RNC
MUTUAL FUND
GROUP, INC.
Dear Fellow Shareholders:
The RNC Equity Fund seeks above average long term capital appreciation
consistent with reasonable stock market risk. The Fund consists of a diversified
portfolio of primarily large capitalization U.S. common stocks. Emphasis is on
high quality companies that typically dominate their markets, have recognizable
brand names or provide a readily identifiable service and have a high degree of
earnings visibility and stability. In general, the Fund's portfolio will be
characterized by a lower Price to Earnings (P/E) ratio, a higher growth rate in
earnings and a higher return on equity (ROE) than the S&P 500 Index.
The RNC Equity Fund's initial start date of November 1, 1996 coincided
with a surging equity market that appreciated some 7.7% in the month of November
alone followed by a decline of 2.0% in the S&P 500 in December mostly occasioned
by Mr. Greenspan's remarks regarding the "irrational" strength of the stock
market. After rising to a 10% by mid-February, the market declined sharply
toward quarter end due to renewed concerns about Fed tightening and finished
with a modest positive gain. Earlier in the year, it became apparent that the
market had risen to an unsustainable valuation when compared with both the bond
market and the prospects for future earnings. Fed action to tighten at quarter
end only magnified the corrective process already underway. Despite the rising
short term volatility of the market, the RNC Equity Fund returned a net of 1.6%
for the five months ending March 31, 1997 versus the S&P 500 return of 8.4% for
the same period. In large part, the shortfall in performance is attributable to
a fairly constant flow of new money into the Fund, the Fund's relatively small
size at inception and the usual high level of expenses associated with any new
fund. However, the Fund return for the first quarter of 0.5% was more in line
with the market and with more seasoned funds of similar objectives.
A modest degree of cash has been raised and maintained in the Fund to
further reduce risk as well as to have funds available to purchase outstanding
companies at more reasonable price levels that occur during periods of more
volatile markets.
<PAGE>
In order to raise cash, various positions, particularly in the
Technology Sector, were either eliminated or reduced. During corrections, market
leadership tends to rotate. The Technology Sector, which had been a bellwether
sector throughout the 1995-1996 period, has been undergoing a sharp reduction in
valuation relative to the market which may continue. Sectors we favor include
the Financials, where low relative valuation along with strong earnings and
dividend growth, is expected to offset adverse market psychology caused by
higher interest rates. In addition, we remain positive about the Healthcare
Sector where earnings predictability and new product flow are overcoming the
negative impact of the stronger dollar. Finally, despite lower energy prices in
the first quarter we remain positive about the investment characteristics of the
Energy group particularly the group's strong cash flow.
Our perspective on the economy and the market for the next several
months is one of cautious optimism. We believe that the current correction we
are experiencing is an inevitable retrenchment we must experienced periodically
for relatively brief periods within secular bull markets. While we also believe
that a significant portion of the market correction has already occurred, we are
mindful of 1994 and 1984 both previous periods of Fed tightening that resulted
in returns to 1.3% and 6.2%, respectively, which contrasts with an annual return
of 10.7% over the past seven decades. However, predicated upon the Fed's not
becoming overly aggressive in its preemptive strike to avert inflation, the U.S.
economy should continue with the moderate growth trend that has been in place
for the past six years. This will provide a long term positive environment for
corporate earnings growth which should subsequently translate into higher share
prices at least in line with earnings growth rates.
ERIC M. BANHAZL DANIEL J. GENTER
President President
RNC Mutual Fund Group, Inc. RNC Capital Management Co.
<PAGE>
RNC EQUITY FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at March 31, 1997 (Unaudited)
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Shares COMMON STOCKS: 86.57% Market Value
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<S> <C> <C>
Aerospace: 2.28%
400 Boeing Company.......................................................... $ 39,450
-----------
Banking: 9.15%
1,200 Bank of New York Corp................................................... 44,100
500 Chase Manhattan Corp.................................................... 46,813
900 Norwest Corp............................................................ 41,625
800 Penncorp Financial Group, Inc........................................... 25,600
-----------
158,138
-----------
Beverage: 2.27%
1,200 PepsiCo, Inc............................................................ 39,150
-----------
Chemicals: 4.53%
500 Dow Chemical Company.................................................... 40,000
1,000 Monsanto Company........................................................ 38,250
-----------
78,250
-----------
Computer & Peripherals: 4.63%
600 Hewlett-Packard Company................................................. 31,950
350 International Business Machines Corp.................................... 48,081
-----------
80,031
-----------
Computer Software & Services: 3.59%
500 Avnet Inc............................................................... 28,188
1,000 First Data Corp......................................................... 33,875
-----------
62,063
-----------
Consumer Products: 6.17%
600 CPC International, Inc.................................................. 49,200
500 Proctor & Gamble Company................................................ 57,500
-----------
106,700
-----------
Diversified: 2.87%
500 General Electric Company................................................ 49,625
-----------
Drugs: 11.07%
700 Johnson & Johnson Company............................................... 37,012
250 Merck & Company, Inc.................................................... 21,062
</TABLE>
See accompanying notes to financial statements.
3
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RNC EQUITY FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at March 31, 1997 (Unaudited)
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Shares Market Value
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<S> <C> <C>
Drugs, continued
500 Pfizer, Inc............................................................. $ 42,062
1,200 Pharmacia & Upjohn, Inc................................................. 43,950
650 Schering-Plough Corp.................................................... 47,288
-----------
191,374
-----------
Entertainment: 2.96%
700 The Walt Disney Company................................................. 51,100
-----------
Financial Services: 2.77%
1,000 Travelers, Inc.......................................................... 47,875
-----------
Insurance: 5.12%
600 ITT Hartford Group...................................................... 43,275
400 Marsh & McLennan Companies.............................................. 45,300
-----------
88,575
-----------
Medical Services: 2.14%
1,100 Columbia HCA Healthcare Corp............................................ 36,987
-----------
Miscellaneous: 1.81%
1,400 ITT Industries, Inc..................................................... 31,325
-----------
Oil Services: 2.74%
700 Halliburton Company..................................................... 47,425
-----------
Petroleum: 5.99%
700 Chevron Corp............................................................ 48,738
500 Texaco, Inc............................................................. 54,750
-----------
103,488
-----------
Recreational: 2.78%
1,300 Carnival Corp., Class A................................................. 48,100
-----------
Restaurants: 1.64%
600 McDonald's Corp......................................................... 28,350
-----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
RNC EQUITY FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at March 31, 1997 (Unaudited)
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Shares Market Value
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<S> <C> <C>
Retail: 4.88%
1,000 Avon Products, Inc...................................................... $ 52,500
700 May Department Stores Company........................................... 31,850
-----------
84,350
-----------
Telecommunications Services: 4.36%
900 Bellsouth Corp.......................................................... 38,025
800 GTE Corp................................................................ 37,300
-----------
75,325
-----------
Utilities: 2.82%
900 PPG Industries.......................................................... 48,600
-----------
Total Common Stocks (cost $1,508,066)................................... 1,496,281
-----------
Principle REPURCHASE AGREEMENT: 11.40%
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$197,000 Star Bank Repurchase Agreement, 5.00%, dated 3/31/97,
collateralized by $215,000 GNMA, 6.50%, due 1/20/24,
(proceeds $197,027) (cost $197,000)..................................... 197,000
-----------
Total investments (cost $1,705,066+): 97.97%............................ 1,693,281
Other assets less liabilities: 2.03%.................................... 35,140
-----------
Net assets: 100.00%..................................................... $ 1,728,421
===========
+Cost for Federal income tax purposes is the same.
Net unrealized depreciation consists of:
Gross unrealized appreciation..................................................... $ 32,327
Gross unrealized depreciation..................................................... (44,112)
-----------
Net unrealized depreciation............................................. $ (11,785)
===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
RNC EQUITY FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - March 31, 1997 (Unaudited)
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<S> <C>
ASSETS
Investments in securities, at value (cost of $1,705,066)............................... $1,693,281
Cash................................................................................... 968
Receivables:
Fund shares sold................................................................. 39,436
Dividends and interest........................................................... 2,183
Deferred organization costs, net....................................................... 35,795
Other assets........................................................................... 14,521
-----------
Total Assets............................................................... 1,786,184
-----------
LIABILITIES
Due to Advisor......................................................................... 40,485
Accrued 12b-1 expenses................................................................. 915
Other accrued expenses................................................................. 16,363
-----------
Total Liabilities.......................................................... 57,763
-----------
NET ASSETS .................................................................................. $1,728,421
===========
Net asset value, offering and redemption price per share
($1,728,421/140,745 shares outstanding; 500,000,000 shares
authorized with $0.01 par value)................................................. $12.28
===========
SOURCES OF NET ASSETS
Paid in capital........................................................................ $1,748,305
Accumulated net investment income...................................................... 1,402
Accumulated net realized loss on investments........................................... (9,501)
Net unrealized depreciation of investments............................................. (11,785)
-----------
Net Assets................................................................. $1,728,421
===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
RNC EQUITY FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Period November 1, 1996* through March 31, 1997 (Unaudited)
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<S> <C>
INVESTMENT INCOME
Income:
Dividends........................................................................ $ 6,991
Interest......................................................................... 2,113
-----------
Total investment income.................................................... 9,104
-----------
Expenses:
Administration fees (Note 3)..................................................... 16,439
Professional fees................................................................ 6,961
Audit fees....................................................................... 5,754
Fund accounting expense.......................................................... 5,291
Advisor's fees (Note 3).......................................................... 4,656
Transfer agent fees.............................................................. 3,945
Amortization of deferred organizational costs (Note 2-D)......................... 3,206
Director's fees.................................................................. 2,280
Custodian expense................................................................ 2,090
Registration expense............................................................. 1,233
Shareholders' Rule 12b-1 expense (Note 5)........................................ 1,159
Printing expenses................................................................ 1,128
Insurance fees................................................................... 267
Miscellaneous expenses........................................................... 1,111
-----------
Total expenses............................................................. 55,520
Less, expenses waived and reimbursed....................................... (47,818)
-----------
Net expenses............................................................... 7,702
-----------
Net investment income...................................................... 1,402
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments....................................................... (9,501)
Net change in unrealized depreciation on investments................................... (11,785)
-----------
Net realized and unrealized loss on investments............................ (21,286)
-----------
Net decrease in net assets resulting from operations....................... $ (19,884)
===========
</TABLE>
*Commencement of operations.
See accompanying notes to financial statements.
7
<PAGE>
RNC EQUITY FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
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November 1, 1996*
through
March 31, 1997#
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<S> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
Operations:
Net investment income............................................................. $ 1,402
Realized loss on investments...................................................... (9,501)
Net change in unrealized depreciation of investments.............................. (11,785)
-----------
Net decrease in net assets resulting from operations.............................. (19,884)
-----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold......................................................... 1,836,173
Cost of shares redeemed........................................................... (87,868)
-----------
Net increase from capital share transactions...................................... 1,748,305
-----------
Total increase in net assets................................................ 1,728,421
NET ASSETS
Beginning of the period................................................................. -0-
-----------
End of period (including undistributed net investment income of $1,402)................. $1,728,421
===========
CHANGE IN SHARES
Shares sold ............................................................................ 147,429
Shares redeemed......................................................................... (6,684)
-----------
Net increase............................................................................ 140,745
===========
</TABLE>
*Commencement of operations.
#Unaudited.
See accompanying notes to financial statements.
8
<PAGE>
RNC EQUITY FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
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November 1, 1996*
through
March 31, 1997#
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<S> <C>
Net asset at beginning of period.......................................................... $12.00
------
Income from investment operations:
Net investment income............................................................... .01
Net realized and unrealized gain on investments..................................... .27
------
Total from investment operations.......................................................... .28
Net asset value at end of period.......................................................... $12.28
======
Total return.............................................................................. 2.33%+
Ratios/supplemental data:
Net assets, end of period (000 omitted)................................................... $1,728
Ratio of expenses to average net assets:
Before expense reimbursement........................................................ 11.57%++
After expense reimbursement......................................................... 1.65%++
Ratio of net investment income to average net assets:
Net of expense reimbursement........................................................ 6.10%++
Portfolio turnover rate................................................................... 35%
Average commission rate paid.............................................................. $.1828
</TABLE>
*Commencement of operations.
#Unaudited.
+Not Annualized.
++Annualized.
See accompanying notes to financial statements.
9
<PAGE>
RNC EQUITY FUND
NOTES TO FINANCIAL STATEMENTS - March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION
The RNC Equity Fund (the "Fund"), is a series of the RNC Mutual Fund
Group, Inc., which is registered under the Investment Company Act of 1940 (the
"1940 Act") as an open-end management investment company. The Fund began
operations on November 1, 1996. The investment objective of the Fund is to seek
above-average total return consistent with reasonable risk. The Fund seeks to
achieve its objective by investing primarily in equity securities. The Fund is a
diversified series of the RNC Mutual Fund Group, Inc. (the "Company").
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund. These policies are in conformity with
generally accepted accounting principles.
A. Security Valuation. Investments in securities traded on a
national securities exchange or included in the NASDAQ
National Market System are valued at the last reported sale
price at the close of regular trading on the last business day
of the period; securities traded on an exchange or NASDAQ for
which there have been no sales and other over-the-counter
securities are valued at the last reported bid price.
Securities for which quotations are not readily available are
valued at their respective fair values as determined in good
faith by the Board of Directors. Short-term investments are
stated at cost, which when combined with accrued interest,
approximates market value.
U.S. Government securities with less than 60 days
remaining to maturity when acquired by the Fund are valued on
an amortized cost basis. U.S. Government securities with more
than 60 days remaining to maturity are valued at the current
market value (using the mean between the bid and asked price)
until the 60th day prior to maturity, and are then valued at
amortized cost based upon the value on such date unless the
Board determines during such 60 day period that this amortized
cost basis does not represent fair value.
Short-term portfolio securities (those with less than
60 days to maturity) are value using the amortized cost
method, which approximates market.
B. Federal Income Taxes. The Fund intends to comply with the
requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its
taxable income to its shareholders. Therefore, no federal
income tax provision is required.
C. Security Transactions, Dividends and Distributions. As is
common in the industry, security transactions are accounted
for on the trade date. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
D. Deferred Organization Costs. The Fund has incurred expenses of
$39,000 in connection with the organization of the Fund. These
costs have been deferred and are being amortized on a straight
line basis over a period of sixty months from the date the
Fund commenced investment operations.
E. Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported
10
<PAGE>
RNC EQUITY FUND
NOTES TO FINANCIAL STATEMENTS, continued
- --------------------------------------------------------------------------------
amount of assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
3. INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the period ended March 31, 1997, RNC Capital Management Co. (the
"Advisor") provided the Funds with investment management services under an
Investment Advisory Agreement. The Advisor furnished all investment advice,
office space, facilities, and most personnel needed by the Fund. As compensation
for its services, the Advisor was entitled to a monthly fee at the annual rate
of 1.00% based upon the average daily assets of the Fund. For the period ended
March 31, 1997, the Fund incurred $4,656 in advisory fees.
The Fund is responsible for its own operating expenses. The Advisor may
reduce its fees or make reimbursement to the Fund at any time in order to reduce
the Fund's expenses. Any such reductions made by the Advisor in its fees or
payments or reimbursement of expenses which are the Fund's obligation are
subject to reimbursement by the Fund provided the Fund is able to effect such
reimbursement and remain in compliance with applicable laws. During the period
ended March 31, 1997 the Advisor reimbursed the Fund $47,818 in fees and
expenses.
Investment Company Administration Corporation (the "Administrator")
acts as the Fund's Administrator under an Administration Agreement. The
Administrator prepares various federal and state regulatory filings, reports and
returns for the Fund; prepares reports and materials to be supplied to the
directors; monitors the activities of the Fund's custodian, transfer agent and
accountants; coordinates the preparation and payment of the Fund expenses and
reviews the Fund's expense accruals. For its services, the Administrator
receives a monthly fee at the following rate:
Under $40 million $40,000
$40 to $100 million 0.10% of average net assets
$100 to $200 million 0.05% of average net assets
over $200 million 0.03% of average net assets
First Fund Distributors, Inc. (The "Distributor") acts as the Fund's
principal underwriter in a continuous public offering of the Fund's shares. The
Distributor is an affiliate of the Administrator.
Certain officers and Directors of the Trust are officers and/or
directors of the Administrator and Distributor.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term investments,
for the period ended March 31, 1997 were $1,940,513 and $421,447, respectively.
5. SHAREHOLDERS RULE 12b-1 PLAN
The Fund has adopted a Shareholder Rule 12b-1 Plan (the "Plan") in
accordance with Rule 12b-1 under the 1940 Act. The Plan provides that the Fund
will pay a fee to the Distribution Coordinator appointed by the Board at an
annual rate of 0.25% of its average daily net assets of the Fund. The Fund
incurred $1,169 in Plan expenses for the period ended March 31, 1997.
11
<PAGE>
<TABLE>
<S> <C>
RNC EQUITY
FUND
ADVISER SEMI-ANNUAL
RNC Capital Management Co. REPORT
11601 Wilshire Boulevard
25th Floor
Los Angeles, California 90025
CUSTODIAN
Star Bank, N. A.
425 Walnut Street
Cincinnati, Ohio 45202
TRANSFER AGENT
American Data Services, Inc.
24 West Carver Street, 2nd Floor
Huntington, New York 11743
LEGAL COUNSEL
Heller, Ehrman, White & McAuliffe
333 Bush Street RNC
San Francisco, California 94104
MUTUAL FUND
AUDITORS GROUP, INC.
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, PA 19102
March 31, 1997
</TABLE>
