount
- ---------
<C> <S> <C> <C>
SHORT TERM INVESTMENTS
REPURCHASE AGREEMENT 3.9%
$242,494 Bear Stearns & Co. Dated 9/30/1996 5.60%
due 10/01/1996 collateralized by 655,000
United States Treasury Strips due
8/15/2010 (Value $249,103) 242,494
----------
Total Investments (Cost $4,699,341) 98.8% $6,513,704
Other Assets, Less Liabilities 1.2% 95,190
------ ----------
Net Assets 100.0% $6,608,894
------ ----------
------ ----------
</TABLE>
*Denotes non-income producing security.
See Notes to Financial Statements
16
<PAGE>
EMERGING GROWTH EQUITY FUND (CONTINUED)
Statement of Assets and Liabilities September 30, 1996
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost $4,699,341)--Note
2 $6,513,704
Cash 115,260
Receivable for investments sold 39,143
Receivable for shares sold 15,395
Dividends and interest receivable 3,072
Other assets 13,956
----------
6,700,530
LIABILITIES:
Payable for investments purchased $ 59,900
Accrued expenses and other 31,736 91,636
-------- ----------
NET ASSETS at value, applicable to 263,504 outstanding
shares--Note 5 $6,608,894
----------
----------
NET ASSET VALUE offering and redemption price per share
($6,608,894 divided by 263,504 shares) $ 25.08
----------
----------
</TABLE>
Statement of Operations Year Ended September 30, 1996
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 19,772
Dividends 3,307
--------
Total Income $ 23,079
Expenses:
Investment manager's fees--Note 3 39,330
Shareholder servicing fees and expenses--Note 3 24,122
Distribution fee--Note 3 8,041
Custodian fees and expenses 37,623
Legal and auditing fees 7,838
Directors' fees and expenses 8,220
Amortization of organizational costs 9,749
Printing and postage 7,624
Other 6,523
--------
Total expenses 149,070
Less expense reimbursement--Note 3 (64,413)
--------
Net expenses 84,657
----------
INVESTMENT (LOSS)--NET (61,578)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS--Note 4:
Net realized gain on investments 697,630
Unrealized appreciation on investments 926,887
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,624,517
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,562,939
----------
----------
</TABLE>
See Notes to Financial Statements
17
<PAGE>
EMERGING GROWTH EQUITY FUND (CONTINUED)
Statement of Changes in Net Assets
---------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/96 9/30/95
---------- ----------
<S> <C> <C>
OPERATIONS:
Investment (loss)--net $ (61,578) $ (29,893)
Net realized gain on investments 697,630 272,274
Unrealized appreciation on investments 926,887 547,848
---------- ----------
Increase in net assets resulting from operations 1,562,939 790,229
---------- ----------
DIVIDEND DISTRIBUTION--Note 2:
Investment income--net -- --
Realized gain on investments (252,458) (45,582)
---------- ----------
(252,458) (45,582)
---------- ----------
CAPITAL TRANSACTIONS--Note 5:
Value of shares sold 2,748,861 527,430
Value of shares redeemed (651,909) (191,700)
Value of shares issued in reinvestment of dividend distribution 250,995 45,582
---------- ----------
Net increase in net assets resulting from capital transactions 2,347,947 381,312
---------- ----------
Net increase 3,658,428 1,125,959
NET ASSETS at beginning of year 2,950,466 1,824,507
---------- ----------
NET ASSETS at end of year $6,608,894 $2,950,466
---------- ----------
---------- ----------
</TABLE>
See Notes to Financial Statements
18
<PAGE>
INTERMEDIATE-TERM FIXED-INCOME FUND
Statement of Investments September 30, 1996
- ----------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- --------- ---------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND
AGENCY OBLIGATIONS 86.6%
$ 250,000 Federal Home Loan Mortgage Corp.
CMO 1489G
5.85% Due 10/15/2006 $ 240,640
250,000 Federal National Mortgage Assoc
CMO G93-8Pg
6.50% Due 7/25/2018 242,382
390,000 Federal National Mortgage Association
Medium Term Note
7.46% Due 9/30/1999 395,787
250,000 Federal National Mortgage Association
CMO G93-3G
6.00% Due 6/25/2018 237,805
250,000 Federal National Mortgage Association
Medium Term Note
6.25% Due 1/14/2004 238,582
500,000 Federal National Mortgage Association
CMO 1994-10M
6.50% Due 6/25/2023 475,109
450,000 Federal National Mortgage Association
CMO 93-167H
6.35% Due 1/25/2022 426,006
292,960 Federal National Mortgage Association
CMO 93-154K
6.00% Due 8/25/2008 271,621
250,000 Federal National Mortgage Assoc. CMO-1993-54E
6.25% Due 6/25/2019 239,627
223,091 Federal National Mortgage Assoc.
CMO 1992-9G
7.00% Due 7/25/2005 224,208
195,097 Federal National Mortgage Assoc. P#050987
6.5% Due 2/1/2009 190,615
<CAPTION>
Principal
Amount Value
- --------- ---------
<C> <S> <C> <C>
$ 600,000 Federal Home Loan Mortgage Corp.
CMO 1611I
6.00% Due 2/15/2023 $ 555,809
648,043 Federal Home Loan Mortgage Corp.
CMO 1680E
6.50% Due 2/15/2024 614,046
380,000 United States Treasury Note
8.875% Due 5/15/2000 410,281
175,000 United States Treasury Note
8.875% Due 11/15/1997 180,578
100,000 United States Treasury Note Stripped Coupon
0.00% Due 02/15/1998 92,245
65,000 United States Treasury Note Stripped Principal
0.00% Due 2/15/1998 59,943
---------
Total United States Government and Agency Obligations (Cost
$5,200,216) $5,095,284
---------
SHORT TERM INVESTMENTS 13.0%
UNITED STATES GOVERNMENT AND
AGENCY OBLIGATIONS
$ 550,000 Farmer Mac Discount Note
5.20% Due 10/04/96 549,762
170,000 Federal Home Loan Mortgage Corp. Discount Note
5.22% Due 10/21/96 169,507
REPURCHASE AGREEMENT
47,022 Bear Stearns & Co. Dated 9/30/1996
5.60% due 10/01/1996 collateralized by 130,000 United States Strips due
8/15/2010 (Value $49,440) 47,022
---------
Total Short Term Obligations (Cost $766,291) $ 766,291
---------
Total Investments (Cost $5,966,507) $5,861,575
Other Assets, Less Liabilities 0.4 % 23,015
--- ---------
Net Assets 100.0 % $5,884,590
--- ---------
--- ---------
</TABLE>
See Notes to Financial Statements
19
<PAGE>
INTERMEDIATE-TERM FIXED-INCOME FUND (CONTINUED)
Statement of Assets and Liabilities September 30, 1996
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost $5,966,507)--Note
2 $5,861,575
Receivable for shares sold 2,917
Interest receivable 45,269
Other assets 9,404
----------
5,919,165
LIABILITIES:
Payable for shares redeemed $ 10,347
Accrued expenses and other 24,228 34,575
-------- ----------
NET ASSETS at value, applicable to 561,002 outstanding
shares--Note 5 $5,884,590
----------
----------
NET ASSET VALUE offering and redemption price per share
($5,884,590 divided by 561,002 shares) $ 10.49
----------
----------
</TABLE>
Statement of Operations Year Ended September 30, 1996
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $403,284
--------
Total Income $ 403,284
Expenses:
Investment manager's fees--Note 3 22,308
Shareholder servicing fees and expenses--Note 3 33,463
Distribution fee--Note 3 11,154
Custodian fees and expenses 3,035
Legal and auditing fees 7,838
Directors' fees and expenses 8,220
Amortization of organizational costs 9,767
Printing and postage 7,624
Registration fees 5,390
Other 1,540
--------
Total expenses 110,339
Less expense reimbursement--Note 3 (56,361)
--------
Net expenses 53,978
----------
INVESTMENT INCOME--NET 349,306
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain on investments 2,356
Unrealized (depreciation) on investments (143,605)
--------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS (141,249)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 208,057
----------
----------
</TABLE>
See Notes to Financial Statements
20
<PAGE>
INTERMEDIATE-TERM FIXED-INCOME FUND (CONTINUED)
Statement of Changes in Net Assets
---------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/96 9/30/95
---------- ----------
<S> <C> <C>
OPERATIONS:
Investment income--net $ 349,306 $ 260,487
Net realized gain (loss) on investments 2,356 (273)
Unrealized appreciation (depreciation) on investments (143,605) 185,270
---------- ----------
Increase in net assets resulting from operations 208,057 445,484
---------- ----------
DIVIDEND DISTRIBUTION--Note 2:
Investment income--net (375,199) (246,044)
Realized gain on investments 0 (19,238)
---------- ----------
(375,199) (265,282)
---------- ----------
CAPITAL TRANSACTIONS--Note 5:
Value of shares sold 1,400,572 1,578,988
Value of shares redeemed (881,027) (258,804)
Value of shares issued in reinvestment of dividend distribution 396,452 263,537
---------- ----------
Net increase in net assets resulting from capital transactions 915,997 1,583,721
---------- ----------
Net increase 748,855 1,763,923
NET ASSETS at beginning of year 5,135,735 3,371,812
---------- ----------
NET ASSETS at end of year $5,884,590 $5,135,735
---------- ----------
---------- ----------
</TABLE>
See Notes to Financial Statements
21
<PAGE>
MONEY MARKET FUND
Statement of Investments September 30, 1996
- ----------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- --------- ----------
<C> <S> <C> <C>
CORPORATE NOTE 3.4%
$ 50,000 Merck & Company
6.00% Due 1/15/1997 $ 50,116
----------
Total Corporate Note (Cost $50,116) $ 50,116
----------
UNITED STATES GOVERNMENT AND
AGENCY OBLIGATIONS 96.3%
35,000 Federal Home Loan Bank
4.40% Due 1/21/1997 34,863
100,000 Federal Home Loan Bank
4.75% Due 1/13/1997 100,000
150,000 Federal Home Loan Bank
4.57% Due 12/30/1996 149,559
50,000 Federal Home Loan Mortgage Corp.
4.625% Due 11/15/1996 50,000
150,000 Federal Home Loan Mortgage Corp. Discount Note
5.22% Due 10/16/1996 149,674
525,000 Federal Home Loan Mortgage Corp. Discount Note
5.24% Due 10/3/1996 524,846
400,000 Federal National Mortgage Association Medium
Term Note
4.50% Due 11/1/1996 399,540
----------
Total United States Government and Agency
Obligations (Cost $1,407,017) $1,408,482
----------
SHORT TERM INVESTMENTS
REPURCHASE AGREEMENT .9%
$13,747 Bear Stearns & Co. Inc. Dated 9/30/1996 5.60%
Due 10/01/1996 collateralized by 40,000 United
States Treasury Strips
Due 8/15/2010 (Value $15,212) 13,747
----------
Total Investments (Cost $1,472,345) $1,472,345
Liabilities, net of other assets -0.6% (9,084)
------ ----------
Net Assets 100.0% $1,463,261
------ ----------
------ ----------
</TABLE>
See Notes to Financial Statements
22
<PAGE>
MONEY MARKET FUND (CONTINUED)
Statement of Assets and Liabilities September 30, 1996
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost $1,472,345)--Note
2 $1,472,345
Receivable for shares sold 4,548
Interest receivable 12,373
Other assets 8,220
----------
1,497,486
LIABILITIES:
Payable for shares redeemed $ 9,777
Dividends payable 5,502
Accrued expenses and other 18,946 34,225
------- ----------
NET ASSETS at value, applicable to 1,463,276 outstanding
shares--Note 5 $1,463,261
----------
----------
NET ASSET VALUE offering and redemption price per share
($1,463,261 divided by 1,463,276 shares) $ 1.00
----------
----------
</TABLE>
Statement of Operations Year Ended September 30, 1996
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 72,152
--------
Total Income $72,152
Expenses:
Investment manager's fees--Note 3 3,245
Shareholder servicing fees and expenses--Note 3 7,788
Distribution fee--Note 3 2,596
Custodian fees and expenses 1,608
Legal and auditing fees 7,838
Directors' fees and expenses 8,220
Amortization of organizational costs 8,211
Printing and postage 7,624
Registration fees 5,391
Other 1,125
--------
Total expenses 53,646
Less expense reimbursement--Note 3 (47,155)
--------
Net expenses 6,491
-------
INVESTMENT INCOME--NET 65,661
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS --
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $65,661
-------
-------
</TABLE>
See Notes to Financial Statements
23
<PAGE>
MONEY MARKET FUND (CONTINUED)
Statement of Changes in Net Assets
---------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/96 9/30/95
---------- ----------
<S> <C> <C>
OPERATIONS:
Investment income--net $ 65,661 $ 59,394
---------- ----------
Increase in net assets resulting from operations 65,661 59,394
---------- ----------
DIVIDEND DISTRIBUTION--Note 2:
Investment income--net (65,661) (59,394)
---------- ----------
CAPITAL TRANSACTIONS--Note 5:
Value of shares sold 560,439 160,847
Value of shares redeemed (369,464) (119,753)
Value of shares issued in reinvestment of dividend distribution 64,916 53,877
---------- ----------
Net increase in net assets resulting from capital transactions 255,891 94,971
---------- ----------
Net increase 255,891 94,971
---------- ----------
NET ASSETS at beginning of year 1,207,370 1,112,399
---------- ----------
NET ASSETS at end of year $1,463,261 $1,207,370
---------- ----------
---------- ----------
</TABLE>
See Notes to Financial Statements
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1--GENERAL
Retirement System Fund Inc. ("Fund") is a no-load, open-end
diversified management investment company, registered under the
Investment Company Act of 1940, as amended, designed to provide
professional investment management and diversification of risk
to investors by offering shares in separate investment funds
("Investment Funds"), each with a different investment
objective. Currently investors may purchase shares of Money
Market Fund, Emerging Growth Equity Fund, Intermediate-Term
Fixed-Income Fund and Core Equity Fund. In the future, the Fund
expects to offer shares of Value Equity Fund, International
Equity Fund and Actively Managed Fixed-Income Fund.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting
policies followed by the Investment Funds in the preparation of
the financial statements.
(A) SECURITIES VALUATION: Except for debt securities with
remaining maturities of 60 days or less, investments for
which market prices are available are valued as follows:
(1)each listed security is valued at its closing price
obtained from the respective exchange on which the
security is listed, or, if there were no sales on that
day, at its last reported closing or bid price.
(2)each unlisted security quoted on the NASDAQ is valued at
the last current bid price obtained from the NASDAQ.
(3)United States Government and agency obligations and
certain other debt obligations are valued based upon bid
quotations from various market makers for identical or
similar obligations.
(4)mortgage-backed securities and asset-backed securities
are valued with a cash flow model based on both the
pre-payment assumptions (Public Securities Association
median) and the price-yield spreads over comparable
United States Treasury Securities.
(5)short-term money market instruments (such as
certificates of deposit, bankers' acceptances and
commercial paper) are valued by bid quotations or by
reference to bid quotations of available yields for
similar instruments of issuers with similar credit
rating.
Debt securities with remaining maturities of 60 days or
less are valued on the basis of amortized cost. In the absence
of an ascertainable market value, investments are valued at
their fair value as determined by the officers of Investors
using methods and procedures reviewed and approved by the
Fund's Directors.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized
gain and loss from securities transactions are recorded on
a specific cost basis. Dividend income is recognized on the
ex-dividend date or when the dividend information is known;
25
<PAGE>
interest income, including, where applicable, amortization
of discount and premium on investments and zero coupon
bonds, is recognized on an accrual basis.
The Investment Funds may enter into repurchase
agreements with financial institutions, deemed to be
creditworthy by the Investment Funds' Manager, subject to
the sellers' agreement to repurchase and the Funds'
agreement to resell such securities at a mutually agreed
upon price. Securities purchased subject to repurchase
agreements are deposited with the Investment Funds'
custodian and, pursuant to the terms of the repurchase
agreement, must have an aggregate market value greater than
or equal to the repurchase price plus accrued interest at
all times. If the value of the underlying securities falls
below the value of the repurchase price plus accrued
interest, the Investment Funds will require the seller to
deposit additional collateral by the next business day. If
the request for additional collateral is not met, or the
seller defaults on its repurchase obligation, the
Investment Funds maintain the right to sell the underlying
securities at market value and may claim any resulting loss
against the seller.
(C) DIVIDENDS TO SHAREHOLDERS: Dividends and capital gain
distributions to shareholders are recorded on the
ex-dividend date. However, the Money Market Fund declares
dividends daily and automatically reinvests such dividends
in additional Fund shares at net asset value, unless the
shareholder elects otherwise. Dividends are declared from
the total of net investment income and net realized gain on
investments.
(D) FEDERAL INCOME TAXES: Each Investment Fund is treated as a
separate entity for Federal Income tax purposes and is not
combined with other Investment Funds. Each of the
Investment Funds intends to comply with the provisions of
the Internal Revenue Code applicable to "regulated
investment companies" and to distribute all of its taxable
income to its shareholders. Therefore, no provision has
been made for Federal income taxes for these Investment
Funds.
(E) ACCOUNTING ESTIMATES: The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the
date of the financial statements and the reported amounts
of increase and decrease in net assets from operations
during the period. Actual results could differ from those
estimates.
(F) OTHER: Costs incurred in connection with the organization
of the Investment Funds have been deferred and are being
amortized on a straight-line basis over five years from the
date of commencement of operations of each portfolio.
Expenses directly attributed to each Investment Fund are
charged to that Investment Fund's operations; expenses
which are applicable to all Investment Funds are allocated
among them.
26
<PAGE>
The Investment Funds may enter into financial futures
contracts which require initial margin deposits of cash or
U.S. Government securities equal to approximately 10% of
the value of the contract. During the period the financial
futures are open, changes in the value of the contracts are
recognized by "marking to market" on a daily basis to
reflect the market value of the contracts at the close of
each day's trading. Accordingly, variation margin payments
are made or received to reflect daily unrealized gains or
losses. The Investment Fund is exposed to market risk as a
result of movements in securities, values and interest
rates.
NOTE 3--INVESTMENT MANAGERS' FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
Retirement System Investors Inc. ("Investors") is the
investment advisor for each Investment Fund. Investors has
engaged Putnam Advisory Company, Inc. ("Putnam"), an
independent investment manager, as subadviser for the Emerging
Growth Equity Fund, to make and effect decisions on buying and
selling portfolio securities. Investors is also investment
manager to the remaining investment funds and, in the case of
all Investment Funds, exercises general oversight with respect
to portfolio management and reports to the Board of Directors
with respect thereto. For their services, the investment
managers are entitled to receive an annual fee, calculated
daily and paid monthly, (calculated and paid quarterly in the
case of Putnam), based upon a percentage of the average net
assets of the respective Investment Funds. The specific
percentages for the Investment Funds are set forth in the
following table.
<TABLE>
<CAPTION>
INVESTMENT FUND ANNUAL FEE
- ----------------------------------------------------- -------------
<S> <C> <C>
Core Equity Fund First $50 million 0.60
Next $150 million 0.50
Over $200 million 0.40
Emerging Growth Equity Fund First $25 million 1.00
Over $25 million 0.75
Intermediate-Term Fixed-Income Fund First $50 million 0.40
Next $100 million 0.30
Over $150 million 0.20
Money Market Fund First $50 million 0.25
Over $50 million 0.20
</TABLE>
In addition, Investors is entitled to receive an annual fee
based upon a percentage of average net assets of the respective
Investment Funds (or portion thereof) for which it does not act
as investment manager, which fee shall be an amount equal to
the sum of (i) .20% of total net assets of the applicable
Investment Funds, and (ii) the fee to which the investment
manager of the applicable Investment Funds is entitled,
calculated in the manner described above with respect to the
investment manager's fees for each such Investment Fund.
Investors, in turn, remits such portion of its fee to the
investment manager of such Investment Fund.
27
<PAGE>
With respect to the Investment Funds for which Investors does
not act as investment manager, Investors has agreed to waive
payment of the portion of the investment advisory fees in an
amount equal to .20% of the total assets of the Investment
Fund's operations, and intends to waive payment of such amount
going forward if necessary to maintain a competitive expense
ratio or to assure that the Investment Fund's expense ratios
comply with regulations in various states where Fund shares are
qualified for sale.
Pursuant to a Distribution Agreement ("Plan") each
Investment Fund pays Retirement System Distributors Inc.
("Distributor") an affiliate of Investors, a monthly fee
determined as follows. The maximum amount payable under the
Plan is equal to .25% of the average daily net assets of an
Investment Fund but the Board of Directors currently limits
such expenditures to .20% of average daily net assets. The Plan
does not provide for any charges to an Investment Fund for
excess amounts expended by the Distributor and, if the Plan is
terminated, the obligation of the Investment Fund to make
payments to the Distributor will cease and the Investment Fund
will not be required to make any payments thereafter. If the
Distributor's costs in connection with its distribution
services to an Investment Fund are less than .20% of net
assets, the Distributor may nevertheless retain the difference.
If the Distributor's costs exceed .20% of net assets, the
Distributor will assume the difference and will not be
reimbursed therefore.
Retirement System Consultants Inc. ("Service Company"), an
affiliate of Investors, has entered into a Service Agreement
with the Fund to provide each Investment Fund with the general
administrative and related services necessary to carry on the
affairs of the Investment Funds, including transfer agent and
registrar services.
For its services, the Service Company is entitled to
receive a fee, calculated daily and paid monthly, based upon
the percentage of the average daily net assets of the
respective Investment Funds. The fee arrangement applicable for
each of the investment funds is as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS FEE
- --------------------------------- ---------
<S> <C>
First $25 million .60%
Next $25 million .50%
Next $25 million .40%
Next $25 million .30%
Over $100 million .20%
</TABLE>
For the year ended September 30, 1996 Investors and its
affiliates waived fees and reimbursed expenses of the Core
Equity Fund, Emerging Growth Equity Fund, Intermediate-Term
Fixed-Income Fund, and Money Market Fund amounting to $75,067,
$64,413, $56,361 and $47,155, respectively.
Each Director who is not an officer of the Investment Funds
or a Trustee of Investors Retirement Trust receives an annual
fee of $7,000. Each Director receives a
28
<PAGE>
fee of $800 per meeting attended, except that such fee is $400
for a telephonic meeting. A Director and several officers of
the Fund are also officers of Investors and its affiliates.
NOTE 4--SECURITIES TRANSACTIONS
The following summarizes the securities transactions, other
than short term securities, by the various Investment Funds for
the year ended September 30, 1996:
<TABLE>
<CAPTION>
INVESTMENT FUND PURCHASES SALES
- -------------------------------------------------------- ------------- -------------
<S> <C> <C>
Core Equity Fund $ 2,492,436 $ 1,131,243
Emerging Growth Equity Fund 5,096,457 3,196,429
Intermediate-Term Fixed-Income Fund 2,463,021 2,009,529
</TABLE>
The cost basis of investments for tax purposes is
substantially the same as the cost basis for book purposes. Net
unrealized appreciation consisting of gross unrealized
appreciation and gross unrealized (depreciation) at September
30, 1996 for each of the Investment Funds was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED GROSS GROSS
APPRECIATION UNREALIZED UNREALIZED
INVESTMENT FUND (DEPRECIATION) APPRECIATION DEPRECIATION
- -------------------------------------- --------------- ------------- -------------
<S> <C> <C> <C>
Core Equity Fund $ 2,807,200 $ 2,820,647 $ (13,447)
Emerging Growth Equity Fund 1,814,363 1,965,046 (150,683)
Intermediate-Term Fixed-Income Fund (104,932) 19,395 (124,327)
</TABLE>
The following summarizes the value of securities that were
on loan to brokers and the value of securities held as
collateral for these loans at September 30, 1996:
<TABLE>
<CAPTION>
VALUE OF
SECURITIES VALUE OF
INVESTMENT FUND LOANED COLLATERAL
- -------------------------------------------------------- ------------- -------------
<S> <C> <C>
Core Equity Fund $ 2,702 $ 3,803
Emerging Growth Equity Fund 1,044,806 1,089,588
</TABLE>
NOTE 5--CAPITAL TRANSACTIONS
The Investment Funds were organized under the laws of the
state of Maryland in November 1990. The Investment Fund is
authorized to issue two billion shares of capital stock, par
value $.001 per share. The Board of Directors of the Investment
Funds is authorized to establish multiple series of shares of
capital stock, each evidencing interest in a separate
Investment Fund.
29
<PAGE>
Transactions in the shares of capital stock of each
Investment Fund for the year ended September 30, 1996 and the
year ended September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Core Equity Emerging Growth
Fund Equity Fund
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fund Shares Sold 138,929 67,933 125,953 34,324
Dividends Reinvested 5,104 9,247 13,991 3,282
Fund Shares Redeemed (42,161) (24,411) (31,299) (12,944)
--------- --------- --------- ---------
Net Increase 101,872 52,769 108,645 24,662
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Intermediate-Term
Fixed-Income Fund
--------------------
1996 1995
--------- ---------
<S> <C> <C> <C> <C>
Fund Shares Sold 131,098 152,183
Dividends Reinvested 37,381 25,145
Fund Shares Redeemed (82,620) (24,467)
--------- ---------
Net Increase 85,859 152,861
--------- ---------
--------- ---------
</TABLE>
Net Assets at September 30, 1996 are as follows:
<TABLE>
<CAPTION>
Core Emerging
Equity Growth
Fund Equity Fund
---------- --------------
<S> <C> <C>
Paid-in Capital $5,675,248 $ 4,187,065
Accumulated undistributed investment
income gain (loss)--net 44,834 (61,578)
Undistributed realized gain 337,734 669,044
Unrealized appreciation 2,807,200 1,814,363
---------- --------------
$8,865,016 $ 6,608,894
---------- --------------
---------- --------------
</TABLE>
<TABLE>
<CAPTION>
Intermediate-Term
Fixed-Income Money Market
Fund Fund
--------------- ------------
<S> <C> <C>
Paid-in Capital $ 5,961,225 $1,434,573
Accumulated undistributed
investment income--net 26,214 28,688
Undistributed realized gain 2,083 0
Unrealized depreciation (104,932) 0
--------------- ------------
$ 5,884,590 $1,463,261
--------------- ------------
--------------- ------------
</TABLE>
30
<PAGE>
NOTE 6--FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CORE EQUITY FUND
-----------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout
the year)
Net Asset Value, Beginning of Year $ 16.69 $ 12.72 $ 12.08 $ 10.98 $ 10.45
------- ------- ------- ------- -------
Income from investment operations:
Investment income--net 0.21 0.13 0.15 0.18 0.23
Net realized and unrealized gain on
investments 3.45 4.22 0.74 1.84 0.60
------- ------- ------- ------- -------
Total from Investment Operations 3.66 4.35 0.89 2.02 0.83
------- ------- ------- ------- -------
Distributions:
Distributions from capital gains -- (0.22) (0.11) (0.64) (0.08)
Distributions from investment income (0.24) (0.16) (0.14) (0.28) (0.22)
------- ------- ------- ------- -------
Total Distributions (0.24) (0.38) (0.25) (0.92) (0.30)
------- ------- ------- ------- -------
Net increase 3.42 3.97 0.64 1.10 0.53
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 20.11 $ 16.69 $ 12.72 $ 12.08 $ 10.98
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return* 22.21% 35.24% 7.47% 19.39% 8.11%
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses 0.97% 0.90% 0.90% 0.90% 0.90%
Investment income--net 1.23% 1.52% 1.17% 1.31% 1.86%
Decrease reflected in above expense
ratio due to expense waivers and
reimbursement 1.08% 1.30% 1.33% 2.43% 2.46%
Portfolio turnover rate 18.08% 25.49% 9.64% 21.79% 61.27%
Average commission rate paid (per
share)** $ .05 -- -- -- --
Net Assets at End of Year ($1,000's) $ 8,865 $ 5,657 $ 3,639 $ 3,094 $ 1,049
</TABLE>
* The total return calculation reflects dividend
reinvestment.
** Required by regulations issued in 1995.
31
<PAGE>
<TABLE>
<CAPTION>
EMERGING GROWTH
EQUITY FUND
-----------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout
the year)
Net Asset Value, Beginning of Year $ 19.05 $ 14.01 $ 14.74 $ 11.83 $ 10.54
------- ------- ------- ------- -------
Income from investment operations:
Investment (loss)--net (0.17) (0.12) (0.04) (0.13) (0.17)
Net realized and unrealized gain on
investments 7.62 5.49 1.58 4.36 1.49
------- ------- ------- ------- -------
Total from Investment Operations 7.45 5.37 1.54 4.23 1.32
------- ------- ------- ------- -------
Distributions:
Distributions from capital gains (1.42) (0.33) (2.27) (1.21) (0.01)
Distributions from investment income -- -- -- (0.11) --
Return of capital -- -- -- -- (0.02)
------- ------- ------- ------- -------
Total Distributions (1.42) (0.33) (2.27) (1.32) (0.03)
------- ------- ------- ------- -------
Net Increase (Decrease) 6.03 5.04 (0.73) 2.91 1.29
------- ------- ------- ------- -------
Net Asset Value, End of Year $25.08 $19.05 $14.01 $14.74 $11.83
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return* 42.07% 39.20% 11.89% 38.05% 13.80%
Ratios/Supplemental Data:
Ratios to average net assets
Expenses 1.96% 1.85% 1.85% 1.85% 1.86%
Investment income (loss)--net (1.43)% (1.33)% (1.37)% (1.34)% (1.10)%
Decrease reflected in above expense
ratio due to expense waivers and
reimbursement 1.49% 3.30% 4.11% 6.41% 7.90%
Portfolio turnover rate 77.94% 84.05% 72.59% 144.49% 138.46%
Average commission rate paid (per
share)** $ .01 -- -- -- --
Net Assets at End of Year ($1,000's) $ 6,609 $ 2,950 $ 1,825 $ 1,352 $684
</TABLE>
* The total return calculation reflects dividend
reinvestment.
** Required by regulations issued in 1995.
32
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE-TERM
FIXED-INCOME FUND
-----------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout
the year)
Net Asset Value, Beginning of Year $ 10.81 $ 10.46 $ 11.43 $ 11.00 $ 10.46
------- ------- ------- ------- -------
Income from investment operations:
Investment income--net 0.66 0.59 0.52 0.54 0.80
Net realized and unrealized gain (loss)
on investments (0.26) 0.38 (0.85) 0.36 0.73
------- ------- ------- ------- -------
Total from Investment Operations 0.40 0.97 (0.33) 0.90 1.53
------- ------- ------- ------- -------
Distributions:
Distributions from capital gains -- (0.05) (0.08) 0.00 (0.15)
Distributions from investment income (0.72) (0.57) (0.56) (0.47) (0.84)
------- ------- ------- ------- -------
Total Distributions (0.72) (0.62) (0.64) (0.47) (0.99)
------- ------- ------- ------- -------
Net Increase (decrease) (0.32) 0.35 (0.97) 0.43 0.54
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 10.49 $ 10.81 $ 10.46 $ 11.43 $ 11.00
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return* 3.82% 9.64% (2.99)% 8.47% 13.86%
Ratios/Supplemental Data:
Ratios to average net assets
Expenses 0.97% 0.90% 0.90% 0.90% 0.90%
Investment income--net 6.27% 5.71% 5.76% 4.90% 5.59%
Decrease reflected in above expense
ratio due to expense waivers and
reimbursement 1.00% 1.09% 1.66% 3.33% 5.56%
Portfolio turnover rate 39.69% 8.50% 8.68% 27.62% 8.66%
Net Assets at End of Year ($1,000's) $ 5,885 $ 5,136 $ 3,372 $ 2,159 $881
</TABLE>
* The total return calculation reflects dividend
reinvestment.
33
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET FUND
-----------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout
the year)
Net Asset Value, Beginning of Year $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- -------
Income from investment operations:
Investment income--net 0.05 0.05 0.03 0.03 0.04
Total from Investment Operations 0.05 0.05 0.03 0.03 0.04
------- ------- ------- ------- -------
Distributions:
Distributions from investment income (0.05) (0.05) (0.03) (0.03) (0.04)
------- ------- ------- ------- -------
Total Distributions (0.05) (0.05) (0.03) (0.03) (0.04)
------- ------- ------- ------- -------
Net Increase (decrease) 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- -------
Net Asset Value, End of Year $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return* 5.19% 5.20% 3.27%+ 2.77% 3.73%
Ratios/Supplemental Data:
Ratios to average net assets
Expenses 0.50% 0.50% 0.42% 0.25% 0.44%
Investment income--net 5.06% 5.15% 3.18% 2.94% 3.68%
Decrease reflected in above expense
ratio due to expense waivers and
reimbursement 3.64% 3.72% 3.47% 4.39% 5.19%
Net Assets at End of Year ($1,000's) $1,463 $1,207 $1,112 $1,466 $664
</TABLE>
* The total return calculation reflects dividend
reinvestment.
+ Had an affiliate of the advisor not contributed capital to
the fund to reimburse a realized loss, the total return
would have been 3.22%.
34
<PAGE>
INDEPENDENT AUDITOR'S REPORT
---------------------------------------------------------------
To the Shareholders and Board of Directors
Retirement System Fund Inc.
We have audited the statements of assets and liabilities,
including the statements of investments, of the Core Equity
Fund, Emerging Growth Equity Fund, Intermediate-Term
Fixed-Income Fund and Money Market Fund (the "Investment
Funds") of the Retirement System Fund Inc. as of September 30,
1996, and the related statements of operations for the year
then ended, statements of changes in net assets for each of the
two years in the period then ended and the financial highlights
for each of the five years in the period then ended. These
financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1996, by
correspondence with the custodians and brokers. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of the Investment Funds of
Retirement System Fund Inc. at September 30, 1996, the results
of their operations, the changes in their net assets and the
financial highlights for the periods indicated, in conformity
with generally accepted accounting principles.
[SIGNATURE]
New York, New York
November 15, 1996
35
<PAGE>
OFFICERS
---------------------------------------------------------------
William Dannecker, President
James P. Coughlin, C.F.A., Executive Vice President and Chief
Investment Officer
Stephen P. Pollak, Esq., Executive Vice President, Counsel and
Secretary
John F. Meuser, Senior Vice President and Treasurer
Veronica A. Fisher, First Vice President and Assistant
Treasurer
Herbert Kuhl, Jr., C.F.A., First Vice President
Chris R. Kaufman, Second Vice President
Deborah A. Modzelewski, Second Vice President
Heidi Viceconte, Second Vice President
INVESTMENT MANAGERS
---------------------------------------------------------------
The Putnam Advisory Company, Inc.
Retirement System Investors Inc.
CUSTODIAN
---------------------------------------------------------------
Custodial Trust Company
DISTRIBUTOR
---------------------------------------------------------------
Retirement System Distributors Inc.
CONSULTANT
---------------------------------------------------------------
Retirement System Consultants Inc.
TRANSFER AGENT
---------------------------------------------------------------
Retirement System Consultants Inc.
INDEPENDENT AUDITORS
---------------------------------------------------------------
McGladrey & Pullen, LLP
COUNSEL
---------------------------------------------------------------
Morgan, Lewis & Bockius, LLP
36
<PAGE>
BOARD OF DIRECTORS
---------------------------------------------------------------
Edward J. Brown
Retired President and Chief Operating Officer
Apple Bank for Savings and Apple Bancorp, Inc., NY
Candace Cox
President and Chief Investment Officer
NYNEX Asset Management Co., NY
William Dannecker
President and Chief Executive Officer
Retirement System Group Inc., NY
Eugene C. Ecker
Pension and Group Insurance Consultant
Joseph P. Gemmell
Chairman of the Board, President and Chief Executive Officer
Bankers Savings, NJ
Covington Hardee
Retired Chairman
The Lincoln Savings Bank, FSB, NY
Raymond L. Willis
Private Investments
37
<PAGE>
FOR MORE COMPLETE INFORMATION ABOUT RETIREMENT SYSTEM FUND INC., INCLUDING
CHARGES AND EXPENSES, CALL 1-800-772-3615 FOR A PROSPECTUS OR WRITE TO
RETIREMENT SYSTEM DISTRIBUTORS INC., CUSTOMER SERVICE, P.O. BOX 2064, GRAND
CENTRAL STATION, NEW YORK, NY 10163-2064. READ THE PROSPECTUS CAREFULLY BEFORE
YOU INVEST OR SEND MONEY. RETIREMENT SYSTEM FUND IS DISTRIBUTED EXCLUSIVELY BY
RETIREMENT SYSTEM DISTRIBUTORS INC. TOTAL RETURNS ARE BASED ON HISTORICAL
RESULTS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. FUTURE PERFORMANCE
AND UNIT ASSET VALUE WILL FLUCTUATE SO THAT UNITS, IF REDEEMED, MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. THIS MATERIAL MUST BE PRECEDED OR
ACCOMPANIED BY A PROSPECTUS.
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
ANNUAL REPORT
*Not yet available for sale to investors
[LOGO]
Retirement System
Fund Inc.
Core Equity Fund
Emerging Growth Equity Fund
Intermediate-Term Fixed-Income Fund
Money Market Fund
Value Equity Fund*
International Equity Fund*
Actively Managed Fixed-Income Fund*
1996
Broker/Dealer
[LOGO]
RETIREMENT SYSTEM
Distributors Inc.
P.O. Box 2064
Grand Central Station
New York, NY 10163-2064
<PAGE>
SEMI-ANNUAL
REPORT
*Not yet available for sale to investors
[LOGO]
RETIREMENT SYSTEM
Fund Inc.
CORE EQUITY FUND
EMERGING GROWTH EQUITY FUND
INTERMEDIATE-TERM FIXED-INCOME FUND
MONEY MARKET FUND
VALUE EQUITY FUND*
INTERNATIONAL EQUITY FUND*
ACTIVELY MANAGED FIXED-INCOME FUND*
1997
BROKER/DEALER
[LOGO]
RETIREMENT SYSTEM
Distributors Inc.
P.O. Box 2064
Grand Central Station
New York, NY 10163-2064
<PAGE>
TABLE OF CONTENTS
- ------------------------------------------------------
<TABLE>
<S> <C>
President's Message...................................................... 1
Investment Review........................................................ 2
Financial Statements of Investment Funds................................. 6
Core Equity Fund..................................................... 6
Emerging Growth Equity Fund.......................................... 10
Intermediate-Term Fixed-Income Fund.................................. 15
Money Market Fund.................................................... 18
Notes to Financial Statements............................................ 21
Officers, Consultants, Investment Managers,
Custodians, Distributor, Transfer Agent................................ 32
Board of Directors....................................................... 33
</TABLE>
Note: Investors currently may purchase shares of the Core Equity Fund, the
Emerging Growth Equity Fund, the Intermediate-Term Fixed-Income Fund and the
Money Market Fund. Shares of the Value Equity Fund, the International Equity
Fund and the Actively Managed Fixed-Income Fund, as described in Retirement
System Fund Inc.'s Prospectus, are not yet available for sale to investors.
This Semi-Annual Report is unaudited.
<PAGE>
PRESIDENT'S MESSAGE
To Our Shareholders:
During the six-month period ended March 31, 1997, the trend
that has been prevalent during the past few years--moderate
economic growth, fluctuating interest rates, favorable
inflation rates, heavy corporate stock repurchases and massive
cash inflows by mutual fund investors--continued unabated.
Equity markets showed ongoing strength, with strong returns
in the first quarter of the fiscal year, followed by more
volatile returns in the second quarter. The S&P 500, a
representative index of the U.S. broad equity market, rose
11.24% for the entire period (8.42% and 2.61%, respectively,
for the two consecutive quarters). Second quarter volatility
was also apparent in the Russell 2000, a small cap index, which
ended the six-month period down 0.24%, and down 5.17% for the
three months ended March 31, 1997. Fixed-income markets,
affected by the continuing strong economic growth and concerns
about higher inflation and the resulting upward movement in
interest rates, experienced negative returns in the second
quarter of the fiscal year, but still finished the six months
ended March 31, 1997 with positive results.
During the six-month period, two funds--the
Intermediate-Term Fixed-Income Fund and the Money Market
Fund--outperformed their respective Lipper benchmarks. However,
over the longer term, the funds were more uniformly successful,
with all the investment funds outperforming their respective
Lipper benchmarks for the five-year period ended March 31,
1997.
During the fiscal year-to-date, assets under Fund
management have grown substantially, increasing by $8 million,
to $30.8 million at March 31, 1997.
On behalf of the Board of Directors, I'd like to thank our
shareholders for choosing Retirement System Fund Inc. to help
meet your investment goals. I'd also like to thank the members
of the Board for their valuable counsel and assistance.
Sincerely,
[SIGNATURE]
William Dannecker
President and Director
1
<PAGE>
INVESTMENT REVIEW
EQUITY FUNDS
For the first six months of fiscal year 1997, the domestic
equity market indices (principally for large cap stocks),
showed substantial strength in the fourth quarter 1996 and
modest strength for the first quarter 1997. For the full
period, the Dow Jones Industrial Average (DJIA) reflected the
highest gains at 13.17%. During this period, cyclical stocks
were generally in favor and the DJIA benefited accordingly,
since this index contains a number of cyclical stocks. The S&P
500, a representative index of the U.S. broad equity market,
rose 11.24% for the period (8.42% and 2.61%, respectively, for
the last two quarters).
Large cap growth stocks, as measured by the Russell 1000
Growth Index, were more sensitive to investor sentiment, which
became more bearish in the first quarter, and returned 6.61%
(6.04% of the return coming in the fourth quarter 1996). The
Russell 2000, a small capitalization index, was one of the
worst performing indices at -0.24% for the last six months, and
down 5.17% for trailing three months ended March 31, 1997. (For
the six-month period, the Russell 2000 Growth Index, however,
was down 10.25%, and reflected a -10.49% result for the most
recent quarter.)
Value oriented stocks (traditionally, stocks selling at low
p/e's, low price/book ratios and/or high dividend yields)
performed well over the past six months. The representative
index for this investment discipline, the Russell 1000 Value
Index, returned 12.79% (9.98% for the fourth quarter 1996 and
2.56% for the first quarter 1997).
Moderate economic growth, low inflation rates, favorable
interest rates, heavy corporate stock repurchases and
substantial cash inflow by mutual fund investors have propelled
the stock market over the past few years. Thus far in fiscal
year 1997, this trend has continued (as was the case also for
the first half year of fiscal year 1996). Corporate earnings
have benefited from productivity gains from technological
innovations, downsizing of costs, and the improved competitive
position of U.S. companies, in spite of a rising dollar.
Economic growth (Gross Domestic Product, or "GDP") was
strong, growing at an annualized rate of 3.8% for the fourth
quarter 1996. The momentum continued for the first quarter of
1997.
Assuming a 2% to 3% GDP pace, on average, the key to future
earnings growth will be the interaction of productivity gains
and product price increases versus higher wage and raw material
costs. The extent of recovery in foreign economies will also
play a major role. Looking forward, meaningful stock market
gains would seem to depend upon no substantial increases in
interest rates and the continuation of earnings growth
momentum. Also, ongoing share repurchases should continue to
help stock prices. Conversely, market volatility risk could
increase if higher interest rates accompanied by profit
pressures develop, particularly if strong cash flow trends into
equity mutual funds moderate significantly. Subsequent to March
31, 1997, interest rates have continued to fluctuate and the
equity markets have been very volatile as a result, with the
small capitalization company indices being the most severely
impacted to date.
2
<PAGE>
CORE EQUITY FUND
The Core Equity Fund posted an 3.91% return for the six months
ended March 31, 1997, compared to a return of 8.63% for the
Lipper Growth and Income Funds Average, its performance
comparison benchmark. For the one-year period ended March 31,
1997, the Fund returned 17.07% versus the 15.47% return of the
Lipper benchmark. For the three-year period ended March 31,
1997, the Fund returned 21.90% per year, outpacing the 17.89%
annualized return of its benchmark, and ranked in the top 5% of
the Lipper Growth & Income Fund grouping (15th out of 341
funds). Since inception (June 1, 1991 to March 31, 1997), this
Fund achieved an annualized return of 16.59%, and ranked in the
top 6% of the Lipper Growth and Income Funds' grouping (11th
out of 195 funds).
EMERGING GROWTH EQUITY FUND
For the six-month period ended March 31, 1997, the Emerging
Growth Equity Fund reflected a return of -17.12%, while its
benchmark, the Lipper Small Company Growth Funds Average,
returned -4.60%. For the one-year period ended March 31, 1997,
the Fund returned -0.59%, as compared to the 4.67% return of
its Lipper benchmark. For the three-year period ended March 31,
1997, the Fund's annualized return of 20.98% outperformed by
more than seven percentage points the 13.63% annualized return
of its benchmark. This return placed the Fund in the top 7%
(15th out of 227 funds) of its Lipper grouping. Since inception
(June 1, 1991 to March 31, 1997) the Fund achieved a 20.94%
annualized return, outpacing the 14.61% annualized return for
its Lipper benchmark by a considerable margin. This return
placed the Fund in the top 4% of the Lipper Small Company
Growth Funds' grouping (3rd out of 83 funds).
FIXED-INCOME FUNDS
In the fourth quarter of 1996, inflation remained under
control, as the Consumer Price Index (CPI) was up 0.5% for the
period. It was a period when interest rates throughout the
yield curve were declining most of the time and a period during
which the Federal Reserve (late in the quarter) was becoming
more sensitive to underlying inflationary concerns as a result
of the robust economy. For the longer-term portion of the yield
curve, fixed-income total returns (interest plus price
changes), as measured by the Lehman Brothers Aggregate Bond
Index, rose 3.00% for the quarter. For the short- to-
intermediate-term securities (represented by the Lehman
Brothers Government-Intermediate Bond Index), the total
quarterly return was up 2.31%; and cash equivalent-type
investments (the 90-Day Treasury Bills) increased 1.22% for
this period.
The first quarter of 1997 (like the first quarter of 1996)
reflected a turn in events--intermediate and longer-term
interest rates rose substantially with the 5-year Treasury
increasing to 6.75% at quarter end from 6.21% at December 31,
1996 and the 30-year Treasury up to 7.09% at March 31, 1997
from 6.64% at December 31, 1996. On March 25, 1997, the Federal
Reserve (FED) Committee did increase the Federal Funds Rate by
25 basis points to 5.50%, but kept the Discount Rate unchanged
at 5.00% (this was the first action taken by the FED in 14
months).
3
<PAGE>
Moreover, the outlook remains bright for continued strong
economic growth, thereby strengthening inflationary concerns
and further increases in interest rates. As a result of the
conditions that prevailed during this quarter, the bond markets
reflected negative returns (the same situation that also
prevailed for the first quarter of 1996). However, the Lehman
Brothers Government-Intermediate Bond Index (a proxy for the
short- to-intermediate securities) finished the six-month
period ended March 31, 1997 up 2.29%. The 90-Day U.S. Treasury
Bills returned 2.48% for this six-month period.
INTERMEDIATE-TERM FIXED-INCOME FUND
The Intermediate-Term Fixed-Income Fund returned 2.53% for the
fiscal year-to-date ended March 31, 1997, and compared
favorably to its benchmark, the Lipper Short-Intermediate (1 to
5 year maturity) U.S. Government Funds grouping, which returned
2.25%. For the one year ended March 31, 1997, this Fund
achieved a 4.91% return, compared to a 4.38% return for the
Lipper benchmark. With an annualized return of 6.91% since
inception (June 1, 1991 to March 31, 1997), this Fund
outperformed the Lipper benchmark's performance of 6.21% per
year for the same period, and ranked in the top 12% of its
Lipper grouping (3rd out of 26 funds).
The Intermediate-Term Fixed-Income Fund emphasizes quality
of holding, with 98% in U.S. Treasury and U.S. Government and
Agency issues, and 2% in Repurchase Agreements collateralized
with U.S. Treasury securities. At March 31, 1997, the Fund
reflected an average maturity of 2.4 years and an average
duration of 2.2 years, versus 3.7 years and 3.0 years,
respectively, at September 30, 1996.
MONEY MARKET FUND
For the six-month period ended March 31, 1997, the Money Market
Fund posted a return of 2.45%, comparing favorably to the
Lipper Retail Money Market Funds Average return of 2.35% and
the Donoghue All-Taxable Money Funds Average return of 2.44%
for the same period. For the one-year period ended March 31,
1997 the Fund produced a return of 5.02% and compared favorably
to both representative benchmarks for this period. The Fund
achieved a respectable five-year average return of 4.91%,
outpacing the Lipper Retail Money Market Fund Average of 4.01%
per annum and equaling the Donoghue Average annual return of
4.91%.
Since inception (April 1, 1991 through March 31, 1997), the
Fund achieved an annualized return of 4.20% versus 4.17% per
year for the Lipper Average and a 4.25% annualized return for
the Donoghue Average.
The Money Market Fund emphasizes quality holdings, with 96%
in U.S. Government Agency issues and 4% in Repurchase
Agreements collateralized with U.S. Treasury securities. On
March 31, 1997, the average maturity of all portfolio holdings
was 19 days versus 36 days, six months ago (September 30,
1996).
4
<PAGE>
EQUITY FUNDS
NET INVESTMENT PERFORMANCE(1)
FOR PERIODS ENDED MARCH 31, 1997
---------------------------------------------------------------
<TABLE>
<CAPTION>
Annualized
------------------------------------
Since
6 Months 1 Year 3 Years 5 Years Inception(2)
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
CORE EQUITY FUND 3.91% 17.07% 21.90% 17.75% 16.59%
Lipper Growth & Income Funds
Average(3) 8.63 15.47 17.89 14.21 13.66
EMERGING GROWTH EQUITY FUND -17.12 -0.59 20.98 19.95 20.94
Lipper Small Company Growth
Funds Average(3) -4.60 4.67 13.63 13.34 14.61
</TABLE>
1. All performance results shown are net of management fees
and all related expenses, unless otherwise footnoted.
2. Covers the period from 6/1/91 through 3/31/97.
3. Lipper Analytical Services is an independent reporting
service that measures the performance of most U.S. mutual
funds. The performance results reflect an unmanaged index
and are net of all expenses other than sales charges and
redemption fees.
---------------------------------------------------------------
FIXED-INCOME FUNDS
NET INVESTMENT PERFORMANCE(1)
FOR PERIODS ENDED MARCH 31, 1997
---------------------------------------------------------------
<TABLE>
<CAPTION>
Annualized
------------------------------------
Since
6 Months 1 Year 3 Years 5 Years Inception
------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
INTERMEDIATE-TERM FIXED-INCOME
FUND 2.53% 4.91% 4.96% 6.28% 6.91%
Lipper Short-Intermediate
(1 to 5 year maturity)
U.S. Government Funds Average 2.25 4.38 5.11 5.56 6.21(2)
MONEY MARKET FUND(3) 2.45 5.02 4.91 4.11 4.20(4)
Donoghue All Taxable Money Fund
Average(5) 2.44 4.92 4.91 4.10 4.25(4)
Lipper Retail Money Market
Funds Average(6) 2.35 4.76 4.81 4.01 4.17(4)
</TABLE>
1. All performance results shown are net of management fees
and all related expenses, unless otherwise footnoted.
2. Covers the period from 6/1/91 through 3/31/97.
3. Investment in the Money Market Fund is neither insured or
guaranteed by the U.S. Government and there is no assurance
that the fund will maintain a steady net asset value of
$1.00 per share.
4. Covers the period from 4/1/91 through 3/31/97.
5. Reported by the Donoghue Money Fund Reporting Service. The
performance results reflect an unmanaged index and are net,
since expenses are applicable.
6. Lipper Analytical Services is an independent reporting
service that measures performance of most U.S. mutual
funds. The performance results reflect an unmanaged index
and are net of all expenses other than sales charges and
redemption fees.
---------------------------------------------------------------
5
<PAGE>
FINANCIAL STATEMENTS OF INVESTMENT FUNDS
CORE EQUITY FUND
Statement of Investments
March 31, 1997 (Unaudited)
- ----------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- -----------
<C> <S> <C> <C>
COMMON STOCKS 90.9%
AEROSPACE 4.4%
1,000 Boeing Corp. $ 98,624
4,800 Lockheed Martin Corp. 403,200
-----------
501,824
-----------
AUTOMOBILES 0.6%
1,640 Chrysler Corporation 49,200
500 Snap-On Tools Inc. 19,375
-----------
68,575
-----------
BANKING 6.4%
2,600 BankAmerica Corp. 261,950
2,576 Chase Manhattan Corp. 241,177
2,000 Citicorp 216,500
-----------
719,627
-----------
BUILDING PRODUCTS 1.7%
3,000 Armstrong World Industries
Inc. 194,250
-----------
CHEMICALS 2.7%
2,900 E.I. Du Pont De Nemours &
Company 307,400
-----------
COMPUTER SYSTEMS 2.5%
2,100 International Business
Machines Corp. 288,488
-----------
DRUG AND HEALTH CARE 2.7%
5,800 Johnson & Johnson 306,675
-----------
ELECTRONICS AND ELECTRICAL 14.9%
2,400 Cisco Systems Inc.* 115,500
1,600 EMC Corp. 56,800
8,800 Emerson Electric Company 396,000
4,600 General Electric Company 456,550
5,200 Hewlett Packard Corp. 276,900
2,600 Intel Corp. 361,400
500 Seagate Technology Inc. 22,438
-----------
1,685,588
-----------
ENERGY 7.7%
4,100 Dresser Industries Inc. 124,025
4,100 Exxon Corp. 441,775
600 Royal Dutch Petroleum Company 105,000
1,800 Texaco Inc. 197,100
-----------
867,900
-----------
</TABLE>
See Notes to Financial Statements
6
<PAGE>
CORE EQUITY FUND (CONTINUED)
Statement of Investments
March 31, 1997 (Unaudited)
- ----------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- -----------
<C> <S> <C> <C>
ENGINEERING AND CONSTRUCTION 1.9%
4,200 Fluor Corp. $ 220,500
-----------
FINANCIAL SERVICES 8.9%
7,900 Federal National Mortgage
Association 285,388
1,100 Morgan (J.P.) & Company Inc. 108,075
5,900 Sunamerica, Inc. 221,988
6,400 Sunamerica, Inc. Pfd 252,800
3,000 Travelers Group, Inc. 143,625
-----------
1,011,876
-----------
FOOD AND SERVICES 3.1%
9,400 Dole Food Company 354,850
-----------
INSURANCE 3.3%
5,300 Allstate Corp. 314,687
400 General Re Corp 63,200
-----------
377,887
-----------
MACHINERY AND ENGINEERING 3.3%
6,300 Cincinnati Milacron Inc. 118,125
5,500 Deere & Company 239,250
400 Ingersoll-Rand Company 17,450
-----------
374,825
-----------
METALS AND MINING 3.4%
1,000 Aluminum Company of America 68,000
4,100 Potash Corp. of Saskatchewan 311,600
-----------
379,600
-----------
MISCELLANEOUS 2.2%
2,200 Philip Morris Companies Inc. 251,075
-----------
MULTI INDUSTRY 2.8%
4,500 Allied Signal Inc. 320,625
-----------
OFFICE AND BUSINESS EQUIPMENT 2.1%
4,100 Xerox Corp. 233,188
-----------
PHARMACEUTICALS 2.9%
200 Amgen 11,175
400 Lilly & Co. 32,900
3,400 Pfizer Inc. 286,025
-----------
330,100
-----------
<CAPTION>
SHARES VALUE
- --------- -----------
<C> <S> <C> <C>
RETAIL 1.0%
1,700 Federated Department Stores $ 55,888
1,200 Sears Roebuck & Company 60,300
-----------
116,188
-----------
SOFTWARE 7.8%
200 BMC Software, Inc. 9,200
9,100 Computer Associates
International, Inc. 353,763
3,000 Electronic Data Systems Corp. 121,125
9,600 Informix Corp.* 144,000
6,000 Oracle Systems Corp.* 231,000
200 Parametric Technology Corp.* 9,000
1,000 Structural Dynamics Research* 20,500
-----------
888,588
-----------
TELECOMMUNICATIONS 4.6%
3,100 American Telephone & Telegraph
Corp. 107,725
2,004 Lucent Technologies, Inc. 105,710
8,400 Tellabs Inc.* 302,400
-----------
515,835
-----------
Total Common and Preferred Stocks (Cost $7,401,519) $10,315,464
-----------
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<C> <S> <C> <C>
SHORT TERM INVESTMENTS
REPURCHASE AGREEMENT 4.4%
$475,000 Bear Stearns & Co. Inc. Dated
3/31/1997 6.28% due 4/1/1997
collateralized by $3,060,000
United States Treasury
Strips due 11/15/2022 (Value
$484,826) 475,000
-----------
Total Investments (Cost $7,876,519) 95.3% $10,790,464
-----------
</TABLE>
<TABLE>
<CAPTION>
# OF EXPIRATION DATE/
CONTRACTS STRIKE PRICE
- --------- ----------------
<C> <S> <C> <C>
WRITTEN COVERED CALL OPTIONS
10 General Electric Co. June 1997 / 110
(Premiums Received $5,095) (1,625)
-----------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Other Assets, Less Liabilities 4.7% 537,189
----- -----------
Net Assets 100.0% $11,326,028
----- -----------
----- -----------
</TABLE>
*Denotes non-income producing security.
See Notes to Financial Statements 7
<PAGE>
CORE EQUITY FUND (CONTINUED)
Statement of Assets and Liabilities March 31, 1997 (Unaudited)
- ----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost
$7,876,519)--Note 2 $10,790,464
Cash 426,540
Receivable for investments sold 35,219
Receivable for shares sold 152,705
Dividends and interest receivable 16,335
Other assets 14,252
-----------
11,435,515
LIABILITIES:
Options written (premiums received $5,095) $ 1,625
Payable for investments purchased 77,652
Accrued expenses and other 30,210 109,487
------- -----------
NET ASSETS at value, applicable to 565,820
outstanding shares--Note 5 $11,326,028
-----------
-----------
NET ASSET VALUE offering and redemption price
per share
($11,326,028 divided by 565,820 shares) $ 20.02
-----------
-----------
</TABLE>
Statement of Operations Six Months Ended March 31, 1997 (Unaudited)
- ----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 24,699
Dividends 75,464
--------
Total Income $100,163
Expenses:
Investment manager's fees--Note 3 31,636
Shareholder servicing fees and
expenses--Note 3 31,636
Distribution fee--Note 3 10,545
Custodian fees and expenses 3,732
Legal and auditing fees 4,773
Directors' fees and expenses 6,531
Printing and postage 5,807
Registration fees 7,656
Other 1,367
--------
Total expenses 103,683
Less expense reimbursement--Note 3 (54,616)
--------
Net expenses 49,067
--------
INVESTMENT INCOME--NET 51,096
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS--Note 4:
Net realized gain on investments 127,215
Unrealized appreciation on investments 110,215
--------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 237,430
--------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $288,526
--------
--------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
CORE EQUITY FUND (CONTINUED)
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
3/31/97 YEAR ENDED
(UNAUDITED) 9/30/96
----------- ----------
<S> <C> <C>
OPERATIONS:
Investment income--net $ 51,096 $ 85,853
Net realized gain on investments 127,215 364,855
Unrealized appreciation on investments 110,215 980,258
----------- ----------
Increase in net assets resulting from operations 288,526 1,430,966
----------- ----------
DIVIDEND DISTRIBUTION--Note 2:
Investment income--net (93,023) (86,059)
Realized gain on investments (338,161) 0
----------- ----------
(431,184) (86,059)
----------- ----------
CAPITAL TRANSACTIONS--Note 5:
Value of shares sold 2,627,049 2,533,992
Value of shares redeemed (454,052) (757,380)
Value of shares issued in reinvestment of dividend distribution 430,673 86,059
----------- ----------
Net increase in net assets resulting from capital transactions 2,603,670 1,862,671
----------- ----------
Net increase 2,461,012 3,207,578
NET ASSETS at beginning of period 8,865,016 5,657,438
----------- ----------
NET ASSETS at end of period $11,326,028 $8,865,016
----------- ----------
----------- ----------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
EMERGING GROWTH EQUITY FUND
Statement of Investments
March 31, 1997 (Unaudited)
- ----------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- -----------
<C> <S> <C> <C>
COMMON STOCKS 84.7%
APPAREL AND TEXTILE 2.9%
2,100 Gadzooks Inc.* $ 66,150
5,890 St. John Knits Inc. 254,743
-----------
320,893
-----------
BROADCASTING AND
PUBLISHING 2.4%
3,600 Granite Broadcasting
Corp.* 34,650
2,700 Heftel Broadcasting Corp.
Class A* 124,200
1,500 SFX Broadcasting Inc.* 42,375
600 Sinclair Broadcast Group
Inc.* 15,600
2,100 Young Broadcasting Corp.
Class A* 50,138
-----------
266,963
-----------
BUSINESS AND PUBLIC
SERVICES 10.4%
2,100 Acres Gaming, Inc.* 9,713
100 Ameritrade Holding Corp.
Class A* 1,563
1,400 Carriage Services, Inc.* 26,600
1,300 CCC Information Services
Group* 15,275
2,000 Claremont Technology
Group* 47,000
2,000 Computer Task Group Inc. 71,000
4,320 Concord EFS, Inc.* 81,000
4,700 Cotelligent Group Inc.* 42,300
1,700 Delta Financial Corp.* 30,813
4,950 Equity Corporation
International* 103,950
4,420 Keane Inc.* 145,308
2,200 Lamar Advertising Co.* 43,450
800 Learning Tree
International, Inc.* 22,200
1,100 Metzler Group, Inc.* 23,788
1,400 Outdoor Systems, Inc.* 40,600
1,600 PJ America Inc.* 22,800
3,600 Precision Response Corp.* 85,050
3,000 Raptor Systems, Inc.* 38,625
4,050 Splash Technologies
Holdings* 99,225
2,900 Strayer Education Inc.* 56,550
1,600 Sykes Enterprises, Inc.* 50,600
1,000 The Registry, Inc.* 35,000
1,800 Universal Outdoor
Holdings* 52,200
-----------
1,144,610
-----------
COMMERCIAL SERVICES 5.7%
3,250 Brightpoint Inc.* 52,813
1,687 Corestaff Inc.* 32,686
3,900 Fine Host Corp.* 91,163
2,100 FYI Inc.* 42,788
2,800 Judge Group, Inc.* 9,975
2,850 Lason Holdings Inc.* 56,288
2,700 National Techteam Inc.* 41,850
3,400 NCO Group, Inc.* 73,100
<CAPTION>
SHARES VALUE
- --------- -----------
<C> <S> <C> <C>
4,200 PMT Services Inc.* $ 45,675
4,200 Promedco Management Co.* 37,800
2,340 Robert Half International
Inc.* 81,608
3,000 Superior Services Inc.* 66,750
-----------
632,496
-----------
CONSUMER GOODS AND
SERVICES 11.6%
2,550 Blyth Industries Inc.* 92,119
3,000 Cuno Inc.* 46,125
5,100 Finish Line (the) Class
A* 112,200
5,100 French Fragrances, Inc.* 38,250
400 General Cigar Holding,
Inc.* 8,900
4,400 Marks Bros. Jewelers
Inc.* 51,700
2,000 Metris Companies, Inc.* 49,500
3,078 Nautica Enterprises Inc.* 76,950
5,000 Rexall Sundown, Inc.* 128,125
4,500 Signature Resorts Inc.* 105,750
3,432 Stewart Enterprises Inc. 124,410
5,100 Team Rental Group Inc.* 104,550
5,600 The North Face, Inc.* 92,400
1,600 Watsco, Inc.* 40,800
5,660 Wolverine World Wide 206,590
-----------
1,278,369
-----------
DATA PROCESSING 0.3%
1,800 Data Processing
Resources* 33,300
-----------
ELECTRONICS AND
ELECTRICAL 13.4%
2,300 Act Manufacturing Inc. 47,150
4,300 Actel Corp.* 93,525
6,200 Advanced Lighting Techs* 136,400
1,100 Benchmarq
Microelectronics* 13,338
4,700 C.P. Clare Corp.* 47,000
1,500 CFM Technologies Inc.* 43,875
7,200 Computer Products Inc.* 105,300
4,703 Credence Systems Corp.* 91,120
5,454 Del Global Technologies
Corp.* 44,995
1,800 Electromagnetic Sciences,
Inc.* 33,300
4,600 Elexsys International
Inc.* 55,200
1,200 Enterprise Systems* 27,000
2,700 Flextronics International
Ltd.* 52,987
1,000 Helix Technology Corp. 32,750
3,900 Integrated Circuit
Systems* 55,575
1,900 Jabil Circuit Inc.* 85,500
2,900 JPM Company* 47,125
1,500 Micrel, Inc.* 43,500
2,400 Micro Linear Corp.* 29,700
900 Photronics, Inc.* 26,437
2,250 Sanmina Corp.* 100,405
</TABLE>
See Notes to Financial Statements 10
<PAGE>
EMERGING GROWTH EQUITY FUND (CONTINUED)
Statement of Investments
March 31, 1997 (Unaudited)
- ----------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- -----------
ELECTRONICS AND
ELECTRICAL--CONTINUED
<C> <S> <C> <C>
3,600 SDL Inc.* $ 60,300
3,100 Sierra Semiconductor
Corp.* 49,988
2,250 Thermo Voltek Corp. 20,812
2,800 Ultrak, Inc.* 49,000
3,700 Ultratech Stepper Inc.* 80,937
-----------
1,473,219
-----------
EMPLOYMENT AGENCY 0.6%
2,530 On Assignment Inc.* 63,250
-----------
ENTERTAINMENT 1.8%
1,400 Family Golf Centers,
Inc.* 26,775
4,700 Penn National Gaming
Inc.* 74,025
2,500 Penske Motorsports Inc.* 70,000
1,200 Regal Cinemas Inc.* 32,400
-----------
203,200
-----------
FOOD AND SERVICES 0.7%
2,100 Mortons Restaurant Group
Inc.* 35,438
2,250 Rainforest Cafe, Inc.* 44,437
-----------
79,875
-----------
FURNITURE/HOME APPLIANCES 0.9%
4,250 Cort Business Services
Corp.* 96,687
-----------
INSURANCE 3.1%
2,075 Compdent Corp.* 58,100
1,885 CRA Managed Care, Inc.* 69,745
4,830 HCC Insurance Holdings
Inc. 118,335
2,020 Reinsurance Group of
America, Inc. 97,970
-----------
344,150
-----------
LODGING/MOTELS 1.5%
7,800 Prime Hospitality Corp.* 121,875
2,760 Studio Plus Hotels, Inc.* 47,610
-----------
169,485
-----------
MACHINERY AND ENGINEERING 2.5%
1,800 Memtec Ltd. 45,675
7,700 Miller Industries Inc.* 92,400
2,700 Remec, Inc.* 54,675
3,300 Rental Service Corp.* 60,225
700 Veeco Instruments Inc.* 20,562
-----------
273,537
-----------
MEDICAL SERVICES AND
DRUGS 10.0%
4,975 American Homepatient
Inc.* 109,450
2,400 Amrion, Inc.* 39,300
4,700 Cytyc Corp.* 88,125
4,250 Dura Pharmaceuticals
Inc.* 151,405
<CAPTION>
SHARES VALUE
- --------- -----------
<C> <S> <C> <C>
1,400 Idexx Laboratories Inc.* $ 19,600
2,750 Igen Inc.* 14,437
2,200 Impath, Inc.* 38,500
975 Lunar Corp.* 32,662
4,950 Medicis Pharmaceutical
Class A* 146,025
2,200 Minimed, Inc.* 56,650
2,550 National Surgery Centers
Inc.* 73,312
2,000 NCS Healthcare Inc. Class
A* 44,250
1,000 Pediatix Medical* 32,500
1,500 Pharmaceutical Product
Development* 29,250
2,050 Premier Research
Worldwide* 32,800
1,300 Renal Care Group Inc.* 41,275
2,100 Sabratek Corp.* 40,950
3,200 Sangstat Medical Corp.* 86,800
1,000 United Dental Care Inc.* 27,000
-----------
1,104,291
-----------
RETAIL 4.2%
1,000 99 Cents Only Stores* 20,125
2,900 Barnett, Inc.* 57,275
1 Corporate Express Inc. 8
2,400 Cost Plus Inc. 36,600
3,300 Loehmann's, Inc.* 57,750
1,600 Mazel Stores Inc.* 32,000
1,200 Petco Animal Supplies,
Inc.* 27,600
5,200 The Men's Wearhouse Inc.* 143,000
2,800 West Marine Inc.* 89,600
-----------
463,958
-----------
SOFTWARE 8.2%
2,600 Analysts International
Corp. 56,550
1,000 Arbor Software Corp.* 25,000
4,000 Black Box Corp.* 107,500
1,900 BTG, Inc.* 33,250
2,832 Computer Horizons Corp.* 87,791
4,500 Computer Learning
Centers* 147,375
665 McAfee Associates Inc.* 29,343
3,600 Oak Technology Inc.* 36,450
600 PRI Automation, Inc.* 28,200
925 Project Software &
Development, Inc.* 29,022
1,400 Red Brick Systems, Inc.* 19,075
2,100 Renaissance Solutions
Inc.* 52,500
3,000 SPSS, Inc.* 73,500
3,000 Summit Design, Inc.* 22,125
5,700 Technology Solutions
Company* 154,613
-----------
902,294
-----------
TELECOMMUNICATIONS 3.2%
1,550 Anadigics, Inc.* 41,850
3,300 Evergreen Media Corp.* 96,113
1,800 Intermedia Communications
Inc.* 29,475
</TABLE>
See Notes to Financial Statements 11
<PAGE>
EMERGING GROWTH EQUITY FUND (CONTINUED)
Statement of Investments
March 31, 1997 (Unaudited)
- ----------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- -----------
TELECOMMUNICATIONS--CONTINUED
<C> <S> <C> <C>
1,300 Level One Communications* $ 34,775
6,000 Midcom Communication
Inc.* 47,250
2,200 Natural Microsystems
Corp.* 43,725
3,006 Saga Communications Inc.
Class A* 62,375
-----------
355,563
-----------
TRANSPORTATION 1.3%
5,750 Expeditors International
of Washington, Inc. 138,000
-----------
Total Common Stocks (Cost $9,516,832) $ 9,344,140
-----------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----------
<C> <S> <C> <C>
SHORT TERM INVESTMENTS
REPURCHASE AGREEMENT 4.1%
$450,000 Bear Stearns & Co. Inc.
Dated 3/31/1997 6.28%
due 4/1/1997
Collateralized by
$2,900,000 United
States Treasury Strips
due 11/15/2022 (Value
$459,476) $ 450,000
-----------
Total Investments (Cost $9,966,832) 88.8% $ 9,794,140
Other Assets, Less Liabilities 11.2% 1,235,736
------ -----------
Net Assets 100.0% $11,029,876
------ -----------
------ -----------
</TABLE>
*Denotes non-income producing security.
See Notes to Financial Statements 12
<PAGE>
EMERGING GROWTH EQUITY FUND (CONTINUED)
Statement of Assets and Liabilities March 31, 1997 (Unaudited)
- ----------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities at value (Cost $9,966,832)--Note
2 $ 9,794,140
Cash 1,096,847
Receivable for shares sold 161,996
Dividends and interest receivable 7,201
Other assets 9,535
-----------
11,069,719
LIABILITIES:
Accrued expenses and other 39,843
-----------
NET ASSETS at value, applicable to 581,128 outstanding
shares--Note 5 $11,029,876
-----------
-----------
NET ASSET VALUE offering and redemption price per share
($11,029,876 divided by 581,128 shares) $ 18.98
-----------
-----------
</TABLE>
Statement of Operations Six Months Ended March 31, 1997 (Unaudited)
- ----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 29,656
Dividends 2,618
-----------
Total Income $ 32,274
Expenses:
Investment manager's fees--Note 3 45,119
Shareholder servicing fees and
expenses--Note 3 28,813
Distribution fee--Note 3 9,604
Custodian fees and expenses 29,798
Legal and auditing fees 4,770
Directors' fees and expenses 6,531
Printing and postage 5,900
Registration fees 7,614
Other 904
-----------
Total expenses 139,053
Less expense reimbursement--Note 3 (48,816)
-----------
Net expenses 90,237
-----------
INVESTMENT (LOSS)--NET (57,963)
REALIZED GAIN AND UNREALIZED (LOSS) ON
INVESTMENTS--Note 4:
Net realized gain on investments 100,173
Unrealized (depreciation) on investments (1,987,056)
-----------
NET REALIZED GAIN AND UNREALIZED (LOSS) ON
INVESTMENTS (1,886,883)
-----------
NET (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $(1,944,846)
-----------
-----------
</TABLE>
See Notes to Financial Statements
13
<PAGE>
EMERGING GROWTH EQUITY FUND (CONTINUED)
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
3/31/97 YEAR ENDED
(UNAUDITED) 9/30/96
----------- ----------
<S> <C> <C>
OPERATIONS:
Investment (loss)--net $ (57,963) $ (61,578)
Net realized gain on investments 100,173 697,630
Unrealized appreciation (depreciation) on investments (1,987,056) 926,887
----------- ----------
Increase (decrease) in net assets resulting from operations (1,944,846) 1,562,939
----------- ----------
DIVIDEND DISTRIBUTION--Note 2:
Realized gain on investments (656,536) (252,458)
----------- ----------
CAPITAL TRANSACTIONS--Note 5:
Value of shares sold 8,490,605 2,748,861
Value of shares redeemed (2,114,067) (651,909)
Value of shares issued in reinvestment of dividend distribution 645,826 250,995
----------- ----------
Net increase in net assets resulting from capital transactions 7,022,364 2,347,947
----------- ----------
Net increase 4,420,982 3,658,428
NET ASSETS at beginning of period 6,608,894 2,950,466
----------- ----------
NET ASSETS at end of period $11,029,876 $6,608,894
----------- ----------
----------- ----------
</TABLE>
See Notes to Financial Statements
14
<PAGE>
INTERMEDIATE-TERM FIXED-INCOME FUND
Statement of Investments
March 31, 1997 (Unaudited)
- ----------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- ----------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT AND
AGENCY OBLIGATIONS 97.3%
$ 500,000 Federal Home Loan Bank
7.27% Due 4/15/2003 $ 495,381
200,000 Federal Home Loan Bank
Structured Note
6.50% Due 4/14/2004 200,073
300,000 Federal Home Loan Bank
Structured Note
6.00% Due 4/12/2001 301,391
200,000 Federal Home Loan Bank
Structured Note
6.10% Due 6/13/2001 199,719
200,000 Federal Home Loan Bank
Structured Note
5.20% Due 10/20/2000 192,840
640,465 Federal Home Loan Mortgage Corp.
Remic 1680e
6.50% Due 2/15/2024 606,433
250,000 Federal Home Loan Mortgage Corp.
CMO 1489g
5.85% Due 10/15/2006 240,285
350,000 Federal Home Loan Mortgage Corp
7.61% Due 9/1/2004 347,129
500,000 Federal National Mortgage Association
CMO 1994-10m
6.50% Due 6/25/2023 465,272
450,000 Federal National Mortgage Association
Remic Fnr1993-167 Paci(11)
6.35% Due 1/25/2022 424,143
292,960 Federal National Mortgage Association
Remic Fnr93-154k
6.00% Due 8/25/2008 272,470
200,000 Federal National Mortgage Association
Medium Term Note
7.78% Due 5/22/2006 199,760
190,000 Federal National Mortgage Association
Medium Term Note
6.28% Due 2/3/2004 180,380
200,000 Federal National Mortgage Association
Medium Term Note
7.27% Due 6/6/2001 200,396
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- ----------
<C> <S> <C> <C>
$ 250,000 Federal National Mortgage Association
Medium Term Note
6.25% Due 1/14/2004 $ 238,439
125,000 Federal National Mortgage Association
Pri Strip, Structured Note
0.00% Due 8/10/2004 105,644
390,000 Federal National Mortgage Association
Medium Term Note
7.46% Due 9/30/1999 393,375
250,000 Federal National Mortgage Association
CMO G93-8pg
6.50% Due 7/25/2018 242,305
250,000 Federal National Mortgage Association
CMO-1993-54e
6.25% Due 6/25/2019 239,413
174,983 Federal National Mortgage Association
Remic
7.00% Due 7/25/2005 175,167
183,063 Federal National Mortgage Association Pool
#050987
6.50% Due 2/1/2009 177,579
380,000 United States Treasury Notes
8.875% Due 5/15/2000 403,988
100,000 United States Treasury Zero Coupons
0.00% Due 2/15/1998 94,947
65,000 United States Treasury Zero Coupons
0.00% Due 2/15/1998 61,678
----------
Total United States Government and
Agency Obligations (Cost $6,585,387) $6,458,207
----------
SHORT TERM INVESTMENTS
REPURCHASE AGREEMENT 2.1%
$ 142,557 Bear Stearns & Co. Inc. dated 3/31/1997
6.28% due 4/1/1997 collateralized by
$920,000 United States Treasury Strips
due 11/15/2022
(Value $145,765) 142,557
----------
Total Investments (Cost $6,727,944) 99.4% $6,600,764
Other Assets, Less Liabilities 0.6% 40,999
------ ----------
Net Assets 100.0% $6,641,763
------ ----------
------ ----------
</TABLE>
See Notes to Financial Statements 15
<PAGE>
INTERMEDIATE-TERM FIXED-INCOME FUND (CONTINUED)
Statement of Assets and Liabilities March 31, 1997 (Unaudited)
- ----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost $6,727,944)--Note
2 $6,600,764
Receivable for shares sold 3,612
Dividends and interest receivable 86,060
Other assets 12,035
----------
6,702,471
LIABILITIES:
Dividends payable $ 38,274
Accrued expenses and other 22,434 60,708
---------- ----------
NET ASSETS at value, applicable to 638,248 outstanding
shares--Note 5 $6,641,763
----------
----------
NET ASSET VALUE offering and redemption price per share
($6,641,763 divided by 638,248 shares) $ 10.41
----------
----------
</TABLE>
Statement of Operations Six Months Ended March 31, 1997 (Unaudited)
- ----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 218,319
----------
Total Income $ 218,319
Expenses:
Investment manager's fees--Note 3 12,841
Shareholder servicing fees and
expenses--Note 3 19,262
Distribution fee--Note 3 6,421
Custodian fees and expenses 1,718
Legal and auditing fees 4,770
Directors' fees and expenses 6,531
Printing and postage 5,900
Registration fees 7,614
Other 840
----------
Total expenses 65,897
Less expense reimbursement--Note 3 (33,977)
----------
Net expenses 31,920
----------
INVESTMENT INCOME--NET 186,399
REALIZED AND UNREALIZED (LOSS) ON
INVESTMENTS--Note 4:
Net realized (loss) on investments (13,750)
Unrealized (depreciation) on investments (22,249)
----------
NET REALIZED AND UNREALIZED (LOSS) ON
INVESTMENTS (35,999)
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 150,400
----------
----------
</TABLE>
See Notes to Financial Statements
16
<PAGE>
INTERMEDIATE-TERM FIXED-INCOME FUND (CONTINUED)
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
3/31/97 YEAR ENDED
(UNAUDITED) 9/30/96
---------- ----------
<S> <C> <C>
OPERATIONS:
Investment income--net $ 186,399 $ 349,306
Net realized gain (loss) on investments (13,750) 2,356
Unrealized (depreciation) on investments (22,249) (143,605)
---------- ----------
Increase in net assets resulting from operations 150,400 208,057
---------- ----------
DIVIDEND DISTRIBUTION--Note 2:
Investment income--net (208,032) (375,199)
Realized gain on investments (2,962) 0
---------- ----------
(210,994) (375,199)
---------- ----------
CAPITAL TRANSACTIONS--Note 5:
Value of shares sold 888,568 1,400,572
Value of shares redeemed (239,884) (881,027)
Value of shares issued in reinvestment of dividend distribution 169,083 396,452
---------- ----------
Net increase in net assets resulting from capital transactions 817,767 915,997
---------- ----------
Net increase 757,173 748,855
NET ASSETS at beginning of period 5,884,590 5,135,735
---------- ----------
NET ASSETS at end of period $6,641,763 $5,884,590
---------- ----------
---------- ----------
</TABLE>
See Notes to Financial Statements
17
<PAGE>
MONEY MARKET FUND
Statement of Investments
March 31, 1997 (Unaudited)
- ----------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- ----------
<C> <S> <C> <C>
UNITED STATES GOVERNMENT
AND AGENCY OBLIGATIONS 97.7%
$ 440,000 Federal National Mortgage
Association Discount Note
5.19% Due 4/9/1997 $ 439,493
250,000 Federal Farm Credit Bank
5.41% Due 6/6/1997 247,520
200,000 Federal Home Loan Bank
5.45% Due 5/30/1997 199,905
500,000 Federal Home Loan Mortgage
Corporation Discount Note
5.22% Due 4/4/1997 499,782
440,000 Federal National Mortgage
Association Discount Note
6.50% Due 4/1/1997 440,000
----------
Total Bonds and Notes
(Cost $1,826,700) $1,826,700
----------
SHORT TERM INVESTMENTS
REPURCHASE AGREEMENT 3.9%
$ 72,173 Bear Stearns & Co. Inc. dated
3/31/1997 6.28% due 4/1/1997
collateralized by $464,700
United States Treasury Strips
due 11/15/2022 (Value $72,627) 72,173
----------
Total Investments (Cost $1,898,873) 101.6% $1,898,873
Liabilities, net of other assets -1.6% (30,588)
------ ----------
Net Assets 100.0% $1,868,285
------ ----------
------ ----------
</TABLE>
See Notes to Financial Statements 18
<PAGE>
MONEY MARKET FUND (CONTINUED)
Statement of Assets and Liabilities March 31, 1997 (Unaudited)
- ----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost
$1,898,873)--Note 2 $1,898,873
Dividends and interest receivable 5,446
Other assets 10,513
----------
1,914,832
LIABILITIES:
Payable for shares redeemed $22,050
Dividends payable 7,430
Accrued expenses and other 17,067 46,547
------- ----------
NET ASSETS at value, applicable to 1,868,300
outstanding shares--Note 5 $1,868,285
----------
----------
NET ASSET VALUE offering and redemption price per share
($1,868,285 divided by 1,868,300 shares) $ 1.00
----------
----------
</TABLE>
Statement of Operations Six Months Ended March 31, 1997 (Unaudited)
- ----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 44,756
---------
Total Income $ 44,756
Expenses:
Investment manager's fees--Note 3 2,083
Shareholder servicing fees and expenses--Note 3 4,999
Distribution fee--Note 3 1,666
Custodian fees and expenses 903
Legal and auditing fees 4,768
Directors' fees and expenses 6,531
Printing and postage 5,978
Registration fees 7,656
Other 434
---------
Total expenses 35,018
Less expense reimbursement--Note 3 (30,853)
---------
Net expenses 4,165
---------
INVESTMENT INCOME--NET 40,591
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS --
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 40,591
---------
---------
</TABLE>
See Notes to Financial Statements
19
<PAGE>
MONEY MARKET FUND (CONTINUED)
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
3/31/97 YEAR ENDED
(UNAUDITED) 9/30/96
----------- -----------
<S> <C> <C>
OPERATIONS:
Investment income--net $ 40,591 $ 65,661
----------- -----------
Increase in net assets resulting from operations 40,591 65,661
----------- -----------
DIVIDEND DISTRIBUTION--Note 2:
Investment income--net (48,247) (65,661)
----------- -----------
CAPITAL TRANSACTIONS--Note 5:
Value of shares sold 632,275 560,439
Value of shares redeemed (265,798) (369,464)
Value of shares issued in reinvestment of dividend
distribution 46,203 64,916
----------- -----------
Net increase in net assets resulting from capital
transactions 412,680 255,891
Net increase 405,024 255,891
----------- -----------
NET ASSETS at beginning of period 1,463,261 1,207,370
----------- -----------
NET ASSETS at end of period $1,868,285 $1,463,261
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1--GENERAL
Retirement System Fund Inc. ("Fund") is a no-load, open-end
diversified management investment company, registered under the
Investment Company Act of 1940, as amended, designed to provide
professional investment management and diversification of risk
to investors by offering shares in separate investment funds
("Investment Funds"), each with a different investment
objective. Currently investors may purchase shares of Money
Market Fund, Emerging Growth Equity Fund, Intermediate-Term
Fixed-Income Fund and Core Equity Fund. In the future, the Fund
expects to offer shares of Value Equity Fund, International
Equity Fund and Actively Managed Fixed-Income Fund.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting
policies followed by the Investment Funds in the preparation of
the financial statements.
(A) SECURITIES VALUATION: Except for debt securities with
remaining maturities of 60 days or less, investments for
which market prices are available are valued as follows:
(1) each listed security is valued at its closing price
obtained from the respective exchange on which the
security is listed, or, if there were no sales on that
day, at its last reported closing or bid price.
(2) each unlisted security quoted on the NASDAQ is valued
at the last current bid price obtained from the NASDAQ;
(3) United States Government and agency obligations and
certain other debt obligations are valued based upon bid
quotations from various market makers for identical or
similar obligations.
(4) mortgage-backed securities and asset-backed securities
are valued with a cash flow model based on both the
pre-payment assumptions (Public Securities Association
median) and the price-yield spreads over comparable
United States Treasury Securities.
(5) short-term money market instruments (such as
certificates of deposit, bankers' acceptances and
commercial paper) are valued by bid quotations or by
reference to bid quotations of available yields for
similar instruments of issuers with similar credit
rating.
Debt securities with remaining maturities of 60 days or
less are valued on the basis of amortized cost. In the absence
of an ascertainable market value, investments are valued at
their fair value as determined by the officers of Investors
using methods and procedures reviewed and approved by the
Fund's Directors.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized
gain and loss from securities transactions are recorded on
a specific cost basis. Dividend income is recognized on the
ex-dividend date or when the dividend information is known;
interest income, including, where applicable, amortization
of discount and premium on investments and zero coupon
bonds, is recognized on an accrual basis.
21
<PAGE>
The Investment Funds may enter into repurchase agreements
with financial institutions, deemed to be creditworthy by
the Investment Funds' Manager, subject to the sellers'
agreement to repurchase and the Funds' agreement to resell
such securities at a mutually agreed upon price. Securities
purchased subject to repurchase agreements are deposited
with the Investment Funds' custodian and, pursuant to the
terms of the repurchase agreement, must have an aggregate
market value greater than or equal to the repurchase price
plus accrued interest at all times. If the value of the
underlying securities falls below the value of the
repurchase price plus accrued interest, the Investment
Funds will require the seller to deposit additional
collateral by the next business day. If the request for
additional collateral is not met, or the seller defaults on
its repurchase obligation, the Investment Funds maintain
the right to sell the underlying securities at market value
and may claim any resulting loss against the seller.
The Investment Funds may write call options on equity
securities. Premiums received for call options written are
recorded as a liability and "marked to market" daily to
reflect the current value of the option written. If the
written option is exercised prior to expiration, the
premium received is treated as a realized gain. If the
written option is exercised, the premium received is added
to the sale proceeds of the underlying security.
(C) DIVIDENDS TO SHAREHOLDERS: Dividends and capital gain
distributions to shareholders are recorded on the
ex-dividend date. However, the Money Market Fund declares
dividends daily and automatically reinvests such dividends
in additional Fund shares at net asset value, unless the
shareholder elects otherwise. Dividends are declared from
the total of net investment income and net realized gain on
investments.
(D) FEDERAL INCOME TAXES: Each Investment Fund is treated as a
separate entity for Federal Income tax purposes and is not
combined with other Investment Funds. Each of the
Investment Funds intends to comply with the provisions of
the Internal Revenue Code applicable to "regulated
investment companies" and to distribute all of its taxable
income to its shareholders. Therefore, no provision has
been made for Federal income taxes for these Investment
Funds.
(E) ACCOUNTING ESTIMATES: The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the
date of the financial statements and the reported amounts
of increase and decrease in net assets from operations
during the period. Actual results could differ from those
estimates.
(F) OTHER: Expenses directly attributed to each Investment
Fund are charged to that Investment Fund's operations;
expenses which are applicable to all Investment Funds are
allocated among them.
The Investment Funds may enter into financial futures
contracts which require initial margin deposits of cash or
U.S. Government securities equal to approximately 10% of
the value of the contract. During the period the financial
futures are
22
<PAGE>
open, changes in the value of the contracts are recognized
by "marking to market" on a daily basis to reflect the
market value of the contracts at the close of each day's
trading. Accordingly, variation margin payments are made or
received to reflect daily unrealized gains or losses. The
Investment Fund is exposed to market risk as a result of
movements in securities, values and interest rates.
NOTE 3--INVESTMENT MANAGERS' FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
Retirement System Investors Inc. ("Investors") is the
investment advisor for each Investment Fund. Effective April 1,
1997, the Emerging Growth Equity Fund has engaged Pilgrim
Baxter & Associates, Ltd. ("Pilgrim"), an independent
investment manager, to make and effect decisions on buying and
selling portfolio securities. Prior to April 1, 1997, the
Putnam Advisory Company, Inc. was the investment manager for
the Emerging Growth Equity Fund. Investors acts as investment
manager to the remaining investment funds and, in the case of
all Investment Funds, exercises general oversight with respect
to portfolio management and reports to the Board of Directors
with respect thereto. For their services, the investment
managers are entitled to receive an annual fee, calculated
daily and paid monthly, (calculated and paid quarterly in the
case of Pilgrim), based upon a percentage of the average net
assets of the respective Investment Funds. The specific
percentages for the Investment Funds are set forth in the
following table.
<TABLE>
<CAPTION>
INVESTMENT FUND ANNUAL FEE
- ----------------------------------------------------- -------------
<S> <C> <C>
Core Equity Fund First $50 million 0.60
Next $150 million 0.50
Over $200 million 0.40
Emerging Growth Equity Fund all asset levels 0.65
(effective 4/1/97)
First $25 million 1.00
Over $25 million 0.75
(until 3/31/97)
Intermediate-Term Fixed-Income Fund First $50 million 0.40
Next $100 million 0.30
Over $150 million 0.20
Money Market Fund First $50 million 0.25
Over $50 million 0.20
</TABLE>
In addition, Investors is entitled to receive an annual fee
based upon a percentage of average net assets of the respective
Investment Funds (or portion thereof) for which it does not act
as investment manager, which fee shall be an amount equal to
the sum of (i) .20% of total net assets of the applicable
Investment Funds, and (ii) the fee to which the investment
manager of the applicable Investment Funds is entitled,
calculated in the manner described above with respect to the
investment manager's fees for each such Investment Fund.
Investors, in turn, remits such portion of its fee to the
investment manager of such Investment Fund. With respect to the
Investment Funds for which Investors does not act as investment
manager, Investors has agreed to waive payment of
23
<PAGE>
the portion of the investment advisory fees in an amount equal
to .20% of the total assets of the Investment Fund's
operations, and intends to waive payment of such amount going
forward if necessary to maintain a competitive expense ratio or
to assure that the Investment Fund's expense ratios comply with
regulations in various states where Fund shares are qualified
for sale.
Pursuant to a Distribution Agreement ("Plan") each
Investment Fund pays Retirement System Distributors Inc.
("Distributor") an affiliate of Investors, a monthly fee
determined as follows. The maximum amount payable under the
Plan is equal to .25% of the average daily net assets of an
Investment Fund but the Board of Directors currently limits
such expenditures to .20% of average daily net assets. The Plan
does not provide for any charges to an Investment Fund for
excess amounts expended by the Distributor and, if the Plan is
terminated, the obligation of the Investment Fund to make
payments to the Distributor will cease and the Investment Fund
will not be required to make any payments thereafter. If the
Distributor's costs in connection with its distribution
services to an Investment Fund are less than .20% of net
assets, the Distributor may nevertheless retain the difference.
If the Distributor's costs exceed .20% of net assets, the
Distributor will assume the difference and will not be
reimbursed therefore.
Retirement System Consultants Inc. ("Service Company"), an
affiliate of Investors, has entered into a Service Agreement
with the Fund to provide each Investment Fund with the general
administrative and related services necessary to carry on the
affairs of the Investment Funds, including transfer agent and
registrar services.
For its services, the Service Company is entitled to
receive a fee, calculated daily and paid monthly, based upon
the percentage of the average daily net assets of the
respective Investment Funds. The fee arrangement applicable for
each of the investment funds is as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS FEE
- --------------------------------- ---------
<S> <C>
First $25 million .60%
Next $25 million .50%
Next $25 million .40%
Next $25 million .30%
Over $100 million .20%
</TABLE>
For the period ended March 31, 1997 Investors and its
affiliates waived fees and reimbursed expenses of the Core
Equity Fund, Emerging Growth Equity Fund, Intermediate-Term
Fixed-Income Fund, and Money Market Fund amounting to $54,616,
$48,816, $33,977 and $30,853, respectively.
Each Director who is not an officer of the Investment Funds
or a Trustee of Investors Retirement Trust receives an annual
fee of $7,000. Each Director receives a fee of $800 per meeting
attended, except that such fee is $400 for a telephonic
meeting. A Director and several officers of the Fund are also
officers of Investors and its affiliates.
24
<PAGE>
NOTE 4--SECURITIES TRANSACTIONS
The following summarizes the securities transactions, other
than short term securities, by the various Investment Funds for
the period ended March 31, 1997:
<TABLE>
<CAPTION>
INVESTMENT FUND PURCHASES SALES
- -------------------------------------------------------- ------------- -------------
<S> <C> <C>
Core Equity Fund $ 2,325,426 $ 699,569
Emerging Growth Equity Fund 8,003,995 3,051,332
Intermediate-Term Fixed-Income Fund 2,689,444 1,050,816
</TABLE>
The cost basis of investments for tax purposes is
substantially the same as the cost basis for book purposes. Net
unrealized appreciation consisting of gross unrealized
appreciation and gross unrealized (depreciation) at March 31,
1997 for each of the Investment Funds was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED GROSS GROSS
APPRECIATION UNREALIZED UNREALIZED
INVESTMENT FUND (DEPRECIATION) APPRECIATION DEPRECIATION
- -------------------------------------- --------------- ------------- --------------
<S> <C> <C> <C>
Core Equity Fund $ 2,917,415 $ 3,067,860 $ (150,445)
Emerging Growth Equity Fund (172,692) 884,200 (1,056,892)
Intermediate-Term Fixed-Income Fund (127,180) 13,455 (140,635)
</TABLE>
The following summarizes the value of securities that were
on loan to brokers and the value of securities held as
collateral for these loans at March 31, 1997:
<TABLE>
<CAPTION>
VALUE OF
SECURITIES VALUE OF
INVESTMENT FUND LOANED COLLATERAL
- -------------------------------------------------------- ------------- -------------
<S> <C> <C>
Core Equity Fund $ 3,231 $ 3,961
Emerging Growth Equity Fund 2,377,169 3,425,716
</TABLE>
NOTE 5--CAPITAL TRANSACTIONS
The Investment Funds were organized under the laws of the
state of Maryland in November 1990. The Investment Fund is
authorized to issue two billion shares of capital stock, par
value $.001 per share. The Board of Directors of the Investment
Funds is authorized to establish multiple series of shares of
capital stock, each evidencing interest in a separate
Investment Fund.
25
<PAGE>
Transactions in the shares of capital stock of each
Investment Fund for the period ended March 31, 1997 and the
year ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
CORE EQUITY EMERGING GROWTH
FUND EQUITY FUND
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fund Shares Sold 130,480 138,929 390,868 125,953
Dividends Reinvested 20,982 5,104 30,325 13,991
Fund Shares Redeemed (26,486) (42,161) (103,569) (31,299)
--------- --------- --------- ---------
Net Increase 124,976 101,872 317,624 108,645
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
INTERMEDIATE-TERM
FIXED-INCOME FUND
--------------------
1997 1996
--------- ---------
<S> <C> <C> <C> <C>
Fund Shares Sold 85,304 131,098
Dividends Reinvested 16,002 37,381
Fund Shares Redeemed (24,060) (82,620)
--------- ---------
Net Increase 77,246 85,859
--------- ---------
--------- ---------
</TABLE>
Net Assets at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
EMERGING
CORE EQUITY GROWTH
FUND EQUITY FUND
----------- --------------
<S> <C> <C>
Paid-in Capital $ 8,279,429 $ 11,217,906
Undistributed investment
income gain--net 340,130 549,503
Accumulated realized (loss) (210,946) (564,841)
Unrealized appreciation
(depreciation) 2,917,415 (172,692)
----------- --------------
$11,326,028 $ 11,029,876
----------- --------------
----------- --------------
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE-TERM MONEY MARKET
FIXED-INCOME FUND FUND
----------------- ------------
<S> <C> <C>
Paid-in Capital $6,778,991 $1,839,596
Undistributed investment
income--net 6,664 28,689
Accumulated realized gain (loss) (16,712) 0
Unrealized depreciation (127,180) 0
----------------- ------------
$6,641,763 $1,868,285
----------------- ------------
----------------- ------------
</TABLE>
26
<PAGE>
NOTE 6--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Investment Funds activity during the year in writing
equity call options had off-balance sheet risk of accounting
loss. These financial instruments involve market risk in excess
of the amount recognized in the Statement of Assets and
Liabilities. A written equity call option obligates the
Investment Funds to deliver the underlying security upon
exercise by the holder of the option. The Investment Funds
cover options written by owning the underlying security.
A summary of the Investment Funds option transactions
written for the year follows:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS PREMIUMS
CONTRACTS RECEIVED
------------- -----------
<S> <C> <C>
Contracts outstanding at September 30, 1996 -- --
Options written 10 $ 5,095
Options exercised -- --
Options expired -- --
Contracts outstanding at March 31, 1997 10 $ 5,095
</TABLE>
27
<PAGE>
NOTE 7--FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CORE EQUITY FUND
--------------------------------------------------------------------------
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
3/31/97 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net Asset Value, Beginning of Period $20.11 $16.69 $12.72 $12.08 $10.98 $10.45
--------- --------- --------- --------- --------- ---------
Income from investment operations:
Investment income--net 0.115 0.21 0.13 0.15 0.18 0.23
Net realized and unrealized gain on
investments 0.500 3.45 4.22 0.74 1.84 0.60
--------- --------- --------- --------- --------- ---------
Total from Investment Operations 0.615 3.66 4.35 0.89 2.02 0.83
--------- --------- --------- --------- --------- ---------
Distributions:
Distributions from capital gains (0.705) -- (0.22) (0.11) (0.64) (0.08)
Distributions from investment income -- (0.24) (0.16) (0.14) (0.28) (0.22)
--------- --------- --------- --------- --------- ---------
Total Distributions (0.705) (0.24) (0.38) (0.25) (0.92) (0.30)
--------- --------- --------- --------- --------- ---------
Net increase (0.090) 3.42 3.97 0.64 1.10 0.53
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period $20.02 $20.11 $16.69 $12.72 $12.08 $10.98
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
TOTAL RETURN* 3.91% 22.21% 35.24% 7.47% 19.39% 8.11%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 1.00%+ 0.97% 0.90% 0.90% 0.90% 0.90%
Investment income--net 0.96%+ 1.23% 1.52% 1.17% 1.31% 1.86%
Decrease reflected in above expense
ratio due to expense waivers and
reimbursement 1.04%+ 1.08% 1.30% 1.33% 2.43% 2.46%
Portfolio turnover rate 7.37% 18.08% 25.49% 9.64% 21.79% 61.27%
Average commission rate paid
(per share) $ 0.04 $ 0.05 -- -- -- --
Net Assets at End of Period ($1,000's) $11,326 $8,865 $5,657 $3,639 $3,094 $1,049
</TABLE>
* The total return calculation reflects dividend reinvestment
and is not annualized for periods less than one year.
+Annualized.
28
<PAGE>
<TABLE>
<CAPTION>
EMERGING GROWTH
EQUITY FUND
-----------------------------------------------------------------------
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
3/31/97 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net Asset Value, Beginning of Period $25.08 $19.05 $14.01 $14.74 $11.83 $10.54
--------- --------- --------- --------- --------- ---------
Income from investment operations:
Investment (loss)--net (0.13) (0.17) (0.12) (0.04) (0.13) (0.17)
Net realized and unrealized gain on
investments (3.91) 7.62 5.49 1.58 4.36 1.61
--------- --------- --------- --------- --------- ---------
Total from Investment Operations (4.04) 7.45 5.37 1.54 4.23 1.44
--------- --------- --------- --------- --------- ---------
Distributions:
Distributions from capital gains (2.06) (1.42) (0.33) (2.27) (1.21) (0.13)
Distributions from investment income -- -- -- -- (0.11) --
Return of capital -- -- -- -- -- (0.02)
--------- --------- --------- --------- --------- ---------
Total Distributions (2.06) (1.42) (0.33) (2.27) (1.32) (0.15)
--------- --------- --------- --------- --------- ---------
Net Increase (Decrease) (6.10) 6.03 5.04 (0.73) 2.91 1.29
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period $18.98 $25.08 $19.05 $14.01 $14.74 $11.83
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
TOTAL RETURN* (17.12)% 42.07% 39.20% 11.89% 38.05% 13.80%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 2.00%+ 1.96% 1.85% 1.85% 1.85% 1.86%
Investment (loss)--net (1.28)%+ (1.43)% (1.33)% (1.37)% (1.34)% (1.10)%
Decrease reflected in above expense
ratio due to expense waivers and
reimbursement 1.08%+ 1.49% 3.30% 4.11% 6.41% 7.90%
Portfolio turnover rate 38.23% 77.94% 84.05% 72.59% 144.49% 138.46%
Average commission rate paid (per share) $ 0.01 $ 0.01 -- -- -- --
Net Assets at End of Period ($1,000's) $11,030 $6,609 $2,950 $1,825 $1,352 $684
</TABLE>
* The total return calculation reflects dividend reinvestment
and is not annualized for periods less than one year.
+Annualized.
29
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE-TERM
FIXED-INCOME FUND
-------------------------------------------------------------
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
3/31/97 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net Asset Value, Beginning of Period $ 10.49 $ 10.81 $ 10.46 $ 11.43 $ 11.00 $ 10.46
------- ------- ------- ------- ------- ---------
Income from investment operations:
Investment income--net 0.310 0.66 0.59 0.52 0.54 0.80
Net realized and unrealized gain (loss)
on investments (0.050) (0.26) 0.38 (0.85) 0.36 0.73
------- ------- ------- ------- ------- ---------
Total from Investment Operations 0.260 0.40 0.97 (0.33) 0.90 1.53
------- ------- ------- ------- ------- ---------
Distributions:
Distributions from capital gains (0.005) -- (0.05) (0.08) 0.00 (0.15)
Distributions from investment income (0.340) (0.72) (0.57) (0.56) (0.47) (0.84)
------- ------- ------- ------- ------- ---------
Total Distributions (0.345) (0.72) (0.62) (0.64) (0.47) (0.99)
------- ------- ------- ------- ------- ---------
Net Increase (decrease) (0.085) (0.32) 0.35 (0.97) 0.43 0.54
------- ------- ------- ------- ------- ---------
Net Asset Value, End of Period $ 10.41 $ 10.49 $ 10.81 $ 10.46 $ 11.43 $ 11.00
------- ------- ------- ------- ------- ---------
------- ------- ------- ------- ------- ---------
TOTAL RETURN* 2.53% 3.82% 9.64% (2.99)% 8.47% 13.86%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets
Expenses 1.00%+ 0.97% 0.90% 0.90% 0.90% 0.90%
Investment income--net 5.82%+ 6.27% 5.71% 5.76% 4.90% 5.59%
Decrease reflected in above expense
ratio due to expense waivers and
reimbursement 1.06%+ 1.00% 1.09% 1.66% 3.33% 5.56%
Portfolio turnover rate 18.36% 39.69% 8.50% 8.68% 27.62% 8.66%
Net Assets at End of Period ($1,000's) $ 6,642 $ 5,885 $ 5,136 $ 3,372 $ 2,159 $ 881
</TABLE>
* The total return calculation reflects dividend reinvestment
and is not annualized for periods less than one year.
+Annualized.
30
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET FUND
-------------------------------------------------------------
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
3/31/97 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- ------- ---------
Income from investment operations:
Investment income--net 0.02 0.05 0.05 0.03 0.03 0.04
Total from Investment Operations 0.02 0.05 0.05 0.03 0.03 0.04
------- ------- ------- ------- ------- ---------
Distributions:
Distributions from investment income (0.02) (0.05) (0.05) (0.03) (0.03) (0.04)
------- ------- ------- ------- ------- ---------
Total Distributions (0.02) (0.05) (0.05) (0.03) (0.03) (0.04)
------- ------- ------- ------- ------- ---------
Net Increase (decrease) 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ---------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- ------- ---------
------- ------- ------- ------- ------- ---------
TOTAL RETURN* 4.90%++ 5.19% 5.20% 3.27%+ 2.77% 3.73%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets
Expenses 0.50%++ 0.50% 0.50% 0.42% 0.25% 0.44%
Investment income--net 4.86%++ 5.06% 5.15% 3.18% 2.94% 3.68%
Decrease reflected in above expense
ratio due to expense waivers and
reimbursement 3.70%++ 3.64% 3.72% 3.47% 4.39% 5.19%
Net Assets at End of Period ($1,000's) $1,868 $1,463 $1,207 $1,112 $1,466 $664
</TABLE>
* The total return calculation reflects dividend
reinvestment.
+ Had an affiliate of the advisor not contributed capital to
the fund to reimburse a realized loss, the total return
would have been 3.22%.
++Annualized.
31
<PAGE>
OFFICERS
---------------------------------------------------------------
William Dannecker, President
James P. Coughlin, C.F.A., Executive Vice President and Chief
Investment Officer
Stephen P. Pollak, Esq., Executive Vice President, Counsel and
Secretary
John F. Meuser, Senior Vice President and Treasurer
Veronica A. Fisher, First Vice President and Assistant
Treasurer
Herbert Kuhl, Jr., C.F.A., First Vice President
Chris R. Kaufman, Second Vice President
Deborah A. Modzelewski, Second Vice President
Heidi Viceconte, Second Vice President
INVESTMENT MANAGERS
---------------------------------------------------------------
Pilgrim Baxter & Associates, Ltd.
Retirement System Investors Inc.
CUSTODIAN
---------------------------------------------------------------
Custodial Trust Company
DISTRIBUTOR
---------------------------------------------------------------
Retirement System Distributors Inc.
CONSULTANT
---------------------------------------------------------------
Retirement System Consultants Inc.
TRANSFER AGENT
---------------------------------------------------------------
Retirement System Consultants Inc.
INDEPENDENT AUDITORS
---------------------------------------------------------------
McGladrey & Pullen, LLP
COUNSEL
---------------------------------------------------------------
Morgan, Lewis & Bockius, LLP
32
<PAGE>
BOARD OF DIRECTORS
---------------------------------------------------------------
Edward J. Brown
Retired President and Chief Operating Officer
Apple Bank for Savings and Apple Bancorp, Inc., NY
Candace Cox
President
NYNEX Asset Management Co., NY
William Dannecker
President and Chief Executive Officer
Retirement System Group Inc., NY
Eugene C. Ecker
Pension and Group Insurance Consultant
Joseph P. Gemmell
Chairman of the Board, President and Chief Executive Officer
Bankers Savings, NJ
Covington Hardee
Retired Chairman
The Lincoln Savings Bank, FSB, NY
Raymond L. Willis
Private Investments
33
<PAGE>
FOR MORE COMPLETE INFORMATION ABOUT RETIREMENT SYSTEM FUND INC., INCLUDING
CHARGES AND EXPENSES, CALL 1-800-772-3615 FOR A PROSPECTUS OR WRITE TO
RETIREMENT SYSTEM DISTRIBUTORS INC., CUSTOMER SERVICE, P.O. BOX 2064, GRAND
CENTRAL STATION, NEW YORK, NY 10163-2064. READ THE PROSPECTUS CAREFULLY BEFORE
YOU INVEST OR SEND MONEY. RETIREMENT SYSTEM FUND IS DISTRIBUTED EXCLUSIVELY BY
RETIREMENT SYSTEM DISTRIBUTORS INC. TOTAL RETURNS ARE BASED ON HISTORICAL
RESULTS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. FUTURE PERFORMANCE
AND UNIT ASSET VALUE WILL FLUCTUATE SO THAT UNITS, IF REDEEMED, MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. THIS MATERIAL MUST BE PRECEDED OR
ACCOMPANIED BY A PROSPECTUS.
<PAGE>
SEMI-ANNUAL
REPORT
*Not yet available for sale to investors
[LOGO]
RETIREMENT SYSTEM
Fund Inc.
CORE EQUITY FUND
EMERGING GROWTH EQUITY FUND
INTERMEDIATE-TERM FIXED-INCOME FUND
MONEY MARKET FUND
VALUE EQUITY FUND*
INTERNATIONAL EQUITY FUND*
ACTIVELY MANAGED FIXED-INCOME FUND*
1997
BROKER/DEALER
[LOGO]
RETIREMENT SYSTEM
Distributors Inc.
P.O. Box 2064
Grand Central Station
New York, NY 10163-2064
