<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1997
REGISTRATION NO. 2-28097
811-1582
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / PRE-EFFECTIVE AMENDMENT NO.
----
/ / POST-EFFECTIVE AMENDMENT NO.
---
(Check appropriate box or boxes)
THE ENTERPRISE GROUP OF FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
1-800-432-4320
(Area Code and Telephone Number)
3343 PEACHTREE ROAD, N.E., SUITE 450
ATLANTA, GEORGIA 30326
(Address of Principal Executive Offices)
CATHERINE R. MCCLELLAN, ESQ.
THE ENTERPRISE GROUP OF FUNDS, INC.
3343 PEACHTREE ROAD, N.E., SUITE 450
ATLANTA, GEORGIA 30326
(Name and Address of Agent for Service)
COPIES TO:
MARGERY K. NEALE, ESQ.
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022-9998
It is proposed that this filing will become effective on May 24, 1997, or as
soon thereafter as is practicable, pursuant to Rule 488. (Approximate Date of
Proposed Public Offering)
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940 that it elects
to register an indefinite amount of securities under the Securities Act of 1933
and filed the Notice required by that Rule for Registrant's fiscal year ended
December 31, 1996 on February 24, 1997. Accordingly, no filing fee is submitted
herewith.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM OF PART A OF FORM N-14 AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- ------------------------------------------------------
<C> <S> <C>
1. Beginning of Registration Statement and Outside Front
Cover Page of Prospectus........................... Cross Reference Sheet; Cover Page
2. Beginning and Outside Back Cover Page of
Prospectus......................................... Table of Contents
3. Fee Table, Synopsis Information and Risk Factors..... Summary of Expenses; Summary; Risk Factors and Special
Considerations
4. Information about the Transaction.................... The Reorganizations
5. Information about the Registrant..................... Information about Enterprise Funds and RSF Inc.
6. Information about the Company Being Acquired......... Information about Enterprise Funds and RSF Inc.
7. Voting Information................................... Voting Information
8. Interest of Certain Persons and Experts.............. Not Applicable
9. Additional Information Required for Reoffering by
Persons Deemed to be Underwriters.................. Not Applicable
<CAPTION>
CAPTION OR LOCATION IN STATEMENT OF ADDITIONAL
ITEM OF PART B OF FORM N-14 AND CAPTION INFORMATION
- ---------------------------------------------------------------- ------------------------------------------------------
<C> <S> <C>
10. Cover Page........................................... Cover Page
11. Table of Contents.................................... Table of Contents
12. Additional Information about the Registrant.......... Additional Information about Enterprise Funds and RSF
Inc.
13. Additional Information about the Company being
Acquired........................................... Additional Information about Enterprise Funds and RSF
Inc.
14. Financial Statements................................. Financial Statements
<CAPTION>
ITEM OF PART C OF FORM N-14 AND CAPTION CAPTION OR LOCATION IN PART C
- ---------------------------------------------------------------- ------------------------------------------------------
<C> <S> <C>
15. Indemnification...................................... Indemnification
16. Exhibits............................................. Exhibits
17. Undertakings......................................... Undertakings
</TABLE>
<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
, 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 , 1997 at , 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 , 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 form of
proxy and return it promptly in the envelope provided for that
purpose. The enclosed proxy is being solicited on behalf of
the Board of Directors of the Acquired Funds.
By Order of the Board
of Directors,
Stephen P. Pollak
SECRETARY
New York, New York
Dated: , 1997
<PAGE>
PROXY STATEMENT AND
PROSPECTUS
MAY , 1997
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
-------------------------------
THE ENTERPRISE GROUP OF FUNDS, INC.
3343 PEACHTREE ROAD, N.E. SUITE 450
ATLANTA, GEORGIA 30326
800-432-4320
---------------------------------
PROSPECTUS
-------------------------------
This Proxy Statement/Prospectus 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," and 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 Proxy Statement/Prospectus is being
furnished in connection with the Special Meeting of
Shareholders of each of the Acquired Funds (the "Meeting") to
be held on , 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 Proxy Statement/Prospectus 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 preliminary Prospectus of
Enterprise Funds is attached as Exhibit A to this Proxy
Statement/Prospectus 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;
ii
<PAGE>
(iv) preliminary Statement of Additional Information of
Enterprise Funds ("Enterprise Funds preliminary SAI"); and (v)
the Statement of Additional Information, filed as part of the
Registration Statement of which this Proxy
Statement/Prospectus forms a part. Copies of any of the
documents listed in (i), (ii), and (iii) may be obtained by
writing or calling RSF Inc. at the address and telephone
number shown above. Copies of any of the documents listed in
(iv) and (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 Proxy Statement/Prospectus
will first be mailed to shareholders on or about ,
1997.
THE SHARES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS 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.......................................15
Purchase, Exchange and Redemption Privileges....................15
Tax Considerations................................................17
Risk Factors and Special Considerations...........................17
THE REORGANIZATIONS.................................................18
Background and Reasons for Proposed Reorganizations...............19
Considerations of the Board of Directors of RSF Inc.............19
Considerations of the Board of Directors of Enterprise Funds....20
Agreement Among Enterprise Capital, Retirement Investors and
RSGroupSM........................................................20
Terms of the Agreement............................................20
Description of Shares to be Issued................................21
Certain Effects of the Reorganizations On Shareholders of the
Acquired Funds...................................................21
Expenses of the Reorganizations...................................21
Federal Income Tax Consequences...................................22
Comparative Information on Shareholder Rights and Obligations.....22
FINANCIAL INFORMATION...............................................24
Capitalization....................................................24
MANAGEMENT'S DISCUSSION OF FUNDS' PERFORMANCE.......................24
INFORMATION ABOUT ENTERPRISE FUNDS AND RSF Inc......................25
INFORMATION CONCERNING THE MEETING..................................26
Voting Information................................................26
Dissenters' Rights................................................28
SECURITY OWNERSHIP OF CERTAIN SHAREHOLDERS AND MANAGEMENT...........28
OTHER MATTERS.......................................................31
PRELIMINARY PROSPECTUS OF ENTERPRISE FUNDS...................Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION.........................Exhibit B
<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 PROXY STATEMENT/PROSPECTUS (INCLUDING THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE), AND THE AGREEMENT
AND PLAN OF REORGANIZATION BETWEEN RSF INC. AND THE ENTERPRISE
FUNDS, A COPY OF WHICH IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS EXHIBIT B.
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
Enterprise Small Company
RSF Inc. Emerging Growth 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 Proxy Statement/ Prospectus.
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 or annual
revenues 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
10
<PAGE>
assets in covered call options. A RSF Inc. Fund may not write
an option if immediately after such sale 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);
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.
11
<PAGE>
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.
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 preliminary SAI
and the RSF Inc. SAI dated January 28, 1997. Reference is
hereby made to the Enterprise Funds preliminary Prospectus,
attached as Exhibit A, the Enterprise Funds preliminary SAI,
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
12
<PAGE>
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 .30% of average net assets up
and Income............. to $100 million, .25% of the
next $100 million of average
net assets and .20% of such
assets above $200 million.
Enterprise Small .65% of average net assets up
Company Growth......... to $50 million, .55% of the
next $50 million of average
net assets and .45% of such
assets in excess of $100
million.
Enterprise .30% of average net assets up
Government............. to $50 million, and .25% of
such assets greater than $50
million.
</TABLE>
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, and Pilgrim
Baxter, an independent investment manager, currently serves as
the investment manager of RSF Inc. Emerging Growth. Retirement
Investors is a subsidiary of Retirement System Group Inc.
("RSGroupSM"), 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.
13
<PAGE>
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
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 if
necessary to maintain a competitive expense ratio.
A comparison of annual operating expense data for the
Acquired and Acquiring Funds 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."
14
<PAGE>
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,
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 preliminary
Prospectus, attached as Exhibit A, 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.
15
<PAGE>
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 as a result of the
Reorganizations will be subject to $1,000 minimum initial
investment per Portfolio, and $50 minimum subsequent
investment. Minimums are not applicable for investments
through non-qualified retirement plans or Individual
Retirement Accounts. 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).
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
provide redemptions in assets of a Portfolio 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.
16
<PAGE>
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 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.
17
<PAGE>
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, 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 preliminary
Prospectus, the Enterprise Funds' preliminary SAI, 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 B 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 , 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.
18
<PAGE>
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 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 RSGroupSM 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
19
<PAGE>
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
RSGROUPSM
Each Reorganization is being proposed as part of an agreement
by and among Enterprise Capital, Retirement Investors and
RSGroupSM, the parent corporation of Retirement Investors,
pursuant to which Retirement Investors and RSGroupSM 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 RSGroupSM have agreed not to compete
with Enterprise Capital and its affiliates by providing
advisory 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
20
<PAGE>
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 B.
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
nonassessable when issued and transferable without restriction
and will have no preemptive or conversion rights. Reference is
hereby made to the Enterprise Funds preliminary Prospectus,
attached hereto as Exhibit A 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 RSGroupSM and Enterprise Capital.
21
<PAGE>
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.
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
22
<PAGE>
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.
23
<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
24
<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 see 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 is
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 preliminary
Prospectus, a copy of which is attached hereto as Exhibit A.
Additional information about Enterprise Funds is included in
the Enterprise Funds' Annual Report to Shareholders dated
December 31, 1996, the Enterprise Funds Statement of
Additional Information (relating to this Proxy
Statement/Prospectus) and the Enterprise Funds preliminary SAI
attached as an exhibit thereto. Copies of the Annual Report
and Statement of Additional Information, 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,
25
<PAGE>
N.E., Suite 450, Atlanta, Georgia 30326. Enterprise Funds is
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 Proxy Statement/Prospectus, 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 RSF Inc. SAI dated January 28, 1997, and the
Statement of Additional Information (relating to this Proxy
Statement/Prospectus). Copies of such Prospectus, Annual
Report 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 Proxy
Statement/Prospectus 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 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.
26
<PAGE>
The costs of preparing, printing and mailing the
accompanying Notice of Special Meeting and this Proxy
Statement/Prospectus and the costs of the Meeting will be
borne by Enterprise Capital and RSGroupSM. 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 RSGroupSM. 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 RSGroupSM. 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
February 28, 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
February 28, 1997 there were issued and outstanding 543,145,
569,146, 629,514 and 1,795,253 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.
27
<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 each respective Acquired Fund's
Prospectus.
SECURITY OWNERSHIP OF
CERTAIN SHAREHOLDERS AND
MANAGEMENT
On February 28, 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>
NUMBER OF NUMBER OF
TITLE OF FUND AND NAME SHARES OWNED OF PERCENT OWNED SHARES OWNED PERCENT OWNED
AND ADDRESS OF RECORD RECORD AND OF RECORD AND OF RECORD OF RECORD
OR BENEFICIAL OWNER BENEFICIALLY BENEFICIALLY ONLY ONLY
- ------------------------ --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
RSF INC. CORE EQUITY
IBJ Schroder as Trustee -- -- 328,191 60.4%
for various accounts
One State Street
New York, NY 10004
Marine Midland as -- -- 63,418 11.7%
Trustee
for various accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
The Dime Savings Bank 30,105 5.5% -- --
of Williamsburgh
209 Havemeyer Street
Brooklyn, NY 11211
Independence Savings 28,836 5.3% -- --
Bank
195 Montague Street
Brooklyn, NY 11201
ALBANK, FSB 103,943 19.1% -- --
10 North Pearl Street
Albany, NY 12207
First Union National 136,331 25.1%* -- --
Bank
301 South College St.
Charlotte, NC 28288
</TABLE>
----------------------------------
* Total ownership is less than 25% of total RSF Inc. Funds'
assets.
28
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
TITLE OF FUND AND NAME SHARES OWNED OF PERCENT OWNED SHARES OWNED PERCENT OWNED
AND ADDRESS OF RECORD RECORD AND OF RECORD AND OF RECORD OF RECORD
OR BENEFICIAL OWNER BENEFICIALLY BENEFICIALLY ONLY ONLY
- ------------------------ --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Flushing Savings Bank 43,791 8.1% -- --
144-51 Northern Blvd.
Flushing, NY 11354
RSF INC. EMERGING GROWTH
IBJ Schroder as Trustee -- -- 138,414 24.3%
for various accounts
One State Street
New York, NY 10004
Marine Midland as -- -- 41,978 7.4%
Trustee
for various accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
ALBANK, FSB 46,648 8.2% -- --
10 North Pearl Street
Albany, NY 12207
Ridgewood Savings Bank 42,981 7.6% -- --
Myrtle & Forest Avenues
Ridgewood, NY 11385
RSF INC.
INTERMEDIATE-TERM
IBJ Schroder as Trustee -- -- 279,676 44.2%
for various accounts
One State Street
New York, NY 10004
Marine Midland as -- -- 84,832 13.5%
Trustee
for various accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
ALBANK, FSB 59,211 9.4% -- --
10 North Pearl Street
Albany, NY 12207
First Union National 76,338 12.1% -- --
Bank
301 South College Street
Charlotte, NC 28288
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
TITLE OF FUND AND NAME SHARES OWNED OF PERCENT OWNED SHARES OWNED PERCENT OWNED
AND ADDRESS OF RECORD RECORD AND OF RECORD AND OF RECORD OF RECORD
OR BENEFICIAL OWNER BENEFICIALLY BENEFICIALLY ONLY ONLY
- ------------------------ --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Flushing Savings Bank 50,516 8.0% -- --
144-51 Northern Blvd.
Flushing, NY 11354
Beneficial Owners:
Institutional 130,005 20.7% -- --
Securities Corp.
200 Park Avenue,
6th Floor West
New York, NY 10166
The Dime Savings Bank 43,502 6.9% -- --
of Williamsburgh
209 Havemeyer Street
Brooklyn, NY 11211
The Roslyn Savings 69,496 11.0% -- --
Bank
1400 Old Northern
Blvd.
Roslyn, NY 11576
RSF INC. MONEY MARKET
IBJ Schroder as -- -- 714,693 40.0%
Trustee
for various accounts
One State Street
New York, NY 10004
Marine Midland as -- -- 303,645 17.0%
Trustee
for various accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
ALBANK, FSB 657,216 37.64%* -- --
10 North Pearl Street
Albany, NY 12207
Beneficial Owners:
Flushing Savings Bank 154,372 8.6% -- --
144-51 Northern Blvd.
Flushing, NY 11354
</TABLE>
----------------------------------
* Total ownership is less than 25% of total RSF Inc. Funds'
assets.
30
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
TITLE OF FUND AND NAME SHARES OWNED PERCENT OWNED SHARES OWNED PERCENT OWNED
AND ADDRESS OF RECORD OF RECORD AND OF RECORD AND OF RECORD OF RECORD
OR BENEFICIAL OWNER BENEFICIALLY BENEFICIALLY ONLY ONLY
- ---------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Charter Trust Company 222,534 12.4% -- --
Trustee of Mid-Maine
Savings Bank
95 North Main Street
P.O. Box 1374
Concord, NH 03302
North Fork Bank 112,447 6.3% -- --
275 Broad Hollow Road
Melville, NY 11747
Poughkeepsie Savings 149,272 8.3% -- --
Bank
249 Main Mall
Poughkeepsie, NY 12602
General Sullivan Group, 96,003 5.4% -- --
Inc.
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 form of proxy to vote
such proxy in accordance with their best judgment.
Please mark, sign, date and return the enclosed proxy
promptly. No postage is required on the enclosed envelope if
mailed in the United States.
By Order of the Board
of Directors
Stephen P. Pollak
SECRETARY
New York, NY
, 1997
31
<PAGE>
THE ENTERPRISE GROUP OF FUNDS, INC.
Atlanta Financial Center
3343 Peachtree Road, N.E., Suite 450
Atlanta, Georgia 30326
For Shareholder Information Call 1-800-368-3527
PROSPECTUS DATED MAY 1, 1997
The Enterprise Group of Funds, Inc. (the "Fund") is a series of mutual
funds that seeks to provide investors a broad range of investment alternatives
through its 13 separate Portfolios. Each Portfolio is managed as if it were a
separate mutual fund issuing its own shares. The Fund's principal investment
adviser, Enterprise Capital Management, Inc., selects separate sub-advisers
referred to as "Portfolio Managers" that provide investment advice for the
Portfolios and that are selected on the basis of able investment performance in
their respective areas of responsibility.
<TABLE>
<S> <C>
EQUITY PORTFOLIOS INCOME PORTFOLIO
Growth Portfolio Government Securities Portfolio
Growth and Income Portfolio High-Yield Bond Portfolio
Equity Portfolio Tax-Exempt Income Portfolio
Equity Income Portfolio
Capital Appreciation Portfolio FLEXIBLE PORTFOLIO
Small Company Growth Portfolio Managed Portfolio
Small Company Value Portfolio
International Growth Portfolio MONEY MARKET PORTFOLIO
Money Market Portfolio
</TABLE>
This Prospectus explains concisely what you should know about the Fund
and its Portfolios before you consider investing. Please read this Prospectus
and retain it for future reference. Additional information, contained in a
"Statement of Additional Information," dated May 1, 1997 has been filed with the
Securities and Exchange Commission and is available upon request without charge
by writing or calling the Fund. It is incorporated by reference into this
Prospectus (which means that it is legally part of it).
LIKE ALL MUTUAL FUND SHARES, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE MONEY MARKET PORTFOLIO ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE MONEY MARKET
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THE HIGH-YIELD BOND PORTFOLIO INVESTS SIGNIFICANTLY IN LOWER RATED BONDS,
COMMONLY REFERRED TO AS "JUNK BONDS." BONDS OF THIS TYPE ARE CONSIDERED TO BE
SPECULATIVE WITH REGARD TO THE PAYMENT OF INTEREST AND RETURN OF PRINCIPAL AND
HAVE SPECIAL RISKS. THEY MAY NOT BE SUITABLE FOR ALL INVESTORS. PLEASE READ THE
RISK INFORMATION CAREFULLY
PLEASE NOTE THAT THESE FUNDS ARE NOT BANK DEPOSITS; ARE NOT FEDERALLY
INSURED; ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY; AND ARE NOT
GUARANTEED TO ACHIEVE THEIR GOAL(S).
<PAGE>
THE ENTERPRISE GROUP OF FUNDS, INC.
PROSPECTUS SUMMARY
Set forth below are the 13 Portfolios of the Fund, their Portfolio
Managers and investment objectives. The Fund is a diversified, open-end
management investment company. Enterprise Capital Management, Inc. serves as
investment adviser. The Fund consists of common stock divided into thirteen
Portfolios consisting of four separate Classes for each Portfolio. Shares are
freely transferable within each Class.
<TABLE>
<CAPTION>
PORTFOLIO MANAGER INVESTMENT OBJECTIVES
- -------------------------------------- ----------------------------------------------------------------
<S> <C>
EQUITY PORTFOLIOS
Growth Portfolio Capital appreciation, primarily from investments in common
Montag & Caldwell, Inc. stocks.
Atlanta, Georgia
Growth & Income Portfolio Total return in excess of the total return of the Lipper Growth
Retirementent System Investors Inc. and Income Mutual Funds Average measured over a period of three
New York, New York to five years, by investing primarily in a broadly diversified
group of large capitalization stocks.
Equity Portfolio Long term capital appreciation, primarily from investments in
OpCap Advisors securities of companies that are believed by the Portfolio
New York, New York Manager to be undervalued in the marketplace in relation to
factors such as the companies' assets or earnings.
Equity Income Portfolio A combination of growth and income to achieve an above average
1740 Advisers, Inc. and consistent total return, primarily from investments in
New York, New York dividend paying common stocks.
Capital Appreciation Portfolio Maximum capital appreciation, primarily through investment in
Provident Investment Counsel, Inc. common stock of companies that demonstrate accelerating earnings
Pasadena, California momentum and consistently strong financial characteristics.
Small Company Growth Portfolio Capital appreciation by investing primarily in common stocks of
Pilgrim Baxter small capitalization companies believed by the Portfolio Manager
Wayne, Pennsylvania to have on outlook for strong earning momentum and consistently
strong financial characteristics.
Small Company Value Portfolio Maximum capital appreciation, primarily through investment in
GAMCO Investors, Inc. the equity securities of companies that have a market
Rye, New York capitalization of no more than $1 billion.
International Growth Portfolio Capital appreciation, primarily through a diversified portfolio
Brinson Partners, Inc. of non-U.S. equity securities.
Chicago, Illinois
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO MANAGER INVESTMENT OBJECTIVES
- -------------------------------------- ----------------------------------------------------------------
<S> <C>
INCOME PORTFOLIOS
Government Securities Portfolio Current income and safety of principal, primarily from
TCW Funds Management, Inc. securities that are obligations of the U.S. Government, or its
Los Angeles, California agencies, or its instrumentalities.
High-Yield Bond Portfolio Maximum current income, primarily from debt securities that are
Caywood-Scholl Capital Management rated Ba or lower by Moody's Investors Service, Inc. or BB or
San Diego, California lower by Standard & Poor's Corporation.
Tax-Exempt Income Portfolio A high level of current income exempt from federal income tax,
Morgan Stanley Asset Management, Inc. with consideration given to preservation of principal, primarily
New York, New York from investment in a diversified portfolio of long-term
investment grade municipal bonds.
FLEXIBLE PORTFOLIO
Managed Portfolio Growth of capital over time through investment in a portfolio
OpCap Advisors consisting of common stocks, bonds and cash equivalents, the
New York, New York percentages of which will vary based on the Portfolio Manager's
assessments of relative investment values.
MONEY MARKET PORTFOLIO
Money Market Portfolio The highest possible level of current income consistent with
Enterprise Capital Management, Inc. preservation of capital and liquidity of investing in
Atlanta, Georgia obligations maturing in one year or less from the time of
purchase.
</TABLE>
INVESTMENT RISK FACTORS
The risk characteristics of each Portfolio are different. In general,
investors should consider the following risks: An investment in any of the
Portfolios carries the risk that the net asset value of the Portfolio shares
will fluctuate in response to market conditions. Further, an investment in any
of the Income Portfolios carries the risk that the issuers of securities in the
Income Portfolios may default on the payment of principal and interest. 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 the 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 of 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 Small Company
Growth and Small Company Value Portfolios carry an increased risk that smaller
capitalization companies may experience higher growth rates and higher failure
rates than do larger companies. The limited volume and frequency of trading of
small capitalization companies may subject their stocks to greater price
deviations than stocks of larger companies. The International Growth Portfolio
carries additional risks associated with possibly less stable foreign securities
and currencies. Because of the short-term nature of the Money Market Portfolio's
investments, an investment in shares of the Money Market Portfolio is subject to
relatively little market risk and financial risk, but is subject to a high level
of current income volatility. In addition, the Money Market Portfolio uses the
amortized cost method to value its portfolio securities and seeks to maintain a
constant net asset value of $1.00 per share. There is no assurance that this
Portfolio will be able to maintain this constant net asset value. See "Certain
Investment Techniques and Associated Risks."
3
<PAGE>
PURCHASE ALTERNATIVES
Each Portfolio offers four Classes of shares: Shares of each Class are
generally offered at the net asset value next determined after receipt of your
purchase order plus (i) an initial ("front-end") sales charge (Class A shares)
or (ii) a deferred sales charge (Class B and C shares). The following is a brief
description of the Y Class of shares offered. Class A, Class B, Class C Shares
are contained in a separate prospectus. For more complete descriptions of each
Class of shares, see "How to Purchase Shares."
CLASS Y SHARES: Class Y shares do not incur an initial sales charge when
purchased. Class Y shares are not subject to any ongoing
distribution fees or service fees. Class Y shares are subject
to an investment of $1,000,000. Institutional investors
eligible to purchases Class Y shares include banks, savings
institutions, trust companies, insurance companies, investment
companies as defined by the Investment Company Act of 1940,
pension or profit sharing trusts, certain wrap account clients
of broker/dealers, former shareholders of Retirement System
Fund, Inc. ("RSF") whose shares were merged into the Enterprise
Group of Funds, Inc. or other financial institutional buyer.
Wrap account clients of broker/dealers and former RSI
shareholders are offered Class Y shares at a lower minimum
purchase amount.
4
<PAGE>
<TABLE>
<CAPTION>
SMALL SMALL
GROWTH AND EQUITY CAPITAL COMPANY COMPANY
GROWTH INCOME EQUITY INCOME APPRECIATION GROWTH VALUE
SUMMARY OF FUND EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS OF SHARES: Y Y Y Y Y Y Y
SHAREHOLDER TRANSACTION EXPENSES
Maximum Initial Sales Load Imposed
on Purchase
(as a % of offering price)...... None None None None None None None
Maximum Deferred Sales Load....... None None None None None None None
Maximum Sales Load Imposed on
Reinvested dividends............ None None None None None None None
Exchange Fee...................... None None None None None None None
Redemption Fee*................... 0.75 0.75 0.75 0.75 0.75 0.75 0.75
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
Management Fee**.................. 0.75 0.75 0.75 0.75 0.75 1.00 0.75
12b-1............................. None None None None None None None
Other Expenses.................... 0.40 0.30 0.40 0.30 0.55 0.40 0.55
TOTAL FUND OPERATING
EXPENSES***..................... 1.15 1.05 1.15 1.05 1.30 1.40 1.30
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
</TABLE>
Example 1 You would pay the following expenses over the indicated periods in
each of the Funds on a $1,000 investment assuming (a) payment of the maximum
sales charge (none), (b) a 5% annual return, and (c) redemption at the end of
the time period.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year............................ 12.00 11.00 12.00 11.00 13.00 14.00 13.00
3 Years........................... 37.00 33.00 37.00 33.00 41.00 44.00 41.00
5 Years........................... 63.00 58.00 63.00 58.00 71.00 77.00 71.00
10 Years.......................... 140.00 128.00 114.00 128.00 157.00 168.00 157.00
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED INDICATIONS OF PAST OR OF FUTURE EXPENSES
OR PERFORMANCE, AND ACTUAL EXPENSES OR PERFORMANCE MAY VARY FROM THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the various
costs and expenses that an investor in the Portfolios will bear directly or
indirectly.
* Charged to shares redeemed 90 days of purchase.
** These fees may be higher than that of other funds. However, the Board of
Directors has determined that such fees are reasonable in light of the
services, investment decisions and investment techniques employed.
*** The expense information set out above reflects a revised commitment of
Enterprise Capital Management, Inc. effective January 1, 1997, to reimburse
to the fund's Portfolios a portion of the fees due it under the investment
Adviser's Agreement. That commitment provides that the Fund's total
operating expenses for the Portfolios, on an annual basis, will not exceed
the amounts set forthin the above table. By reason of the expense
reimbursement commitment applicable in 1996, the actual expenses incurred
by Class Y shares of the Portfolio for 1996 were, on an annualized basis,
Small Company -- 1.30; International Growth -- 1.55; and Managed -- 1.12.
Absent this reimbursement of fees, the ratio of expenses to average net
assets for the Portfolio for 1996 would have been as follows: Small Company
-- 1.92; International Growth -- 1.75; and Managed -- 1.12. Accordingly,
expenses for Class Y shares of the funds represent estimates of what these
expenses are expected to be for the 1997 fiscal year. See "Management of
the Fund" and "Brokerage Transactions" for further information concerning
expenses.
For accounts with a balance of $1,000 or less, as of July 31, a $25 fee per
account registration per Portfolio for maintenance will apply, excluding
Automatic Bank Draft Plan Accounts, Automatic Investment Plan Accounts, and
Retirement Plans.
5
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL GOVERNMENT HIGH-YIELD MONEY
GROWTH SECURITIES BOND TAX-EXEMPT MANAGED MARKET
SUMMARY OF FUND EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS OF SHARES: Y Y Y Y Y Y
SHAREHOLDER TRANSACTION EXPENSES
Maximum Initial Sales Load Imposed
on Purchase
(as a % of offering price)........ None None None None None None
Maximum Deferred Sales Load......... None None None None None None
Maximum Sales Load Imposed on
Reinvested dividends.............. None None None None None None
Exchange Fee........................ None None None None None None
Redemption Fee*..................... 0.75 0.75 0.75 0.75 0.75 0.75
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
Management Fee**.................... 0.85 0.60 0.60 0.50 0.75 0.35
12b-1............................... None None None None None None
Other Expenses...................... 0.70 0.25 0.25 0.30 0.55 0.35
TOTAL FUND OPERATING EXPENSES***.... 1.55 0.85 0.85 0.80 1.30 0.70
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
Example 1 You would pay the following expenses over the indicated periods in
each of the Funds on a $1,000 investment assuming (a) payment of the maximum
sales charge (none) 5% annual return, and (c) redemption at the end of the time
period.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1 Year.............................. 16.00 9.00 9.00 8.00 13.00 7.00
3 Years............................. 49.00 27.00 27.00 26.00 41.00 22.00
5 Years............................. 84.00 47.00 47.00 44.00 71.00 39.00
10 Years............................ 185.00 105.00 105.00 99.00 157.00 87.00
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED INDICATIONS OF PAST OR OF FUTURE EXPENSES
OR PERFORMANCE, AND ACTUAL EXPENSES OR PERFORMANCE MAY VARY FROM THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the various
costs and expenses that an investor in the Portfolios will bear directly or
indirectly.
* Charged to shares redeemed 90 days of purchase.
** These fees may be higher than that of other funds. However, the Board of
Directors has determined that such fees are reasonable in light of the
services, investment decisions and investment techniques employed.
*** The expense information set out above reflects a revised commitment of
Enterprise Capital Management, Inc. effective January 1, 1997, to reimburse
to the fund's Portfolios a portion of the fees due it under the investment
Adviser's Agreement. That commitment provides that the Fund's total
operating expenses for the Portfolios, on an annual basis, will not exceed
the amounts set forthin the above table. By reason of the expense
reimbursement commitment applicable in 1996, the actual expenses incurred
by Class Y shares of the Portfolio for 1996 were, on an annualized basis,
Small Company -- 1.30; International Growth -- 1.55; and Managed -- 1.12.
Absent this reimbursement of fees, the ratio of expenses to average net
assets for the Portfolio for 1996 would have been as follows: Small Company
-- 1.92; International Growth -- 1.75; and Managed -- 1.12. Accordingly,
expenses for Class Y shares of the funds represent estimates of what these
expenses are expected to be for the 1997 fiscal year. See "Management of
the Fund" and "Brokerage Transactions" for further information concerning
expenses.
For accounts with a balance of $1,000 or less, as of July 31, a $25 fee per
account registration per Portfolio for maintenance will apply, excluding
Automatic Bank Draft Plan Accounts, Automatic Investment Plan Accounts, and
Retirement Plans.
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FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGH THE PERIODS INDICATED)
The financial highlights which follow are part of the Fund's financial
statements and are included in Fund's Annual Report to Shareholders. The Fund's
1996 Annual Report to Shareholders is incorporated by reference into the
Statement of Additional Information. Annual reports may be obtained without
charge by calling the Fund at 800-432-4320. The Report contains information
about the performances of the Portfolios.
(Registrant undertakes to submit Financial Highlights as part of a
Post-Effective Amendment 485(b) filing on or before April 30, 1997.)
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INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
The following descriptions of the Portfolios are intended to help you
select the Portfolio which is appropriate for your investment objective. You may
wish to pursue your objectives by investing in more than one Portfolio.
The investment objectives of each Portfolio may not be changed without
approval of a majority of the outstanding voting securities of that Portfolio.
EQUITY PORTFOLIOS
Under normal market conditions, at least 65% of the net asset value of
the eight Equity Portfolios will be invested in common equity securities. The
remainder of the Equity Portfolios' assets may be invested in repurchase
agreements, bankers acceptances, bank certificates of deposit, commercial paper
and similar money market instruments, convertible bonds, convertible preferred
stock, preferred stock, corporate bonds, U.S. Treasuries, notes and bonds,
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"),
foreign stocks, rights and warrants.
The Growth, Growth and Income, Equity Income, Capital Appreciation, Small
Company Growth and Small Company Value Portfolios invest in securities that are
traded on national securities exchanges and in the over-the-counter market. Each
of these Portfolios may invest up to 10% of its assets in securities of foreign
issuers and up to 10% of its assets in illiquid, including restricted,
securities. As noted below, the International Growth Portfolio invests
principally in the securities of foreign issuers listed on recognized foreign
exchanges, but may also invest in securities traded on the over-the-counter
market.
GROWTH PORTFOLIO
The objective of the Growth Portfolio is appreciation of capital
primarily through investments in common stocks. The Portfolio's common stock
selection emphasizes those companies having growth characteristics, but the
Portfolio's investment policy recognizes that securities of other companies may
be attractive for capital appreciation purposes by virtue of special
developments or depression in price believed to be temporary. The potential for
appreciation of capital is the basis for investment decisions; any income is
incidental.
GROWTH AND INCOME
The objective of the Growth and Income Portfolio 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. The
Fund seeks this objective primarily through capital appreciation with income as
a secondary consideration. The Fund will invest in securities of companies which
the Portfolio Manager believes to be financially sound and will consider such
factors as the sales, growth and profitability prospects for the economic sector
and markets in which the company operates and for the services of products it
provides; the financial condition of the company; its ability to meet its
liabilities and to provide income in the form of dividends; the prevailing price
of the security; how that price compares to historical price levels of the
security, to current price levels in the general market, and to the prices of
competing companies; projected earnings estimates and earnings growth rate of
the company, and the relation of those figures to the current price.
Under normal circumstances, the Growth and Income Portfolio expects to be
as fully invested as practicable in equity-based securities, primarily common
stocks, and will be at least 65% so invested. Equity-based securities may
include securities convertible into common stocks and warrants to purchase
common stocks.
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In general, the Portfolio will invest in stocks of companies with market
capitalizations in excess of $750 million. Although there is no assurance that
the Portfolio will meet its objective, the securities held in the Growth and
Income Portfolio will generally reflect the price volatility of the broad equity
market (i.e., the Standard & Poor's 500 Index).
EQUITY PORTFOLIO
The investment objective of the Equity Portfolio is long term capital
appreciation through investment in securities (primarily equity securities) of
companies that are believed by the Portfolio Manager to be undervalued in the
marketplace in relation to factors such as the companies' assets or earnings. It
is the Portfolio Manager's intention to invest in securities of companies which
in the Portfolio Manager's opinion possess one or more of the following
characteristics: undervalued assets, valuable consumer or commercial franchises,
securities valuation below peer companies, substantial and growing cash flow
and/or a favorable price to book value relationship. Investment policies aimed
at achieving the Portfolio's objective are set in a flexible framework of
securities selection which primarily includes equity securities, such as common
stocks, preferred stocks, convertible securities, rights and warrants in
proportions which vary from time-to-time. Under normal circumstances at least
65% of the Portfolio's assets will be invested in equity securities. The
Portfolio will invest primarily in stocks listed on the New York Stock Exchange.
In addition, it may also purchase securities listed on other domestic securities
exchanges, securities traded in the domestic over-the-counter market and foreign
securities provided that they are listed on a domestic or foreign securities
exchange or represented by American Depository Receipts listed on a domestic
securities exchange or traded in the United States over-the-counter market.
EQUITY INCOME PORTFOLIO
The objective of the Equity Income Portfolio is a combination of growth
and income to achieve an above average and consistent total return, primarily
from investments in dividend-paying common stocks.
The Portfolio's principal criterion in stock selection is above average
yield, and it uses this criterion as a discipline to enhance stability and
reduce market risk. Subject to this primary criterion, the Portfolio invests in
stocks that have relatively low price to earnings ratios or relatively low price
to book value ratios.
CAPITAL APPRECIATION PORTFOLIO
The objective of the Capital Appreciation Portfolio is maximum capital
appreciation, primarily through investments in common stocks of companies that
demonstrate accelerating earnings momentum and consistently strong financial
characteristics.
The Portfolio invests primarily in common stocks of companies which meet
the Portfolio Manager's criteria of: (a) steadily increasing earnings; and (b) a
three-year average performance record of sales, earnings, dividend growth,
pretax margins, return on equity and reinvestment rate at an aggregate average
of 1.5 times the average performance of the Standard & Poor's 500 common stocks
("S&P 500") for the same period. The Portfolio attempts to invest in a range of
small, medium and large companies designed to achieve an average capitalization
of the companies in which it invests that is less than the average
capitalization of the S&P 500. The potential for maximum capital appreciation is
the basis for investment decisions; any income is incidental.
SMALL COMPANY GROWTH PORTFOLIO
The Small Company Growth Portfolio seeks capital appreciation and invests
primarily in common stocks of small capitalization companies believed by the
Portfolio Manager to have an outlook for strong earnings growth and potential
for significant capital appreciation. The Portfolio will normally be as fully
invested as practicable in common stocks and securities convertible into common
stocks, but also may invest up to 5% of its assets in warrants and rights to
purchase common stocks. In
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the option of the Portfolio Manager, there may be times when the shareholder's
best interests are best served and the investment objective is more likely to be
achieved by having varying amounts of the Portfolio's assets in convertible
securities. Under normal market conditions, the Portfolio will invest at least
65% of its total assets in common stocks and convertible securities of small
capitalization companies (market capitalization or annual revenues of up to $1
billion). At certain times that percentage may be substantially higher.
Securities will be sold when the Portfolio Manager believes that anticipated
appreciation no longer probable, alternative investments offer superior
appreciation prospects, or the risk of a decline in market price is too great.
Because of its policy with respect to the sales of investments, the Portfolio
may from time to time realize short-term gains or losses. The Portfolio will
likely have somewhat greater volatility than the stock market in general, as
measured by the S&P 500 Index.
The securities of the Small Company Growth Fund generally will have a
higher degree of risk and price volatility than larger growth funds and a lower
income return than those funds.
For temporary defensive purposes, the Portfolio may invest up to 100% of
its total assets in cash equivalents. The Portfolio may also pursue certain
additional investment policies and strategies including: foreign securities;
investing foreign currency transactions; investing in repurchase agreements; and
acquiring when-issue securities.
SMALL COMPANY VALUE PORTFOLIO
The objective of the Small Company Value Portfolio is maximum capital
appreciation, primarily through investment of at least 65% of Portfolio assets
in the common equity securities of companies (based on the total outstanding
common shares at the time of investment) which have a market capitalization of
no more than $1 billion (hereinafter referred to as "small cap companies").
The Portfolio intends to invest the remaining 35% of its total assets in
the same manner but reserves the right to use some or all of the 35% to invest
in equity securities of companies (based on the total outstanding common shares
at the time of investment) which have a market capitalization of more than $1
billion.
In pursuing its objective, the Portfolio's strategy will be to invest in
stocks of companies with value that may not be fully reflected by current stock
price. Since small companies tend to be less actively followed by stock
analysts, the market may overlook favorable trends and then adjust its valuation
more quickly once investor interest has surfaced. The Portfolio Manager seeks
out companies in the public market that are selling at a discount to their
private market value (PMV) measured using proprietary research techniques in
areas of core competencies. The Portfolio Manager then determines whether there
is an emerging catalyst that will focus investor attention on the underlying
assets of the company. Smaller companies may be subject to a valuation catalyst
such as increased investor attention, takeover efforts or a change in
management.
INTERNATIONAL GROWTH PORTFOLIO
The objective of the International Growth Portfolio is capital
appreciation, primarily through a diversified portfolio of non-U.S. equity
securities.
It is a fundamental policy of the Portfolio that it will invest at least
80% of the value of its assets (except when maintaining a temporary defensive
position) in equity securities of companies domiciled outside the United States.
That portion of the Portfolio not invested in equity securities is, in normal
circumstances, invested in U.S. and foreign government securities, high grade
commercial paper, certificates of deposit, foreign currency, banker acceptances,
cash and cash equivalents, time deposits, repurchase agreements and similar
money market instruments, both foreign and domestic. The Portfolio may invest in
convertible debt securities of foreign issuers which are convertible into equity
securities at such time as a market for equity securities is established in the
country involved.
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The Portfolio Manager's investment perspective for the Portfolio is to
invest in the equity securities of non-U.S. markets and companies which are
believed to be undervalued based upon internal research and proprietary
valuation systems. This international equity strategy reflects the Portfolio
Manager's decisions concerning the relative attractiveness of asset classes, the
individual international equity markets, industries across and within those
markets, other common risk factors within those markets and individual
international companies. The Portfolio Manager initially identifies those
securities which it believes to be undervalued in relation to the issuer's
assets, cash flow, earnings and revenues. The relative performance of foreign
currencies is an important factor in the Portfolio's performance. The Portfolio
Manager may manage the Portfolio's exposure to various currencies to take
advantage of different yield, risk and return characteristics. The Portfolio
Manager's proprietary valuation model determines which securities are potential
candidates for inclusion in the Portfolio.
The benchmark for the fund is the Morgan Stanley Capital International
Non-U.S. Equity (Free) Index (the "Benchmark"). The Benchmark is a market driven
broad based index which includes non-U.S. equity markets in terms of
capitalization and performance. The Benchmark is designed to provide a
representative total return for all major stock exchanges located outside the
U.S. From time to time, the Portfolio Manager may substitute securities in an
equivalent index when it believes that such securities in the index more
accurately reflect the relevant international market.
As a general matter, the Advisor will purchase for the Fund only
securities contained in the underlying index relevant to the Benchmark. Brinson
Partners will attempt to enhance the long-term risk and return performance of
the Fund relative to the Benchmark by deviating from the normal Benchmark mix of
country allocation and currencies in reaction to discrepancies between current
market prices and fundamental values. The active management process is intended
to produce a superior performance relative to the Benchmark index.
The Portfolio Manager will purchase securities of companies domiciled in
a minimum of 8 to 12 countries outside the United States.
INCOME PORTFOLIOS
Investors should refer to the Appendix to the Statement of Additional
Information for a description of the Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's ("S&P") ratings mentioned below.
GOVERNMENT SECURITIES PORTFOLIO
The objective of the Government Securities Portfolio is current income
and safety of principal primarily from securities that are obligations of the
U.S. Government, its agencies and instrumentalities ("U.S. Government
Securities").
It is a fundamental policy of the Portfolio that under normal conditions
at least 80% of the value of its net assets will be invested in U.S. Government
Securities. Securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities are generally considered to be of the same or
higher credit quality as privately issued securities rated Aaa by Moody's or AAA
by S&P.
U.S. Government Securities consist of direct obligations of the U.S.
Treasury (such as treasury bills, treasury notes and treasury bonds) and
securities issued or guaranteed by agencies and 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. Examples
of full faith and credit securities are securities issued by the Government
National Mortgage Association ("GNMA Certificates"). Examples of agencies or
instrumentalities whose securities are not backed by the full faith and credit
of the United States are the Federal Farm Credit System, the Federal Home Loan
Banks, the Tennessee Valley Authority, the United States Postal Service and the
Export-Import Bank. The Portfolio may concentrate from time to time in different
securities described above in order to obtain the highest level of current
income and safety of principal.
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The remainder of the Portfolio's assets may be invested in repurchase
agreements, bankers acceptances, bank certificates of deposit, commercial paper
and similar money market instruments, corporate bonds and other mortgage-related
securities (including collateralized mortgage obligations or "CMOs") 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. For a discussion of CMOs and
related risks, see "Certain Investment Techniques and Associated Risks," at page
16.
As described in "Certain Investment Techniques and Associated Risks," at
page 16, the Portfolio may write and sell covered call option contracts on
securities that it owns (in an effort to enhance income through hedging and
other investment techniques) to the extent of 20% of the value of its net assets
at the time such option contracts are written.
HIGH-YIELD BOND PORTFOLIO
The objective of the High-Yield Bond Portfolio is maximum current income,
primarily from debt securities that are rated Ba or lower by Moody's or BB or
lower by Standard & Poor's.
It is a fundamental policy of the Portfolio that it will invest at least
80% of the value of its total assets (except when maintaining a temporary
defensive position) in high-yielding, income-producing corporate bonds that are
rated B3 or better by Moody's or B- or better by S&P. The corporate bonds in
which the Portfolio invests are high-yielding but normally carry a greater
credit risk than bonds with higher ratings. In addition, such bonds, commonly
referred to as "junk bonds", may involve greater volatility of price than
higher-rated bonds. For a discussion of High-Yield Securities and related risks,
see "Certain Investment Techniques and Associated Risks" at page 16.
The Portfolio's investments are selected by the Portfolio Manager after
careful examination of the economic outlook to determine those industries that
appear favorable for investments. Industries going through a perceived decline
generally are not candidates for selection. After the industries are selected,
bonds of issuers within those industries are selected based on their
creditworthiness, their yields in relation to their credit and the relative
strength of their common stock prices. Companies near or in bankruptcy are not
considered for investment. The Portfolio does not purchase bonds which are rated
Ca or lower by Moody's or CC or lower by S&P or which, if unrated, in the
judgment of the Portfolio Manager have characteristics of such lower-grade
bonds. Should an investment purchased with the above-described credit quality
requisites be downgraded to Ca or lower or CC or lower, the Portfolio Manager
shall have discretion to hold or liquidate the security.
Subject to the restrictions described above, under normal circumstances,
up to 20% of the Portfolio's assets may include: (1) bonds rated Caa by Moody's
or CCC by S&P; (2) unrated debt securities which, in the judgment of the
Portfolio Manager have characteristics similar to those described above; (3)
convertible debt securities; (4) puts, calls and futures as hedging devices; (5)
foreign issuer debt securities; and (6) short-term money market instruments,
including certificates of deposit, commercial paper, U.S. Government Securities
and other income-producing cash equivalents. For a discussion on puts, calls,
and futures and their related risks, see "Certain Investment Techniques and
Associated Risks," at page 16 .
TAX-EXEMPT INCOME PORTFOLIO
The objective of the Tax-Exempt Income Portfolio is a high level of
current income not includable in gross income for federal income tax purposes,
with consideration given to preservation of principal, primarily from
investments in a diversified portfolio of long-term investment grade municipal
bonds.
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It is a fundamental policy of the Portfolio that it will invest at least
80% of its net assets (except when maintaining a temporary defensive position)
in Municipal Securities (or futures contracts or options on futures with respect
thereto) which, at the time of investment, are investment grade or in Municipal
Securities which are not rated if, based upon credit analysis by the Portfolio
Manager, it is believed that such securities are of comparable quality to such
rated bonds.
The Portfolio invests primarily in investment grade "Municipal
Securities" the interest on which, in the opinion of counsel for issuers or the
Portfolio, is not includable in gross income for federal income tax purposes.
Municipal Securities are notes and bonds issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities. These
securities are traded primarily in the over-the-counter market. Such securities
may have fixed, variable or floating rates of interest. See the Appendix to this
Prospectus for a further description of Municipal Securities.
Investment grade securities are: bonds rated within the three highest
ratings by Moody's (Aaa, Aa, A) or S&P (AAA, AA, A); notes given one of the
three highest ratings by Moody's (MIGl, MIG2, MIG3) for notes; commercial paper
rated P-l by Moody's or A-1 by S&P; and variable rate securities rated VMIGl or
VMIG2 by Moody's.
While there are no maturity restrictions on the Municipal Securities in
which the Portfolio invests, the average maturity is expected to range between
10 and 25 years. The Portfolio Manager will actively manage the Portfolio,
adjusting the average Portfolio maturity and utilizing futures contracts and
options on futures as a defensive measure according to its judgment of
anticipated interest rates. During periods of rising interest rates and falling
prices, a shorter weighted average maturity may be adopted to cushion the effect
of bond price declines on the Portfolio's net asset value. When rates are
falling and prices are rising, a longer weighted average maturity rate may be
adopted. For a discussion on futures and their related risks, see "Certain
Investment Techniques and Associated Risks," at page 16.
The Portfolio may also invest up to 20% of its net assets in cash, cash
equivalents and debt securities, the interest from which may be subject to
federal income tax. Investments in taxable securities will be limited to
investment grade corporate debt securities and U.S. Government Securities.
The Portfolio will not invest more than 20% of its net assets in
Municipal Securities the interest on which is subject to federal alternative
minimum tax.
FLEXIBLE PORTFOLIO
MANAGED PORTFOLIO
The objective of the Managed Portfolio is 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 Portfolio Manager's
assessments of the relative outlook for such investments. In seeking to achieve
its investment objective, the types of equity securities in which the Portfolio
may invest will be the same as those in which the Equity Portfolios invest. Debt
securities are expected to be predominantly investment grade intermediate to
long term U.S. Government and corporate debt, although the Portfolio will also
invest in high quality short term money market and cash equivalent securities
and may invest almost all of its assets in such securities when the Manager
deems it advisable in order to preserve capital. In addition, the Portfolio may
also purchase foreign securities provided that they are listed on a domestic or
foreign securities exchange or are represented by American Depository Receipts
listed on a domestic securities exchange or traded in the United States
over-the-counter market.
The allocation of the Portfolio's assets among the different types of
permitted investments will vary from time to time based upon the Portfolio
Manager's evaluation of economic and market trends and its perception of the
relative values available
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from such types of securities at any given time. There is neither a minimum nor
a maximum percentage of the Portfolio's assets that may, at any given time, be
invested in any of the types of investments identified above. Consequently,
while the Portfolio will earn income to the extent it is invested in bonds or
cash equivalents, the Portfolio does not have any specific income objective.
MONEY MARKET PORTFOLIO
The investment objective of the Money Market Portfolio is to provide the highest
possible level of current income, consistent with preservation of capital and
liquidity. Securities in which the Portfolio will invest may not yield as high a
level of current income as securities of lower quality and longer maturity which
generally have less liquidity and greater market risk. The Money Market
Portfolio seeks to achieve its objective by investing 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 which
consist of the following:
1. obligations issued or guaranteed as to principal and interest by the United
States Government or any agency or authority controlled or supervised by and
acting as an instrumentality of the U.S. Government pursuant to authority
granted by Congress;
2. commercial paper, negotiable certificates of deposit, letters of credit,
time deposits and bankers' acceptances, of U.S. or foreign banks, and U.S.
or foreign savings and loans associations, which at the date of investment
have capital, surplus and undistributed profits as of the date of their most
recent published financial statements of $500,000,000 or greater;
3. short-term corporate debt instruments (commercial paper or variable amount
master demand notes) rated "A-1" or "A-2" by S&P or "Prime 1" or "Prime 2"
by Moody's, or, if not rated, issued by a company rated at least "A" by S&P
or Moody's and about which the Board of Directors of the Fund has ratified
the Portfolio Manager's independent determination that the instrument
presents minimal credit risks and is of high quality; however, investments
in securities of all issuers having the second highest overall rating
(A-2/P-2) assigned shall be limited to no more than five percent of the
Portfolio's assets at the time of purchase, with the investment of any one
such issuer being limited to not more than one percent of Portfolio assets
at the time of purchase;
4. corporate obligations limited to non-convertible corporate debt securities
having one year or less remaining to maturity and which are rated "AA" or
better by S&P or "Aa" or better by Moody's; and
5. repurchase agreements with respect to any of the foregoing obligations.
The Money Market Portfolio will limit its investment in the securities of
any one issuer to no more than five percent of Portfolio assets, measured at the
time of purchase.
In addition, the Money Market Portfolio will not purchase any security,
including any repurchase agreement maturing in more than seven days, which is
subject to legal or contractual delays on resale or which is not readily
marketable if more than 10% of the net assets of the Money Market Portfolio,
taken at market value would be invested in such securities.
After purchase by the Money Market Portfolio, a security may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Money Market Portfolio. Neither event will require a sale of such security
by the Money Market Portfolio. The Portfolio Manager will consider such event in
its determination of whether the Money Market Portfolio should continue to hold
the security provided that the security presents minimal credit risks and that
holding the security is in the best interests of the Portfolio. To the extent
Moody's or S&P may change their rating systems generally (as described in the
Appendix to the Statement of Additional Information) the Money Market Portfolio
will attempt to use comparable ratings as standards for investments in
accordance with investment policies contained herein and in the Fund's Statement
of Additional Information.
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The dollar weighted average maturity of the Money Market Portfolio will
be 90 days or less.
All investments of the Money Market Portfolio will be limited to
instruments which the Board of Directors determines are of eligible quality,
which, if instruments of foreign issuers, are United States dollar-denominated
instruments presenting minimal credit risk, and all of which are either:
1. of those rated in the two highest rating categories by any nationally
recognized statistical rating organization (NRSRO), or
2. if the instrument is not rated, of comparable quality as determined by the
Board of Directors.
Generally, instruments with NRSRO ratings in the two highest grades are
considered "high quality." All of the money market investments will mature in
397 days or less. The Money Market Portfolio will use the amortized cost method
of securities valuation, as described more fully in the Statement of Additional
Information.
CERTAIN INVESTMENT TECHNIQUES AND ASSOCIATED RISKS
Following is a description of certain investment techniques employed by
the Portfolios, and certain types of securities invested in by the Portfolios
and associated risks. Unless otherwise indicated, all of the Portfolios may use
the indicated techniques and invest in the indicated securities.
GENERAL RISKS ASSOCIATED WITH EQUITY PORTFOLIOS
The Equity Portfolios seek to reduce risk of loss of principal due to changes in
the value of individual stocks by investing in a diversified portfolio of common
stocks and through the use of options on stocks. Such investment techniques do
not, however, eliminate all risks. Investors should expect the value of the
Equity Portfolios and the net asset value of their shares to fluctuate based on
market conditions.
Smaller capitalization companies may experience higher growth rates and
higher failure rates than do larger capitalization companies due to the risk
related to markets, market share, product performance and financial resources.
The limited volume and frequency of trading of small capitalization companies
may subject their stocks to greater price deviations than stocks of larger
companies.
The International Growth Portfolio carries additional risks associated
with possibly less stable foreign securities and currencies. For a discussion on
these risks, please refer to "Foreign Currency and Values" at page 30.
GENERAL RISKS ASSOCIATED WITH INCOME PORTFOLIOS
Although the Income Portfolios seek to reduce credit risks, i.e., failure of
obligors to pay interest and principal, through careful selection of
investments, and they seek to reduce market risks resulting from fluctuations in
the principal value of debt obligations due to changes in prevailing interest
rates by careful timing of maturities of investments, such risks cannot be
eliminated, and these factors will affect the net asset value of shares in the
Income Portfolios. The value of debt obligations has an inverse relationship
with prevailing interest rates.
GENERAL RISKS ASSOCIATED WITH FLEXIBLE PORTFOLIO
The foregoing types of risks associated with equity and income portfolios also
apply to flexible portfolios.
U.S. GOVERNMENT SECURITIES
Although the payment of interest and principal on a security may be guaranteed
by the United States Government or one of its agencies or instrumentalities, the
value of such fixed income securities and, consequently, the yield on and net
asset value of
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shares of the Government Securities Portfolio are not guaranteed by the U.S.
Government. The net asset value fluctuates in response to changes in interest
rates and market valuation. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities can be expected to
accelerate. As a result, the Government Securities Portfolio's ability to
maintain positions in high-yielding, mortgage-backed securities, such as GNMA
Certificates, will be affected by reductions in the principal amounts of such
securities resulting from such prepayments, and its ability to reinvest the
returns of principal at comparable yields is subject to generally prevailing
interest rates at the time.
MORTGAGE-RELATED SECURITIES AND ASSET-BACKED SECURITIES
Up to 20% of the net assets of the Government Securities Portfolio may be
invested in assets other than U.S. Government Securities, including
collateralized mortgage related securities ("CMOs") and asset backed securities.
These securities are considered to be volatile. CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
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 or lesser risk of prepayment than other types of mortgage-related
securities.
While there are many versions of CMOs and asset backed securities, some
include "Interest Only" or "IO" - where all interest payments go to one class of
holders, "Principal Only" or "PO" - where all of the principal goes to a second
class of holders, "Floaters" - where the coupon rate floats in the same
direction as interest rates and "Inverse Floaters" - where the coupon rate
floats in the opposite direction as interest rates. All these securities are
volatile; they also have particular risks in differing interest rate
environments as described below.
The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on yield to maturity and, therefore, the market value of the IO. As
interest rates rise and fall, the value of IOs tends to move in the same
direction as interest rates. Accordingly, investment in IOs can theoretically be
expected to contribute to stabilizing a Portfolio's net asset value. However, if
the underlying mortgage assets experience greater than anticipated prepayments
of principal, the Portfolio may fail to fully recoup its initial investment in
these securities even if the securities are rated AAA or the equivalent.
Conversely, while the yield to maturity on a PO class is also extremely
sensitive to rate of principal payments (including prepayments) on the related
underlying mortgage assets, a slow rate of principal payments may have a
material adverse effect on yield to maturity and therefore the market value of
the PO. As interest rates rise and fall, the value of POs tends to move in the
opposite direction from interest rates. This is typical of most debt
instruments. See "General Risks Associated With Income Portfolios" on page 16.
Floaters and Inverse Floaters ("Floaters") are extremely sensitive to the
rise and fall in interest rates. The coupon rate on these securities is based on
various benchmarks, such as LIBOR ("London Inter-Bank Offered Rate") and the
11th District cost of funds (the base rate). The coupon rate on Floaters can be
affected by a variety of terms. Floaters can be reset at fixed intervals over
the life of the Floater, float with a spread to the base rate, or be a certain
percentage rate minus a certain base rate. Some Floaters have floors below which
the interest rate cannot be reset and/or ceilings above which the interest rate
cannot be reset. The coupon rate and/or market value of Floaters tend to move in
the same direction as the base rate while the coupon rate and/or market value of
Inverse Floaters tend to move in the opposite direction from the base rate.
The market value of all CMOs and other asset backed securities are
determined by supply and demand in the bid/ask market, interest rate movements,
the yield curve, forward rates, prepayment assumptions and credit of the
underlying issuer. Further, the price actually received on a sale may be
different from bids when security is being priced.
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CMOs and asset-backed securities trade over a bid and ask market through
several large market makers. Due to the complexity and concentration of
derivative securities, the liquidity and, consequently, the volatility of these
securities can be sharply influenced by market demand.
Asset-backed and mortgage-related securities may not be readily
marketable. To the extent any of these securities are not readily marketable in
the judgment of the Portfolio Manager (subject to the oversight of the Board of
Directors), the investment restriction limiting the Portfolio's investment in
illiquid instruments to not more than 10% of the value of its net assets will
apply. However, IOs and POs issued by the U.S. Government, its agencies and
instrumentalities, and backed by fixed-rate mortgages may be excluded from this
limit, if, in the judgment of the Portfolio Manager (subject to the oversight of
the Board of Directors) such IOs and POs are readily marketable. The Government
Securities Portfolio does not intend to invest in residual interests, privately
issued securities or subordinated classes of underlying mortgages.
HIGH-YIELD SECURITIES
Notwithstanding the investment policies and restrictions applicable to the
High-Yield Bond and Managed Portfolios which were designed to reduce risks
associated with such investments, high-yield securities may carry higher levels
of risk than many other types of income producing securities. These risks are of
three basic types: the risk that the issuer of the high-yield bond will default
in the payment of principal and interest; the risk that the value of the bond
will decline due to rising interest rates, economic conditions, or public
perception; and the risk that the investor in such bonds may not be able to
readily sell such bonds. Each of the major categories of risk are impacted by
various factors, as discussed below:
HIGH-YIELD BOND MARKET
The high-yield bond market is relatively new and has grown in the context
of a long economic expansion. Any downturn in the economy may have a negative
impact on the perceived ability of the issuer to make principal and interest
payments which may adversely affect the value of outstanding high-yield
securities and reduce market liquidity.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES
In general, the market prices of bonds bear an inverse relationship to
interest rates; as interest rates increase, the prices of bonds decrease. The
same relationship may hold for high-yield bonds, but in the past high-yield
bonds have been somewhat less sensitive to interest rate changes than treasury
and investment grade bonds. While the price of high-yield bonds may not decline
as much, relatively, as the prices of treasury or investment grade bonds decline
in an environment of rising interest rates, the market price, or value, of a
high-yield bond will be expected to decrease in periods of increasing interest
rates, negatively impacting the net asset value of the High-Yield Bond
Portfolio. High-yield bond prices may not increase as much, relatively, as the
prices of treasury or investment grade bonds in periods of decreasing interest
rates. Payments of principal and interest on bonds are dependent upon the
issuer's ability to pay. Because of the generally lower creditworthiness of
issuers of high-yield bonds, changes in the economic environment generally, or
in an issuer's particular industry or business, may severely impact the ability
of the issuer to make principal and interest payments and may depress the price
of high-yield securities more significantly than such changes would impact
higher rated, investment grade securities.
PAYMENT EXPECTATIONS
Many high-yield bonds contain redemption or call provisions which might
be expected to be exercised in periods of decreasing interest rates. Should
bonds in which the High-Yield Bond Portfolio has invested be redeemed or called
during such an interest rate environment, the Portfolio would have to sell such
securities without reference to their investment merit and reinvest
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the proceeds received in lower yielding securities, resulting in a decreased
return for investors in the High-Yield Bond Portfolio. In addition, such
redemptions or calls may reduce the High-Yield Bond Portfolio's asset base over
which the Portfolio's investment expenses may be spread.
LIQUIDITY AND VALUATION
Because of periods of relative illiquidity, many high-yield bonds may be
thinly traded. As a result, the ability to accurately value high-yield bonds and
determine the net asset value of the High-Yield Bond Portfolio, as well as the
Portfolio's ability to sell such securities, may be limited. Public perception
of and adverse publicity concerning high-yield securities may have a significant
negative impact on the value and liquidity of high-yield securities, even though
not based on fundamental investment analysis.
TAX CONSIDERATIONS
To the extent that the High-Yield Bond Portfolio invests in securities
structured as zero coupon bonds, the Portfolio will be required to report
interest income even though no cash interest payment is received until maturity
of the bond. Investors in the High-Yield Bond Portfolio would be taxed on this
interest income even though no cash distribution of such interest is received in
the year in which such income is taxed.
PORTFOLIO COMPOSITION
As of December 31, 1996, the High-Yield Bond Portfolio consisted of
securities classified as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
CATEGORY PORTFOLIO
- --------------------------------------------- ---------------
<S> <C>
BB........................................... 14.1%
B............................................ 80.8%
CCC.......................................... 0.2%
Non-rated*................................... 4.9%
</TABLE>
- ---------------
* Equivalent ratings for these securities would have been CCC to B3.
DEFENSIVE TACTICS
Any or all of the Portfolios may at times for defensive purposes, at the
determination of the Portfolio Manager, temporarily place all or a portion of
their assets in cash, short-term commercial paper (i.e. short-term unsecured
promissory notes issued by corporations to finance short-term credit needs),
United States Government Securities, high quality debt securities (including
"Eurodollar" and "Yankee Dollar" obligations, i.e., U.S. issuer borrowings
payable overseas in U.S. funds and obligations of foreign issuers payable in
U.S. funds), non-convertible preferred stocks and obligations of banks when in
the judgment of the Portfolio Manager such investments are appropriate in light
of economic or market conditions. The Money Market Portfolio may at times for
defensive purposes, at the determination of the Portfolio Manager, temporarily
place all or a portion of its assets in cash, when in the judgment of the
Portfolio Manager such an investment is appropriate in light of economic or
market conditions. The International Growth Portfolio may invest in all of the
above, both foreign and domestic, including foreign currency, foreign time
deposits, and foreign bank acceptances. When a Portfolio takes a defensive
position, it may not be following the fundamental investment policy of the
Portfolio.
HEDGING TRANSACTIONS
Except as otherwise indicated, the Portfolio Managers, other than for the Money
Market Portfolio, may engage in the following hedging transactions to seek to
hedge all or a portion of a Portfolio's assets against market value changes
resulting from changes in
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equity values, interest rates and currency fluctuations. Hedging is a means of
offsetting, or neutralizing, the price movement of an investment by making
another investment, the price of which should tend to move in the opposite
direction from the original investment.
The Portfolios will not engage in hedging transactions for speculative
purposes but only as a hedge against changes resulting from market conditions in
the values of securities owned or expected to be owned by the Portfolios. Unless
otherwise indicated, a Portfolio will not enter into a hedging transaction
(except for closing transactions) if, immediately thereafter, the sum of the
amount of the initial deposits and premiums on open contracts and options would
exceed 5% of the Portfolio's total assets taken at current value.
CERTAIN SECURITIES
The Portfolios may invest in the following described securities, except as
otherwise indicated. These securities are commonly referred to as derivatives. A
Portfolio's investment in such securities, in the aggregate, may not exceed 5%
of net assets at the time of investment; provided, however, that the
International Growth Portfolio, the High-Yield Bond Portfolio, and the
Government Securities Portfolio may invest up to 20% of their net assets in such
securities.
CALL OPTIONS
The Portfolios, other than the Money Market Portfolio, may write (sell)
call options that are listed on national securities exchanges or are available
in the over-the-counter market through primary broker-dealers. Call options are
short-term contracts with a duration of nine months or less. Such Portfolios of
the Fund may only write call options which are "covered," meaning that the
Portfolio either owns the underlying security or has an absolute and immediate
right to acquire that security, without additional cash consideration, upon
conversion or exchange of other securities currently held in the Portfolio. In
addition, no Portfolio will, prior to the expiration of a call option, permit
the call to become uncovered. If a Portfolio writes a call option, the purchaser
of the option has the right to buy (and the Portfolio has the obligation to
sell) the underlying security at the exercise price throughout the term of the
option. The amount paid to the Portfolio by the purchaser of the option is the
"premium." The Portfolio's obligation to deliver the underlying security against
payment of the exercise price would terminate either upon expiration of the
option or earlier if the Portfolio were to effect a "closing purchase
transaction" through the purchase of an equivalent option on an exchange. The
Portfolio would not be able to effect a closing purchase transaction after it
had received notice of exercise. The International Growth Portfolio may purchase
and write covered call options on foreign and U.S. securities and indices and
enter into related closing transactions.
Generally, such a Portfolio intends to write listed covered calls when it
anticipates that the rate of return from so doing is attractive, taking into
consideration the premium income to be received, the risks of a decline in
securities prices during the term of the option, the probability that closing
purchase transactions will be available if a sale of the securities is desired
prior to the exercise, or expiration of the options, and the cost of entering
into such transactions. A principal reason for writing calls on a securities
portfolio is to attempt to realize, through the receipt of premium income, a
greater return than would be earned on the securities alone. A covered call
writer such as a Portfolio, which owns the underlying security, has, in return
for the premium, given up the opportunity for profit from a price increase in
the underlying security above the exercise price, but it has retained the risk
of loss should the price of the security decline.
The writing of covered call options involves certain risks. A principal
risk arises because exchange and over-the-counter markets for options may be
limited; it is impossible to predict the amount of trading interest which may
exist in such options, and there can be no assurance that viable exchange and
over-the-counter markets will develop or continue. The Portfolios will write
covered call options only if there appears to be a liquid secondary market for
such options. If, however, an option is written and a
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<PAGE>
liquid secondary market does not exist, it may be impossible to effect a closing
purchase transaction in the option. In that event, the Portfolio may not be able
to sell the underlying security until the option expires or the option is
exercised, even though it may be advantageous to sell the underlying security
before that time.
PUTS
The Portfolios, except the Government Securities Portfolio and the Money
Market Portfolio, may purchase put options ("Puts") which relate to (i)
securities (whether or not they hold such securities); (ii) Index Options
(described below whether or not they hold such Options); or (iii) broadly-based
stock indexes. The Portfolios, except the Government Securities Portfolio and
Money Market Portfolio, may write covered put options. The Portfolio will
receive premium income from writing covered put options, although it may be
required, when the put is exercised, to purchase securities at higher prices
than the current market price. The High-Yield Bond Portfolio may invest up to
10% of the value of the Portfolio in Puts.
ENTERING INTO FUTURES CONTRACTS
All Portfolios may, other than the Money Market Portfolio, enter into
contracts for the future acquisition or delivery of securities ("Futures
Contracts") including index contracts and foreign currencies, and may also
purchase and sell call options on Futures Contracts. These Portfolios may use
this investment technique to hedge against anticipated future adverse price
changes which otherwise might either adversely affect the value of the
Portfolio's securities or currencies held in the Portfolio, or to hedge
anticipated future price changes which adversely affect the prices of stocks,
long-term bonds or currencies which the Portfolio intends to purchase at a later
date. Alternatively, the Portfolios may enter into Futures Contracts in order to
hedge against a change in interest rates which will result in the premature call
at par value of certain securities which the Portfolio has purchased at a
premium. If stock, bond or currency prices or interest rates move in an
unexpected manner, the Portfolio would not achieve the anticipated benefits of
Futures Contracts.
The use of Futures Contracts involves special considerations or risks not
associated with the primary activities engaged in by any Portfolios. 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.
INDEX OPTIONS
All the Equity Portfolios may invest 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 stocks 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.
Because the value of an index option depends primarily on movements in
the value of the index rather than in the price of a single security, whether a
Portfolio will realize a gain or loss from purchasing or writing an option on a
stock index depends on movements in the level of stock prices in the stock
market generally or, in the case of certain indexes, in an industry or market
segment rather than changes in the price of a particular security. Consequently,
successful use of stock index options by a Portfolio will depend on that
Portfolio Manager's ability to predict movements in the direction of the stock
market generally or in a particular industry. This requires different skills and
techniques than predicting changes in the value of individual securities.
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<PAGE>
INTEREST RATE SWAPS
In order to attempt to protect the Portfolio investments from interest
rate fluctuations, the Portfolios may engage in interest rate swaps. The
Portfolios tend to use interest rate swaps as a hedge and not as a speculative
investment. Interest rate swaps involve the exchange of the Portfolio with
another party of their respective rights to receive interest (e.g., an exchange
of fixed rate payments for floating rate payments). For example, if the
Portfolio holds an interest-paying security whose interest rate is reset once a
year, it may swap the right to receive interest at a rate that is reset daily.
Such a swap position would offset changes in the value of the underlying
security because of subsequent changes in interest rates. This would protect the
Portfolio from a decline in the value of the underlying security due to rising
rates, but would also limit its ability to benefit from falling interest rates.
The Portfolio will enter into interest rate swaps only on a net basis
(i.e., the two payments streams will be netted out, with Portfolio receiving or
paying as the case may be, only the net amount of the two payments). The net
amount of the excess, if any, of the Portfolio's obligations over its
entitlements with respect to each interest rate swap will be accrued on a daily
basis, and an amount of cash or liquid high grade debt securities having an
aggregate net asset value at least equal to the accrued excess, will be
maintained in a segregated account by the Portfolio's custodian bank.
The use of interest rate swaps involves investment techniques and risks
different from those associated with ordinary portfolio security transactions.
If the Portfolio Manager is incorrect in its forecasts of market values,
interest rates and other applicable factors, the investment performance of the
Portfolio will be less favorable than it would have been if this investment
technique were never used. Interest rate swaps do not involve the delivery of
securities or other underlying assets or principal. Thus, if the other party to
an interest rate swap defaults, the Portfolio's risk of loss consists of the net
amount of interest payments that the Portfolio is contractually entitled to
receive.
FOREIGN CURRENCY VALUES AND TRANSACTIONS
Investments in foreign securities will usually involve currencies of foreign
countries, and the value of the assets of the International Growth Portfolio
(and of the other Portfolios that may invest in foreign securities to a much
lesser extent) as measured in United States dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and the International Growth Portfolio may incur costs in
connection with conversions between various currencies.
The normal currency allocation of the International Growth Portfolio is
identical to the currency mix of the Benchmark. The Portfolio expects to
maintain this normal currency exposure when global currency markets are fairly
priced relative to each other and relative to associated risks. The Portfolio
may actively deviate from such normal currency allocations to take advantage of
or to protect the Portfolio from risk and return characteristics of the
currencies and short-term interest rates when those prices deviate significantly
from fundamental value. Deviations from the Benchmark are determined by the
Portfolio Manager based upon its research.
To manage exposure to currency fluctuations, the Portfolio may alter
equity or money market exposures (in its normal asset allocation mix as
previously identified), enter into forward currency exchange contracts, buy or
sell options, futures or options on futures relating to foreign currencies and
may purchase securities indexed to currency baskets. The Portfolio will also use
these currency exchange techniques in the normal course of business to hedge
against adverse changes in exchange rates in connection with purchases and sales
of securities. Some of these strategies may require the Portfolio to set aside
liquid assets in a segregated custodial account to cover its obligations. These
techniques are further described below.
The Portfolio may conduct its foreign currency exchange transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or through entering into contracts to purchase or sell foreign
currencies at a future date (i.e., "forward foreign currency" contract or
"forward" contract). A forward contract involves an obligation to purchase
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<PAGE>
or sell a specific currency amount at a future date, which may be any fixed
number of days from the date of the contract, agreed upon by the parties, at a
price set at the time of the contract. The Portfolio will convert currency on a
spot basis from time to time and investors should be aware of the potential
costs of currency conversion.
When the Portfolio Manager believes that the currency of a particular
country may suffer a significant decline against the U.S. dollar or against
another currency, the Portfolio may enter into a currency contract to sell, for
a fixed amount of U.S. dollars or other appropriate currency, the amount of
foreign currency approximating the value of some or all of the Portfolio's
securities denominated in such foreign currency.
At the maturity of a forward contract, the Portfolio may either sell a
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by repurchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Portfolio may realize a gain or loss from currency
transactions.
The Portfolio also may purchase and write put and call options on foreign
currencies (traded on U.S. and foreign exchanges or over-the-counter markets) to
manage the Portfolio's exposure to changes in currency exchange rates. Call
options on foreign currency written by the Portfolio will be "covered", which
means that the Fund will own an equal amount of the underlying foreign currency.
With respect to put options on foreign currency written by the Portfolio, the
Portfolio will establish a segregated account with its custodian bank consisting
of cash, U.S. government securities or other high grade liquid debt securities
in an amount equal to the amount the Portfolio would be required to pay upon
exercise of the put.
CERTAIN OTHER SECURITIES
Except as otherwise indicated, the Portfolios may purchase the following
securities, the purchase of which involves certain risks described below. Unless
otherwise indicated, a Portfolio will not purchase a category of such securities
if the value of such category, taken at current value, would exceed 5% of the
Portfolio's total assets.
MASTER DEMAND NOTES
All Portfolios may purchase 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
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. Since there is no secondary market for these notes,
the appropriate Portfolio Managers, subject to the overall review of the Fund's
Directors and Enterprise Capital Management, Inc., the adviser, monitor the
financial condition of the issuers to insure that they are able to repay the
notes.
REPURCHASE AGREEMENTS
All Portfolios may enter into repurchase agreements having maturities of
seven days or less. When a Portfolio acquires securities from a bank or
broker-dealer, it may simultaneously enter into a repurchase agreement with the
same seller pursuant to which the seller agrees at the time of sale to
repurchase the security at a mutually agreed upon time and price. In such
instances, the Fund's Custodian has possession of the security or collateral for
the seller's obligation. If the seller should default on its obligation to
repurchase the securities, the Portfolio may experience delays, difficulties or
other costs when selling the securities held as collateral and may incur a loss
if the value of the collateral declines. The appropriate Portfolio Managers,
subject to the overall review by the Fund's Directors and Enterprise Capital,
monitor the value of the collateral as to repurchase agreements, and they
monitor the creditworthiness of the seller and must find it satisfactory before
engaging in repurchase agreements. The Portfolios enter into repurchase
agreements only with Federal Reserve member banks that have net worth of at
least $100,000,000 and outstanding commercial paper of the two highest rating
categories assigned by Moody's or S&P or with broker-dealers that are
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<PAGE>
registered with the Securities and Exchange Commission, are members of the
National Association of Securities Dealers, Inc. ("NASD") and have similarly
rated commercial paper outstanding. Any repurchase agreements entered into by
the Portfolios will be fully collateralized and marked to market daily, other
than those entered into by the Money Market Portfolio, which are valued on an
amortized cost basis.
RESTRICTED OR ILLIQUID SECURITIES
All of the Portfolios may invest up to 10% of the assets of the
Portfolios in restricted securities (privately placed equity or debt securities)
or other securities which are not readily marketable.
FOREIGN SECURITIES
As noted above, under normal circumstances the International Growth
Portfolio will invest primarily in foreign securities. All other Portfolios,
except the Government Securities Portfolio, the Tax-Exempt Income Portfolio and
the Money Market Portfolio, may, subject to the 10% limitation, invest in
foreign securities as well as both sponsored and unsponsored American Depository
Receipts ("ADRs"), and European Depository Receipts ("EDRs") which are
securities of U.S. issuers backed by securities of foreign issuers. There may be
less information available about unsponsored ADRs and EDRs, and therefore, they
may carry higher credit risks. The Portfolios may also invest in securities of
foreign branches of domestic banks and domestic branches of foreign banks.
Investments in foreign equity and debt securities involve risks different
from those encountered when investing in securities of domestic issuers. The
appropriate Portfolio Managers and Enterprise Capital, subject to the overall
review of the Fund's Directors, evaluate the risks and opportunities when
investing in foreign securities. Such risks include trade balances and
imbalances and related economic policies; currency exchange rate fluctuations;
foreign exchange control policies; expropriation or confiscatory taxation;
limitations on the removal of funds or other assets; political or social
instability; the diverse structure and liquidity of securities markets in
various countries and regions; policies of governments with respect to possible
nationalization of their own industries; and other specific local, political and
economic considerations.
FORWARD COMMITMENTS
Securities may be purchased on a "when issued" or on a "forward delivery"
basis, which means it may take as long as 120 days before such obligations are
delivered to a Portfolio. The purpose of such investments is to attempt to
obtain higher rates of return or lower purchase costs than would be available
for securities purchased for immediate delivery. Securities purchased on a when
issued or forward delivery basis involve a risk that the value of the security
to be purchased may decline prior to the settlement date. In addition, if the
dealer through which the trade is made fails to consummate the transaction, the
Portfolio may lose an advantageous yield or price. The Fund does not accrue
income prior to delivery of the securities in the case of forward commitment
purchases. The 5% limitation does not apply to the International Growth,
Government Securities and Tax-Exempt Income Portfolios which will have a 20%
limitation.
PORTFOLIO TURNOVER
In carrying out the investment policies described in this Prospectus, each
Portfolio expects to engage in a substantial number of securities portfolio
transactions, and the rate of portfolio turnover will not be a limiting factor
when a Portfolio Manager deems it appropriate to purchase or sell securities for
a Portfolio. However, no Portfolio's annual portfolio turnover rate (other than
the High-Yield Bond Portfolio and the Money Market Portfolio for which, due to
the short-term nature of its investment, a portfolio turnover rate is not
applicable) is expected to exceed 100%.
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A portfolio turnover rate is, in summary, the percentage computed by
dividing the lesser of a Portfolio's purchases or sales proceeds of securities
by the average investments of the Portfolio. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs which
are borne directly by a Portfolio. Each Portfolio intends to elect and to comply
with the various provisions of the Internal Revenue Code so as to qualify as a
"regulated investment company" thereunder. See "Taxes" at page 45. Among such
requirements is a limitation that less than 30% of the Portfolio's gross income
in each taxable year may be derived from gains (without deduction for losses)
from the sale or other disposition of stock or other securities held for less
than three months. Accordingly, the ability of each Portfolio to effect certain
transactions may be limited.
INVESTMENT RESTRICTIONS
Except as indicated, each of the Portfolios has adopted certain
investment restrictions and limitations for the purpose of reducing their
exposure in specific situations.
No Portfolio will: (1) as to 75% of the assets of each Portfolio, invest
more than 5% of the value of its total assets in the securities of any single
issuer (other than cash items and U.S. government securities, as defined in the
Investment Company Act of 1940) if such purchase would cause more than 5% of the
value of its assets to be invested in securities of such issuer (this limitation
does not apply to U.S. Government Securities as well as its agencies and
instrumentalities); (2) purchase more than 10% of the voting securities of any
issuer; (3) invest more than 5% of its total assets in the securities of
companies that have a continuous operating history of less than three years (the
High-Yield Bond and Tax-Exempt Income Portfolios are not subject to this
restriction); (4) except as to the Money Market Portfolio, as described below,
invest more than 25% of its total assets in any one industry, provided that: (i)
this limitation does not apply to investments in U.S. Government Securities as
well as its agencies and instrumentalities, general obligation bonds, or
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 as a separate industry); (5) borrow money,
except from a bank and only for temporary or emergency purposes, and such
borrowings will not exceed 5% of the lower of the value or cost of the
Portfolio's total assets; or (6) pledge, mortgage or hypothecate its assets to
an extent greater than 5% of the value of its total assets. For purposes of
restrictions (1) and (2), each Portfolio will regard the entity which has
ultimate responsibility for the payment of interest and principal as the issuer.
Notwithstanding restriction (4), the Money Market Portfolio may invest in excess
of 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.
See "Investment Restrictions" in the Statement of Additional Information.
These investment limitations, and other limitations that are fundamental
policies, that are described in greater detail in the Statement of Additional
Information, may be changed only with the approval of the holders of a majority
of the shares of a Portfolio.
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: (A) lend its assets to any
person or individual, except by the purchase of bonds or other debt obligations
customarily sold to institutional investors; (B) invest more than 5% of the
value of its net assets, valued at the lower of cost or market, in warrants
(Included within 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 Exchange. Warrants acquired by a Portfolio in units or attached
to securities may be deemed to be without value.), (C) invest in oil, gas, or
other mineral leases, or (D) engage in arbitrage transactions.
If a percentage restriction is adhered to at the time of an investment, a
later increase or decrease in the investment's percentage of the value of a
Portfolio's total assets resulting from a change in portfolio value or assets
will not constitute a violation of the percentage restrictions.
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The Managed Portfolio will not invest more than 15% of the value of its
total assets in real estate investment trusts, commonly referred to as "REITS".
The Managed Portfolio will not invest more than 5% of the value of its total
assets in high-yield securities.
In order to qualify for federal income tax treatment as a regulated
investment company for a taxable year, each Portfolio must, among other things,
(a) derive at least 90% of its gross income during such taxable year from
qualifying income (i.e., dividends, interest, payments with respect to loans of
stock and securities, and gains from the sale or other disposition of stock or
securities or options thereon); (b) derive less than 30% of its gross income
during such taxable year from the sale or other disposition of stock or
securities (or options thereon) held less than three months; and (c) diversify
its holdings so that, at the end of each fiscal quarter of such taxable year,
(i) at least 50% of the market value of its total assets is represented by cash,
cash items, U.S. Government Securities, securities of other regulated investment
companies, and other securities limited, in the case of other securities for
purposes of this calculation, in respect of any one issuer, to an amount not
greater than 5% of the value of its total assets or 10% of the voting securities
of the issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than U.S. Government Securities).
Under current law, compliance with the "30% test" described in clause (b) above
may, in particular, limit a Portfolio's ability to utilize options in connection
with its investment strategy.
HOW TO PURCHASE PORTFOLIO SHARES
Enterprise Fund Distributors, Inc. ("the Distributor"), is the principal
underwriter for shares of the Fund. The Distributor, whose address is Atlanta
Financial Center, 3343 Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326,
is a subsidiary of Enterprise Capital Management, Inc. Purchases can be made
through most invest dealers who, as part of the service they provide, must
transmit orders promptly. The Funds offer four separate Classes of shares: Class
A, B, C and Y shares, each with a different combination of sales charges,
ongoing fees and other features.
The four Classes also have separate exchange privileges. (See "How to
Exchange Shares Among the Portfolios." The income attributable to each class and
the dividends payable on the shares of each class will be reduced by the amount
of the distribution fee or service fee, if any, payable by that class.
Class Y shares do not bear a sales charge or distribution fee. There is a
redemption charge of .75% for any redemption of shares held less that 90 days.
Institutional investors eligible to purchase Class Y shares include banks,
savings institutions, trust companies, insurance companies, investment companies
as defined by the Investment Company Act of 1940, pension or profit sharing
trust, certain wrap account clients of broker/dealers, former shareholders of
Retirement Systems Investors, Inc. ("RSI") or other financial institutional
buyer. Wrap account clients of broker/dealers and former RSI shareholders are
offered Class Y at a lower minimum purchase amount.
All purchases made by check should be in U.S. dollars and made payable to
The Enterprise Group of Funds, Inc., or in the case of a retirement account, the
custodian or trustee. Third party checks will not be accepted. When purchases
are made by check or periodic account investment, redemptions will not be
allowed until the investment being redeemed has been in the account for 15
calendar days.
For accounts with balances under $1,000 as of July 31, an annual service
charge of $25 per account registration per Portfolio will apply.
From time to time, the Fund temporarily may suspend the offering of
shares of one or more of its Classes or Portfolios to new investors. During the
period of such suspension, persons who are already shareholders of any such
Class or Portfolio normally will be permitted to continue to purchase additional
shares and to have dividends reinvested.
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Portfolio shares are purchased at the net asset value next determined
after the application for purchase of shares is received by the Enterprise
Shareholder Services Division of the Fund's Transfer Agent, National Financial
Data Services, Inc. (the "Transfer Agent"). The Distributor or the Fund may
reject any orders.
DEALER COMPENSATION. Enterprise Distributors will provide additional
compensation to dealers in connection with sales of shares of the Funds and
other mutual funds distributed by Enterprise Distributors ("Enterprise Funds")
including promotional gifts (which may include gift certificates, dinners and
other items), financial assistance to dealers in connection with conferences,
sales or training programs for their employees, seminars for the public and
advertising campaigns. In some instances, these incentives may be made available
only to dealers whose representatives have sold or are expected to sell
significant amounts of shares.
In addition to distribution and service fees paid the Fund under Class A,
Class B and Class C Plans, Enterprise Capital (or one of its affiliates) may
make payments to dealers (including MONY Securities Corp.) and other persons
which distribute shares of the Funds (including Class Y shares). Such payments
may be calculated by reference to the net asset value of shares sold by such
persons or otherwise.
HOW THE NET ASSET VALUE IS COMPUTED. The net asset value per share for
each Class of each Portfolio of the Fund is determined by dividing the total
value of the Portfolio's investments and other assets, less any liabilities, by
the total number of outstanding shares of the Portfolio for each Class. Net
asset value per share is determined at the close of trading on each day the New
York Stock Exchange is open for trading (currently 4:00 p.m., New York time)
except that net asset value per share of the International Growth Portfolio may
not, in certain circumstances, be determined on days when the New York Stock
Exchange is open for trading but one or more foreign stock exchanges are not
open for trading. The net asset value per share is effective as of the time of
computation. In determining net asset value, the price carried by the composite
tape of all national exchanges after 4:00 p.m. New York time is used.
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.
Domestic equity securities, for which market quotations are not readily
available, and other assets 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. The Securities and Exchange Commission's rules relating to the
amortized cost method involve valuing a security at its cost and amortizing any
discount or premium over the period until maturity, without taking into account
the impact of fluctuating interest rates on the market value of the security
unless the deviation from net asset value as calculated by using available
market quotations exceeds 1/2 of 1%. At that point, the Board of Directors will
promptly decide what action, if any, will be initiated. The Money Market
Portfolio seeks to maintain a constant net asset value of $1.00 but there can be
no assurance that the Money Market Portfolio will be able to maintain a stable
net asset value. The Money Market Portfolio will not maintain a dollar weighted
average portfolio maturity which exceeds 90 days.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
net asset values and dividends for each class. It is expected, however, that the
net asset values of the three classes will tend to converge immediately after
the recording of dividends, which will differ by approximately the amount of the
distribution and service related expense accrual differential among the classes.
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SHARE CERTIFICATES. The Fund does not ordinarily issue certificates
representing shares of the Portfolios. Instead, shares are held on deposit for
shareholders by the Fund's Transfer Agent, which sends a statement of shares
owned in each Portfolio to shareholders following each transaction in the
shareholder's account. Certificates for full shares only (other than the Money
Market Portfolio) are available at no charge at any time upon written request to
the Transfer Agent. Special shareholder services such as telephone redemptions,
exchanges, electronic funds transfers and wire orders are not available as to
certificated shares.
SHAREHOLDER SERVICES
For the convenience of investors, the following plans are available:
1. AUTOMATIC REINVESTMENT PLAN. Dividends and capital gains distributions may
be automatically reinvested in the same Class of shares or, at the
investor's election, may be paid out in cash. No sales charge is applied
upon reinvestment of dividends or capital gains.
2. AUTOMATIC INVESTMENT PLAN. An investor may debit any Portfolio Account of a
Class 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.
3. BANK PURCHASE AND REDEMPTION PLAN. Any investor may initiate an ACH
(Automatic Clearing House) Purchase or Redemption directly to a bank account
when proper instructions have been established on the account.
4. RETIREMENT PLANS. Shareholders may adopt Profit Sharing Plan, Money
Purchase Plan and other retirement plans funded by Portfolio shares and
other investment which plans have been approved by the Internal Revenue
Service.
The costs of these plans (exclusive of the retirement plans on which a $10
annual custodial fee is charged) are paid by the Distributor, except for the
normal cost of issuing shares, which is paid by the Portfolios of the Fund.
Additional information concerning these plans is available from the
Distributor upon request.
HOW TO EXCHANGE SHARES AMONG THE PORTFOLIOS
An exchange represents the sales of shares of one fund and the purchase
of shares of another, which may produce a gain or loss for tax purposes. Class Y
shares may be exchanged for Class Y shares of any Portfolio. Class Y shares
cannot be exchanged for Class A, B or C shares.
Shares of a Portfolio will be processed at the net asset value next
determined after the Transfer Agent receives your exchange request. The exchange
feature may be modified or discontinued at any time, upon notice to
shareholders.
Exchanges may be directed by:
1. calling: Enterprise Shareholder Services 1-800-368-3527
2. writing: Enterprise Shareholder Services
P.O. Box 419731
Kansas City, MO 64141-6731
To exchange by letter, state the name of the Portfolio you are exchanging
from, the account name(s) and address, the account number, the dollar amount or
number of shares to be exchanged, and the Portfolio into which you are
exchanging. Sign your name(s) exactly as it appears on your account statement.
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<PAGE>
The minimum initial investment rules applicable to a Portfolio apply to
any exchange where the exchange results in a new account being opened in such
Portfolio. Exchanges into existing accounts are not subject to a minimum amount.
Original investments in the Money Market Portfolio which are transferred to
other Portfolios are not considered Portfolio exchanges but purchases.
The Fund reserves the right not to allow the exercise of the exchange
privilege in less than two-week intervals. The Fund reserves the right to
restrict the exchange from any Portfolio until funds have been held in that
Portfolio for at least seven days. The Fund further reserves the right to
discontinue or modify the exchange privilege on a prospective basis at any time,
including a modification of the amount or terms of a service fee.
In addition, with regard to exchange requests made by market timers on
behalf of clients, the Fund reserves the right to delay settlement up to seven
days if it is determined by the Portfolio Manager that immediate settlement
would harm the Portfolio.
Before engaging in an exchange transaction, a shareholder should read
carefully the parts of this Prospectus describing the Portfolio into which the
exchange will occur. See "Investment Objectives and Policies of the Portfolios."
Shareholders must elect to authorize the Fund's transfer agent to act upon
telephone exchange requests. Shareholders are subject to risk should they elect
to exchange by telephone in that neither the Fund nor the Transfer Agent will be
liable for properly acting upon telephone instructions believed to be genuine.
The Fund employs reasonable procedures to confirm that instructions communicated
by telephone are genuine, and should the Fund or its transfer agent fail to
institute such procedures, it may be liable for any losses due to unauthorized
or fraudulent instructions. Telephone exchanges are activated by instructions
received from a shareholder or any person claiming to act as the shareholder's
representative who can provide the Transfer Agent with account registration
information.
Exchanges are taxable as redemptions on which gains or losses may be
recognized.
HOW TO REDEEM PORTFOLIO SHARES
Any shareholder may require the Fund to redeem his or her shares in any
Portfolio. The redemption price will be the net asset value per share next
determined after receipt of all required information.
REDEMPTIONS
Redemptions may be made: (1) by telephone; (2) in writing; or (3) by wire, if
the appropriate request forms have been submitted. Payment for shares redeemed
will be made within seven days after the request has been properly made and
received. Shares purchased by check may not be redeemed until such shares have
been on the Fund's books for at least 15 calendar days.
TELEPHONE REDEMPTIONS. The Fund accepts telephone requests for
redemptions from shareholders who have authorized this service. Telephone
requests for redemption may be made by calling the Transfer Agent at
1-800-368-3527. Anyone making a telephone redemption request must furnish: (1)
the name and address of record of the registered owner(s); (2) the account
number; (3) the amount to be withdrawn; and (4) the name of the person making
the request. Checks for telephone redemptions will be issued only to the
registered shareowner(s) and mailed to the last address of record or exchanged
into any other Portfolio. All telephone redemption instructions are recorded and
are limited to requests of $50,000 or less. Shareholders also have the option to
have redemption proceeds transferred directly to a bank account through the
Automatic Clearing House (ACH) system. All applicable bank information must be
established on the account before this type of redemption is initiated.
Shareholders are subject to risk should they elect to redeem by telephone in
that neither the Fund nor the Transfer Agent will be liable for properly acting
upon telephone instructions believed to be genuine. Should the Fund or its
transfer agent fail to utilize reasonable procedures, it may be liable for any
losses due to unauthorized or fraudulent instructions.
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<PAGE>
WRITTEN REDEMPTIONS. Redemption requests may be made in writing,
accompanied by any issued share certificates, to:
Enterprise Shareholder Services
P.O. Box 419731
Kansas City, MO 64141-6731
Such written redemption requests and any share certificates or a stock
power must be endorsed by the investor. A signature guarantee is required if the
redemption proceeds exceed $50,000 or the proceeds are to be sent to an address
other than the address of record or to a person other than the registered
holder. A signature guarantee may be secured from a member firm of a domestic
securities exchange or by a commercial bank, savings and loan association,
credit union or trust company. Further documentation may be requested, and a
signature guarantee is always required, from corporations, executors,
administrators, trustees or guardians.
WIRE REDEMPTIONS. For a separate $10 charge, redemptions for a maximum
of $250,000 will be wired at your request. On written requests, funds may be
wired to any bank. On a telephone request, funds may be wired only to the bank
previously designated by you in writing. If a shareholder has given
authorization for expedited wire redemption, shares can be redeemed and the
proceeds sent by federal wire transfer to a single, previously designated bank
account. Requests received prior to 4:00 p.m. (New York time) by the Fund's
Transfer Agent, will result in shares being redeemed at the next determined net
asset value, and the proceeds normally will be sent to the designated bank
account the following business day. Delivery of the proceeds of a wire
redemption request may be delayed by the Fund for up to seven days if the Fund
deems it appropriate under the then current market conditions. Once
authorization is on file, the Transfer Agent will honor requests by any
authorized person at 1-800-368-3527. This privilege may not be used to redeem
shares in certificated form. To change the name of the single designated bank
account to receive wire redemption proceeds, it is necessary to send a written
request with signature(s) guaranteed to the Transfer Agent.
REDEMPTIONS--GENERAL
The Fund may redeem its shares in cash or with a pro rata portion of the assets
of the appropriate Portfolio. To date, all redemptions have been made in cash,
and the Fund anticipates that all redemptions will be made in cash in the
future, but it reserves the right to provide redemptions in assets of a
Portfolio should considerations and the size of the Portfolio require that
method of redemption. The Fund has elected 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 Portfolio at the beginning of
such period.
The Fund reserves the right to redeem an account at its option upon not
less than 45 days' written notice if an account's net asset value is $500 or
less and remains so during the notice period.
PERFORMANCE COMPARISONS
Investors may look to mutual fund reporting services such as Lipper
Analytical Services, Inc., CDA Investment Technologies, Wiesenberger Dealer
Services, Computer Directions Adviser Services, Inc., Moody's Bond Survey Index,
Nelson's Investment Manager Data Base, Morningstar, Inc., Salomon Brothers
Corporate Bond Rate-of-Return Index, Shearson Lehman Municipal Bond Index,
Bond-20 Bond Index and mortgage trade and other publications to compare the
performance of each Portfolio with other mutual funds in that Portfolio's
category. Comparative performance information from these sources may be used by
the Fund in advertising.
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<PAGE>
From time to time, articles about the Fund regarding its performance or
ranking may appear in national publications such as KIPLINGER'S PERSONAL FINANCE
MAGAZINE, MONEY MAGAZINE, FINANCIAL WORLD, MORNINGSTAR, DALBAR, VALUE LINE
MUTUAL FUND SURVEY, PERSONAL INVESTORS, FORBES, FORTUNE, BUSINESS WEEK, WALL
STREET JOURNAL, DONAGHUE and BARRON'S. Some of these publications may publish
their own rankings or performance reviews of mutual funds, including the Fund.
Reference to or reprints of such articles may be used in the Fund's promotional
literature.
From time to time, the Fund may advertise a Portfolio's "yield" and
"total return." Total return and yield are calculated separately for Class A,
Class B, Class C and Class Y shares. For Portfolios other than the Money Market
Portfolio, the yield for any 30-day (or one month) period is computed by
dividing the net investment income per share earned during such Period by the
maximum public offering price per share on the last day of the period, and then
annualizing such 30-day (or one month) yield in accordance with a formula
prescribed by the Securities and Exchange Commission which provides for
compounding on a semiannual basis.
Current annualized yield quotations for the Money Market Portfolio are
based on the Portfolio's net investment income per share for a seven-day period
and exclude any realized or unrealized gains or losses on portfolio securities.
The yield is computed by determining the net change in value for a hypothetical
account having a balance of one share at the beginning of the period, excluding
any realized or unrealized gains or losses, and dividing by the price per share
at the beginning of the period (expected to remain constant at $1). The net
change is then annualized by multiplying it by 365/7, with the current yield
figure carried to the nearest one-hundredth of one percent. The effective yield
of the Money Market Portfolio for a seven-day period is computed by expressing
the unannualized return for that period on a compounded, annualized basis.
A Portfolio may also advertise in items of sales literature an "actual
distribution rate" which is computed in the same manner as yield except that
actual income dividends declared per share during the period in question are
substituted for net investment income per share.
Advertisements of the Portfolio's total return disclose the Portfolio's
average annual compounded total return for its most recently completed fiscal
year and the appropriate periods since the Portfolio's inception. The
Portfolio's total return for each such period is computed by finding, through
the use of a formula prescribed by the Securities and Exchange Commission, the
average annual compounded rates of return over the period that would equate an
assumed initial amount invested to the value of the investment at the end of the
period. For purposes of computing total return, income dividends and capital
gains distributions paid on shares of the Portfolio are assumed to have been
reinvested when received and the front end sales charge applicable to sales of
Portfolio shares (other than the Money Market Portfolio) is assumed to have been
paid.
Any distribution rate, yield or total rate of return figure should not be
considered as representative of the performance of a Portfolio in the future. In
addition, the Income Portfolios' performance figures are not directly comparable
to those of bank deposits and other similar investments, which maintain a fixed
principal value and pay a fixed yield on the principal amount. These Portfolios'
net asset values are not fixed. They vary based not only upon the type, quality
and maturities of the securities held in the Portfolio, but also on the changes
in the current value of such securities and on changes in the Portfolios'
expenses. For narrative discussions of the Fund's performance including graphs
comparing Portfolios to various securities indexes, please request a copy of an
Annual Report to Shareholders from the Fund.
The Money Market Portfolio's actual yields will fluctuate, and are not
necessarily indicative of future actual yields. Actual yields are dependent on
such variables as portfolio quality, average portfolio maturity, the type of
instruments in which investments are made, changes in interest rates on money
market instruments, portfolio expenses and other factors.
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<PAGE>
MANAGEMENT OF THE FUND
DIRECTORS
The Board of Directors of the Fund is responsible for the management of the
business of the Fund under the laws of Maryland, and it is primarily responsible
for reviewing the activities of Enterprise Capital, the various Portfolio
Managers and the Distributor under the Investment Advisory and Portfolio Manager
Agreements and the Distributor's Agreement and Plan of Distribution which relate
to the operations of the Fund and its Portfolios. Information concerning the
Directors, including their names, positions, terms of office and principal
occupations during the past five years, is contained in the Statement of
Additional Information.
INVESTMENT ADVISER ARRANGEMENTS
The Fund has entered into an Investment Adviser's Agreement with Enterprise
Capital Management, Inc. ("Enterprise Capital") which, in turn, has Portfolio
Management agreements with each of the Portfolio Managers discussed below.
Enterprise Capital acts as the Portfolio Manager for the Money Market Portfolio.
It is Enterprise Capital's responsibility to select, subject to the Board of
Directors' review and approval, Portfolio Managers who have distinguished
themselves by able performance in their respective areas of responsibility and
to review their continued performance. Enterprise Capital is assisted in this
duty by Evaluation Associates, Inc., which has had 25 years of experience in
evaluating investment advisers for individuals and institutional investors.
Enterprise Capital and the Fund have received an exemptive order from the
Securities and Exchange Commission which permits Enterprise, subject to, among
other things, initial shareholder authority, to thereafter enter into or amend
Portfolio Manager Agreements without obtaining shareholder approval each time.
On April xx, 1997, shareholders voted affirmatively to give the Fund this
ongoing authority. With Board approval, Enterprise Capital is permitted to
employ new Portfolio Managers for the Portfolios, change the terms of the
Portfolio Manager Agreements or enter into a new Agreement with that Portfolio
Manager. Shareholders of a Portfolio continue to have the right to terminate the
Portfolio Manager's Agreement for the Portfolio at any time by a vote of the
majority of the outstanding voting securities of the Portfolio. Shareholders
will be notified of any Portfolio Manager changes or other material amendments
to Portfolio Manager Agreements that occur under these arrangements.
Enterprise Capital is also responsible for conducting all operations of
the Fund except those operations contracted to the Transfer Agent and Custodian.
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, which was incorporated in 1986, served as principal investment adviser
to Alpha Fund, Inc., the predecessor of the Fund's Growth Portfolio. Enterprise
Capital's address is Atlanta Financial Center, 3343 Peachtree Road, N.E., Suite
450, Atlanta, Georgia 30326.
PORTFOLIO MANAGERS
The following sets forth certain information about each of the Portfolio
Managers, the annual rate of compensation as a percentage of the Portfolio's net
assets paid to Enterprise Capital ("Management Fee") and the portion of the
Management Fee that Enterprise Capital pays to the respective Portfolio
Managers. Typical minimum investment requirements for the Portfolio Managers
range from $1,000,000 to $50,000,000. Due to these high minimums, this level of
professional management was previously reserved for institutional investors and
high net worth individuals. Collectively, the Portfolio Managers manage assets
in excess of $232 billion.
GROWTH PORTFOLIO-- The Portfolio Manager of the Growth Portfolio is
Montag & Caldwell, Inc. ("Montag & Caldwell"). It has served as investment
adviser to Alpha Fund, Inc., the predecessor of the Growth Portfolio, since the
Fund was organized in 1968. Ronald E. Canakaris, President and Chief Investment
Officer, is responsible for the day to day investment management of the
Portfolio and has more than 33 years experience in the investment industry.
Montag & Caldwell and its predecessors have been engaged in the business of
providing investment counseling to individuals and institutions since 1945. It
is controlled by Allegheny Corporation, a holding company owning 100% of the
stock of Montag & Caldwell. Total assets under management for all clients at
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December 31, 1996, approximated $8.5 billion. Usual investment minimum: $20
million. Representative clients include: Alexander & Alexander Services;
American Business Products; and Wake Forest University. Its address is 1100
Atlanta Financial Center, 3343 Peachtree Road, N.E., Atlanta, Georgia 30326. The
Management Fee paid by the Growth Portfolio is .75% of net assets, and the
Portfolio Manager receives 40% of that fee for assets under management up to
$100,000,000; 33% for assets from $100,000,000 to $200,000,000; and 27% for
assets greater than $200,000,000.
GROWTH AND INCOME PORTFOLIO-- The Portfolio Manager of the Growth and
Income Portfolio is Retirement System Investors Inc. which is a subsidiary of
Retirement Group Inc. Its address is 317 Madison Ave., New York, New York 10122.
James P. Coughlin, President and Chief Investment Officer, is responsible for
the day to day management of the Portfolio and has more than 30 years experience
in the investment industry. Total assets under management for Retirement
Investors Inc. was $558 million as of December 31, 1996. The Management Fee is
.75%, and the Portfolio Manager receives 40% of that fee for assets under
management up to $100,000,000 million; and 27% of that fee thereafter.
EQUITY PORTFOLIO-- The Portfolio Manager of the Equity Portfolio is OpCap
Advisors which is a subsidiary of Oppenheimer Capital, a general partnership.
The Portfolio Manager and its affiliates have operated as investment advisers to
both mutual funds and other clients since 1968, and had approximately $48.3
billion under management as of December 31, 1996. Eileen Rominger, Senior Vice
President of Oppenheimer Capital, is responsible for the day-to-day management
of the Portfolio. Ms. Rominger has more than 18 years experience in the
investment industry. The annual Management Fee is .75% and the Portfolio Manager
receives 53% of that fee for assets under management up to $100,000,000 and 40%
thereafter. Usual investment minimum is $10 million. OpCap's address s One World
Financial Center, New York, New York 10281.
EQUITY INCOME PORTFOLIO-- The Portfolio Manager of the Equity Income
Portfolio is 1740 Advisers, Inc. ("1740 Advisers"). It is a subsidiary of MONY.
Its address is 1740 Broadway, New York, New York 10019. John V. Rock, President
and Director, is responsible for the day to day investment management of the
Portfolio and has more than 33 years experience in the investment industry.
Total assets under management (for the Equity Income Portfolio and all other
accounts managed) at December 31, 1996, were approximately $1.2 billion. Usual
investment minimum: $20 million. The Management Fee paid by the Equity Income
Portfolio is .75% of net assets, and the Portfolio Manager receives 40% of that
fee for assets under management up to $100,000,000; 33% for assets from
$100,000,000 to $200,000,000; and 27% for assets greater than $200,000,000.
CAPITAL APPRECIATION PORTFOLIO-- The Portfolio Manager of the Capital
Appreciation Portfolio is Provident Investment Counsel, Inc. ("PIC"). PIC traces
its origins to an investment partnership formed in 1951. PIC is a wholly owned
subsidiary of United Asset Management, Inc. Jeffrey J. Miller is a Managing
Director of the firm and is responsible for the day to day management of the
Portfolio. He has more than 24 years experience in the investment industry.
Representative clients include: Bell Atlantic, McGraw-Hill and International
Paper Co. Its address is 300 North Lake Avenue, Pasadena, California 91101. As
of December 31, 1996, total assets under management for all clients were $18
billion. Usual investment minimum: $5 million. The Management Fee is .75% and
the Portfolio Manager receives 66% of that fee for assets under management up to
$100 million; .60% for assets under management for the next $100 million; and
.40% for assets thereafter.
SMALL COMPANY GROWTH PORTFOLIO-- The Portfolio Manager of the Small
Company Growth Portfolio is Pilgrim Baxter & Associates ("Pilgrim Baxter"). Its
offices are at 1255 Drummers Lane, Suite 300, Wayne, Pennsylvania 19087. Pilgrim
Baxter is a wholly owned subsidiary of United Asset Management, Inc. Gary
Pilgrim, Chief Investment Officer of the firm, is responsible for the day to day
management of the Portfolio. He has more than 29 years experience in the
investment industry. As of December 31, 1996, total assets under management for
all clients was $14.7 billion. Usual investment minimum: $20 million. The
Management Fee is 1.00% and the Portfolio Manager receives 65% of that fee for
assets under management up to $50,000,000 million; and 55% for assets under
management for the next $50,000,000 million; and 45% for assets thereafter.
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SMALL COMPANY VALUE PORTFOLIO-- The Portfolio Manager of the Small
Company Value Portfolio is GAMCO Investors, Inc. ("GAMCO"). Its offices are
located at One Corporate Center, Rye, New York 10580. GAMCO is a majority owned
subsidiary of Gabelli Funds, Inc. GAMCO's predecessor, Gabelli & Company, Inc.,
was founded in 1977 by Mario J. Gabelli who has served as its chief investment
officer since inception. He will be responsible for the day-to-day management of
the Portfolio and has more than 26 years of experience in the investment
industry. As of December 31, 1996, total assets under management for all clients
were $5.2 billion. Usual investment minimum is $1 million. The Management Fee is
.75% and the Portfolio Manager receives 53% of that fee for assets under
management up to $1,000,000,000 and 40% for assets in excess of $1,000,000,000.
INTERNATIONAL GROWTH PORTFOLIO-- The Portfolio Manager of the
International Growth Portfolio is Brinson Partners, Inc. ("Brinson"). Day to day
management of this Portfolio is performed by a committee. Brinson Partners is a
wholly owned subsidiary of Swiss Bank Corporation. As of December 31, 1996,
Brinson's assets under management for all clients approximated $71.6 billion.
Usual investment minimum: $25 million. Brinson's address is 209 South LaSalle
Street, Chicago, Illinois 60604. The Management Fee is .85%, and the Portfolio
Manager receives 53% of that fee for assets under management up to $100 million;
41% of that fee for assets under management from $100 million to $200 million;
38% of that fee for assets from $200 million to $500 million; and 29% of that
fee for assets greater than $500 million.
GOVERNMENT SECURITIES PORTFOLIO-- The Portfolio Manager of the Government
Securities Portfolio is TCW Funds Management, Inc. The firm, founded in 1971, is
a wholly-owned subsidiary of TCW Management Company, a Nevada corporation, whose
direct and indirect subsidiaries, including Trust Company of the West and TCW
Asset Management Company, provide a variety of trust, investment management and
investment advisory services. Philip A. Barach, Managing Director, and Jeffrey
E. Gundlach, Managing Director, are responsible for the day to day investment
management of the Portfolio and have more than 33 years combined experience in
the investment industry. As of December 31, 1996 TCW and its affiliated
companies had approximately $54 billion under management or committed for
management in various fiduciary and advisory capacities. Usual investment
minimum: $35 million. The firm's address is 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017. The Management Fee is .60% and the
Portfolio Manager receives 50% of that fee for assets under management up to
$50,000,000 and 42% of that fee for assets under management greater than
$50,000,000.
HIGH-YIELD BOND PORTFOLIO-- The Portfolio Manager of the High-Yield Bond
Portfolio is Caywood-Scholl Capital Management ("Caywood-Scholl"). This firm was
formed in April 1986 and the following individuals own its stock: James Caywood,
Eric Scholl and Salim Shah. Mr. Caywood, Managing Director and Chief Executive
Officer, is responsible for the day to day management of the Portfolio. He has
more than 28 years of investment industry experience. Caywood-Scholl provides
investment advice exclusively with respect to high yield, low grade fixed income
instruments. As of December 31, 1996, assets under management for all clients
approximated $732 million. Usual investment minimum: $1 million. The address of
Caywood-Scholl Capital Management is 4350 Executive Drive, Suite 125, San Diego,
California 92121. The Management Fee is .60%, and the Portfolio Manager receives
50% of that fee for assets up to $100,000,000 and 42% of that fee for assets
above $100,000,000.
TAX-EXEMPT INCOME PORTFOLIO-- The Portfolio Manager of the Tax-Exempt
Income Portfolio is Morgan Stanley Asset Management, Inc. ("Morgan Stanley"),
which was founded in 1975 and serves as investment manager to a variety of
institutional investors. Gerald P. Barth, Vice President, is responsible for the
day to day management of the Portfolio and has more than 13 years industry
experience. Morgan Stanley is a wholly-owned subsidiary of Morgan Stanley Group,
Inc., which is a publicly owned investment banking firm. As of December 31,
1996, Morgan Stanley managed approximately $72.6 billion of assets for its
various clients. Usual investment minimum: $25 million.. Its address is 1221
Avenue of the Americas, New York, New York 10020. The Management Fee is .50%,
and the Portfolio Manager receives 50% of that fee for assets under management
up to $50,000,000 and 30% of that fee for assets above $50,000,000.
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<PAGE>
MANAGED PORTFOLIO-- The Portfolio Manager of the Managed Portfolio is
OpCap Advisors, a majority owned subsidiary of Oppenheimer Capital, a general
partnership. The investments of the Managed Portfolio are managed by Richard J.
Glasebrook II, Managing Director of Oppenheimer Capital. He has more than 32
years of investment industry experience. As of March 31, 1996, Oppenheimer
Capital and its affiliates had over $48.3 billion under management. Its usual
investment minimum is $10 million. Its address is One World Financial Center,
New York, New York 10281. The Management Fee is .75% and the Portfolio Manager
receives 53% of that fee for assets up to $100,000,000 and 40% of that fee for
assets in excess of $100,000,001.
MONEY MARKET PORTFOLIO-- The Portfolio Manager of the Money Market
Portfolio is Enterprise Capital, a wholly-owned subsidiary of MONY. Its address
is Atlanta Financial Center, 3343 Peachtree Road, N.E., Suite 450, Atlanta,
Georgia 30326. Enterprise Capital utilizes the services of The Mutual Life
Insurance Company of New York employees for certain services relating to
management of the Portfolio. Day-to-day management of the Portfolio is performed
by a committee. MONY's address is 1740 Broadway, New York, New York 10019.
Enterprise Capital began operating as Portfolio Manager on May 1, 1992. Total
money market assets in the Portfolio at December 31, 1996, approximated $60.4
million. The Management Fee is .35%.
PAYMENT OF EXPENSES
The Investment Advisory Agreement obligates Enterprise Capital to provide
investment advisory services to the Portfolios of the Fund and to furnish the
Fund with certain administrative, clerical, bookkeeping and statistical
services, office space and facilities and for paying 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 is
allocated to each Portfolio either on the basis of its asset size, on the basis
of special needs of such Portfolio, or equally, as is deemed appropriate. These
expenses include expenses such as: custodial, transfer agent, brokerage,
auditing and legal services, the printing of Prospectuses sent to existing
shareholders, expenses relating to bookkeeping and recording and determining the
net asset value of shares, and the expenses of qualification of a Portfolio's
shares under the federal and state securities laws. The Fund's Board of
Directors annually reviews allocation of expenses among the Portfolios.
Enterprise Capital has advised the Fund that it will reimburse such
portion of the fees due to it under the Investment 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 the following percentages of average annual assets for the Y Class
(annualized for periods of less than a fiscal year): Growth 1.30%; Growth and
Income 1.05%; Equity 1.15%; Equity Income 1.05%; Capital Appreciation 1.30%;
Small Company Growth 1.40%; Small Company Value 1.30%; International Growth
1.55%; Government Securities 0.85%; High-Yield Bond 0.85%; Tax-Exempt Income
1.30%; Managed 1.55% and Money Market 0.55%. The Portfolio Managers have advised
the Fund that they may assist in a portion of the above-referenced reimbursement
from time to time.
Enterprise Capital and the Fund entered into five agreements pursuant to
which Enterprise Capital advanced on behalf of the Fund $33,748 to cover the
costs of expanding the series to include a Small Company Value Portfolio $43,278
of expanding the series to include a Managed Portfolio; and $43,000 for each of
the following: Equity Portfolio, Growth & Income Portfolio and Small Company
Growth Portfolio and completing the appropriate registrations under the
Investment Company Act of 1940, the Securities Act of 1933, and certain state
securities laws. The agreements provide that these amounts will be repaid by
each Portfolio, in five equal annual increments without interest, commencing at
the end of the first fiscal year at which each such Portfolio have total net
assets of $5 million or more. The Small Company Portfolio and Managed Portfolio
have commenced such payments.
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<PAGE>
TAXES
Each Portfolio of the Fund has qualified and intends to continue to
qualify as a "regulated investment company" in 1995 under the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). For purposes of the
Code, each Portfolio is regarded as a separate regulated investment company. If
any Portfolio qualifies as a "regulated investment company" and complies with
provisions of the Code which require regulated investment companies to
distribute substantially all of their net income (both ordinary income and
capital gain), the Portfolios will be relieved of federal income tax on the
amounts distributed.
Dividends declared out of a Portfolio's net investment income, taking
account of its realized short-term capital gains to the extent that they exceed
its realized short-term capital losses but not taking account its realized
long-term capital gains and losses, are taxable to its shareholders as ordinary
income, whether such dividends are received in cash or additional shares. If,
for any taxable year, a Portfolio complies with certain requirements, some or
all of the dividends (excluding capital gain dividends, as defined in the Code)
received by the Portfolio's corporate shareholders may qualify for the 70%
dividends received deduction available to corporations.
Distributions declared out of a Portfolio's realized net capital gain
(realized net long-term capital gains in excess of realized net short-term
capital losses) and designated by the Portfolio as a capital gain dividend in a
written notice to the shareholders are taxable to such shareholders as long-term
capital gain without regard to the length of time a shareholder has held stock
of the Portfolio and regardless of whether paid in cash or additional shares.
The Portfolios may be required to withhold for federal income taxes 31%
("Back-Up Withholding") of the distributions and the proceeds of redemptions
payable to shareholders who fail to comply with regulations requiring that they
provide a correct social security or taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to back-up Withholding. Corporate shareholders and
certain other shareholders specified in the Code are exempt from Back-Up
Withholding.
Distributions from retirement plans are also subject to 20% federal
withholding if the shareholder fails to provide a tax identification number to
the trustee or custodian and funds are not rolled over.
No gain or loss will be recognized by Class B shareholders upon the
conversion of Class B shares into Class A shares.
TAX-EXEMPT INCOME PORTFOLIO
Dividends derived from interest on Municipal Securities and designated by the
Portfolio as exempt interest dividends by written notice to the shareholders,
under existing law, are not subject to federal income tax. Dividends derived
from net long-term capital gains realized by the Portfolio are taxable to
shareholders as a capital gain upon distribution. Any short-term capital gains
or any taxable interest income realized by the Portfolio will be distributed as
a taxable ordinary income dividend distribution. These rules apply whether such
distribution is made in cash or in additional shares. The percentage of income
that is tax-exempt is applied uniformly to all distributions made by the
Portfolio during each year. As with shares in all Portfolios, a sale, exchange
or redemption of shares in the Tax-Exempt Income Portfolio is a taxable event
and may result in capital gain or loss. In addition, generally any capital loss
realized from shares held for six months or less is disallowed to the extent of
tax-exempt dividend income received.
The Tax-Exempt Income Portfolio declares and pays dividends monthly on
the last business day of the month. When a shareholder redeems shares of the
Portfolio on other than a dividend payment date, a portion of the shareholder's
redemption proceeds will represent accrued tax-exempt income which will be
treated as part of the amount realized for purposes of capital gains
computations for federal and state or local income tax purposes and will not be
tax-exempt.
35
<PAGE>
The Tax Reform Act of 1986 makes income from certain "private activity"
bonds issued after August 7, 1986, an item of tax preference for the alternative
minimum tax at a maximum rate of 28% for individuals and 20% for corporations.
If the Portfolio invests in private activity bonds, shareholders may be subject
to the alternative minimum tax on that part of such Portfolio distributions
derived from interest income on those bonds. The Tax-Exempt Income Portfolio
does not intend to invest more than 20% of its assets in private activity bonds.
In higher income brackets, up to 85% of an individual's Social Security benefits
may be subject to federal income tax. Along with other factors, total tax-exempt
income, including any tax-exempt dividend income from the Portfolio, is taken
into account in determining that portion of Social Security benefits which is
taxed.
The treatment for state and local tax purpose of distributions from the
Tax-Exempt Income Portfolio representing Municipal Securities interests will
vary according to the laws of state and local taxing authorities.
FOREIGN INCOME TAXES
Investment income received by the International Growth Portfolio from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which entitle the Portfolio to a reduced rate of tax or exemption from
tax on such income. It is impossible to determine the effective rate of foreign
tax in advance since the amount of these Portfolio's assets to be invested
within various countries is not known. The Portfolio intends to operate so as to
obtain treaty-reduced rates of tax where applicable.
To the extent that this Portfolio is liable for foreign income taxes
withheld at the source, the Portfolio also intends to operate so as to meet the
requirements of the Code to "pass through" to the Portfolio's shareholders
credits for foreign income taxes paid, but there can be no assurance that the
Portfolio will be able to do so.
EXCISE TAX
The Federal tax laws impose a four percent nondeductible excise tax on each
regulated investment company with respect to the amount, if any, by which such
company does not meet distribution requirements specified in such tax laws. Each
Portfolio of the Fund intends to comply with such distribution requirements and
thus does not expect to incur the four percent nondeductible excise tax.
GENERAL
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury Regulations in effect, as currently interpreted by the
Courts and by the Internal Revenue Service in published revenue rulings and in
private letter rulings and is only applicable to U.S. persons. These
interpretations can be changed at any time. For the complete provisions,
reference should be made to the pertinent Code sections and the Treasury
Regulations promulgated thereunder. The above discussion covers only federal
income tax considerations with respect to the Portfolios and their shareholders.
State and local tax laws vary greatly, especially with regard to the treatment
of exempt-interest dividends. Shareholders should consult their own tax advisers
for more information regarding the federal, state, and local tax treatment of
each Portfolio's shareholders.
Statements indicating the tax status of distributions to each shareholder
will be mailed to each shareholder annually.
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<PAGE>
DIVIDENDS AND DISTRIBUTION
It is the Fund's intention to distribute substantially all of the net
investment income and realized net capital gains, if any, of each Portfolio. The
per share dividends and distribution on each class of shares of a Portfolio will
be reduced as a result of any service fees applicable to that class. For
dividend purposes, net investment income of each Portfolio will consist of
substantially all dividends received, interest accrued, net short-term capital
gains realized by such Portfolio less the estimated expenses of such Portfolio.
Unless shareholders request otherwise, by notifying the Fund's Transfer
Agent, dividends and capital gains distributions will be automatically
reinvested in shares of the respective Portfolio at net asset value; such
reinvestments automatically occur on the payment date of such dividends and
capital gains distributions. At the election of any shareholder, dividends or
capital gains distributions, or both, will be distributed in cash to such
shareholders. However, if it is determined that the U.S. Postal Service cannot
properly deliver Fund mailings to the shareholder, the respective Portfolios
will terminate the shareholder's election to receive dividends and other
distributions in cash. Thereafter, the shareholder's subsequent dividends and
other distributions will be automatically reinvested in additional shares of the
respective Portfolios until the shareholder notifies the Transfer Agent or the
Portfolio in writing of his or her correct address and requests in writing that
the election to receive dividends and other distributions in each be reinstated.
Distributions of capital gains from each of the Portfolios, other than
the Money Market Portfolio, are made annually. Dividends from investment income
of the Equity Portfolios (except the Equity Income Portfolio) and Managed
Portfolio are declared and paid annually. Dividends on the Equity Income
Portfolio are paid semiannually. Dividends from investment income of the Income
Portfolios are declared daily and paid monthly. Dividends from investment income
and any net realized capital gains of the Money Market Portfolio are declared
daily and reinvested monthly in additional shares of the Money Market Portfolio
at net asset value.
BROKERAGE TRANSACTIONS
Each Portfolio Manager selects the brokerage firms which complete
portfolio transactions for that Portfolio, subject to the overall direction and
review of Enterprise Capital and the Board of Directors of the Fund.
The initial criterion which must be met by any Portfolio Manager in
selecting brokers and dealers to effect securities transactions for a Portfolio
is whether such brokers and dealers can obtain the most favorable combination of
price and execution for the transaction. This does not mean that the execution
decision must be based solely on whether the lowest possible commission costs
may be obtained. In seeking to achieve the best combination of price and
execution, the Portfolio Managers evaluate the overall quality and reliability
of broker-dealers and the service they provide, including their general
execution capability, reliability and integrity, willingness to take positions
in securities, general operational capabilities and financial condition. All
brokerage transactions shall comply with Investment Company Act Rule 17e-1.
Subject to this primary objective, the Portfolio Managers may select for
brokerage transactions those firms which furnish brokerage and research services
to the Fund, Enterprise Capital, and the respective Portfolio Managers, or those
firms who agree to pay certain of the Fund's expenses, including certain
custodial and transfer agent services, and, consistent with the National
Association of Securities Dealers, Inc. Rules of Fair Practice, those firms
which have been active in selling shares of the Fund.
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<PAGE>
GENERAL INFORMATION
ORGANIZATION OF FUND
The Fund was incorporated January 2, 1968, as Alpha Fund, Inc., and its name was
changed to The Enterprise Group of Funds, Inc. on September 14, 1987, and it
expanded into a series fund and Alpha Fund became the Growth Portfolio of the
Fund. The Money Market Portfolio was added commencing May 1, 1990; the Small
Company Value Portfolio was added commencing October 1, 1993; the Managed
Portfolio was added commencing October 3, 1994; and the Growth and Income
Portfolio, Equity Portfolio and Small Company Growth Portfolio were added on May
1, 1997. Class A, B and Y shares were established May 1, 1995. Class C shares
were established on May 1, 1997. The Fund is a Maryland corporation. Each
Portfolio of the Fund is diversified, as that term is defined in the Investment
Company Act of 1940.
OTHER CLASSES OF SHARES
Each Portfolio currently offers four classes of shares, Class A, Class B, Class
C and Class Y, and may in the future offer additional classes. Class A, Class B
and Class C shares are the only classes of shares offered by this Prospectus.
Class Y shares are only available to certain institutional purchasers of $1
million or more and to The Mutual of New York Employee 401(k) Plan and the
Enterprise Capital Management, Inc. 401(k) Plan. Institutional investors
eligible to purchase Class Y shares include banks, savings institutions, trust
companies, insurance companies, investment companies as defined by the
Investment Company Act of 1940, pension or profit sharing trusts, certain wrap
account clients of broker/dealers, former shareholders of Retirement System Fund
Inc. or other financial institutional buyer. Wrap account clients of
broker/dealers and former Retirement System Fund Inc. shareholders are offered
Class Y shares at a lower minimum purchase amount.
CAPITAL STOCK
The authorized capital stock of the Fund consists of Common Stock, par value
$0.10 per share. The shares of Common Stock are divided into 13 series with each
series representing a separate Portfolio. The Board of Directors may determine
the number of authorized shares for each series and to create new series of
Common Stock. It is anticipated that new classes will be authorized by the Board
from time to time as new Portfolios with separate investment objectives and
policies are established.
Each class of shares is entitled to participate in dividends and
distributions declared by the respective Portfolios and in net assets of such
Portfolios upon liquidation or dissolution remaining after satisfaction of
outstanding liabilities, except that each Class will bear its own distribution
and shareholder servicing charges. The shares of each Portfolio, when issued,
will be fully paid and nonassessable, have no preference, preemptive,
conversion, exchange or similar rights, and will be freely transferable. Holders
of shares of any Portfolio are entitled to redeem their shares as set forth
under "How to Redeem Fund Shares."
VOTING RIGHTS
Shares of each Portfolio are entitled to one vote per share and fractional votes
for fractional shares. The Fund's shareholders have the right to vote on the
election of Directors of the Fund and on any and all other matters on which, by
law or the provisions of the Fund's bylaws, they may be entitled to vote.
Each series (i.e., Portfolio) of the Fund is further divided into four
classes of shares: Class A, Class B, Class C and Class Y. Class A, Class B,
Class C and Class Y shares represent interests in the same assets of a Portfolio
and are identical in all respects, except that Class A and Class B, and Class C
shares bear certain expenses related to distribution and servicing of such
shares.
On matters relating to all Portfolios or Classes of shares and affecting
all Portfolios or Class of shares in the same manner, shareholders of all
Portfolios or Classes of shares are entitled to vote. On any matters affecting
only one Portfolio, only the
38
<PAGE>
shareholders of that Portfolio are entitled to vote. On matters relating to all
the Portfolios but affecting the Portfolios differently, separate votes by
Portfolio are required. Each class has exclusive voting rights with respect to
matters related to distribution and servicing expenditures, as applicable.
The Fund and its Portfolios are not required by Maryland law to hold
annual meetings of shareholders under normal circumstances. The Board of
Directors or the shareholders may call special meetings of 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 or bylaws
of the Fund, or the Investment Company Act of 1940. Shareholders possess certain
rights related to shareholder communications which, if exercised, could
facilitate the calling by shareholders of a special meeting.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank & Trust Company of Boston, Massachusetts acts as Custodian of
the Fund's assets.
National Financial Data Services, Inc. acts as the Fund's Transfer Agent
and Dividend Disbursing Agent. National Financial Data Services, Inc. is a joint
venture of State Street Bank & Trust Company of Boston, Massachusetts and DST
Systems, Inc. of Kansas City, Missouri.
REPORTS TO SHAREHOLDERS
The Fund sends to all its shareholders annual and semiannual reports, including
a list of investment securities held in the Portfolios.
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<PAGE>
APPENDIX
DESCRIPTION OF MUNICIPAL SECURITIES
Municipal Securities are notes and bonds issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest on which is exempt from federal income taxes and, in certain instances,
applicable state or local income taxes. These securities are traded primarily in
the over-the-counter market.
Municipal Securities are issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as airports, bridges, highways, housing, hospitals, mass transportation,
schools, streets, water and sewer works and gas and electric utilities.
Municipal Securities may also be issued in connection with the refunding of
outstanding Municipal Securities obligations, obtaining funds to lend to other
public institutions and for general operating expenses. Industrial Development
Bonds ("IDBs") are issued by or on behalf of public authorities to obtain funds
to provide privately operated facilities for business and manufacturing,
housing, sports, pollution control, and for airport, mass transit, port and
parking facilities and are considered tax-exempt bonds if the interest thereon
is exempt from federal income taxes.
The two principal classifications of tax-exempt bonds are "general
obligation" and "revenue." General obligation bonds are secured by the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source. Although IDBs
are issued by municipal authorities, they are generally secured only by the
revenues derived from payment of the industrial user. The payment of principal
and interest on IDBs is dependent solely upon the ability of the user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment.
Tax-exempt notes are of short maturity, generally less than three years.
They include such securities as Project Notes, Tax Anticipation Notes, Revenue
Anticipation Notes, Bond Anticipation Notes and Construction Loan Notes.
Tax-exempt commercial paper consists of short term obligations generally having
a maturity of less than nine months.
New issues of Municipal Securities are normally offered on a when-issued
basis, which means that delivery and payment for these securities normally takes
place 15 to 45 days after the date of commitment to purchase.
Yields of Municipal Securities depend upon a number of factors, including
economic, money and capital market conditions, the volume of Municipal
Securities available, conditions within the Municipal Securities market, and the
maturity, rating and size of individual offerings. Changes in market values of
Municipal Securities may vary inversely in relation to changes in interest
rates. The magnitude of changes in market values in response to changes in
market rates of interest typically varies in proportion to the quality and
maturity of obligations. In general, among Municipal Securities of comparable
quality, the longer the maturity, the higher the yield, and the greater
potential for price fluctuations.
FLOATING RATE AND VARIABLE RATE SECURITIES
The Tax-Exempt Income Portfolio may invest in floating rate and variable
rate tax-exempt securities. These securities are normally IDBs or revenue bonds
that provide that the rate of interest is set as a specific percentage of a
designated base rate, such as rates of treasury bills or bonds or the prime rate
at a major commercial bank and provide that the holders of the securities can
demand payment of the obligation on short notice at par plus accrued interest,
which amount may be more or less than the amount initially paid for the bonds.
Floating rate securities have an interest rate which changes whenever there is a
change in the designated base interest rate, while variable rate securities
provide for a specific periodic adjustment in the interest rate. Frequently such
securities are secured by letters of credit or other credit support arrangements
provided by banks. The quality of the underlying credit or of the bank, as the
case may be, must be equivalent to the long-term bond or commercial paper rating
stated above.
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INVESTMENT ADVISER
Enterprise Capital Management, Inc.
Atlanta Financial Center
3343 Peachtree Road, N.E.
Suite 450
Atlanta, Georgia 30326
Telephone:
1-800-432-4320 (Toll Free)
DISTRIBUTOR
Enterprise Fund Distributors, Inc.
3343 Peachtree Road, N.E.
Suite 450
Atlanta, Georgia 30326
Telephone:
1-800-432-4320 (Toll Free)
CUSTODIAN
State Street Bank and Trust Company
Boston, Massachusetts
TRANSFER AGENT
National Financial Data Services, Inc.
1004 Baltimore Ave., 2nd Floor
Kansas City, MO 64105-2112
Telephone:
1-800-368-3527 (Toll Free)
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Atlanta, Georgia 30309
MEMBER - INVESTMENT COMPANY INSTITUTE
41
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus summary........................................................ 2
Investment objectives and policies of the Portfolios...................... 8
Certain investment techniques and associated risks........................ 15
Investment restrictions................................................... 24
How to purchase Portfolio shares.......................................... 25
Shareholder services...................................................... 27
How to exchange shares among the Portfolios............................... 27
How to redeem Portfolio shares............................................ 28
Performance comparisons................................................... 29
Management of the Fund.................................................... 31
Taxes..................................................................... 35
Dividends and distribution................................................ 37
Brokerage transactions.................................................... 37
General information....................................................... 38
Appendix.................................................................. 40
</TABLE>
MAY 1, 1997
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GROWTH PORTFOLIO
GROWTH & INCOME PORTFOLIO
EQUITY PORTFOLIO
EQUITY INCOME PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
SMALL COMPANY GROWTH PORTFOLIO
SMALL COMPANY VALUE PORTFOLIO
INTERNATIONAL GROWTH PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
HIGH-YIELD BOND PORTFOLIO
TAX-EXEMPT INCOME PORTFOLIO
MANAGED PORTFOLIO
MONEY MARKET PORTFOLIO
[LOGO]
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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 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.
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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.
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.
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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 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.
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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
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.]
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(i) Since [September 30, 1996] [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.
(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.
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(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 accordance with its terms, subject
to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and
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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, plus the excess of its interest income, if any, excludable from gross
income under Code section 103(a) over its deductions
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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:
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.
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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 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
9
<PAGE>
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 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.
10
<PAGE>
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:
11
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
CODE SECTION
ACQUIRING FUND WITH WHICH ACQUIRED FUND WILL OF THE
ACQUIRED FUND 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 Enterprise Government Securities Portfolio 368(a)(1)(C)
Fund
Money Market Fund Enterprise Money Market Portfolio 368(a)(1)(C)
</TABLE>
12
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY , 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 , 1997 is not a
prospectus. A Proxy Statement/Prospectus dated May , 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 Proxy
Statement/Prospectus.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Preliminary 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.
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.
</TABLE>
2
<PAGE>
ADDITIONAL INFORMATION ABOUT ENTERPRISE FUNDS AND RSF INC.
The preliminary 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.
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 ALLOCATION MIX
------------------------ ASSET CLASS
ASSET CLASS 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 & CDSC CDSC PAID MARKETING & OTHER
FEES PAID SALES FEES COLLECTED & TO ADVERTISING AUTHORIZED
TO EFD PAID TO EFD PAID TO EFD 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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
18
<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.
19
<PAGE>
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
---
<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>
1
<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
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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
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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
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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
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<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.
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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
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<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.
12
<PAGE>
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.
13
<PAGE>
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
15
<PAGE>
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.
16
<PAGE>
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)6 -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)n = 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
- ------------------- ----------------- --------------------------------------
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.
<S> <C> <C> <C>
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
COMPENSATION PENSION OR RETIREMENT
AGGREGATE FROM THE FUND BENEFITS ACCRUED
COMPENSATION FROM AND THE COMPLEX AS PART OF FUND
NAME OF TRUSTEE THE FUND 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
- ------------------------- ----------------- ---------------- ------------- --------------
Marine Midland as -- -- 62,679 12.3%
Trustee for various
accounts P.O. Box 1329
Buffalo, NY 14240
<S> <C> <C> <C> <C>
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
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>
30
<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
Poughkeepsie Savings Bank 149,476 9.0% -- --
249 Main Mall
Poughkeepsie, NY 12602
</TABLE>
----------------------------------
* Total ownership is less than 25% of total Fund assets.
31
<PAGE>
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.
32
<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>
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>
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>
<S> <C>
Growth Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Equity Income Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Small Company Portfolio
- --------------------------------------------------------------------------------------------------------------------------
International Growth Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Managed Portfolio
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Long Ter
m
Capital
Gains
--------
- -
<S> <C>
Growth Portfolio $11,922,
241
- --------------------------------------------------------------------------------------------------------------------------
Equity Income Portfolio 4,494,91
1
- --------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Portfolio 11,967,3
41
- --------------------------------------------------------------------------------------------------------------------------
Small Company Portfolio 392,49
7
- --------------------------------------------------------------------------------------------------------------------------
International Growth Portfolio 852,67
3
- --------------------------------------------------------------------------------------------------------------------------
Managed Portfolio 2,433,92
5
- --------------------------------------------------------------------------------------------------------------------------
</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>
PART C--OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Reference is made to the provision of the Article Sixth of Registrant's
Articles of Incorporation filed as Exhibit 1.1 to this Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provision or otherwise, Registrant has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment of Registrant
of expenses incurred or paid by a director, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person, Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1 Registrant's charter(1)
1.2 Amendment to Charter(2)
2.1 Bylaws of the Registrant, as amended(1)
2.2 Amendment to Bylaws of the Registrant(2)
3 Not Applicable
4 Form of Agreement and Plan of Reorganization between Retirement System Fund Inc.
("RSF Inc."), a Maryland corporation, on behalf of its portfolios, Core Equity
Fund, Emerging Growth Equity Fund, Intermediate-Term Fixed-Income Fund, and Money
Market Fund, (collectively, the "RSF Inc. Funds"), and The Enterprise Group of
Funds, Inc. ("Enterprise Funds"), a Maryland corporation, on behalf of its
portfolios, Enterprise Growth & Income Portfolio, Enterprise Small Company Growth
Portfolio Enterprise Government Securities Portfolio, and Enterprise Money Market
Portfolio, (collectively, the "Enterprise Portfolios"), filed herewith as Appendix
B to the Proxy Statement/Prospectus.*
5 Specimen share certificate.(3)
6 Conformed copy of Investment Advisory Contract on behalf of the Enterprise Funds.(1)
6.1 Conformed copy of Subadvisory Agreements on behalf of each of the Enterprise
Portfolios.(1)
7.1 Conformed copy of Distributor's Agreement on behalf of the Enterprise Funds.(1)
7.2 Addendum to Distributor's Agreement(2)
7.3 Prototype Soliciting Broker/Dealer Agreement(1)
7.4 Addendum to the Soliciting Broker/Dealer Agreement(2)
8 Not Applicable
9 Conformed copy of Form of Custodian Contract of the Registrant.(1)
10 Conformed copy of Distribution Plans of the Registrant.(2)
11 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding legality of shares
being issued.*
</TABLE>
1
<PAGE>
<TABLE>
<C> <S>
12.1 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding tax consequences of
the Reorganization between RSF Inc. Core Equity Fund and Enterprise Growth and
Income Portfolio.*
12.2 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding tax consequences of
the Reorganization between RSF Inc. Emerging Growth Equity Fund and Enterprise
Small Company Growth Portfolio.*
12.3 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding tax consequences of
the Reorganization between RSF Inc. Intermediate-Term Fixed-Income Fund and
Enterprise Government Securities Portfolio.*
12.4 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding tax consequences of
the Reorganization between RSF Inc. Money Market Fund and Enterprise Money Market
Portfolio.*
13 Not Applicable
14.1 Conformed copy of Consent of Independent Auditors of Enterprise Funds, Coopers &
Lybrand L.L.P.*
14.2 Conformed copy of Consent of Independent Auditors of RSF Inc., McGladrey & Pullen
LLP.*
15 Not Applicable.
16 Power of Attorney.*
17.1 Declaration under Rule 24f-2*
17.2 Form of Proxy of RSF Inc.*
17.3 Prospectus of RSF Inc.*
</TABLE>
- ------------------------
* Filed electronically.
(1) Response is incorporated by reference to Registrant's Post Effective
Amendment No. 39 on Form N-1A filed on April 28, 1994 (File Nos. 2-28097 and
811-1582).
(2) Response is incorporated by reference to Registrant's Post-Amendment No. 43
on Form N-1A filed on April 26, 1995 (File Nos. 2-28097 and 811-1582).
(3) Response is incorporated by reference to Registrant's Post-Amendment No. 29
on Form N-1A filed on November 27, 1987 (File Nos. 2-28097 and 811-1582).
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
The Enterprise Group of Funds, Inc., has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Atlanta, and State of Georgia on April 22, 1997.
THE ENTERPRISE GROUP OF FUNDS, INC.
By: /s/ VICTOR UGOLYN
-----------------------------------------
Victor Ugolyn
PRESIDENT
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date(s) indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ VICTOR UGOLYN
- ------------------------------ Chairman, President and April 22, 1997
Victor Ugolyn Chief Executive Officer
*
- ------------------------------ Principal Financial and
Phillip G. Goff Accounting Officer
*
- ------------------------------ Director
Arthur T. Dietz
*
- ------------------------------ Director
Samuel J. Foti
*
- ------------------------------ Director
Arthur Howell
*
- ------------------------------ Director
William A. Mitchell, Jr.
*
- ------------------------------ Director
Lonnie H. Pope
*
- ------------------------------ Director
Michael I. Roth
By: /s/ VICTOR UGOLYN April 22, 1997
- ------------------------------
(Victor Ugolyn)
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------------------------------------------------------------------
<C> <S>
11 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding
legality of shares being issued.
12.1 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding tax
consequences of the Reorganization between RSF Inc. Core Equity
Fund and Enterprise Growth and Income Portfolio.
12.2 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding tax
consequences of the Reorganization between RSF Inc. Emerging Growth
Equity Fund and Enterprise Small Company Growth Portfolio.
12.3 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding tax
consequences of the Reorganization between RSF Inc.
Intermediate-Term Fixed-Income Fund and Enterprise Government
Securities Portfolio.
12.4 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding tax
consequences of the Reorganization between RSF Inc. Money Market
Fund and Enterprise Money Market Portfolio.
14.1 Conformed copy of Consent of Independent Auditors of Enterprise
Funds, Coopers & Lybrand L.L.P.
14.2 Conformed copy of Consent of Independent Auditors of RSF Inc.,
McGladrey & Pullen LLP.
16 Power of Attorney.
17.1 Declaration under Rule 24f-2.
17.2 Form of Proxy of RSF Inc.
17.3 Prospectus of RSF Inc.
</TABLE>
<PAGE>
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022-9998
(212) 758-9500
April 21,1997
The Enterprise Group of Funds, Inc.
3343 Peachtree Road, N.E.
Suite 450
Atlanta, Georgia 30326
Gentlemen and Ladies:
We have acted as counsel to The Enterprise Group of Funds, Inc., a Maryland
corporation ("Enterprise Funds"), in connection with the proposed
reorganizations (the "Reorganizations") of Core Equity Fund, ("RSF Inc. Core
Equity"), Emerging Growth Fund ("RSF Inc. Emerging Growth"), Intermediate-Term
Fixed-Income Fund ("RSF Inc. Intermediate-Term") and Money Market Fund ("RSF
Inc. Money Market"), each a portfolio of Retirement System Fund Inc. ("RSF
Inc.") (each, an "Acquired Fund," and collectively, the "Acquired Funds").
Pursuant to the proposed Reorganizations, all of the assets and liabilities of
each Acquired Fund will be transferred to the series (each an "Acquiring Fund")
of Enterprise Funds listed below, in exchange for class Y shares of the
Acquiring Fund set forth below:
Acquired Fund Acquiring Fund
- ------------- --------------
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")
<PAGE>
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 2
The shares of Enterprise Funds being issued in connection with the
Reorganizations are being registered with the Securities and Exchange Commission
pursuant to a registration statement on Form N-14 (the "Registration
Statement").
In connection with the foregoing, we have examined copies, either certified
or otherwise proved to our satisfaction to be genuine, among other things, of
the Registration Statement of Enterprise Funds and the exhibits thereto;
resolutions duly adopted by the Board of Directors of Enterprise Funds; and such
other records and documents as we have deemed necessary in order to enable us to
express the opinion set forth below. In addition, we have received a
certificate dated March 20, 1997, of the Maryland State Department of
Assessments and Taxation that Enterprise Funds is in good standing under the
laws of the State of Maryland.
Subject to the effectiveness of the Registration Statement and in
compliance with applicable state securities laws, and based on and subject to
the foregoing examination, it is our opinion that the Class Y shares of
Enterprise Funds which are being registered pursuant to the Registration
Statement and will be issued to the Acquired Funds in the Reorganizations, will
be, when sold, legally issued, fully paid and non-assessable.
We are members of the Bar of the State of New York and do not hold
ourselves out as being conversant with the laws of any jurisdiction other than
those of the United States of America and the State of New York. We note that
we are not licensed to practice law in the State of Maryland, and to the extent
that any opinion herein involves the law of Maryland, such opinion should be
understood to be based solely upon our review of the documents referred to
above, the published statutes of that state and, where applicable, published
cases, rules or regulations of regulatory bodies of that state.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as part of the Registration Statement and with any state
securities commission where such filing is required.
Very truly yours,
/s/ SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
Shereff, Friedman, Hoffman & Goodman, LLP
<PAGE>
SHEREFF, FRIEDMAN, HOFFFMAN & GOODMAN, LLP
919 Third Avenue
New York, New York 10022-9998
(212) 758-9500
April 21, 1997
Retirement System Fund Inc.
(Core Equity Fund)
P.O. Box 2064
Grand Central Station
New York, New York 10163-2064
The Enterprise Group of Funds, Inc.
(Enterprise Growth and Income Portfolio)
3343 Peachtree Road, N.E.
Suite 450
Atlanta Georgia
Dear Sirs:
We are acting as counsel to the Enterprise Growth and Income Portfolio
("Acquiring Fund"), a portfolio of The Enterprise Group of Funds, Inc., a
Maryland corporation ("Enterprise Funds"), in connection with the proposed
transfer of the assets (the "Reorganization") of Core Equity Fund ("Acquired
Fund"), a separate investment series of Retirement System Fund Inc., a Maryland
corporation ("Retirement Inc."), to the Acquiring Fund and the assumption by
Acquiring Fund of Acquired Fund's liabilities, if any, in exchange for Class Y
shares of the Acquiring Fund (the "Shares") pursuant to an Agreement and
Plan of Reorganization (the "Agreement").
We have participated in the preparation of Enterprise Funds' Registration
Statement on Form N-14 (the "Registration Statement") relating, among other
things, to the Shares of Acquiring Fund to be offered in exchange for the assets
of Acquired Fund, and containing the Proxy Statement/Prospectus relating to the
Reorganization (collectively, the "Prospectus"), filed with the Securities and
Exchange Commission (the "Commission") pursuant to the provisions of the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations of the Commission thereunder. In addition, in connection with
rendering the opinions expressed herein, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of such
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds Inc.
April 21, 1997
Page 2
other documents, records and other instruments as we have deemed necessary or
appropriate for the purpose of rendering this opinion, including the form of the
Agreement included as Exhibit B to the Prospectus.
In our examination of the foregoing documents we have assumed the
genuineness of all signatures, the authority of each signatory, the due
execution and delivery of all documents by all parties, the authenticity of all
agreements, documents, certificates and instruments submitted to us as
originals, the conformity of the Agreement as executed and delivered by the
parties with the form of the Agreement contained in the Prospectus, and the
conformity with originals of all agreements, documents, certificates and
instruments submitted to us as copies.
In rendering the opinions expressed herein, we have assumed that the
transactions contemplated by the Agreement will be consummated in accordance
therewith and as described in the Prospectus. As to other questions of fact
material to this opinion, we have assumed, with your approval and without
independent investigation or verification, that the following facts will be
accurate and complete as of the consummation of the Reorganization (the "Closing
Date").
1. The fair market value of the Shares to be received by each Acquired
Fund shareholder will be equal to the fair market value of the Acquired Fund
shares surrendered in exchange therefor upon the liquidation of Acquired Fund.
2. There will be no plan or intention by any shareholder of Acquired Fund
who owns 5 percent or more of Acquired Fund stock, and to the best of the
knowledge of management of Acquired Fund, there will be no plan or intention on
the part of the remaining shareholders of Acquired Fund, to sell, exchange, or
otherwise dispose of a number of Shares received in the Reorganization that
would reduce Acquired Fund shareholders' ownership of Shares of Acquiring Fund
to a number of Shares having a value, as of the Closing Date, of less than 50
percent of the value of all formerly outstanding stock of Acquired Fund as of
the same date. For purposes hereof, shares of Acquired Fund stock exchanged for
cash or other property, surrendered by dissenters, or exchanged for cash in lieu
of fractional Shares of Acquiring Fund will be treated as outstanding Acquired
Fund stock at the Closing Date of the Reorganization. Moreover, shares of
Acquired Fund stock and Shares of Acquiring Fund held by Acquired Fund
shareholders and otherwise sold, redeemed, or disposed of prior or subsequent to
the Reorganization and as part of the Reorganization will be considered in
making this assumption.
3. Pursuant to the Agreement, Acquired Fund will distribute in
liquidation of Acquired Fund, the Shares of Acquiring Fund received by Acquired
Fund in the Reorganization.
4. The liabilities of Acquired Fund assumed by Acquiring Fund pursuant to
the Reorganization, plus the liabilities, if any, to which assets transferred
pursuant to the
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds Inc.
April 21, 1997
Page 3
Reorganization will be subject, will have been incurred by Acquired Fund in the
ordinary course of its business, and will be associated with the assets
transferred.
5. Each shareholder of Acquired Fund will pay its respective share of the
expenses, if any, incurred in connection with the Reorganization.
6. Immediately following consummation of the Reorganization, Acquiring
Fund will possess the same assets and liabilities, except for assets distributed
to shareholders who receive cash or other property and assets used to pay
expenses incurred in connection with the Reorganization, as those possessed by
Acquired Fund immediately prior to the Reorganization. Assets used to pay
expenses and all redemptions and distributions (except for regular, normal
dividends and redemptions) made by Acquired Fund immediately preceding the
Reorganization will, in the aggregate, constitute less than one percent of the
net assets of Acquired Fund. There will be no dissenting shareholders.
7. Immediately following the consummation of the Reorganization, the
shareholders of Acquired Fund will own all of the outstanding Acquiring Fund
stock and will own such stock solely by reason of their ownership of Acquired
Fund stock immediately prior to the Reorganization.
8. Acquiring Fund will have no plan or intention, other than in the
ordinary course of its operation as an open-end investment company, to issue
additional Shares following the Reorganization.
9. Acquired Fund will not be under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
10. No cash will be paid to the shareholders of Acquired Fund in lieu of
fractional shares.
11. For federal income tax purposes, Acquired Fund will qualify as a
regulated investment company (as defined in Code Section 851) and will have so
qualified since its formation. The provisions of Code Sections 851 through 855
will apply to Acquired Fund and will continue to apply through the Closing Date.
12. Except to the extent necessary to comply with its legal obligation to
redeem its own shares, Acquiring Fund will have no plan or intention to
reacquire any of the Shares issued in the Reorganization.
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 4
13. Acquired Fund will not have outstanding any warrants, options,
convertible securities, or any other type of right pursuant to which any person
could acquire stock in Acquired Fund.
14. Acquiring Fund will have no plan or intention to sell or otherwise
dispose of any of the assets of the Acquired Fund acquired in the
Reorganization, except for dispositions made in the ordinary course of business.
15. Following the Reorganization, Acquiring Fund will continue the
historic business of Acquired Fund or use a significant portion of Acquired
Fund's historic business assets in its business.
16. Acquiring Fund has been organized for the sole purpose of
effecting the Reorganization, and does not own, directly or indirectly, nor
will it have owned during the five years preceding the Closing Date, directly
or indirectly, any stock of Acquired Fund.
17. Acquired Fund will not be under the jurisdiction of a court in a Title
11 or similar case within the meaning of Code Section 368(a)(3)(A).
18. The provisions of Code Sections 851 through 855 will apply to
Acquiring Fund after the Closing Date.
19. No compensation received by any shareholder-employees of Acquired Fund
will be separate consideration for the Reorganization; none of the shares of
Acquiring Fund Stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment Agreement; and any
compensation paid to any shareholder-employees will be for services actually
rendered and will be commensurate with amount paid to their parties bargaining
at arm's length for similar services.
20. All appropriate action will have been taken to designate the
Acquiring Fund as a duly authorized series of Enterprise Funds and to authorize
the issuance and delivery of the Shares by the Acquiring Fund.
We note that we are members of the Bar of the State of New York and that
our opinion is expressly limited to the federal laws of the United States.
Based on the foregoing and subject to the assumptions and limitations set
forth above, and such examination of law as we have deemed necessary, we are of
the opinion that:
1. The Reorganization will constitute a reorganization within the meaning
of Section 368(a)(1)(F) of the Code;
2. Acquired Fund and Acquiring Fund will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 5
3. Pursuant to Sections 361(a) and 357(a) of the Code, no gain or loss
will be recognized by Acquired Fund upon the transfer of its assets to
Acquiring Fund in exchange solely for shares of Acquiring Fund as a
result of the Reorganization and the assumption by Acquiring Fund of
Acquired Fund's liabilities, if any, or upon the distribution (whether
actual or constructive) of the Shares of Acquiring Fund in complete
liquidation of Acquired Fund;
4. Pursuant to Section 1032(a) of the Code, no gain or loss will be
recognized by Acquiring Fund upon its acquisition of Acquired Fund's
assets solely in exchange for Shares of Acquiring Fund and the
assumption by Acquiring Fund of the liabilities of Acquired Fund;
5. Pursuant to Section 362(b) of the Code, the basis of the assets of
Acquired Fund acquired by Acquiring Fund will be the same as the
basis of such assets when held by Acquired Fund immediately prior to
the Reorganization;
6. Pursuant to Section 1223(2) of the Code, the holding period of the
assets of Acquired Fund acquired by Acquiring Fund will include the
period during which such assets were held by Acquired Fund;
7. Pursuant to Section 354(a)(1) of the Code, no gain or loss will be
recognized by a shareholder of Acquired Fund upon the exchange of his
or her shares solely for Shares of Acquiring Fund, including
fractional shares, in liquidation of Acquired Fund;
8. Pursuant to Section 358(a)(1) of the Code, the basis of the Shares of
Acquiring Fund received by former Acquired Fund shareholders will be
the same as the basis of Acquired Fund shares surrendered in exchange
therefor; and
9. Pursuant to Section 1223(1) of the Code, the holding period for Shares
of Acquiring Fund received by each shareholder of Acquired Fund in
exchange for his or her shares of Acquired Fund will include the
period during which such shareholder held shares of Acquired Fund
(provided Acquired Fund shares were held as capital assets on the date
of the exchange).
The opinions expressed herein are based upon currently applicable statutes
and regulations and existing interpretations. We can provide no assurance that
such statutes or regulations, or existing judicial or administrative
interpretations thereof, will not be amended, revoked or modified (possibly
prior to the Closing Date) in a manner which would affect our conclusions.
Finally, we note that this opinion is solely for the benefit of the addressees
hereof in connection with the transaction described herein and, except as
otherwise provided herein, should not be
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 6
referred to, used, relied upon or quoted (with or without specific reference to
our firm) in any documents, reports, financial statements or otherwise, without
our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and to any reference to our
firm in the Registration Statement or in the Prospectus constituting part
thereof.
Very truly yours,
/s/ Shereff, Friedman, Hoffman & Goodman, LLP
Shereff, Friedman, Hoffman & Goodman, LLP
<PAGE>
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 Third Avenue
New York, New York 10022-9998
(212) 758-9500
April 21, 1997
Retirement System Fund Inc.
(Emerging Growth Equity Fund)
P.O. Box 2064
Grand Central Station
New York, New York 10163-2064
The Enterprise Group of Funds, Inc.
(Enterprise Small Company Growth Portfolio)
3343 Peachtree Road, N.E.
Suite 450
Atlanta Georgia
Dear Sirs:
We are acting as counsel to the Enterprise Small Company Growth
Portfolio ("Acquiring Fund"), a portfolio of The Enterprise Group of Funds,
Inc., a Maryland corporation ("Enterprise Funds"), in connection with the
proposed transfer of the assets (the "Reorganization") of Emerging Growth
Equity Fund ("Acquired Fund"), a separate investment series of Retirement
System Fund Inc., a Maryland corporation ("Retirement Inc."), to the
Acquiring Fund and the assumption by Acquiring Fund of Acquired Fund's
liabilities, if any, in exchange for Class Y shares of the Acquiring Fund
(the "Shares") pursuant to an Agreement and Plan of Reorganization (the
"Agreement").
We have participated in the preparation of Enterprise Funds' Registration
Statement on Form N-14 (the "Registration Statement") relating, among other
things, to the Shares of Acquiring Fund to be offered in exchange for the assets
of Acquired Fund, and containing the Proxy Statement/Prospectus relating to the
Reorganization (collectively, the "Prospectus"), filed with the Securities and
Exchange Commission (the "Commission") pursuant to the provisions of the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations of the Commission thereunder. In addition, in connection with
rendering the opinions expressed herein,
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 21
we have examined originals or copies, certified or otherwise identified to our
satisfaction, of such other documents, records and other instruments as we have
deemed necessary or appropriate for the purpose of rendering this opinion,
including the form of the Agreement included as Exhibit B to the Prospectus.
In our examination of the foregoing documents we have assumed the
genuineness of all signatures, the authority of each signatory, the due
execution and delivery of all documents by all parties, the authenticity of all
agreements, documents, certificates and instruments submitted to us as
originals, the conformity of the Agreement as executed and delivered by the
parties with the form of the Agreement contained in the Prospectus, and the
conformity with originals of all agreements, documents, certificates and
instruments submitted to us as copies.
In rendering the opinions expressed herein, we have assumed that the
transactions contemplated by the Agreement will be consummated in accordance
therewith and as described in the Prospectus. As to other questions of fact
material to this opinion, we have assumed, with your approval and without
independent investigation or verification, that the following facts will be
accurate and complete as of the consummation of the Reorganization (the "Closing
Date").
1. The fair market value of the Shares to be received by each Acquired
Fund shareholder will be equal to the fair market value of the Acquired Fund
shares surrendered in exchange therefor upon the liquidation of Acquired Fund.
2. There will be no plan or intention by any shareholder of Acquired Fund
who owns 5 percent or more of Acquired Fund stock, and to the best of the
knowledge of management of Acquired Fund, there will be no plan or intention on
the part of the remaining shareholders of Acquired Fund, to sell, exchange, or
otherwise dispose of a number of Shares received in the Reorganization that
would reduce Acquired Fund shareholders' ownership of Shares of Acquiring Fund
to a number of Shares having a value, as of the Closing Date, of less than 50
percent of the value of all formerly outstanding stock of Acquired Fund as of
the same date. For purposes hereof, shares of Acquired Fund stock exchanged for
cash or other property, surrendered by dissenters, or exchanged for cash in lieu
of fractional Shares of Acquiring Fund will be treated as outstanding Acquired
Fund stock at the Closing Date of the Reorganization. Moreover, shares of
Acquired Fund stock and Shares of Acquiring Fund held by Acquired Fund
shareholders and otherwise sold, redeemed, or disposed of prior or subsequent to
the Reorganization and as part of the Reorganization will be considered in
making this assumption.
3. Pursuant to the Agreement, Acquired Fund will distribute in
liquidation of Acquired Fund, the Shares of Acquiring Fund received by Acquired
Fund in the Reorganization.
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 21
4. The liabilities of Acquired Fund assumed by Acquiring Fund pursuant to
the Reorganization, plus the liabilities, if any, to which assets transferred
pursuant to the Reorganization will be subject, will have been incurred by
Acquired Fund in the ordinary course of its business, and will be associated
with the assets transferred.
5. Each shareholder of Acquired Fund will pay its respective share of the
expenses, if any, incurred in connection with the Reorganization.
6. Immediately following consummation of the Reorganization, Acquiring
Fund will possess the same assets and liabilities, except for assets distributed
to shareholders who receive cash or other property and assets used to pay
expenses incurred in connection with the Reorganization, as those possessed by
Acquired Fund immediately prior to the Reorganization. Assets used to pay
expenses and all redemptions and distributions (except for regular, normal
dividends and redemptions) made by Acquired Fund immediately preceding the
Reorganization will, in the aggregate, constitute less than one percent of the
net assets of Acquired Fund. There will be no dissenting shareholders.
7. Immediately following the consummation of the Reorganization, the
shareholders of Acquired Fund will own all of the outstanding Acquiring Fund
stock and will own such stock solely by reason of their ownership of Acquired
Fund stock immediately prior to the Reorganization.
8. Acquiring Fund will have no plan or intention, other than in the
ordinary course of its operation as an open-end investment company, to issue
additional Shares following the Reorganization.
9. Acquired Fund will not be under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
10. No cash will be paid to the shareholders of Acquired Fund in lieu of
fractional shares.
11. For federal income tax purposes, Acquired Fund will qualify as a
regulated investment company (as defined in Code Section 851) and will have so
qualified since its formation. The provisions of Code Sections 851 through 855
will apply to Acquired Fund and will continue to apply through the Closing Date.
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 4
12. Except to the extent necessary to comply with its legal obligation to
redeem its own shares, Acquiring Fund will have no plan or intention to
reacquire any of the Shares issued in the Reorganization.
13. Acquired Fund will not have outstanding any warrants, options,
convertible securities, or any other type of right pursuant to which any person
could acquire stock in Acquired Fund.
14. Acquiring Fund will have no plan or intention to sell or otherwise
dispose of any of the assets of the Acquired Fund acquired in the
Reorganization, except for dispositions made in the ordinary course of business.
15. Following the Reorganization, Acquiring Fund will continue the
historic business of Acquired Fund or use a significant portion of Acquired
Fund's historic business assets in its business.
16. Acquiring Fund has been organized for the sole purpose of
effecting the Reorganization, and does not own, directly or indirectly, nor
will it have owned during the five years preceding the Closing Date, directly
or indirectly, any stock of Acquired Fund.
17. Acquired Fund will not be under the jurisdiction of a court in a Title
11 or similar case within the meaning of Code Section 368(a)(3)(A).
18. The provisions of Code Sections 851 through 855 will apply to
Acquiring Fund after the Closing Date.
19. No compensation received by any shareholder-employees of Acquired Fund
will be separate consideration for the Reorganization; none of the shares of
Acquiring Fund Stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and any
compensation paid to any shareholder-employees will be for services actually
rendered and will be commensurate with amount paid to their parties bargaining
at arm's length for similar services.
20. All appropriate action will have been taken to designate the
Acquiring Fund as a duly authorized series of Enterprise Funds and to authorize
the issuance and delivery of the Shares by the Acquiring Fund.
We note that we are members of the Bar of the State of New York and that
our opinion is expressly limited to the federal laws of the United States.
Based on the foregoing and subject to the assumptions and limitations set
forth above, and such examination of law as we have deemed necessary, we are of
the opinion that:
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 5
1. The Reorganization will constitute a reorganization within the meaning
of Section 368(a)(1)(F) of the Code;
2. Acquired Fund and Acquiring Fund will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
3. Pursuant to Sections 361(a) and 357(a) of the Code, no gain or loss
will be recognized by Acquired Fund upon the transfer of its assets to
Acquiring Fund in exchange solely for shares of Acquiring Fund as a
result of the Reorganization and the assumption by Acquiring Fund of
Acquired Fund's liabilities, if any, or upon the distribution (whether
actual or constructive) of the Shares of Acquiring Fund in complete
liquidation of Acquired Fund;
4. Pursuant to Section 1032(a) of the Code, no gain or loss will be
recognized by Acquiring Fund upon its acquisition of Acquired Fund's
assets solely in exchange for Shares of Acquiring Fund and the
assumption by Acquiring Fund of the liabilities of Acquired Fund;
5. Pursuant to Section 362(b) of the Code, the basis of the assets of
Acquired Fund acquired by Acquiring Fund will be the same as the
basis of such assets when held by Acquired Fund immediately prior to
the Reorganization;
6. Pursuant to Section 1223(2) of the Code, the holding period of the
assets of Acquired Fund acquired by Acquiring Fund will include the
period during which such assets were held by Acquired Fund;
7. Pursuant to Section 354(a)(1) of the Code, no gain or loss will be
recognized by a shareholder of Acquired Fund upon the exchange of his
or her shares solely for Shares of Acquiring Fund, including
fractional shares, in liquidation of Acquired Fund;
8. Pursuant to Section 358(a)(1) of the Code, the basis of the Shares of
Acquiring Fund received by former Acquired Fund shareholders will be
the same as the basis of Acquired Fund shares surrendered in exchange
therefor; and
9. Pursuant to Section 1223(1) of the Code, the holding period for Shares
of Acquiring Fund received by each shareholder of Acquired Fund in
exchange for his or her shares of Acquired Fund will include the
period during which such shareholder held shares of Acquired Fund
(provided Acquired Fund shares were held as capital assets on the date
of the exchange).
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 6
The opinions expressed herein are based upon currently applicable statutes
and regulations and existing interpretations. We can provide no assurance that
such statutes or regulations, or existing judicial or administrative
interpretations thereof, will not be amended, revoked or modified (possibly
prior to the Closing Date) in a manner which would affect our conclusions.
Finally, we note that this opinion is solely for the benefit of the addressees
hereof in connection with the transaction described herein and, except as
otherwise provided herein, should not be referred to, used, relied upon or
quoted (with or without specific reference to our firm) in any documents,
reports, financial statements or otherwise, without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and to any reference to our
firm in the Registration Statement or in the Prospectus constituting part
thereof.
Very truly yours,
/s/ Shereff, Friedman, Hoffman & Goodman, LLP
Shereff, Friedman, Hoffman & Goodman, LLP
<PAGE>
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 Third Avenue
New York, New York 10022-9998
(212) 758-9500
April 21,1997
Retirement System Fund Inc.
(Intermediate-Term Fixed-Income Fund)
P.O. Box 2064
Grand Central Station
New York, New York 10163-2064
The Enterprise Group of Funds, Inc.
(Enterprise Government Securities Portfolio)
3343 Peachtree Road, N.E.
Suite 450
Atlanta Georgia
Dear Sirs:
We are acting as counsel to the Enterprise Government Securities Portfolio
("Acquiring Fund"), a portfolio of The Enterprise Group of Funds, Inc., a
Maryland corporation ("Enterprise Funds") in connection with the proposed
transfer of the assets (the "Reorganization") of Intermediate-Term Fixed-Income
Fund ("Acquired Fund"), a separate investment series of Retirement System Fund
Inc., a Maryland corporation ("Retirement Inc."), to the Acquiring Fund and the
assumption by Acquiring Fund of Acquired Fund's liabilities, if any, in exchange
for Class Y shares of the Acquiring Fund (the "Shares") pursuant to an Agreement
and Plan of Reorganization (the "Agreement").
We have participated in the preparation of Enterprise Funds' Registration
Statement on Form N-14 (the "Registration Statement") relating, among other
things, to the Shares of Acquiring Fund to be offered in exchange for the assets
of Acquired Fund, and containing the Proxy Statement/Prospectus relating to the
Reorganization (collectively, the "Prospectus"), filed with the Securities and
Exchange Commission (the "Commission") pursuant to the provisions of the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations of the
<PAGE>
Retirement System Fund, Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 2
Commission thereunder. In addition, in connection with rendering the opinions
expressed herein, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of such other documents, records and other
instruments as we have deemed necessary or appropriate for the purpose of
rendering this opinion, including the form of the Agreement included as Exhibit
B to the Prospectus.
In our examination of the foregoing documents we have assumed the
genuineness of all signatures, the authority of each signatory, the due
execution and delivery of all documents by all parties, the authenticity of all
agreements, documents, certificates and instruments submitted to us as
originals, the conformity of the Agreement as executed and delivered by the
parties with the form of the Agreement contained in the Prospectus, and the
conformity with originals of all agreements, documents, certificates and
instruments submitted to us as copies.
In rendering the opinions expressed herein, we have assumed that the
transactions contemplated by the Agreement will be consummated in accordance
therewith and as described in the Prospectus. As to other questions of fact
material to this opinion, we have assumed, with your approval and without
independent investigation or verification, that the following facts will be
accurate and complete as of the consummation of the Reorganization (the "Closing
Date").
1. The fair market value of the Shares to be received by each Acquired
Fund shareholder will be equal to the fair market value of the Acquired Fund
shares surrendered in exchange therefor upon the liquidation of Acquired Fund.
2. There will be no plan or intention by any shareholder of Acquired Fund
who owns 5 percent or more of Acquired Fund stock, and to the best of the
knowledge of management of Acquired Fund, there will be no plan or intention on
the part of the remaining shareholders of Acquired Fund, to sell, exchange, or
otherwise dispose of a number of Shares received in the Reorganization that
would reduce Acquired Fund shareholders' ownership of Shares of Acquiring Fund
to a number of Shares having a value, as of the Closing Date, of less than 50
percent of the value of all formerly outstanding stock of Acquired Fund as of
the same date. For purposes hereof, shares of Acquired Fund stock exchanged for
cash or other property, surrendered by dissenters, or exchanged for cash in lieu
of fractional Shares of Acquiring Fund will be treated as outstanding Acquired
Fund stock at the Closing Date of the Reorganization. Moreover, shares of
Acquired Fund stock and Shares of Acquiring Fund held by Acquired Fund
shareholders and otherwise sold, redeemed, or disposed of prior or subsequent to
the Reorganization and as part of the Reorganization will be considered in
making this assumption.
<PAGE>
Retirement System Fund, Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 3
3. Pursuant to the Agreement, Acquired Fund will distribute in
liquidation of Acquired Fund, the Shares of Acquiring Fund received by Acquired
Fund in the Reorganization.
4. The liabilities of Acquired Fund assumed by Acquiring Fund pursuant to
the Reorganization, plus the liabilities, if any, to which assets transferred
pursuant to the Reorganization will be subject, constitute less than 20% of the
total consideration for the Reorganization, all such liabilities will have been
incurred by Acquired Fund in the ordinary course of its business, and Acquiring
Fund will pay no other consideration, except for the Shares, in connection with
the Reorganization.
5. All expenses incurred by Acquired Fund with respect to the
Reorganization will be borne by Acquired Fund. Each shareholder of Acquired
Fund will pay its respective share of the expenses, if any, incurred in
connection with the Reorganization. Acquiring Fund will pay the expenses, if
any, incurred by it in connection with the Reorganization.
6. No intercorporate indebtedness will exist between Acquiring Fund and
Acquired Fund that was issued, acquired, or will be settled at a discount.
7. Acquired Fund will not own, directly or indirectly, nor will it have
owned during the five years preceding the Closing Date, directly or indirectly,
any stock of Acquiring Fund.
8. The assets of Acquired Fund transferred to Acquiring Fund will include
all assets owned by Acquired Fund at fair market value on the Closing Date
subject to all known liabilities of Acquired Fund at such time.
9. In accordance with the terms of the Agreement, Acquired Fund will
transfer all of its business and will transfer assets to Acquiring Fund
representing at least 90% of the fair market value of the net assets, and at
least 70% of the fair market value of the gross assets, held by Acquired Fund
immediately prior to the Reorganization. For purposes of this assumption,
amounts paid by Acquired Fund to shareholders who receive cash or other
property, amounts paid to dissenters, amounts used by Acquired Fund to pay its
reorganization expenses and all redemptions and distributions (other than
regular, normal redemptions and dividends) made by Acquired Fund immediately
preceding the Reorganization will be included as assets of Acquired Fund held
immediately prior to the Reorganization.
10. The fair market value of the assets of Acquired Fund transferred to
Acquiring Fund will equal or exceed the sum of liabilities assumed by Acquiring
Fund, plus the amount of liabilities, if any, to which the transferred assets
will be subject.
<PAGE>
Retirement System Fund, Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 4
11. Acquired Fund will not be under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
12. No cash will be paid to the shareholders of Acquired Fund in lieu of
fractional shares.
13. For federal income tax purposes, Acquired Fund will qualify as a
regulated investment company (as defined in Code Section 851) and will have so
qualified since its formation. The provisions of Code Sections 851 through 855
will apply to Acquired Fund and will continue to apply through the Closing Date.
14. As of the Closing Date, Acquired Fund will have declared to its
shareholders of record a dividend or dividends payable prior to closing, which
together with all previous such dividends will have the effect of distributing
all of Acquired Fund's investment company taxable income plus the excess of its
interest income, if any, excludable from gross income under Code Section 103(a)
over its deductions disallowed under Sections 265 and 171(a)(2) for the taxable
year of Acquired Fund ending on the Closing Date and all its net capital gain
realized in such taxable year.
15. Except to the extent necessary to comply with its legal obligation to
redeem its own shares, Acquiring Fund will have no plan or intention to
reacquire any of the Shares issued in the Reorganization.
16. Acquiring Fund will have no plan or intention to sell or otherwise
dispose of any of the assets of the Acquired Fund acquired in the
Reorganization, except for dispositions made in the ordinary course of business.
17. Following the Reorganization, Acquiring Fund will continue the
historic business of Acquired Fund or use a significant portion of Acquired
Fund's historic business assets in its business.
18. Acquiring Fund will not own, directly or indirectly, nor will it have
owned during the five years preceding the Closing Date, directly or indirectly,
any stock of Acquired Fund.
19. Acquiring Fund will not be under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Code Section 368(a)(3)(A).
<PAGE>
Retirement System Fund, Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 5
20. For federal income tax purposes, Acquiring Fund will qualify as a
regulated investment company (as defined in Code Section 851) and will have so
qualified since its formation. The provisions of Code Sections 851 through 855
will apply to Acquiring Fund prior to the Reorganization and will continue to
apply after the Closing Date.
21. No compensation received by any shareholder-employee of Acquired Fund
will be separate consideration for the Reorganization; none of the shares of
Acquiring Fund Stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment Agreement; and any
compensation paid to any shareholder-employees will be for services actually
rendered and will be commensurate with amount paid to their parties bargaining
at arm's length for similar services.
We note that we are members of the Bar of the State of New York and that
our opinion is expressly limited to the federal laws of the United States.
Based on the foregoing and subject to the assumptions and limitations set
forth above, and such examination of law as we have deemed necessary, we are of
the opinion that:
1. The Reorganization will constitute a reorganization within the meaning
of Section 368(a)(1)(C) of the Code;
2. Acquired Fund and Acquiring Fund will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
3. Pursuant to Sections 361(a) and 357(a) of the Code, no gain or loss
will be recognized by Acquired Fund upon the transfer of its assets to
Acquiring Fund in exchange solely for shares of Acquiring Fund as a
result of the Reorganization and the assumption by Acquiring Fund of
Acquired Fund's liabilities, if any, or upon the distribution (whether
actual or constructive) of the Shares of Acquiring Fund in complete
liquidation of Acquired Fund;
4. Pursuant to Section 1032(a) of the Code, no gain or loss will be
recognized by Acquiring Fund upon its acquisition of Acquired Fund's
assets solely in exchange for Shares of Acquiring Fund and the
assumption by Acquiring Fund of the liabilities of Acquired Fund;
<PAGE>
Retirement System Fund, Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 6
5. Pursuant to Section 362(b) of the Code, the basis of the assets of
Acquired Fund acquired by Acquiring Fund will be the same as the
basis of such assets when held by Acquired Fund immediately prior to
the Reorganization;
6. Pursuant to Section 1223(2) of the Code, the holding period of the
assets of Acquired Fund acquired by Acquiring Fund will include the
period during which such assets were held by Acquired Fund;
7. Pursuant to Section 354(a)(1) of the Code, no gain or loss will be
recognized by a shareholder of Acquired Fund upon the exchange of his
or her shares solely for Shares of Acquiring Fund, including
fractional shares, in liquidation of Acquired Fund;
8. Pursuant to Section 358(a)(1) of the Code, the basis of the Shares of
Acquiring Fund received by former Acquired Fund shareholders will be
the same as the basis of Acquired Fund shares surrendered in exchange
therefor; and
9. Pursuant to Section 1223(1) of the Code, the holding period for Shares
of Acquiring Fund received by each shareholder of Acquired Fund in
exchange for his or her shares of Acquired Fund will include the
period during which such shareholder held shares of Acquired Fund
(provided Acquired Fund shares were held as capital assets on the date
of the exchange).
The opinions expressed herein are based upon currently applicable statutes
and regulations and existing interpretations. We can provide no assurance that
such statutes or regulations, or existing judicial or administrative
interpretations thereof, will not be amended, revoked or modified (possibly
prior to the Closing Date) in a manner which would affect our conclusions.
Finally, we note that this opinion is solely for the benefit of the addressees
hereof in connection with the transaction described herein and, except as
otherwise provided herein, should not be referred to, used, relied upon or
quoted (with or without specific reference to our firm) in any documents,
reports, financial statements or otherwise, without our prior written consent.
<PAGE>
Retirement System Fund, Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 7
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and to any reference to our
firm in the Registration Statement or in the Prospectus constituting part
thereof.
Very truly yours,
/s/ Shereff, Friedman, Hoffman & Goodman, LLP
Shereff, Friedman, Hoffman & Goodman, LLP
<PAGE>
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 Third Avenue
New York, New York 10022-9998
(212) 758-9500
April 21, 1997
Retirement System Fund Inc.
(Money Market Fund)
P.O. Box 2064
Grand Central Station
New York, New York 10163-2064
The Enterprise Group of Funds, Inc.
(Enterprise Money Market Portfolio)
3343 Peachtree Road, N.E.
Suite 450
Atlanta Georgia
Dear Sirs:
We are acting as counsel to the Enterprise Money Market Portfolio
("Acquiring Fund"), a portfolio of The Enterprise Group of Funds, Inc., a
Maryland corporation ("Enterprise Funds") in connection with the proposed
transfer of the assets (the "Reorganization") of Money Market Fund ("Acquired
Fund"), a separate investment series of Retirement System Fund Inc., a Maryland
corporation ("Retirement Inc."), to the Acquiring Fund and the assumption by
Acquiring Fund of Acquired Fund's liabilities, if any, in exchange for Class Y
shares of the Acquiring Fund (the "Shares") pursuant to an Agreement and Plan of
Reorganization (the "Agreement").
We have participated in the preparation of Enterprise Funds' Registration
Statement on Form N-14 (the "Registration Statement") relating to, among other
things, the Shares of Acquiring Fund to be offered in exchange for the assets of
Acquired Fund, and containing the Proxy Statement/Prospectus relating to the
Reorganization (collectively, the "Prospectus"), filed with the Securities and
Exchange Commission (the "Commission") pursuant to the provisions of the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations of the
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 2
Commission thereunder. In addition, In connection with rendering the opinions
expressed herein, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of such other documents, records and other
instruments as we have deemed necessary or appropriate for the purpose of
rendering this opinion, including the form of the Agreement included as Exhibit
B to the Prospectus.
In our examination of the foregoing documents we have assumed the
genuineness of all signatures, the authority of each signatory, the due
execution and delivery of all documents by all parties, the authenticity of all
agreements, documents, certificates and instruments submitted to us as
originals, the conformity of the Agreement as executed and delivered by the
parties with the form of the Agreement contained in the Prospectus, and the
conformity with originals of all agreements, documents, certificates and
instruments submitted to us as copies.
In rendering the opinions expressed herein, we have assumed that the
transactions contemplated by the Agreement will be consummated in accordance
therewith and as described in the Prospectus. As to other questions of fact
material to this opinion, we have assumed, with your approval and without
independent investigation or verification, that the following facts will be
accurate and complete as of the consummation of the Reorganization (the "Closing
Date").
1. The fair market value of the Shares to be received by each Acquired
Fund shareholder will be equal to the fair market value of the Acquired Fund
shares surrendered in exchange therefor upon the liquidation of Acquired Fund.
2. There will be no plan or intention by any shareholder of Acquired Fund
who owns 5 percent or more of Acquired Fund stock, and to the best of the
knowledge of management of Acquired Fund, there will be no plan or intention on
the part of the remaining shareholders of Acquired Fund, to sell, exchange, or
otherwise dispose of a number of Shares received in the Reorganization that
would reduce Acquired Fund shareholders' ownership of Shares of Acquiring Fund
to a number of Shares having a value, as of the Closing Date, of less than 50
percent of the value of all formerly outstanding stock of Acquired Fund as of
the same date. For purposes hereof, shares of Acquired Fund stock exchanged for
cash or other property, surrendered by dissenters, or exchanged for cash in lieu
of fractional Shares of Acquiring Fund will be treated as outstanding Acquired
Fund stock at the Closing Date of the Reorganization. Moreover, shares of
Acquired Fund stock and Shares of Acquiring Fund held by Acquired Fund
shareholders and otherwise sold, redeemed, or disposed of prior or subsequent to
the Reorganization and as part of the Reorganization will be considered in
making this assumption.
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 3
3. Pursuant to the Agreement, Acquired Fund will distribute in
liquidation of Acquired Fund, the Shares of Acquiring Fund received by Acquired
Fund in the Reorganization.
4. The liabilities of Acquired Fund assumed by Acquiring Fund pursuant to
the Reorganization, plus the liabilities, if any, to which assets transferred
pursuant to the Reorganization will be subject, constitute less than 20% of the
total consideration for the Reorganization, all such liabilities will have been
incurred by Acquired Fund in the ordinary course of its business, and Acquiring
Fund will pay no other consideration, except for the Shares, in connection with
the Reorganization.
5. All expenses incurred by Acquired Fund with respect to the
Reorganization will be borne by Acquired Fund. Each shareholder of Acquired
Fund will pay its respective share of the expenses, if any, incurred in
connection with the Reorganization. Acquiring Fund will pay the expenses, if
any, incurred by it in connection with the Reorganization.
6. No intercorporate indebtedness will exist between Acquiring Fund and
Acquired Fund that was issued, acquired, or will be settled at a discount.
7. Acquired Fund will not own, directly or indirectly, nor will it have
owned during the five years preceding the Closing Date, directly or indirectly,
any stock of Acquiring Fund.
8. The assets of Acquired Fund transferred to Acquiring Fund will include
all assets owned by Acquired Fund at fair market value on the Closing Date
subject to all known liabilities of Acquired Fund at such time.
9. In accordance with the terms of the Agreement, Acquired Fund will
transfer all of its business and will transfer assets to Acquiring Fund
representing at least 90% of the fair market value of the net assets, and at
least 70% of the fair market value of the gross assets, held by Acquired Fund
immediately prior to the Reorganization. For purposes of this assumption,
amounts paid by Acquired Fund to shareholders who receive cash or other
property, amounts paid to dissenters, amounts used by Acquired Fund to pay its
reorganization expenses and all redemptions and distributions (other than
regular, normal redemptions and dividends) made by Acquired Fund immediately
preceding the Reorganization will be included as assets of Acquired Fund held
immediately prior to the Reorganization.
10. The fair market value of the assets of Acquired Fund transferred to
Acquiring Fund will equal or exceed the sum of liabilities assumed by Acquiring
Fund, plus the amount of liabilities, if any, to which the transferred assets
will be subject.
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 4
11. Acquired Fund will not be under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
12. No cash will be paid to the shareholders of Acquired Fund in lieu of
fractional shares.
13. For federal income tax purposes, Acquired Fund will qualify as a
regulated investment company (as defined in Code Section 851) and will have so
qualified since its formation. The provisions of Code Sections 851 through 855
will apply to Acquired Fund and will continue to apply through the Closing Date.
14. As of the Closing Date, Acquired Fund will have declared to its
shareholders of record a dividend or dividends payable prior to closing, which
together with all previous such dividends will have the effect of distributing
all of Acquired Fund's investment company taxable income plus the excess of its
interest income, if any, excludable from gross income under Code Section 103(a)
over its deductions disallowed under Sections 265 and 171(a)(2) for the taxable
year of Acquired Fund ending on the Closing Date and all its net capital gain
realized in such taxable year.
15. Except to the extent necessary to comply with its legal obligation to
redeem its own shares, Acquiring Fund will have no plan or intention to
reacquire any of the Shares issued in the Reorganization.
16. Acquiring Fund will have no plan or intention to sell or otherwise
dispose of any of the assets of the Acquired Fund acquired in the
Reorganization, except for dispositions made in the ordinary course of business.
17. Following the Reorganization, Acquiring Fund will continue the
historic business of Acquired Fund or use a significant portion of Acquired
Fund's historic business assets in its business.
18. Acquiring Fund will not own, directly or indirectly, nor will it have
owned during the five years preceding the Closing Date, directly or indirectly,
any stock of Acquired Fund.
19. Acquiring Fund will not be under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Code Section 368(a)(3)(A).
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 5
20. For federal income tax purposes, Acquiring Fund will qualify as a
regulated investment company (as defined in Code Section 851) and will have so
qualified since its formation. The provisions of Code Sections 851 through 855
will apply to Acquiring Fund prior to the Reorganization and will continue to
apply after the Closing Date.
21. No compensation received by any shareholder-employees of Acquired Fund
will be separate consideration for, the Reorganization; none of the shares of
Acquiring Fund Stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and any
compensation paid to any shareholder-employees will be for services actually
rendered and will be commensurate with amount paid to their parties bargaining
at arm's length for similar services.
We note that we are members of the Bar of the State of New York and that
our opinion is expressly limited to the federal laws of the United States.
Based on the foregoing and subject to the assumptions and limitations set
forth above, and such examination of law as we have deemed necessary, we are of
the opinion that:
1. The Reorganization will constitute a reorganization within the meaning
of Section 368(a)(1)(C) of the Code;
2. Acquired Fund and Acquiring Fund will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
3. Pursuant to Sections 361(a) and 357(a) of the Code, no gain or loss
will be recognized by Acquired Fund upon the transfer of its assets to
Acquiring Fund in exchange solely for shares of Acquiring Fund as a
result of the Reorganization and the assumption by Acquiring Fund of
Acquired Fund's liabilities, if any, or upon the distribution (whether
actual or constructive) of the Shares of Acquiring Fund in complete
liquidation of Acquired Fund;
4. Pursuant to Section 1032(a) of the Code, no gain or loss will be
recognized by Acquiring Fund upon its acquisition of Acquired Fund's
assets solely in exchange for Shares of Acquiring Fund and the
assumption by Acquiring Fund of the liabilities of Acquired Fund;
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 6
5. Pursuant to Section 362(b) of the Code, the basis of the assets of
Acquired Fund acquired by Acquiring Fund will be the same as the
basis of such assets when held by Acquired Fund immediately prior to
the Reorganization;
6. Pursuant to Section 1223(2) of the Code, the holding period of the
assets of Acquired Fund acquired by Acquiring Fund will include the
period during which such assets were held by Acquired Fund;
7. Pursuant to Section 354(a)(1) of the Code, no gain or loss will be
recognized by a shareholder of Acquired Fund upon the exchange of his
or her shares solely for Shares of Acquiring Fund, including
fractional shares, in liquidation of Acquired Fund;
8. Pursuant to Section 358(a)(1) of the Code, the basis of the Shares of
Acquiring Fund received by former Acquired Fund shareholders will be
the same as the basis of Acquired Fund shares surrendered in exchange
therefor; and
9. Pursuant to Section 1223(1) of the Code, the holding period for Shares
of Acquiring Fund received by each shareholder of Acquired Fund in
exchange for his or her shares of Acquired Fund will include the
period during which such shareholder held shares of Acquired Fund
(provided Acquired Fund shares were held as capital assets on the date
of the exchange).
The opinions expressed herein are based upon currently applicable statutes
and regulations and existing interpretations. We can provide no assurance that
such statutes or regulations, or existing judicial or administrative
interpretations thereof, will not be amended, revoked or modified (possibly
prior to the Closing Date) in a manner which would affect our conclusions.
Finally, we note that this opinion is solely for the benefit of the addressees
hereof in connection with the transaction described herein and, except as
otherwise provided herein, should not be referred to, used, relied upon or
quoted (with or without specific reference to our firm) in any documents,
reports, financial statements or otherwise, without our prior written consent.
<PAGE>
Retirement System Fund Inc.
The Enterprise Group of Funds, Inc.
April 21, 1997
Page 7
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and to any reference to our
firm in the Registration Statement or in the Prospectus constituting part
thereof.
Very truly yours,
/s/ Shereff, Friedman, Hoffman & Goodman, LLP
Shereff, Friedman, Hoffman & Goodman, LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the following with respect to filing of Form N-14 under the
Securities Act of 1933 of the Enterprise Group of Funds, Inc. with respect to
the transfer of all assets and liabilities 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 and Retirement System Fund
Inc. Money Market Fund to Enterprise Growth and Income Portfolio, Enterprise
Small Company Growth Portfolio, Enterprise Government Securities Portfolio and
Enterprise Money Market Portfolio, respectively.
- The incorporation by reference of our report dated February 20, 1997,
accompanying the financial statements and financial statement
highlights of the Enterprise Group of Funds, Inc. into the Combined
Proxy Statement/Prospectus and the Statement of Additional Information
relating thereto.
- The reference to our Firm under the heading "Independent Accountant"
in the Statement of Additional Information for the Enterprise Group of
Funds, Inc. which is incorporated by reference into the Combined Proxy
Statement/Prospectus.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Atlanta, Georgia
April 23, 1997
<PAGE>
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference of our report dated
November 15, 1996, on the financial statements of Core Equity Fund, Emerging
Growth Equity Fund, Intermediate-Term Fixed-Income Fund and Money Market Fund
series of Retirement System Fund Inc., referred to therein in the Registration
Statement on Form N-14 File as filed with the Securities and Exchange
Commission.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
New York, New York
April 21, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the persons whose name appears
below hereby nominates, constitutes and appoints Catherine R. McClellan and
Victor Ugolyn (with full power to each of them to act alone) his or her true and
lawful attorney-in-fact and agent, for him or her and on his or her behalf and
in his or her place and stead in any and all capacities, to make, execute and
sign the Registration Statement filed on Form N-14 under the Securities Act of
1933 and all amendments and supplements thereto of Enterprise Group of Funds,
Inc. (the "Fund"), and to file the same with the Securities and Exchange
Commission, and any other regulatory authority having jurisdiction over the
offer and sale of shares of common stock of the Fund, and any and all exhibits
and other documents requisite in connection therewith, granting unto said
attorneys and each of them, full power and authority to perform each and every
act and thing requisite and necessary to be done in and about the premises as
fully to all intents and purposes as each of the undersigned officers or
Directors himself or herself might or could do.
IN WITNESS WHEREOF, the undersigned officers and Directors have hereunto
set their hands this 26th day of March, 1997.
/s/ Phillip G. Goff /s/ Arthur Howell
- -------------------------------- -----------------------------------
Phillip G. Goff Arthur Howell
Principal Financial and Director
Accounting Officer
/s/ William A. Mitchell, Jr.
/s/ Arthur T. Dietz -----------------------------------
- -------------------------------- William A. Mitchell, Jr.
Arthur T. Dietz Director
Director
/s/ Samuel J. Foti /s/ Lonnie H. Pope
- -------------------------------- -----------------------------------
Samuel J. Foti Lonnie H. Pope
Director Director
/s/ Michael I. Roth
-----------------------------------
Michael I. Roth
Director
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1987
Registration No. 2-28097
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. _____ / /
Post-Effective Amendment No. 28 /x/
and
REGISTRATION STATEMENT
UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 14 /x/
(Check appropriate box or boxes)
------------
THE ENTERPRISE GROUP OF FUNDS, INC.
(Formerly Alpha Fund, Inc.)
(Exact Name of Registrant as Specified in Charter)
Suite 2100, 250 Piedmont Avenue, N.E., Atlanta, Georgia 30365
(Address o f Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 404-521-6597
--------------
Robert M. Royalty
Sutherland, Asbill & Brennan
3333 Peachtree Road, N.E.
Suite 420
Atlanta, Georgia 30326
(Name and Address of Agent for Service)
----------------
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of rule 485
Declaration Pursuant to Rule 24f-2(a)(1)
The Registrant hereby amends its registration under the Securities Act of
1933 by declaring that, to the amount of Common Stock presently registered,
there is hereby added an indefinite number of shares of Common Stock, $0.10
par value, of the Registrant.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
RETIREMENT SYSTEM FUND INC.
----------------------------------
PROXY
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
SPECIAL MEETING OF SHAREHOLDERS
_______, 1997
- --------------------------------------------------------------------------------
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned shareholder(s) of the Core Equity Fund, Emerging Growth Equity
Fund, Intermediate-Term Fixed-Income Fund, and Money Market Fund, portfolio(s)
of Retirement System Fund Inc. ("RSF Inc."), hereby acknowledge(s) receipt of
the Notice of the Special Meeting of Shareholders to be held on ______, 1997 and
the Proxy Statement/Prospectus attached thereto, and hereby appoint(s) John F.
Menser and Stephen P. Pollak and each of them, the true and lawful attorney or
attorneys, proxy or proxies, of the undersigned, with power of substitution, for
and in the name of the undersigned to attend and vote as proxy or proxies of the
undersigned the number of shares and fractional shares the undersigned would be
entitled to vote if then personally present at the Special Meeting of
Shareholders, to be held at RSF Inc.'s offices, 317 Madison Avenue, New York,
New York, on ________, 1997 at _____, or any adjournment or adjournments
thereof, as follows:
(1) Approval or disapproval of the Agreement and Plan of Reorganization between
The Enterprise Group of Funds, Inc. and Retirement System Fund Inc., as
described in the Proxy Statement/Prospectus (Please vote only with respect
to the portfolio or portfolios for which you are a shareholder):
CORE EQUITY FUND
/ / FOR / / AGAINST / / ABSTAIN
EMERGING GROWTH EQUITY FUND
/ / FOR / / AGAINST / / ABSTAIN
INTERMEDIATE-TERM FIXED-INCOME FUND
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
MONEY MARKET FUND
/ / FOR / / AGAINST / / ABSTAIN
(2) Upon all other matters which shall properly come before the meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE PROXY
WILL BE VOTED AFFIRMATIVELY ON THE PROPOSAL. AS TO ANY OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING, THE PROXY WILL BE VOTED IN THE DISCRETION AND
ACCORDING TO THE BEST JUDGMENT OF THE PROXIES.
Either of such proxies or attorneys, or substitutes, as shall be present and act
at said meeting, or at any and all adjournment or adjournments thereof, may
exercise all the powers of both said proxies or attorneys.
Please sign and date the Proxy. Return the Proxy in the stamped, self-addressed
envelope provided.
Please sign EXACTLY as your name(s)
appear(s) above. When signing as attorney,
executor, administrator, guardian, trustee,
custodian, etc., please give your full title as such.
If a corporation or partnership, please sign
the full name by an authorized officer or partner.
If shares are owned jointly, all owners should sign.
By: ______________________
______________________
Signature(s) of Shareholder(s)
Dated: ______________________, 1997
<PAGE>
PROSPECTUS
Core Equity Fund
Emerging Growth Equity Fund
Value Equity Fund*
International Equity Fund*
Actively Managed Fixed-Income Fund*
Intermediate-Term Fixed-Income Fund
Money Market Fund
January 28, 1997
1997
BROKER/DEALER
[logo]
RETIREMENT SYSTEM
Distributors Inc.
P.O. Box 2064
Grand Central Station
New York, NY 10163-2064
1-800-772-3615
*not yet available for sale to investors
<PAGE>
TABLE OF CONTENTS
Introduction.........................................................1
Fee Table............................................................2
Financial Highlights.................................................3
Prospectus Summary...................................................7
The Fund.............................................................8
Core Equity Fund...................................................8
Portfolio Manager................................................9
Value Equity Fund..................................................9
Emerging Growth Equity Fund.......................................10
Portfolio Manager...............................................10
International Equity Fund.........................................11
Actively Managed Fixed-Income Fund................................12
Intermediate-Term Fixed-Income Fund...............................14
Portfolio Manager...............................................16
Money Market Fund.................................................17
Other Investment Policies and Risk Considerations...................18
Cash Equivalents..................................................18
Options on Securities and Indices of Securities...................18
Futures Transactions..............................................19
Foreign Securities................................................19
Foreign Currency Transactions.....................................20
Repurchase Agreements.............................................21
Reverse Repurchase Agreements.....................................21
When-Issued Securities............................................21
Lending Fund Securities...........................................21
Investment Restrictions.............................................22
Performance Information.............................................22
How to Invest in the Fund...........................................23
Purchase of Fund Shares...........................................23
Periodic Purchases................................................24
Payroll Deductions................................................24
Exchanges.........................................................25
Redemption of Shares................................................25
Distributions and Taxes.............................................26
Dividends and Distributions.......................................26
Tax Treatment of Dividends and Distributions......................26
Tax Status of the Funds...........................................26
Management of the Fund..............................................28
Investment Advisory Services......................................28
Distributor.........................................................31
Administrator.......................................................32
General Information.................................................33
Description of Shares.............................................33
Annual Meetings...................................................33
Reports...........................................................33
Shareholder Inquiries.............................................33
Custodian.........................................................33
Counsel and Auditors..............................................34
Appendix..........................................................34
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCES, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
<PAGE>
RETIREMENT SYSTEM FUND INC.
PROSPECTUS
DATED JANUARY 28, 1997
Retirement System Fund Inc. ("Fund") is a mutual fund designed
to provide professional investment
INTRODUCTION
management and diversification of risk to investors by
offering shares in separate investment funds ("Investment
Funds" or "Funds"), each with a different investment
objective. Currently investors may purchase shares of the:
CORE EQUITY FUND, 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.
EMERGING GROWTH EQUITY FUND, which seeks to achieve, over
time, a total return in excess of the Lipper Small Company
Growth Mutual Fund Average by investing primarily in
equity-based securities of companies which are expected to
experience rapid earnings growth.
INTERMEDIATE-TERM FIXED-INCOME FUND, which seeks to achieve
a total return in excess of the Lipper Intermediate (five
to ten year maturity) U.S. Government Mutual Funds Average
by investing primarily in a diversified portfolio of debt
securities with an actual or expected average life of under
ten years.
MONEY MARKET FUND, which seeks to achieve 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 no more than one
year. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR
GUARANTEED BY THE UNITED STATES GOVERNMENT. THERE IS NO
ASSURANCE THAT THE MONEY MARKET FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
In the future, the Fund expects to offer shares of the
Value Equity Fund, the International Equity Fund and the
Actively Managed Fixed-Income Fund that are described herein.
The Fund has the authority to create additional Investment
Funds as well.
The name Retirement System Fund Inc. has no particular
relationship to the Fund's investment policy or strategy. The
name of the Fund is derived from the Fund's association with
its advisor, Retirement System Investors Inc., its
distributor, Retirement System Distributors Inc. and its
administrator, Retirement System Consultants Inc.
Shares are available directly from the Fund's
Distributor, Retirement System Distributors Inc., P.O. Box
2064, Grand Central Station, New York, New York 10163-2064,
(800)772-3615, or through financial institutions that have
entered into Shareholder Servicing Agreements with the Fund.
See, "How to Invest in the Fund" on page 23 of this
Prospectus.
This Prospectus provides basic information that
investors should know about the Fund prior to investing, and
should be retained for future reference. A Statement of
Additional Information dated January 28, 1997 has been filed
with the Securities and Exchange Commission and is hereby
incorporated by reference. It is available upon request and
without charge by writing to the Fund or the Distributor at
the above address.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK. THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES
RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated January 28, 1997
<PAGE>
FEE TABLE
Shown below are expenses for the various Investment Funds. Only
the Core Equity Fund, Emerging Growth Equity Fund,
Intermediate-Term Fixed-Income Fund and Money Market Fund are
currently available.
<TABLE>
<CAPTION>
INTER-
ACTIVELY MEDIATE-
CORE VALUE EMERGING INTER- MANAGED TERM FIXED-
EQUITY EQUITY GROWTH NATIONAL FIXED- INCOME
FUND FUND EQUITY FUND EQUITY FUND INCOME FUND FUND
--------- --------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
I. SHAREHOLDER TRANSACTION EXPENSES
Sales Load on Purchases............ None None None None None None
Sales Load on Reinvested
Dividends.......................... None None None None None None
Deferred Sales Load................ None None None None None None
Redemption Fees.................... None None None None None None
Exchange Fees...................... None None None None None None
II. ANNUAL FUND OPERATING EXPENSES(A)
(after fee waivers)
Management Fees
(after fee waivers)(B)............. .60 .60 1.00 .60 .30 .40
12b-1 Fees (after fee waivers)(C).... .20 .20 .20 .20 .20 .20
Other Expenses
(after fee waivers)(D)............. .20 .62 .80 1.41 .24 .40
Total Annual Fund Operating
Expenses(E).......................... 1.00 1.42 2.00 2.21 .74 1.00
(after fee waivers and
reimbursements)
III. EXAMPLE: You would pay the following expenses in each of the Investment Funds on a $1,000 investment assuming (1)
a 5% annual return and (2) redemption at the end of each time period. (The example is based on expenses after fee
waivers.)
1 year............................... $10.20 $14.45 $20.30 $22.41 $7.56 $10.20
3 years.............................. $31.85 $44.95 $62.78 $69.15 $23.66 $31.85
5 years.............................. $55.31 $77.75 $107.97 $118.68 $41.19 $55.31
10 years............................. $123.15 $171.41 $234.71 $256.66 $92.24 $123.15
(A) The Fund operating expenses set forth in this table reflect actual expenses incurred by the Core Equity Fund,
Emerging Growth Equity Fund and Intermediate-Term Fixed-Income Fund for the fiscal year ended September 30,
1996, shown as a percentage of a Fund's average net assets for such period and estimated expenses for the Value
Equity Fund, International Equity Fund and Actively Managed Fixed-Income Fund, respectively. Due to the
continuous nature of Rule 12b-1 fees, long-term shareholders of the Fund 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 average net assets of the Emerging Growth Equity
Fund, .80% of average net assets of the Value Equity Fund, .80% of average net assets of the International
Equity Fund and .45% of average net assets of the Actively Managed Fixed-Income Fund and .25% of the average
net assets of the Money Market Fund. While the management fees paid by the Emerging Growth Equity Fund, the
Value Equity Fund and the International Equity Fund are higher than the fees paid by most other investment
companies, the Fund's management believes that the fees are comparable to, and in some cases lower than, the
fees paid by other investment companies with similar objectives and policies.
(C) Absent voluntary fee waivers, 12b-1 fees would be .25% for each Fund.
(D) "Other Expenses" is based on amounts for the Core Equity Fund, Emerging Growth Equity Fund, Intermediate-Term
Fixed-Income Fund and Money Market Fund for the 1996 fiscal year and an estimate for the Value Equity Fund,
International Equity Fund and Actively Managed Fixed-Income Fund, and includes, among other things, custodial,
transfer agency, legal and auditing fees. Absent voluntary waivers, "Other Expenses" would be 1.45% of average
net assets of the Core Equity Fund, 2.55% of average net assets of the Emerging Growth Equity Fund, 2.02% of
average net assets of the Value Equity Fund, 2.02% of average net assets of the International Equity Fund,
2.40% of average net assets of the Actively Managed Fixed-Income Fund, 1.58% of average net assets of the
Intermediate-Term Fixed-Income Fund and 3.89% of average net assets of the Money Market Fund.
(E) Absent voluntary fee waivers, total annual Fund operating expenses would be 2.05% of average net assets of the
Core Equity Fund, 3.46% of average net assets of the Emerging Growth Equity Fund, 3.07% of average net assets
of the Value Equity Fund, 3.07% of average net assets of the International Equity Fund, 3.10% of average net
assets of the Actively Managed Fixed-Income Fund, 1.97% of average net assets of the Intermediate-Term
Fixed-Income Fund and 4.14% of average net assets of the Money Market Fund.
<CAPTION>
MONEY
MARKET
FUND
---------
<S> <C>
I.
None
None
None
None
None
II.
.00
.20
.30
.50
III.
$5.11
$16.04
$27.97
$63.02
(A)
(B)
(C)
(D)
(E)
</TABLE>
The purpose of this table is to assist investors in
understanding the costs and expenses an investor in the Fund
will bear directly and indirectly. A person who purchases
shares of the Fund through a financial institution may be
charged separate fees by the financial institution and
investors should review this Prospectus in conjunction with
any such institution with any such institution's fee schedule.
In addition, financial institutions may be required to
register as dealers pursuant to state securities laws. See,
"Management of the Fund -- Investment Advisory Services" and
"Management of the Fund -- Administrator" for a more complete
description of these costs and expenses.
THE EXAMPLE SHOWN IN THE TABLE SHOULD NOT BE CONSIDERED
A REPRESENTATION OF FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
Shown below are financial highlights for the Core Equity Fund,
the Emerging Growth Equity Fund, the Intermediate-Term
Fixed-Income Fund and the Money Market Fund during the
indicated fiscal periods from the date operations commenced
through September 30, 1996. The following information for the
years ended September 30, 1992, 1993, 1994, 1995 and 1996 has
been audited by McGladrey & Pullen, LLP, independent auditors,
whose report thereon, which is incorporated by reference,
appears in the Fund's 1996 Annual Report to Shareholders. The
financial information included in this table should be read in
conjunction with the financial statements incorporated by
reference in the Statement of Additional Information. Shares
of the Value Equity Fund, the International Equity Fund and
the Actively Managed Fixed-Income Fund described in the Fund's
Prospectus are not yet available for sale to investors. The
1996 Annual Report to Shareholders contains additional
performance information and is available at no cost from the
Fund by calling (800) 772-3615.
CORE EQUITY FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FROM 5/10/91
(COMMENCEMENT OF
YEAR YEAR YEAR YEAR YEAR OPERATIONS)
ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
----------- ----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
(for a share outstanding
throughout each
period)
Net Asset Value, beginning of
year $ 16.69 $ 12.72 $ 12.08 $ 10.98 $ 10.45 $ 10.00
----------- ----------- ----------- ----------- ----------- ------
Income from investment
operations:
Investment income-net 0.21 0.13 0.15 0.18 0.23 0.14
Net realized and unrealized
gain on investments 3.45 4.22 0.74 1.84 0.60 0.31
----------- ----------- ----------- ----------- ----------- ------
Total from Investment
Operations 3.66 4.35 0.89 2.02 0.83 0.45
----------- ----------- ----------- ----------- ----------- ------
Distributions:
Distributions from capital
gains -- (0.22) (0.11) (0.64) (0.08) --
Distributions from investment
income-net (0.24) (0.16) (0.14) (0.08) (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 0.45
----------- ----------- ----------- ----------- ----------- ------
Net Asset Value, end of year $ 20.11 $ 16.69 $ 12.72 $ 12.08 $ 10.98 $ 10.45
----------- ----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ----------- ------
TOTAL RETURN*** 22.21% 35.24% 7.47% 19.39% 8.11% 4.50%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 0.97% 0.90% 0.90% 0.90% 0.90% 0.90%**
Investment income-net 1.23% 1.52% 1.17% 1.31% 1.86% 3.31%**
Decrease reflected in above
expense ratio due to expense
reimbursement 1.08% 1.30% 1.33% 2.43% 2.46% 1.80%**
Portfolio turnover rate 18.08% 25.49% 9.64% 21.79% 61.27% 12.49%
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 $ 1,560
</TABLE>
----------------------------------
* using average share basis
** Annualized
*** The total return calculation reflects dividend
reinvestment.
+ Required by regulations issued in 1995.
3
<PAGE>
EMERGING GROWTH EQUITY FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FROM 5/10/91
(COMMENCEMENT
OF
YEAR YEAR YEAR YEAR YEAR OPERATIONS)
ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
---------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
(for a share outstanding throughout
each period)
Net Asset Value, beginning of year $ 19.05 $14.01 $14.74 $ 11.83 $ 10.54 $10.00
---------- ------- ------- ------- ------- ------
Income from Investment Operations:
Investment (loss)-net (0.17) (0.12 ) (0.04 ) (0.13) (0.17) (0.02)
Net realized and unrealized gain on
investments 7.62 5.49 1.58 4.36 1.49 0.56
---------- ------- ------- ------- ------- ------
Total from Investment Operations 7.45 5.37 1.54 4.23 1.32 0.54
---------- ------- ------- ------- ------- ------
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 0.54
---------- ------- ------- ------- ------- ------
Net Asset Value, end of year $ 25.08 $19.05 $14.01 $ 14.74 $ 11.83 $10.54
---------- ------- ------- ------- ------- ------
---------- ------- ------- ------- ------- ------
TOTAL RETURN*** 42.07% 39.20% 11.89% 38.05% 13.80% 5.40%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 1.96% 1.85% 1.85% 1.85% 1.86% 1.85%**
Investment (loss)-net (1.43)% (1.33 )% (1.37 )% (1.34)% (1.10)% (0.46)%**
Decrease reflected in above expense ratio
due to expense reimbursement 1.49% 3.30% 4.11% 6.41% 7.90% 0.85%**
Portfolio turnover rate 77.94% 84.05% 72.59% 144.49% 138.46% 25.38%
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 $602
</TABLE>
----------------------------------
* using average share basis
** Annualized
*** The total return calculation reflects dividend reinvestment
+ Required by regulations issued in 1995.
4
<PAGE>
INTERMEDIATE-TERM FIXED-INCOME FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FROM 5/10/91
(COMMENCEMENT OF
YEAR YEAR YEAR YEAR YEAR OPERATIONS)
ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
----------- ----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
(for a share outstanding
throughout each
year)
Net Asset Value, beginning of
year $ 10.81 $ 10.46 $ 11.43 $ 11.00 $ 10.46 $ 10.00
----------- ----------- ----------- ----------- ----------- ------
Income from Investment
Operations:
Investment income-net 0.66 0.59 0.52 0.54 0.80 0.25
Net realized and unrealized
gain (loss) on investments (0.26) 0.38 (0.85) 0.36 0.73 0.40
----------- ----------- ----------- ----------- ----------- ------
Total from Investment
Operations 0.40 0.97 (0.33) 0.90 1.53 0.65
----------- ----------- ----------- ----------- ----------- ------
Distributions:
Distributions from capital
gains -- (0.05) (0.08) -- (0.15) --
Distributions from investment
income-net (0.72) (0.57) (0.56) (0.47) (0.84) (0.19)
----------- ----------- ----------- ----------- ----------- ------
Total distributions (0.72) (0.62) (0.64) (0.47) (0.99) (0.19)
----------- ----------- ----------- ----------- ----------- ------
Net increase (decrease) 0.32 0.35 (0.97) 0.43 0.54 0.46
----------- ----------- ----------- ----------- ----------- ------
Net Asset Value, end of year $ 10.49 $ 10.81 $ 10.46 $ 11.43 $ 11.00 $ 10.46
----------- ----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ----------- ------
TOTAL RETURN*** 3.82% 9.64% (2.99)% 8.47% 13.86% 6.58%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses 0.97% 0.90% 0.90% 0.90% 0.90% 0.90%**
Investment income-net 6.27% 5.71% 5.76% 4.90% 5.59% 6.27%**
Decrease reflected in above
expense ratio due to expense
reimbursement 1.00% 1.09% 1.66% 3.33% 5.56% 1.80%**
Portfolio turnover rate 39.69% 8.50% 8.68% 27.62% 8.66% 85.85%
Net Assets at End of Year
($1,000's) $5,885 $5,136 $3,372 $2,159 $881 $423
</TABLE>
----------------------------------
* using average share basis
** Annualized
*** The total return calculation reflects dividend
reinvestment.
5
<PAGE>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FROM 2/7/91
(COMMENCEMENT OF
YEAR YEAR YEAR YEAR YEAR OPERATIONS)
ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
----------- ----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
year $ 1.00 $ 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 0.03
----------- ----------- ----------- ----------- ----------- ------
Total from Investment
Operations 0.05 0.05 0.03 0.03 0.04 0.03
----------- ----------- ----------- ----------- ----------- ------
Distributions:
Distributions from investment
income-net (0.05) (0.05) (0.03) (0.03) (0.04) (0.03)
----------- ----------- ----------- ----------- ----------- ------
Total distributions (0.05) (0.05) (0.03) (0.03) (0.04) (0.03)
----------- ----------- ----------- ----------- ----------- ------
Net increase 0.00 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 $ 1.00
----------- ----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ----------- ------
TOTAL RETURN*** 5.19% 5.20% 3.27%+ 2.77% 3.73% 3.30%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses 0.50% 0.50% 0.42% 0.25% 0.44% 0.75%**
Investment income-net 5.06% 5.15% 3.18% 2.94% 3.68% 4.60%**
Decrease reflected in above
expense ratio due to expense
reimbursement 3.64% 3.72% 3.47% 4.39% 5.19% 1.95%**
Net Assets at End of Year
($1,000's) $1,463 $1,207 $1,112 $1,466 $664 $857
</TABLE>
----------------------------------
* using average share basis
** Annualized
*** 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%.
6
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS
AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
Retirement System Fund Inc. (the "Fund") is a
diversified mutual fund currently offering shares in the Core
Equity Fund, the Emerging Growth Equity Fund, the
Intermediate-Term Fixed-Income Fund, and the Money Market
Fund. The Core Equity Fund 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. The Emerging Growth Equity
Fund seeks to achieve, over time, a total return in excess of
the Lipper Small Company Growth Mutual Fund Average by
investing primarily in equity-based securities of companies
which are expected to experience rapid earnings growth. The
Intermediate-Term Fixed-Income Fund seeks to achieve a total
return in excess of the Lipper Intermediate (five to ten year
maturity) U.S. Government Mutual Funds Average by investing
primarily in a diversified portfolio of debt securities with
an actual or expected average life of under ten years. The
Money Market Fund seeks to achieve 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
no more than one year. In the future, the Fund expects to
offer shares of the Value Equity Fund, the International
Equity Fund and the Actively Managed Fixed-Income Fund that
are described herein. SEE, "The Fund."
The Fund may pursue certain 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. SEE,
"Other Investment Policies and Risk Considerations" for a
description of these policies and strategies, the risks and
limitations, and the extent to which the Fund may pursue them.
Shares are available directly from the Fund's
Distributor or through financial institutions that have
entered into Shareholder Servicing Agreements with the Fund.
The minimum initial investment is $2,500 and the minimum
subsequent investment in the Fund is $250. Purchases are
effected at the net asset value per share next determined
after receipt at the Fund's offices of a properly completed
purchase order. Net asset value is determined as of the close
of the New York Stock Exchange, currently 4:00 P.M., on each
day the Exchange is open by adding the value of all the assets
of a Fund, subtracting liabilities, and dividing by the number
of shares outstanding. Securities are valued at their market
prices where possible. SEE, "How to Invest in the Fund --
Purchase of Fund Shares."
Shareholders may submit their shares for redemption on
any day that the New York Stock Exchange is open and properly
completed redemption requests will be effected at the net
asset value per share next determined after the receipt of
such request by the Fund. Payment for redeemed shares will be
made 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. SEE,
"Redemption of Shares."
Retirement System Investors Inc. (the "Investment
Advisor") is 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
7
<PAGE>
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. SEE, "Management of the
Fund -- Investment Advisory Services."
The Fund and the Distributor have entered into a
Distribution Agreement pursuant to which the Distributor will
distribute and promote the sale of shares of the Investment
Funds. Each Investment Fund has adopted a Plan of Distribution
under which payments are made to the Distributor to compensate
the Distributor and to help defray the cost of offering
shares. SEE, "Distributor."
THE FUND
The Fund consists of seven diversified Investment Funds, each
with a different set of investment objectives and policies.
There can be no assurance that the investment objective of any
Fund can be attained. The term "investment manager" as used
herein in reference to any Investment Fund means the
investment advisor or sub-advisor that is managing the
portfolio of such Fund or any segment thereof. SEE,
"Management of the Fund -- Investment Advisory Services."
The following sets forth the investment objectives and
policies particular to each of the Investment Funds. SEE,
"Appendix" for a description of certain rating categories
discussed below.
CORE EQUITY FUND
The Core Equity Fund 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. The Fund seeks this objective
primarily through capital appreciation with income as a
secondary consideration. The Fund will invest in securities of
companies which the investment manager believes to be
financially sound and will consider such factors as the sales,
growth and profitability prospects for the economic sector and
markets in which the company operates and for the services or
products it provides; the financial condition of the company;
its ability to meet its liabilities and to provide income in
the form of dividends; the prevailing price of the security;
how that price compares to historical price levels of the
security, to current price levels in the general market, and
to the prices of competing companies; projected earnings
estimates and earnings growth rate of the company, and the
relation of those figures to the current price.
Under normal circumstances, the Core Equity Fund
expects to be as fully invested as practicable in equity-based
securities, primarily common stocks, including American
Depository Receipts -- ADRs (U.S. traded dollar-denominated
securities that represent an interest in the share of a
foreign company) and will be at least 65% so invested.
Equity-based securities may include securities convertible
into common stocks and warrants to purchase common stocks.
In general, the Fund will invest in stocks of companies
with market capitalizations in excess of $750 million.
Although there is no assurance that the Fund will meet its
objective, the securities held in the Core Equity Fund will
generally reflect the price volatility of the broad equity
market (I.E., the Standard & Poor's 500 Index).
8
<PAGE>
For temporary defensive purposes, the Fund may invest
up to 100% of its total assets in cash equivalents. The Fund
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. SEE,
"Other Investment Policies and Risk Considerations" for a
description of these policies and strategies, their risks and
limitations, and the extent to which the Fund may pursue them.
PORTFOLIO MANAGER
Mr. James P. Coughlin, President and Chief Investment
Officer of Retirement System Investors Inc. ("Investors"), has
been the portfolio manager for the Core Equity Fund since its
inception in May 1991. Mr. Coughlin also serves as Executive
Vice President - Investments for the Fund. His prior
experience in the investment management business, as a
research analyst and portfolio manager, was with the economic
and investment counsel firm of Lionel Edie & Co., which for a
time was a subsidiary of Merrill Lynch and eventually part of
Manufacturers Hanover. An honors graduate of Iona College, Mr.
Coughlin holds a Bachelor of Arts degree in economics. He
received a Master of Business Administration degree in Finance
from New York University Graduate School of Business and is a
Chartered Financial Analyst (CFA).
VALUE EQUITY FUND
The Value Equity Fund 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 securities of companies the
investment manager perceives to be undervalued in the equity
markets and to offer prospects for significant earnings or
dividend growth relative to their market prices. The Fund
seeks this objective primarily through capital appreciation.
Under normal circumstances, the Fund expects to be as
fully invested as practicable in equity-based securities,
primarily common stock, including American Depository Receipts
-- ADRs (U.S. traded dollar-denominated securities that
represent an interest in the share of a foreign company) and
will be at least 65% so invested. Equity-based securities may
include securities convertible into common stocks and warrants
to purchase common stocks.
Undervalued companies generally will have
price/earnings and price-to-book ratios that are lower than
average relative to (i) the corresponding ratios of the
average company in a similar industry included in broad stock
market indices (E.G., the Standard & Poor's 500 Composite
Stock Price Index), or (ii) the company's historical
price/earnings and price-to-book ratios.
In general, the Value Equity Fund invests primarily in
stocks of companies with market capitalizations in excess of
$750 million. The Value Equity Fund generally will have a
lower degree of risk than the Emerging Growth Equity Fund and
a slightly higher degree of risk than the Core Equity Fund.
For temporary defensive purposes, the Fund may invest
up to 100% of its total assets in cash equivalents. The Fund
may also pursue certain additional investment policies and
strategies including: investing in options on securities and
indices of securities; engaging in futures transactions;
acquiring
9
<PAGE>
foreign securities; investing in foreign currency
transactions; investing in repurchase agreements; acquiring
when-issued securities; and lending Fund securities. SEE,
"Other Investment Policies and Risk Considerations" for a
description of these policies and strategies, their risks and
limitations, and the extent to which the Fund may pursue them.
EMERGING GROWTH EQUITY FUND
The Emerging Growth Equity Fund seeks to achieve a total
return in excess of the Lipper Small Company Growth Mutual
Fund Average, measured over a period of three to five years,
by investing primarily in equity-based securities of companies
which are expected by the investment manager to experience
rapid earnings growth. The following types of companies
frequently offer rapid earnings growth: newer companies that
are able to identify and service a market niche; more mature
companies that restructure their operations or develop a new
product or service that enhances the company's sales and
profit growth potential; and small to medium-sized companies
(I.E., companies with market capitalizations from $50 million
to $750 million at time of purchase) that, because of
successful market penetration, expect to experience
accelerating revenue and earnings growth. Under normal
circumstances, the Fund expects to be as fully invested as
practicable in equity-based securities, primarily common
stocks, including American Depository Receipts -- ADRs (U.S.
traded dollar-denominated securities that represent an
interest in the share of a foreign company) and will be at
least 65% so invested. Equity-based securities may include
securities convertible into common stocks and warrants to
purchase common stocks.
Emerging growth companies generally exhibit the
following characteristics relative to the average company in a
similar industry included in broad stock market indices (E.G.,
the Standard & Poor's 500 Composite Stock Price Index): (i)
higher than average return on equity, (ii) higher than average
earnings and dividend growth potential as perceived by the
investment manager, and (iii) smaller than average market
capitalization.
The securities of the Emerging Growth Equity Fund
generally will have a higher degree of risk and price
volatility than those of the Core Equity and Value Equity
Funds and a lower income return than these Funds.
For temporary defensive purposes, the Fund may invest
up to 100% of its total assets in cash equivalents. The Fund
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. SEE,
"Other Investment Policies and Risk Considerations" for a
description of these policies and strategies, their risks and
limitations, and the extent to which the Fund may pursue them.
PORTFOLIO MANAGER
Richard M. Frucci, Senior Vice President of The Putnam
Advisory Company, Inc. has, since February 28, 1994, primary
responsibility for the day-to-day management of the Emerging
Growth Equity Fund. Mr. Frucci has been employed by Putnam
since 1984.
10
<PAGE>
INTERNATIONAL EQUITY FUND
The International Equity Fund seeks to achieve a total return
in excess of the Lipper International Mutual Funds Average,
measured over a period of three to five years. The
International Equity Fund invests primarily in equity
securities of non-United States companies and at least 65% of
its assets will be invested in equity securities of companies
in at least three countries (other than the United States).
The Fund may also invest in securities of non-United States
governments and their agencies and may also invest in
securities of United States companies which derive, or are
expected to derive, a substantial portion of their revenues
from operations outside the United States. Investments in such
United States companies will normally be less than 10% of the
Fund's total assets.
The Fund may enter into forward foreign currency
exchange contracts, foreign currency futures contracts and
related options to protect against uncertainty in the level of
future foreign exchange rates. SEE, "Other Investment Policies
and Risk Considerations -- Foreign Currency Transactions".
Under normal circumstances, the Fund will invest primarily in
equity securities (common stocks and other equity-based
securities, such as securities convertible into common stocks
and warrants to purchase common stocks), but the Fund may have
up to 10% of its total assets invested in debt securities.
Such debt securities must be assigned (or determined by the
investment manager to be equal to) a rating of "A" or better
from Moody's Investors Services, Inc., Standard & Poor's
Corporation, Fitch Investors Service, Inc. or another
nationally known rating service. SEE, "Appendix" for an
explanation of the ratings.
The International Equity Fund invests in securities of
a diversified group of larger companies whose market
capitalization normally would be more than $750 million.
Investments in companies with a market capitalization of less
than $750 million should normally not exceed 15% of the Fund's
total assets.
Equity securities of a company will be selected
considering such factors as the sales, growth and
profitability prospects for the economic sector and markets in
which the company operates and for the products or services it
provides; the financial condition of the company, its ability
to meet its liabilities and to provide income in the form of
dividends; the prevailing price of the security; how that
price compares to historical price levels of the security, to
current price levels in the general market, and to the prices
of competing companies; and projected earnings estimates and
earnings growth rate for the company, and the relation of
those figures to the current price of the security.
Investments in debt securities will be based on
judgments by the investment manager of the quality of the
securities. These judgments may be based upon such
considerations as: (i) the issuer's financial strength,
including its historic and current financial condition, its
historic and projected earnings and its present and
anticipated cash flow; (ii) the issuer's debt maturity
schedules and current and future borrowing requirements; and
(iii) the issuer's continuing ability to meet its future
obligations. In addition, emphasis will be placed on
comparative geographical and economic evaluation, which will
require fundamental analysis of the economies, currencies,
financial markets and other variables of the various countries
in which investments may be made.
Investments in securities of non-United States issuers
and in securities involving foreign currencies entail
investment risks that are different from investments in
securities of United States
11
<PAGE>
issuers involving no foreign currency, including the effect of
different economies, changes in currency rates, controls or
other governmental restrictions. There is also less publicly
available information about a non-United States issuer than
about a domestic issuer, and non-United States issuers are not
subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to
those applicable to domestic issuers. Stock exchanges outside
the United States may have substantially less volume than
United States exchanges and securities of some non-United
States companies are less liquid and more volatile than
securities of comparable domestic issuers. There is generally
less government regulation of stock exchanges, brokers and
listed companies outside the United States. In addition, with
respect to certain countries, there is a possibility of
expropriation or confiscatory taxation, political or social
instability or diplomatic developments which could adversely
affect investments in securities of issuers located in those
countries.
For temporary defensive purposes, the Fund may invest
up to 100% of its total assets in cash equivalents. The Fund
may also pursue certain additional investment policies and
strategies including: investing in options on securities and
indices of securities; engaging in futures transactions;
investing in repurchase agreements; acquiring when-issued
securities; and lending Fund securities. SEE "Other Investment
Policies and Risk Considerations" for a description of these
policies and strategies, their risks and limitations, and the
extent to which the Fund may pursue them.
ACTIVELY MANAGED FIXED-INCOME FUND
The Actively Managed Fixed-Income Fund seeks to achieve a
total return in excess of the Lipper U.S. Government Bond
Funds Average, measured over a period of three to five years,
by investing primarily in fixed-income securities which the
investment manager believes to be of good quality.
Under normal circumstances, the Fund will be as fully
invested as practicable in fixed-income securities and will be
at least 65% so invested. In light of the Fund's objective,
the investment manager will consider the potential for capital
appreciation, as well as yield, in selecting investments. The
investment manager will be free to take full advantage of the
entire range of maturities in the debt securities markets and
will adjust the structure of the Fund from time to time,
particularly its average maturity, depending on the investment
manager's assessment of interest rate and market factors.
Accordingly, obtaining successful results in the Fund will
depend significantly upon the investment manager's ability to
forecast interest rate and bond market movements.
The Actively Managed Fixed-Income Fund invests in
securities of United States corporations only if at the time
of purchase they carry a rating of "A" or better from Moody's
Investors Services, Inc., Standard & Poor's Corporation, Fitch
Investors Service, Inc. or another nationally known rating
service. SEE, "Appendix" for an explanation of the ratings.
The Actively Managed Fixed-Income Fund may also invest in
obligations issued or guaranteed by the United States
government, its agencies or instrumentalities.
The Fund will observe the following policies: (i) at
least 75% of the Fund, taken at market value, must be in
securities having a rating at the time of purchase of "Aa" or
better from Moody's Investors Services, Inc., "AA" or better
from Standard & Poor's Corporation or Fitch Investors
Services, Inc. or an equivalent rating from another nationally
known rating service or must consist of securities issued or
guaranteed by the United States government or its agencies or
instrumentalities;
12
<PAGE>
(ii) at least 65% of the Fund must be invested in securities
issued or guaranteed by the United States government or its
agencies or instrumentalities; and (iii) the balance of the
Fund must be invested in securities of United States
corporations rated "A" or better by one of the above 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
above rating agencies. SEE, "Appendix" for an explanation of
the ratings.
As noted above, the Fund may also invest in 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
above rating agencies. SEE, "Other Investment Policies and
Risk Considerations -- Foreign Securities." The Fund may also
acquire zero-coupon obligations that do not pay interest
currently but that are purchased at a discount and payable in
full at maturity. The value of such obligations may be subject
to greater market fluctuations from changing interest rates
prior to maturity than other debt obligations of similar
maturities and yields.
Non-income producing securities to be held in the
Actively Managed Fixed-Income Fund may include zero-coupon
obligations of corporations, instruments evidencing ownership
of future interest or principal payments on United States
Treasury Bonds and collateralized mortgage obligations. (See
the next paragraph for a discussion of collateralized mortgage
obligations.) Zero-coupon obligations pay no current interest.
Zero-coupon obligations are sold at prices discounted from par
value, with that par value to be paid to the holder at
maturity. The return on a zero-coupon obligation, when held to
maturity, equals the difference between the par value and the
original purchase price. Zero-coupon obligations may be
purchased if the yield spread between these obligations and
coupon issues is considered advantageous, giving consideration
to the duration of the two alternative investments. The market
value of a zero-coupon obligation is generally more volatile
than that of an interest-bearing obligation and, as a result,
if a zero-coupon obligation is sold prior to maturity under
unfavorable market conditions, the loss that may be sustained
on such sale may be greater than on the sale of an
interest-bearing obligation of similar yield and maturity.
From time to time the Fund may invest in collateralized
mortgage obligations ("CMOs"), real estate mortgage investment
conduits ("REMICs") and certain stripped mortgage-backed
securities. CMOs generally represent a participation in, or
are secured by, a pool of mortgage loans. The CMOs in which
the Fund may invest are limited to United States government
and related securities (including those of agencies or
instrumentalities) such as CMOs issued by GNMA, FNMA and
FHLMC. Stripped mortgage securities are usually structured
with two classes that receive different portions of the
interest and principal distributions on a pool of mortgage
assets. The Fund may invest in both the interest-only or "IO"
class and the principal-only or "PO" class. The yield to
maturity on an IO class is extremely sensitive not only to
changes in prevailing interest rates but also to the rate of
principal payments (including prepayments) on the related
underlying mortgage assets, and a rapid rate of principal
payments may have a material adverse effect on the Fund's
yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments of principal,
the Fund may fail to fully recoup its initial investment in
these securities. Conversely, POs tend to increase in value if
prepayments are greater than anticipated and decline if
prepayments are slower than anticipated.
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REMICs are offerings of multiple class real estate
mortgage-backed securities which qualify and elect treatment
as such under provisions of the Internal Revenue Code of 1986,
as amended ("Code"). Issuers of REMICs may take several forms,
such as trusts, partnerships, corporations, associations or a
segregated pool of mortgages. Once REMIC status is elected and
obtained, the entity is not subject to federal income
taxation. Instead, income is passed through the entity and is
taxed to the person or persons who hold interests in the
REMIC. A REMIC interest must consist of one or more classes of
"regular interests," some of which may offer adjustable rates,
and a single class of "residual interests." To qualify as a
REMIC, substantially all of the assets of the entity must be
in assets directly or indirectly secured principally by real
property.
Changes in interest rates will cause the value of
securities held in the Fund's portfolio to vary inversely to
changes in prevailing interest rates. If, however, a security
is held to maturity, no gain or loss will be realized as a
result of changes in prevailing rates. The value of these
securities will also be affected by general market and
economic conditions and by the creditworthiness of the issuer.
Fluctuations in the value of the Fund's securities will cause
net asset value per unit to fluctuate.
For temporary defensive purposes, the Fund may invest
up to 100% of its total assets in cash equivalents. The Fund
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. SEE,
"Other Investment Policies and Risk Considerations" for a
description of these policies and strategies, their risks and
limitations, and the extent to which the Fund may pursue them.
INTERMEDIATE-TERM FIXED-INCOME FUND
The Intermediate-Term Fixed-Income Fund is a diversified
portfolio of fixed-income securities which seeks to achieve a
total return in excess of the Lipper Short-Intermediate (five
to ten year) U.S. Government Mutual Funds Average, measured
over a period of three to five years. The returns are sought
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. The Fund is
managed within an average portfolio maturity range of 2 1/2
years to a maximum of 5 years and an average duration range
from 2 1/2 years to 4 years.
Under normal circumstances, the Fund will be as fully
invested as practicable in fixed-income securities and will be
at least 65% so invested. In seeking total return, the
investment manager will focus principally on a high level of
current income, with consideration also given to safety of
principal. The Fund 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.
The Fund will observe the following policies: (i) at
least 75% of the Fund, taken at market value, must be in
securities having a rating at the time of purchase of "Aa" or
better from Moody's
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Investors Services, Inc., "AA" or better from Standard &
Poor's Corporation or Fitch Investors Services, Inc. or an
equivalent rating from another nationally known rating service
or must consist of securities issued or guaranteed by the
United States government or its agencies or instrumentalities;
(ii) at least 65% of the Fund must be invested in securities
issued or guaranteed by the United States Government or its
agencies or instrumentalities; and (iii) the balance of the
Fund must be invested in securities of United States
corporations rated "A" or better by one of the above 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
above rating agencies. SEE, "Other Investment Policies and
Risk Considerations -- Foreign Securities." SEE also,
"Appendix" for an explanation of the ratings.
Changes in interest rates will cause the value of
securities held in the Fund to vary inversely to changes in
prevailing interest rates. If, however, a security is held to
maturity, no gain or loss will be realized as a result of
changes in prevailing rates. The value of these securities
will also be affected by general market and economic
conditions and by the creditworthiness of the issuer.
Fluctuations in value of the Fund securities will cause net
asset value per unit to fluctuate.
As noted above, the Fund may invest in securities
issued and backed by the full faith and credit of the United
States Treasury, as well as obligations issued by agencies or
instrumentalities of the United States government. These
obligations may or may not be backed by the full faith and
credit of the United States government. Certain agencies or
instrumentalities of the United States government, such as the
United States Postal Service and the Government National
Mortgage Association, have the right to borrow from the United
States Treasury to meet their obligations but in other
instances obligations are supported only by the credit of the
issuing agency (E.G., the Federal National Mortgage
Association and the Federal Farm Credit System).
The portfolio structure of the Intermediate-Term
Fixed-Income Fund is distributed among sectors or industries
with no more than 25% of such portfolio invested in securities
of any one sector of the corporate bond market. The Fund
attempts to purchase only securities which were part of an
original issue of $100 million or more.
Non-income producing securities to be held in the
Intermediate-Term Fixed-Income Fund may include zero-coupon
obligations of corporations, instruments evidencing ownership
of future interest or principal payments on United States
Treasury Bonds and collateralized mortgage obligations. (See
the next paragraph for a discussion of collateralized mortgage
obligations.) Zero-coupon obligations pay no current interest.
Zero-coupon obligations are sold at prices discounted from par
value, with that par value to be paid to the holder at
maturity. The return on a zero-coupon obligation, when held to
maturity, equals the difference between the par value and the
original purchase price. Zero-coupon obligations may be
purchased if the yield spread between these obligations and
coupon issues is considered advantageous, giving consideration
to the duration of the two alternative investments. The market
value of a zero-coupon obligation is generally more volatile
than that of an interest-bearing obligation and, as a result,
if a zero-coupon obligation is sold prior to maturity under
unfavorable market conditions, the loss that may be sustained
on such sale may be greater than on the sale of an
interest-bearing obligation of similar yield and maturity.
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<PAGE>
From time to time the Fund may invest in collateralized
mortgage obligations ("CMOs"), real estate mortgage investment
conduits ("REMICs") and certain stripped mortgage-backed
securities. CMOs generally represent a participation in, or
are secured by, a pool of mortgage loans. The CMOs in which
the Fund may invest are limited to United States government
and related securities (including those of agencies or
instrumentalities) such as CMOs issued by GNMA, FNMA and
FHLMC. Stripped mortgage securities are usually structured
with two classes that receive different portions of the
interest and principal distributions on a pool of mortgage
assets. The Fund may invest in both the interest-only or "IO"
class and the principal-only or "PO" class. The yield to
maturity on an IO class is extremely sensitive not only to
changes in prevailing interest rates but also to the rate of
principal payments (including prepayments) on the related
underlying mortgage assets, and a rapid rate of principal
payments may have a material adverse effect on the Fund's
yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments of principal,
the Fund may fail to fully recoup its initial investment in
these securities. Conversely, POs tend to increase in value if
prepayments are greater than anticipated and decline if
prepayments are slower than anticipated.
REMICs are offerings of multiple class real estate
mortgage-backed securities which qualify and elect treatment
as such under provisions of the Code. Issuers of REMICs may
take several forms, such as trusts, partnerships,
corporations, associations or a segregated pool of mortgages.
Once REMIC status is elected and obtained, the entity is not
subject to federal income taxation. Instead, income is passed
through the entity and is taxed to the person or persons who
hold interests in the REMIC. A REMIC interest must consist of
one or more classes of "regular interests," some of which may
offer adjustable rates, and a single class of "residual
interests." To qualify as a REMIC, substantially all of the
assets of the entity must be in assets directly or indirectly
secured principally by real property.
For temporary defensive purposes, the Fund may invest
up to 100% of its total assets in cash equivalents. The Fund
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. SEE,
"Other Investment Policies and Risk Considerations" for a
description of these policies and strategies, their risks and
limitations, and the extent to which the Fund may pursue them.
PORTFOLIO MANAGER
The Intermediate-Term Fixed-Income Fund is co-managed
by Herbert Kuhl, Jr. and Deborah A. Modzelewski, Vice
President of Retirement System Investors Inc. ("Investors"),
who each play an important role in the Investment Fund's
management process. They work closely together to develop
investment strategies and select securities for the Investment
Fund's portfolio. Mr. Kuhl, Jr. has been co-manager of the
Investment Fund since its May 1991 inception, except during a
period of retirement between November 1995 and March 1996. Ms.
Modzelewski has been a co-manager since November 1995. Mr.
Kuhl, Jr. joined Retirement System for Savings Institutions
(predecessor to Investors) in April, 1986, with over 20 years
of experience in managing credit research and fixed-income
investments. Prior thereto, he was an investment officer at
Savings Bank Trust Company, with responsibility for managing
various banks' fixed-income investments. He is a graduate of
Rhode Island University with a Bachelor of Science degree in
Industrial Engineering and received a Master of Science degree
in Finance
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from Columbia University. Mr. Kuhl, Jr. is a Chartered
Financial Analyst. Ms. Modzelewski joined Retirement System in
September 1984 and she has been responsible for money market
investments and cash management for all investment funds
managed by Investors and has handled the day to day portfolio
management of the Fund's Money Market Fund and RSI Retirement
Trust's Short-Term Investment Fund. A graduate of New York
University, Ms. Modzelewski holds a Bachelor of Science degree
in Finance and International Business. She also received a
Master of Business Administration degree in Finance from St.
John's University.
MONEY MARKET FUND
The Money Market Fund 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 pursuing this objective, the Fund may
invest in a broad range of United States government, bank and
commercial obligations that may be available in money markets.
In addition, all portfolio investments must meet the
definition of "Eligible Security" as set forth in Rule 2a-7
under the Investment Company Act of 1940. The following
descriptions illustrate the types of high quality money market
instruments in which the Fund may invest.
The Fund may invest in bills, notes, bonds and other
obligations issued and backed by the full faith and credit of
the United States Treasury, as well as obligations issued by
agencies or instrumentalities of the United States government.
These obligations may or may not be backed by the full faith
and credit of the United States government. Certain agencies
or instrumentalities of the United States government, such as
the United States Postal Service and the Government National
Mortgage Association, have the right to borrow from the United
States Treasury to meet their obligations but in other
instances obligations are supported only by the credit of the
issuing agency (E.G., the Federal National Mortgage
Association and the Federal Farm Credit System).
The Fund may also invest in United States
dollar-denominated obligations of United States and foreign
banks, including certificates of deposit, bankers' acceptances
and time deposits. Securities of United States banks
(including their foreign branches) are eligible if the
investment manager determines the institutions are
creditworthy and: (i) if they are members of the Federal
Reserve System; (ii) if they are subject to examination by the
Comptroller of the Currency; (iii) if the banks have
outstanding a class of unsecured debt obligations rated "AA"
or better by a nationally recognized rating agency or, if
unrated, of comparable quality as determined by the investment
manager; or (iv) if, and to the extent, the instrument is
insured by the Federal Deposit Insurance Corporation. It is
the present policy of the Fund not to invest in time deposits
subject to withdrawal penalties, other than overnight
deposits, if more than 10% of the value of its total assets
would be invested in such deposits or other illiquid
securities.
The Fund may also invest in commercial paper rated P-1
by Moody's Investors Services, Inc., and A-1 or better by
Standard & Poor's Corporation, and in corporate bonds,
debentures and notes that are callable on demand or that have
a remaining maturity of less than one year and that are rated
"AA" or better by a nationally recognized rating agency or, if
unrated, are of comparable quality as determined by the
investment manager. If the issuer also has outstanding
short-term debt, it must have a commercial paper rating as
noted above, or an "AA" rating (of the equivalent) for other
short-term debt.
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<PAGE>
These corporate obligations may include variable amount master
demand notes which are unsecured demand notes that permit
investment of fluctuating amounts of money at variable rates
of interest pursuant to arrangements with issuers which meet
the foregoing quality criteria. Although there is no secondary
market in master demand notes, the payee may demand payments
of the principal amount of the note on relatively short
notice. All master demand notes acquired by the Fund will be
payable within a prescribed notice period not to exceed seven
days.
The Fund may also enter into repurchase agreements with
respect to United States government securities. For a
description of repurchase agreements, SEE, "Other Investment
Policies and Risk Considerations -- Repurchase Agreements."
United States government securities underlying such repurchase
agreements may have maturities of greater than one year but
the repurchase agreement itself must mature in less than one
year. The Fund will not enter into a repurchase agreement with
a maturity of greater than seven days if as a result more than
10% of the Fund's assets would be invested in illiquid
securities, including all repurchase agreements with
maturities of greater than seven days. The Fund may also
acquire when-issued securities and lend Fund securities. SEE,
"Other Investment Policies and Risk Considerations" for a
description of these policies and strategies, their risks and
limitations, and the extent to which the Fund may pursue them.
The Fund will attempt to maintain a constant net asset
value per share of $1.00 by complying with applicable SEC
requirements which include, among other things, certain
quality and maturity restrictions. However, there can be no
assurance that the Fund will be able to maintain a constant
net asset value per share.
OTHER INVESTMENT POLICIES
AND RISK CONSIDERATIONS
Except as noted, each of the Investment Funds may employ the
following investment policies and strategies.
CASH EQUIVALENTS
Cash equivalents include instruments that the Money Market
Fund may purchase.
OPTIONS ON SECURITIES AND INDICES OF SECURITIES
Each Fund (other than the Money Market Fund) may purchase or
sell (or write) exchange-traded options on securities or
indices of securities and may enter into closing transactions
with respect thereto. An option on a security gives the
purchaser the right, in return for the payment of a premium,
to acquire (in the case of a call option) or sell (in the case
of a put option) the security at a specified price. Index
options are similar but are settled by delivery of a cash
payment based on the difference between the contract price and
the value of the index at the time of maturity or termination
of the contract.
A Fund may sell (or write) a covered call option or a
secured put option in order to earn premium income. Covered
calls also, to the extent of the premium, provide a hedge
against a decline in the value of a security or of securities
generally. A Fund may acquire a call as a means of taking
advantage of anticipated price increases or may acquire a put
to protect against the possibility of a market decline.
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<PAGE>
The writer of a call surrenders during the term of the
agreement the opportunity to benefit from appreciation above
the contract price of the option and the writer of a put
accepts the risk of a decline in market value. A Fund will not
write an option if immediately after such sale the aggregate
value of the obligations under the outstanding options would
exceed 25% of such Fund's net assets. The risk incurred by an
option purchaser is limited to the premium paid. The success
of an option strategy may be limited by such factors as the
ability of the investment manager to predict market trends
accurately, the cost of the transaction, the depth and
liquidity of the market on which the option is traded and the
correlation between the market value of the option and the
movement of the underlying security or index.
FUTURES TRANSACTIONS
In order to provide a measure of protection against losses due
to such occurrences as stock market declines, increases in
interest rates and adverse currency movements, the Funds may
engage in a variety of hedging strategies. These strategies
include, in addition to the use of options for hedging
purposes as described above, investing in contracts to
purchase or sell specified financial instruments at a date in
the future, and investing in interest rate and stock index
futures contracts and in their related options. The choice of
appropriate strategies will be dictated by the types of
securities in the particular Fund and the risks against which
the investment manager believes the Fund should be protected.
As discussed below, there can be no assurance that any of
these strategies will be entirely effective and each has
inherent costs, risks and limitations.
A futures contract on a specific security gives the
seller the obligation to deliver, and the purchaser the
obligation to accept delivery of, the amount of the security
specified in the contract at a specified time in the future
for a specified price. An index future is similar except that
settlement is accomplished by the delivery of an amount of
cash equal to a specified dollar amount times the difference
between the value of the relevant index and the price
specified in the contract. Options on futures give the
purchaser the right, in return for the premium paid, to assume
a long or short position in a futures contract.
A Fund may purchase or sell (or write) futures and
their related options only for hedging purposes, consistent
with applicable regulatory requirements. In addition, a Fund
may not enter into any such transaction if, immediately
thereafter, (i) more than 25% of the value of the Fund's total
assets would be so invested, or (ii) 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." The success of a
strategy employing futures and their related options may be
limited by factors such as the ability of the investment
manager to predict market and interest rate trends accurately,
the cost of the transaction, the depth and liquidity of the
relevant market and the degree of correlation between the
prices of the futures contracts or related options and the
market for the underlying medium.
FOREIGN SECURITIES
All Funds may invest in foreign securities but, with the
exception of the International Equity Fund, are limited in the
percentages of their respective assets that may be so
invested. The Core Equity, Emerging
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<PAGE>
Growth Equity and Value Equity Funds may each invest up to 20%
of their total assets in foreign securities, while the
Actively Managed Fixed-Income, Intermediate-Term Fixed-Income
and Money Market Funds are limited to 10%. The Money Market
Fund may invest only in dollar-denominated securities. A
Fund's investment manager will use the same criteria for
selecting investments in foreign securities that it uses for
United States securities.
The Funds purchasing these securities may be subject to
additional risks associated with the holding of property
abroad. Such risks include future political and economic
developments, currency fluctuations, the possible withholding
of tax payments, the possible seizure or nationalization of
foreign assets, the possible establishment of exchange
controls or the adoption of other foreign government
restrictions which might adversely affect the payment of
principal or interest on foreign securities held by the Funds.
FOREIGN CURRENCY TRANSACTIONS
A change in the value of a foreign currency relative to the
United States dollar will result in a corresponding change in
the United States dollar value of a Fund's assets denominated
in that currency. Accordingly, the value of such assets as
measured in United States dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and
exchange control regulations. In addition, a Fund may incur
costs in connection with conversions between various
currencies. In order to protect against uncertainty in the
level of future foreign exchange rates, the Funds (other than
the Money Market Fund) are authorized to use forward foreign
currency exchange contracts which are obligations to purchase
or sell a specific currency at a future date at a price set at
the time of the contract, as well as currency futures
contracts and related options. SEE, "Other Investment Policies
and Risk Considerations -- Futures Transactions."
A Fund may use forward contracts, futures and related
options only under two circumstances. First, when a Fund
enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in"
the United States dollar price of the security. Second, when
an investment manager of a Fund believes that the currency of
a particular foreign country may experience a substantial
decline against the United States dollar, it may enter into a
forward contract to sell an amount of foreign currency
approximating the value of up to all of the Fund's securities
denominated in such foreign currency, or may set up a similar
hedge using a currency future or a related option. Such
transactions may also be used to protect a portion of the Fund
that is denominated in a foreign currency against an adverse
movement in the value of that currency relative to other
currencies. No Fund will enter into such forward contracts if,
as a result, such Fund would have more than 25% of the value
of its total assets committed to such contracts.
It will not generally be possible to match precisely
the amount covered by a forward contract, a futures contract
or related option and the value of the securities involved due
to changes in the values of such securities resulting from
market movements between the date the transaction is entered
into and the date it matures. In addition, while such
transactions may offer protection from losses resulting from
declines in the value of a particular foreign currency, they
also limit potential gains which might result from increases
in the value of such currency.
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<PAGE>
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 of the
Fund. A repurchase agreement is a short-term investment in
which the purchaser acquires ownership of a debt security,
which in the case of each Fund will be securities issued or
guaranteed by the United States government or its agencies or
instrumentalities, 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
the underlying securities will be at least equal at all times
to the total amount of the obligation, including the interest
factor.
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreements with
broker-dealers or financial institutions deemed creditworthy
under guidelines approved by the Board of Directors of the
Fund. 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. Reverse repurchase agreements are
considered to be borrowings by the Fund and may be entered
only when the investment manager believes a Fund's earnings
from the transaction will exceed the interest expense
incurred.
WHEN-ISSUED SECURITIES
A Fund may purchase 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. A Fund will
ordinarily invest no more than 25% of its net assets at any
time in when-issued securities. 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. When-issued securities
are subject to market fluctuation, and no interest accrues to
the purchaser during this period. The payment obligation and
the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the
commitment. Because subsequent changes in the market price
will affect the value of the security to be delivered, the
purchase of when-issued securities creates the potential for
profit or loss to the Fund without any investment of Fund
assets at the time of commitment.
LENDING FUND SECURITIES
A Fund may lend portfolio securities in an amount up to 50% of
its total assets to creditworthy broker-dealers and financial
institutions. By lending its portfolio securities, a Fund
attempts to increase its income through the receipt of
interest on the loan. Any such loan will be continuously
secured by collateral consisting of cash or United States
government securities in an amount at least equal to the value
of the securities loaned. If the borrower were to default on
its obligation to return the securities, the Fund could
experience loss due to delay in liquidating the collateral and
to adverse market action.
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INVESTMENT RESTRICTIONS
The investment policies of the respective Funds are subject to
a number of restrictions which reflect both self-imposed
standards and Federal and state regulatory limitations. The
investment restrictions recited below are matters of
fundamental policy and may not be changed without the
affirmative vote of a majority of the outstanding shares of
the Fund. Accordingly, each Fund will 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);
(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 for (i) short term
credits from banks as may be necessary for the
clearance of portfolio transactions, (ii) borrowing from
banks to meet redemption requests, which would otherwise
require untimely disposition of its portfolio securities,
and (iii) borrowing from banks for any other temporary or
emergency situation that could arise. Borrowing for any
purpose, in the aggregate by any Investment Fund, may not
exceed 5% of the value of the total assets of that
Investment Fund;
(4)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; or
(5)Invest more than 10% of its total assets in
illiquid securities, including repurchase
agreements with maturities greater than seven days.
The Funds are subject to further investment
restrictions that are set forth in the Statement of Additional
Information.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise total return and
yield data of the various Investment Funds over specified
periods. Such information is based on historical results and
is not intended to indicate future performance of the
Investment Funds. Both total return and yield data will be
computed according to the standardized calculations required
by the Securities and Exchange Commission to provide
consistency and comparability in investment company
advertising. Advertisements may also include other measures of
total returns as permitted by rules of the Securities and
Exchange Commission.
Total return shows the change in the value of an
investment in a Fund over a specified period of time (such as
one, three, five or ten years), assuming reinvestment of all
dividends and distributions and after deduction of all
applicable charges and expenses. The Fund's average annual
total return represents the annual compounded growth rate that
would produce the total return achieved over the period. The
performance information reported by the Fund does not take
into account any Federal or state income taxes that may be
payable by an investor.
The "yield" of a Fund refers to the income generated by
an investment in a Fund over a seven-day period (which period
will be stated in the advertisement). This income is then
"annualized."
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<PAGE>
That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in a Fund is
assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
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, the 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.
The Funds' annual portfolio turnover rate (the lesser
of the value of the purchases or sales for the year divided by
the average monthly market value of the respective portfolio
during the year, excluding United States government securities
and securities with maturities of one year or less) may vary
from year to year, as well as within a year, depending on
market conditions. A high level of portfolio turnover may
generate relatively high transaction costs and may increase
the amount of taxes payable by the Fund's Shareholders. (SEE,
"Distributions and Taxes.") For the fiscal years ended
September 30, 1995 and September 30, 1996, the portfolio
turnover rate for the Core Equity Fund was 25.49% and 18.08%,
respectively, the Emerging Growth Equity Fund was 84.05% and
77.94%, respectively, and the Intermediate-Term Fixed-Income
Fund was 8.50% and 39.69%, respectively. The Fund anticipates
that the annual portfolio turnover rate of each of the Value
Equity Fund and International Equity Fund will not exceed
100%, and the annual portfolio turnover rate of the Actively
Managed Fixed-Income Fund will not exceed 200% in the fiscal
year ending September 30, 1997.
HOW TO INVEST IN THE FUND
PURCHASE OF FUND SHARES
The Fund offers its shares to the public without a sales load
on a continuous basis through its distributor, Retirement
System Distributors Inc., P.O. Box 2064, Grand Central
Station, New York, New York 10163-2064 (the "Distributor").
SEE, "Distributor." Shares are also available through broker-
dealers that have entered into dealer agreements and through
financial institutions that provide shareholder services to
their customers. Financial Institutions may impose separate
fees in connection with these services and investors should
review this prospectus in conjunction with any such
institution's fee schedule. In addition, financial
institutions may be required to register as dealers pursuant
to state securities laws. Such broker-dealers are responsible
for the transmission of purchase and redemption orders (and
the delivery of funds) on a timely basis.
Purchases are effected at the net asset value per share
next determined after receipt at the Fund's offices of a
properly completed purchase order. Persons who desire to make
an initial investment in the Fund should fill out an Initial
Purchase Order Form and mail it to the Fund together with a
check payable to Retirement System Fund Inc. Orders are
subject to acceptance by the Fund and in any event are not
accepted unless accompanied by payment. The minimum initial
investment is
23
<PAGE>
$2,500 and the minimum subsequent investment in the Fund is
$250, except as provided below for "Periodic Purchases" and
"Payroll Deductions." Minimums are not applicable for
investments in non-qualified retirement plans or Individual
Retirement Accounts. Investors wishing to purchase securities
by means of wire transfer should contact the Distributor.
Purchase orders submitted for tax-qualified retirement
plans or other retirement arrangements which are not properly
completed will be directed to Retirement System Consultants
Inc. (the "Service Company") for clarification. The Service
Company will promptly ascertain the information necessary to
properly complete the purchase order and forward the purchase
order to the Fund. If such purchase orders are transmitted to
the Fund in proper form by 4:00 P.M., Eastern Time, the
purchase will be effected at the net asset value determined as
of the close of business on that day. Otherwise, such purchase
order will be based on the next determined net asset value.
All purchasers will receive a Confirmation Notice from
the Fund which sets forth the amount invested, the purchase
price per share, the number of shares and fractional share
credits purchased and held in account after the transaction,
and the identifying number of the account.
Net asset value is determined as of the close of the
New York Stock Exchange, currently 4:00 P.M., Eastern Time, on
each day the Exchange is open, by adding the value of all the
assets of a Fund, subtracting liabilities, and dividing by the
number of shares outstanding. Securities are valued at their
market prices where possible. Listed equity securities are
valued at the closing price on the primary exchange for each
such security and NASDAQ quoted securities are valued at the
last current bid price. Debt securities are valued based on
quotes obtained from market makers. Securities may be valued
based on prices obtained from a pricing service where approved
by the Board of Directors. All securities of the Money Market
Fund and, for the other Funds, debt securities with remaining
maturities of 60 days or less, are valued on the basis of
amortized cost.
PERIODIC PURCHASES
Regular periodic purchases of Fund shares may be beneficial to
investors. The Fund therefore makes available an arrangement
under which shareholders may state their intentions to make
periodic purchases of Fund shares in specified amounts. A
shareholder may indicate in the place provided on the Initial
Purchase Order Form the frequency (monthly or quarterly) and
amount (minimum amount $200 if monthly and $600 if quarterly)
of such intended periodic purchases. There is no obligation on
the part of the shareholder to make the intended periodic
purchases of Fund shares indicated on the Initial Purchase
Order Form.
PAYROLL DEDUCTIONS
Purchases of Fund shares may be available to certain investors
by means of payroll deductions if their employer has made
arrangements with the Distributor. Employers who have made
payroll deduction arrangements available will forward funds
for purchase of shares to the Fund at least monthly (unless
deductions are made less frequently) on behalf of the
shareholder and make appropriate forms available to their
employees. The minimum investment in the Fund per periodic
payroll deduction is $25. Confirmation Notices of purchases
made by payroll deduction are sent to the employee.
Shareholders participating in payroll deduction arrangements
may also purchase shares by means of direct orders.
24
<PAGE>
EXCHANGES
Shares in any Investment Fund may be exchanged without cost
for shares in any other Investment Fund. Shareholders may
submit their shares for exchange on any day that the New York
Stock Exchange is open and properly completed Exchange Request
Forms will be effected at the respective net asset values of
the shares involved next determined after the receipt of such
request by the Fund. Exchange Request Forms must be submitted
to the Fund at its offices in writing and must be signed in
exactly the same manner in which the shares are registered.
Exchange Request Forms submitted for tax-qualified retirement
plans or other retirement arrangements which are not properly
completed will be directed to the Service Company for
clarification. If such Exchange Request Forms are transmitted
to the Fund in proper form by 4:00 P.M., Eastern Time, the
exchange will be effected at the respective net asset values
of the shares involved determined as of the close of business
on that day. Otherwise, such redemption will be based on the
next determined net asset value. The Fund may modify or
terminate this exchange privilege at any time upon sixty-days
written notice to shareholders.
REDEMPTION
OF SHARES
Shareholders may submit their shares for redemption on any day
that the New York Stock Exchange is open and a properly
completed Redemption Request Form will be effected at the net
asset value per share next determined after the receipt of
such request by the Fund. Redemption Request Forms must be
submitted to the Fund at its offices in writing and must be
signed in exactly the same manner in which the shares are
registered. The signature(s) must be guaranteed by a bank or
trust company (including a savings bank) or a member of a
national securities exchange if the redemption exceeds
$25,000. Redemption Request Forms submitted for tax-qualified
retirement plans or other retirement arrangements which are
not properly completed will be directed to the Service Company
for clarification. The Service Company will promptly ascertain
the information necessary to properly complete the Redemption
Request Form and forward the request to the Fund. If such
Redemption Request Forms are transmitted to the Fund in proper
form by 4:00 P.M., Eastern Time, the redemption will be
effected at the net asset value determined as of the close of
business on that day. Otherwise, such redemption will be based
on the next determined net asset value.
Payments for redeemed shares will be made 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. Dividends payable
up to the date of the redemption of shares will be paid on the
next dividend payable date. If all shares in an account have
been redeemed on a dividend payable date, the dividend will be
remitted by check to the former shareholder, except that, in
the case of the Money Market Fund, shareholders who redeem all
shares in their accounts will receive all dividends to which
they are entitled along with the proceeds of the redemption.
The Fund reserves the right to redeem shareholder accounts
amounting to less than $250 upon 60 days' notice; provided,
however, that the Fund will not redeem any account which falls
below the minimum account size solely as a result of a decline
in the net asset value of a Fund.
25
<PAGE>
DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
It is the policy of each Fund to distribute to shareholders
substantially all of its taxable net investment income
(consisting of dividend and interest income and the excess, if
any, of net short-term capital gains over net long-term
capital losses) in the form of periodic dividends. Each of the
Core Equity Fund, the Emerging Growth Equity Fund, the Value
Equity Fund and the International Equity Fund will generally
declare and distribute dividends from its net investment
income on an annual basis. The Actively Managed Fixed-Income
Fund and the Intermediate-Term Fixed-Income Fund will
generally declare and distribute dividends from net investment
income on a monthly basis. The net investment income of the
Money Market Fund is declared daily (and distributed monthly
on the first day of each month) as a dividend to the Fund's
shareholders. Each Fund anticipates that it will distribute
substantially all of its "net capital gain" income (the excess
of net long-term capital gains over net short-term capital
losses) for each taxable year as a capital gains distribution.
Unless the shareholder elects otherwise, all income
dividends and net capital gains distributions, if any, will be
reinvested in additional shares at the then net asset value
per share on the payment date. However, shareholders may elect
a cash distribution by notifying the Fund at least seven days
before the next date on which dividends or distributions will
be paid.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following summary of certain federal income tax
consequences is based on current tax laws and regulations,
which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a
detailed explanation of the federal, state or local income tax
treatment of any Fund or its shareholders. Accordingly,
shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local taxes.
TAX STATUS OF THE FUNDS
Each Investment Fund is treated as a separate entity for
federal income tax purposes and is not combined with the other
Funds. Each Fund expects to be taxed as a regulated investment
company under Subchapter M of the Code. So long as a Fund
qualifies for this tax treatment, the Fund will be relieved of
United States federal income tax on amounts distributed to
shareholders, but shareholders will, unless otherwise exempt,
pay income or capital gains taxes on the amounts so
distributed, regardless of whether such distributions are paid
in cash or reinvested in additional shares. Each Fund will
send written notices to shareholders annually regarding the
tax status of all distributions.
Distributions from a Fund out of net capital gains (net
long-term capital gains less net short-term capital losses),
if any, are taxed to shareholders as long-term capital gains,
regardless of how long a shareholder has held such shares. All
other income distributions are taxed to the shareholders as
ordinary income. Ordinarily, shareholders will include all
dividends declared by a Fund as income in the year of payment.
However, dividends declared in October, November or December
of any year, payable to shareholders of record on a specified
date in such a month, will be deemed to have been received by
the shareholders and paid by the Fund on December 31 of such
year, if such dividends are paid during January of the
following year.
26
<PAGE>
Capital gains distributions received from any Fund and
ordinary income dividends received from the Actively Managed
Fixed-Income Fund, the Intermediate-Term Fixed-Income Fund, or
the Money Market Fund will not qualify for the
dividends-received deduction generally available to corporate
taxpayers. Dividends received from the International Equity
Fund will qualify for the dividends-received deduction only to
the extent they are attributable to dividends the Fund
receives from domestic corporations. Shareholders will be
advised annually of the federal income tax status of
distributions made during the year.
Investors should be careful to consider the tax
implications of buying shares just prior to a distribution.
The price of shares purchased at that time may reflect the
amount of the forthcoming distribution. Those purchasing just
prior to a distribution will nevertheless be taxable on the
entire amount of the distribution received.
The sale, redemption or exchange of Fund shares is a
taxable event to the shareholder.
Investment income received by the International Equity
Fund from sources within foreign countries may be subject to
foreign income taxes withheld at the source. To the extent
that the International Equity Fund is liable for foreign
income taxes so withheld, the Fund intends to operate so as to
meet the requirements of the Code to pass through to the
Fund's shareholders credits for foreign income taxes paid. If
the International Equity Fund does so qualify, shareholders
will be deemed to have received a dividend for their pro rata
share of the foreign taxes paid by the Fund and will be deemed
to have paid such amounts as foreign taxes. Although the
International Equity Fund intends to meet the requirements of
the Code to pass through such taxes, there can be no assurance
that the Fund will be able to do so.
A 4% non-deductible Federal excise tax is imposed on a
regulated investment company that fails to distribute before
the end of each calendar year substantially all of its
ordinary taxable income for the calendar year and capital gain
net income for the one-year period ending October 31 of such
year, plus certain other amounts. Each Fund intends to make
sufficient distributions of its ordinary income and capital
gain net income prior to the end of each calendar year to
avoid liability for this excise tax. The sale, exchange, or
redemption of an Investment Fund's shares is a taxable event
for the shareholder.
The Fund may be required to withhold and remit to the
U.S. Treasury, 31% of any taxable dividends, capital gain
distributions and redemption proceeds paid to any individual
or certain other non-corporate shareholder (1) who has failed
to provide a correct taxpayer identification number (generally
an individual's social security number or non-individual's
employer identification number) on the purchase application,
(2) who is subject to backup withholding by the Internal
Revenue Service, or (3) who has not certified to the Fund that
such shareholder is not subject to backup withholding. This
backup withholding is not an additional tax, and any amounts
withheld may be credited against the shareholder's ultimate
U.S. tax liability.
Future legislative changes may materially affect the
tax consequences of investing in the Fund. Shareholders are
also urged to consult with their tax advisors concerning the
application of United States state and local income taxes to
investments in the Fund, which may differ from the United
States Federal income tax consequences described above.
27
<PAGE>
MANAGEMENT
OF THE FUND
The overall business affairs of the Fund are managed by its
Board of Directors. The Board approves all significant
agreements between the Fund or any Investment Fund and persons
or companies furnishing services thereto, including all
agreements for the provision of investment advisory,
distribution, administrative, custody and transfer agent
services. One Director and all the officers of the Fund are
officers or employees of Retirement System Group Inc., the
parent company of Retirement System Investors Inc., the
investment advisor of each Investment Fund and the investment
manager of certain Investment Funds, the Distributor, and
Retirement System Consultants Inc., the Fund's administrator.
The Board of Directors of the Fund met and unanimously
approved a proposed tax free reorganization (the
"Reorganization") between the Fund and The Enterprise Group of
Funds, Inc. ("Enterprise"). As a result of the Reorganization,
the Fund will transfer the assets of its portfolios to
corresponding Enterprise portfolios in return for assumption
by each such Enterprise portfolio of the stated liabilities of
the corresponding Fund portfolio and issuance of shares of the
Enterprise portfolio. The portfolios of the Fund will then
distribute the Enterprise shares received. A Special Meeting
of shareholders will be called so that they will have an
opportunity to vote upon the proposed reorganization.
INVESTMENT ADVISORY SERVICES
Retirement System Investors Inc. (the "Investment Advisor") is
the investment advisor to each Investment Fund. As further
described below, 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 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 designed exclusively for the investment of funds held
in certain tax-exempt trusts. The Trust has six portfolios
that have investment objectives and policies that are
substantially the same as those of the Investment Funds, as
well as two portfolios that have specialized functions. In
connection with the reorganization, the Investment Advisor
assumed those investment management functions for the Trust
that had previously been performed by employees of the Trust.
As of December 31, 1996, the Investment Advisor managed
assets of $558,252,410.
For its services, the Investment Advisor is entitled to
receive a fee, calculated daily and paid monthly, based on a
percentage of the average annual net assets of the respective
Investment Funds.
28
<PAGE>
The specific percentages for the Investment Funds or, in the
case of the Actively Managed Fixed-Income Fund, the portion of
such Investment Fund for which the Investment Advisor acts as
investment manager, are set forth in the following table.
<TABLE>
<CAPTION>
FEE (% OF
INVESTMENT FUND AVERAGE NET ASSETS)
- -------------------------------------------------------- ---------------------
<S> <C>
Core Equity Fund
First $50 million................................. .60
Next $150 million................................. .50
Over $200 million................................. .40
Actively Managed Fixed-Income Fund
First $50 million................................. .40
Next $100 million................................. .30
Over $150 million................................. .20
Intermediate-Term Fixed-Income Fund
First $50 million................................. .40
Next $100 million................................. .30
Over $150 million................................. .20
Money Market Fund
First $50 million................................. .25
Over $50 million.................................. .20
</TABLE>
In addition, the Investment Advisor is entitled to
receive a fee based on a percentage of the average annual 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
assets of the applicable Fund, and (ii) the fee to which the
investment manager of the applicable Fund is entitled (payable
as provided below), calculated in the manner described below
with respect to the investment manager's fees for each such
Investment Fund. While the management fees paid by the
Emerging Growth Equity Fund, the Value Equity Fund and the
International Equity Fund are higher than the fees paid by
most other investment companies, the Fund's management
believes that the fees are comparable to, and in some cases
lower than, the fees paid by other investment companies with
similar objectives and policies.
With respect to the Investment Funds for which the
Investment Advisor does not act as investment manager, the
Investment Advisor has agreed to waive payment of the portion
of the investment advisory fees in an amount equal to .20% of
the total assets during the first year of the Fund's
operations, and intends thereafter to waive payment of such
amount if necessary to maintain a competitive expense ratio or
to assure that the Fund's expense ratios comply with
regulations in various states where Fund shares are qualified
for sale.
For investment advisory services to the Core Equity
Fund, Intermediate-Term Fixed-Income Fund and Money Market
Fund, respectively, for the fiscal year ended September 30,
1996, the Investment Advisor waived all fees due it under its
investment advisory agreement with the Fund. In
29
<PAGE>
addition, the Investment Advisor together with the Distributor
and Service Company reimbursed expenses in the amount of
$75,067, $56,361 and $47,155, respectively, for the foregoing
three Investment Funds, and $64,413 for the Emerging Growth
Equity Fund. See, the fourth paragraph under "Administrator".
For investment advisory services to the Emerging Growth
Equity Fund for the fiscal year ended September 30, 1996, the
Investment Advisor received fees (net of fee waivers) equal to
1% of such Investment Fund's average net assets and paid all
of such fees to The Putnam Advisory Company, Inc. as
compensation as an independent investment manager.
The following table lists the investment managers that
have been selected for the various Investment Funds and the
approximate percentage of such Fund allocated to each manager.
No Investment Manager has been selected for the Value Equity
Fund, International Equity Fund and Actively Managed
Fixed-Income Fund which are not presently offered.
<TABLE>
<S> <C>
Core Equity Fund........................ Retirement System Investors Inc. (100%)
Emerging Growth Equity Fund............. The Putnam Advisory Company, Inc. (100%)
Value Equity Fund....................... No Investment Manager selected
International Equity Fund............... No Investment Manager selected
Actively Managed Fixed-Income Fund...... No Investment Manager selected
Intermediate-Term Fixed-Income Fund..... Retirement System Investors Inc. (100%)
Money Market Fund....................... Retirement System Investors Inc. (100%)
</TABLE>
Each investment manager is also a manager of the
corresponding portfolio of the Trust and each such manager's
fee is calculated as a percentage of assets based on the
combined assets of the portion of the Investment Fund and the
corresponding portfolio of the Trust under management of such
investment manager, which percentage is then applied with
respect to both the Fund and the Trust in determining the
manager's compensation. Accordingly, references to "total
assets" in the description of the respective investment
managers' fees as set forth below are to the combined Fund and
Trust assets allocated to such investment manager.
The following is a brief description of the Fund's
investment manager (other than the Investment Advisor) and the
compensation it is entitled to receive from the Investment
Advisor:
The Putnam Advisory Company, Inc. ("Putnam"), One Post
Office Square, Boston, Massachusetts 02109, was formed in 1968
to manage domestic and foreign institutional separately
managed accounts for its parent company, Putnam Investments
Inc., One Post Office Square, Boston, Massachusetts 02109.
Putnam Investments Inc. is a wholly-owned subsidiary of Marsh
& McLennan Companies, Inc., 1166 Avenue of the Americas, New
York, New York 10036, a publicly owned holding company, whose
principal businesses are international insurance and
reinsurance brokerage, employee benefit consulting and
investment management. The Putnam organization has been
managing money since 1937 with the inception of The George
Putnam Fund of Boston. Putnam's annual fee is 1% of the total
assets up to and including $25 million, and .75% of the total
assets in excess of $25 million (provided that the assets of
the Emerging Growth Equity Fund shall be assessed a fee of
.25% until the assets of such Investment Fund equals at least
$500,000), calculated quarterly on the basis of the average
asset
30
<PAGE>
value as of the last day of each month of each calendar
quarter, equal to one-fourth of the annual rate. For the
fiscal year ended September 30, 1996, the Investment Advisor
paid Putnam a fee equal to 1% of the Emerging Growth Equity
Fund average asset value.
Putnam has resigned as investment manager to the
Emerging Growth Equity Fund effective March 31, 1997. The
Board of Directors of the Fund has not finalized the selection
of a successor investment manager.
The Fund's agreements with the Investment Advisor and
with each investment manager had an initial term of two years.
These agreements may be continued from year to year after the
initial term by the Board of Directors or the shareholders.
These were most recently approved as provided in the
Investment Company Act of 1940, on January 25, 1996. Each such
agreement is subject to termination on no more than 60 days'
notice by the Board of Directors or the shareholders and, in
the case of the investment managers, by the Investment
Advisor. In addition, each such agreement terminates
automatically in the case of its assignment.
DISTRIBUTOR
The Fund and the Distributor have entered into a Distribution
Agreement pursuant to which the Distributor will distribute
and promote the sale of shares of the Investment Funds. The
Distributor is a subsidiary of Retirement System Group Inc.
and was established as part of the reorganization described
under "Management of the Fund -- Investment Advisory
Services." The Distribution Agreement, which had an initial
term of two years, may be continued from year to year after
its initial term by the Board of Directors or by the
shareholders of the Fund. The Agreement is subject to
termination on no more than 60 days notice by the Board of
Directors or the shareholders. In addition, the Distribution
Agreement terminates automatically in case of its assignment.
Each Investment Fund has adopted a Plan of Distribution
under which payments are made to the Distributor to compensate
the Distributor and to help defray the cost of offering
shares. Under the Plan, the Distributor may make payments to
broker-dealers that sell shares to their customers and provide
certain related services (for example, acceptance and delivery
of purchase orders and redemption orders and responding to
shareholder inquiries) and to banks and other financial
institutions that enter into agreements with the Fund to
provide shareholder services (including processing purchase
orders, redemption orders and dividend payments, forwarding
shareholder reports, responding to inquiries and providing
subaccounting services) to their customers. The maximum amount
payable under the Plan is equal to .25% of the average daily
net assets of a Fund but the Distributor currently voluntarily
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 difference and
will not be reimbursed therefore. For the fiscal year ended
September 30, 1996, the Distributor received from the Fund
(net of fee waivers) a fee equal to .20% of average daily net
assets.
31
<PAGE>
ADMINISTRATOR
The Service Company 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. The Service Company is a subsidiary of
Retirement System Group Inc. and was established as part of
the reorganization described under "Management of the Fund --
Investment Advisory Services."
On October 27, 1994, the Board of Directors of the Fund
approved continuance of an amended Service Agreement with the
Service Company, effective January 28, 1995. Under the amended
Service Agreement, the Service Company is paid a fee for its
services as of the last day of each month such Service
Agreement is in effect, at the following annual rates, based
on the average daily net assets of each of the Fund's
Investment Funds for such month:
<TABLE>
<CAPTION>
FEE (% OF AVERAGE
NET ASSETS OF INVESTMENT FUND DAILY NET ASSETS)
- --------------------------------------------------- --------------------
<S> <C>
First $25 million.................................. .60%
Next $25 million................................... .50%
Next $25 million................................... .40%
Next $25 million................................... .30%
Over $100 Million.................................. .20%
</TABLE>
The Service Company has agreed to waive payment of its
fee and to reimburse the Fund during the fiscal year ended
September 30, 1997 and intends thereafter to waive payment of
its fee and to reimburse the Fund to the extent necessary to
maintain a competitive expense ratio or to assure that the
Funds' expense ratios comply with regulations in various
states where Fund shares are qualified for sale.
For the fiscal year ended September 30, 1996, the
Service Company, the Distributor and Investment Advisor
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.
The amended Service Agreement may be continued from
year-to-year after its initial term of two years by the Board
of Directors or by shareholders. The Agreement is subject to
termination on no more than 60 days' notice by the Board or by
shareholders and terminates automatically in case of its
assignment. The Fund will pay, or reimburse the Service
Company for the payment of the Fund's expenses, including,
without limitation, the following: (i) fees and expenses
relating to investment advisory, distribution and custody
services; (ii) fees of outside professionals, including legal
counsel and independent auditors; (iii) interest charges; (iv)
Federal, state and local taxes, if any; (v) costs of stock
certificates and other expenses of issuing and redeeming
shares; (vi) costs of shareholder meetings; (vii) fees and
expenses of registering or qualifying shares for sale under
Federal and state securities laws; (viii) costs (including
postage) of printing and mailing prospectuses, proxy
statements and other reports and notices to shareholders and
to governmental agencies (other than in connection with
promoting the sale of shares to prospective new investors);
(ix) premiums on all insurance and fidelity, surety and
guarantee bonds; (x) fees and expenses of the Fund's
disinterested directors; (xi) fees and expenses paid to any
securities pricing service; (xii) commissions and other costs
in connection with securities transactions; and (xiii)
extraordinary expenses, including any litigation costs.
32
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund, an open-end diversified management investment
company, was organized under the laws of the State of Maryland
on November 14, 1990. The Fund is authorized to issue two
billion shares of capital stock, par value $.001 per share,
all of which shares are designated common stock. When issued,
the shares will be fully paid and non-assessable. Each share
has one vote and will be entitled to dividends and
distributions when and if declared by the Fund. In the event
of liquidation and dissolution of the Fund, each share would
be entitled to its pro rata portion of the Fund's assets after
all debts and expenses have been paid. The Board of Directors
of the Fund is authorized to establish multiple series of
shares of capital stock, each evidencing interest in a
separate Fund of securities. At present Retirement System Fund
Inc. has seven such Funds.
The name and address of the beneficial holder of 25% or
more of the total Fund's outstanding shares, and the
percentage of such shares owned by such shareholder as of
December 31, 1996 are as follows: ALBANK, FSB, 10 North Pearl
Street, Albany, New York 12207, 27.05%. ALBANK, FSB has voting
power with respect to such shares. Consequently, under the
Investment Company Act of 1940, the shareholder may be deemed
to be a controlling person of the Fund. The shares held by
such shareholder are, to the best of the Fund's knowledge,
held for investment purposes only, and not to exercise any
influence over Fund policies.
ANNUAL MEETINGS
Unless required under applicable Maryland law, the Fund does
not expect to hold annual meetings of shareholders after the
initial meeting, which was held during the Fund's first full
year on May 5, 1992. However, shareholders of the Fund retain
the right, under certain circumstances, to request that a
meeting of shareholders be held and, if such a request is
made, the Fund will assist with the shareholder communications
in connection with the meeting.
REPORTS
The Fund furnishes shareholders with semi-annual reports
containing information about the Fund and its operations,
including a list of investments held by the respective
Investment Funds, and financial statements.
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their shares should
call (800) 772-3615 or write to the Fund.
CUSTODIAN
Custodial Trust Company, 101 Carnegie Center, Princeton, New
Jersey 08540-6231, acts as custodian of the assets of the
Fund.
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 pursuant to this
prospectus. McGladrey & Pullen, LLP, 555 Fifth Avenue, New
York, New York 10017, has been selected as auditors of the
Fund.
33
<PAGE>
APPENDIX
Description of Moody's Investors Service, Inc.'s long-term
ratings of A or better:
Aaa -- Bonds which are rated Aaa are judged to be
of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large or by
an exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa -- Bonds which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa
group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may
be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat
larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable
investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to
impairment some time in the future.
Description of Standard & Poor's Rating Group's corporate debt
ratings of A or better:
AAA -- Debt rated AAA has the highest rating
assigned by Standard & Poor's. Capacity to pay interest
and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to
pay interest and repay principal and differs from the
highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher
rated categories.
Description of Fitch Investors Service, Inc.'s corporate debt
ratings of A or better:
AAA -- AAA rated bonds are considered to be
investment grade and of the highest credit quality. The
obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
AA -- AA rated bonds are considered to be
investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated
AAA. Because bonds rated in the AAA and AA categories are
not significantly vulnerable to foreseeable future
developments, Short-term debt of these issuers is
generally rated A-1+.
A -- A rated bonds are considered to be investment
grade and of high credit quality. The obligor's ability to
pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with
higher ratings.
34
<PAGE>
Description of Moody's Investors Service, Inc.'s commercial
paper rating of Prime-1:
Prime-1 -- Issuers rated Prime-1 (or supporting
institutions) have a superior ability for repayment of
senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well-established
industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with
moderate reliance on debt and ample asset
protection.
-- Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
-- Well-established access to a range of financial
markets and assured sources of alternate
liquidity.
Description of Standard & Poor's Ratings Group's commercial
paper ratings of A-1 or better:
A-1 -- This highest category indicates that the
degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign
designation.
35
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PROSPECTUS
Core Equity Fund
Emerging Growth Equity Fund
Value Equity Fund*
International Equity Fund*
Actively Managed Fixed-Income Fund*
Intermediate-Term Fixed-Income Fund
Money Market Fund
January 28, 1997
1997
BROKER/DEALER
[logo]
RETIREMENT SYSTEM
Distributors Inc.
P.O. Box 2064
Grand Central Station
New York, NY 10163-2064
1-800-772-3615
*not yet available for sale to investors
