ANNUAL
REPORT
[RNC LOGO]
September 30, 1998
<PAGE>
[RNC LOGO]
TABLE OF CONTENTS
RNC MONEY MARKET FUND
Shareholder Letter............................................ 2
Investment Portfolio.......................................... 3
Statement of Assets and Liabilities........................... 5
Statement of Operations....................................... 6
Statement of Changes in Net Assets............................ 7
Financial Highlights.......................................... 8
RNC EQUITY FUND
Shareholder Letter............................................ 9
Investment Portfolio.......................................... 12
Statement of Assets and Liabilities........................... 15
Statement of Operations....................................... 16
Statement of Changes in Net Assets............................ 17
Financial Highlights.......................................... 18
RNC MUTUAL FUND GROUP, INC.
Notes to Financial Statements................................. 19
<PAGE>
RNC MONEY MARKET FUND
Dear Shareholders,
We are pleased to provide you with the annual report for the fiscal
year ended September 30, 1998.
The Fund continues to exhibit favorable returns as measured by its peer
group of First Tier Taxable Money Market Funds. This top tier group of funds
only invests in the highest quality short-term investments. As of September 30,
1998, the gross seven day yield before expenses for the Fund was 5.61%
(annualized) compared to an average yield of 5.59% for the other funds outlined
as reported by IBC Financial Data, Inc. The Fund's SEC seven day yield on
September 30, 1998 was 4.83%.
During the past six months the global economic slowing and selective
financial crisis abroad finally began to influence our domestic economy. The
slowing in manufacturing and exports has been quite pronounced, however, the
major impact was focused in the financial sector. The problems were associated
with tighter credit policies which created a "liquidity crunch" for the
leveraged hedge funds and certain broker/dealer arbitrage units and caused the
Federal Open Market Committee ("FOMC") to lower interest rates.
In this environment we continued to focus on quality and liquidity
while being quite sensitive to the risk associated with each investment. As a
result, we have broadened the types of instruments utilized to include a larger
representation in government agencies and bankers' acceptance paper. Although
these issues have somewhat lower yields, the protective characteristics and
improved liquidity provide a good enhancement to the overall fund structure.
Going forward, we believe the FOMC, under Chairman Greenspan's able
leadership, will maintain their easing bias while focusing on our domestic
economy. We feel that short-term interest rates will continue to vacillate
beyond norms while trending to lower levels. Therefore, we continue to emphasize
a longer maturity structure, which, on September 30, 1998 was 85 days.
Thank you for expressing confidence in our ability to provide a benefit
to you as a shareholder in the Fund. Please call us should you have any
questions regarding the Fund or your account.
Sincerely,
/s/ Daniel J. Genter
DANIEL J. GENTER
President
RNC Mutual Fund Group, Inc.
RNC Capital Management LLC
2
<PAGE>
RNC MONEY MARKET FUND
INVESTMENT PORTFOLIO AT SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
Principal Amount Market Value
- --------------------------------------------------------------------------------
COMMERCIAL PAPER*: 46.7%
$1,320,000 Atlantis One Funding Corp., 5.49%, 11/12/98.......... $ 1,311,545
1,500,000 Barton Capital Corp. (LOC Societe Generale),
5.52%, 10/28/98...................................... 1,493,790
1,500,000 Centauri Corp., 5.54%, 10/15/98...................... 1,496,769
1,500,000 Cooperative Association of Tractor Dealers "A",
5.50%, 11/3/98....................................... 1,492,438
1,500,000 Edison Asset Securitization (LOC General Electric),
5.54%, 10/1/98....................................... 1,500,000
1,500,000 General Electric Capital Corp., 5.13%, 2/22/99....... 1,469,220
1,500,000 General Motors Acceptance Corp., 5.52%, 10/6/98...... 1,498,850
1,653,000 Mercy Health Systems, 5.52%, 10/8/98................. 1,651,226
1,022,000 Quincy Capital Corp. (LOC Bank of America),
5.71%, 10/2/98....................................... 1,021,838
1,500,000 Receivables Capital Corp. (LOC Bank of America),
5.64%, 10/2/98....................................... 1,499,765
1,500,000 Sydney Capital Corp., Inc., 5.55%, 10/23/98.......... 1,494,913
-----------
Total Commercial Paper............................... 15,930,354
-----------
BANK OBLIGATIONS*: 10.1%
1,500,000 Chase Manhattan Bank, NA, Bankers Acceptance,
5.18%, 1/7/99........................................ 1,478,848
1,000,000 Citibank, NA, Bankers Acceptance, 5.37%,
11/10/98............................................. 994,033
1,000,000 First Chicago NBD, Bankers Acceptance, 5.30%,
12/14/98............................................. 989,106
-----------
Total Bank Obligations............................... 3,461,987
-----------
FEDERAL AGENCY SECURITIES: 17.0%
850,000 Federal National Mortgage Association, 5.12%,
1/22/99.............................................. 848,443
3,075,000 Federal National Mortgage Association, 6.00%,
10/21/99............................................. 3,075,781
1,000,000 Federal Home Loan Bank, 5.30%, 11/18/98.............. 999,394
150,000 International Bank For Reconstruction &
Development, 9.26%, 11/18/98......................... 150,684
700,000 International Bank For Reconstruction &
Development, 9.65%, 3/15/99.......................... 712,056
-----------
Total Federal Agency Securities...................... 5,786,358
-----------
See accompanying notes to financial statements.
3
<PAGE>
RNC MONEY MARKET FUND
INVESTMENT PORTFOLIO AT SEPTEMBER 30, 1998, CONTINUED
- --------------------------------------------------------------------------------
Principal Amount Market Value
- --------------------------------------------------------------------------------
CORPORATE BONDS: 19.9%
$ 355,000 American General Corp., 7.70%, 10/15/99............... $ 361,859
600,000 Household International, 6.00%, 3/15/99............... 600,636
380,000 HydroQuebec, 7.74%, 2/26/99........................... 382,721
150,000 International Lease Finance Corp., 5.50%, 1/15/99..... 999,249
810,000 Morgan Stanley Group, 6.125%, 1/5/99.................. 810,810
650,000 PepsiCo, Inc., 7.625%, 12/18/98....................... 652,686
2,000,000 Salomon, Inc., 6.22%, 11/19/98........................ 2,001,814
1,000,000 Sears Roebuck & Co., 5.86%, 1/22/99................... 1,000,592
-----------
Total Corporate Bonds................................. 6,810,367
-----------
OVERNIGHT REPURCHASE AGREEMENT: 5.8%
1,989,000 Seattle Northwest Government Repurchase Agreement,
5.45%, dated 9/30/98, due 10/1/98, collateralized
by $2,125,000 par value ($2,034,900 market value)
Federal Home Loan Mortgage Corporation, 7.125%, due
7/21/99 (proceeds $1,989,297)......................... 1,989,000
-----------
Total investment portfolio: 99.5%..................... 33,978,066
Other assets less liabilities: 0.5%................... 155,589
-----------
Net assets: 100.00%................................... $34,133,655
===========
* Positions are purchased at a discount and do not bear a coupon interest rate.
Rates shown are in effect on September 30, 1998. See accompanying notes to
financial statements.
See accompanying notes to financial statements.
4
<PAGE>
RNC MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES - SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
ASSETS:
Investment portfolio (cost of $33,978,066)................... $33,978,066
Cash......................................................... 660
Receivable for interest ..................................... 249,954
Other assets................................................. 74,393
-----------
Total assets............................................. 34,303,073
-----------
LIABILITIES:
Dividends payable............................................ 149,297
Investment advisory fees..................................... 8,597
Other accrued expenses....................................... 11,524
-----------
Total liabilities........................................ 169,418
-----------
NET ASSETS (equivalent to $1.00 per share based on
34,135,979 shares of capital stock outstanding............... $34,133,655
===========
See accompanying notes to financial statements.
5
<PAGE>
RNC MONEY MARKET FUND
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income interest............................................... $2,152,083
----------
Expenses:
Advisory fees (Note 3)...................................... 155,512
Shareholders' Rule 12b-1 Plan expense (Note 3).............. 94,824
Administration fees (Note 3)................................ 40,000
Professional fees........................................... 33,922
Registration expense........................................ 23,999
Fund accounting expense..................................... 22,410
Custodian fees.............................................. 20,994
Audit fees.................................................. 14,001
Transfer agent fees......................................... 11,116
Printing & other fees....................................... 6,304
Directors' fees............................................. 5,000
Insurance fees.............................................. 388
Miscellaneous fees.......................................... 5,000
----------
Total expenses............................................ 433,470
Less: expenses waived (Note 3)............................ (146,007)
----------
Net expenses.............................................. 287,463
----------
Net investment income ...................................... 1,864,620
----------
Net increase in net assets resulting from operations ....... $1,864,620
==========
See accompanying notes to financial statements.
6
<PAGE>
RNC MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended Year Ended
September September
30, 1998 30, 1997
- --------------------------------------------------------------------------------
Net increase in net assets resulting
from operations........................... $ 1,864,620 $ 2,131,026
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
From net investment income................ (1,867,023) (2,131,026)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold................. 171,813,189 168,807,286
Proceeds from shares reinvested........... 309,427 382,687
Cost of shares redeemed................... (182,556,191) (162,364,004)
------------- -------------
Total increase (decrease) from
capital share transactions........... (10,433,575) 6,825,969
------------- -------------
Total increase (decrease) in
net assets........................... (10,435,978) 6,825,969
NET ASSETS:
Beginning of the year...................... 44,569,633 37,743,664
End of year ............................... $ 34,133,655 $ 44,569,633
============= =============
CHANGE IN SHARES:
Shares sold ............................... 171,813,189 168,807,208
Shares reinvested.......................... 309,427 382,687
Shares redeemed............................ (182,556,191) (162,364,004)
Net increase (decrease).................... (10,433,575) 6,825,891
============= =============
See accompanying notes to financial statements.
7
<PAGE>
RNC MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
For the Year Ended September 30,
- ------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Income from investment operations:
Net investment income........................ .049 .049 .047 .051 .032
Less distributions:
From net investment income................... (.049) (.049) (.047) (.051) (.032)
------- ------- ------- ------- -------
Net asset value at end of year................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total return................................... 4.99% 5.01% 4.70% 5.10% 3.20%
Ratios/supplemental data:
Net assets, end of year (000's)................ $34,134 $44,570 $37,744 $31,066 $43,686
Ratio of expenses to average net assets:
After expense waiver......................... 0.76% 0.70% 0.90% 0.80% 0.70%
Ratio of net investment income to
average net assets (net of expense waiver)... 4.92% 4.90% 4.70% 5.00% 3.20%
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
RNC EQUITY FUND
Dear Shareholders,
As the President and CEO of RNC Capital Management LLC, the Advisor for
the RNC Equity Fund, I would like to thank you for your continued participation
in the Fund. The following report contains a summary of the performance of the
Fund for the year ended September 30, 1998. In addition, you will find financial
statements that include the holdings of the Fund as well as all expenses
incurred by the Fund as of September 30, 1998.
Unlike the previous semi-annual letter detailing the Fund's excellent
growth in assets through market appreciation and contributions, I am unable to
report similar increases in assets due primarily to the stock market which has
undergone a sharp correction within the past few months, that, in many respects,
resembles a Bear market. To summarize, the stock market continued to climb to
new highs from the end of March right up until mid-July in response to lower
inflation and interest rates. Then, increasing concerns over valuation levels
and the impact of emerging market devaluations caused a dramatic shift from a
bullish sentiment to a bearish sentiment and a precipitous 19% decline in the
S&P 500. Despite the setback suffered by the Fund in the third quarter, over the
past twelve months, the Fund has enjoyed significant growth in assets both from
new participants as well as some modest appreciation. For the fiscal year ended
September 30, 1998, the Fund appreciated 2.7%, which compares favorably with the
negative .06% return for the average Growth and Income Fund and even more
favorably with the more aggressive Growth Fund which recorded a negative 1.5%
return over the same period according to Lipper Analytical Services.
While no one event triggered the abrupt shift from bullishness to
bearishness, the uncertainty of future profit growth, particularly as the Asian
recession deepened, as well as the shocking Russian debt moratorium, stimulated
anxiety throughout the capital markets. Also, with Price/Earnings ratios rising
to 25x estimated earnings and 29x trailing earnings, both of which represent
historical highs, the stock market had little room for disappointment. In
addition, the fear of emerging market currencies, particularly in Latin America,
plus the possibility of a U.S. recession as a result of the global economic
turmoil, all loomed ominously. Prior to July, the market, had overlooked these
concerns and focused primarily on the strong domestic economy and
unrealistically high profit forecasts for this year and next. The result was a
flight of capital from more volatile assets, such as common stocks, to the safer
havens of U.S. Treasury obligations. The impact on the broad market was deeply
felt as the S&P 500 declined just over 19% from its mid-July peak to a low point
reached on August 31, 1998. During this same period, the average New York Stock
Exchange listed stock suffered a much greater loss of 35%, while the Russell
2000 (a proxy for small-cap stocks), after peaking in April, fell over 31%. As a
point of reference, declines of this magnitude had not been seen since the Bear
market of 1990. As the degree of deterioration for these indices indicate, there
was nowhere for equity investors to hide. In the third quarter alone, the
average U.S. stock fund declined 15%, small-cap funds fared even worse with an
average loss of 21% and emerging market funds lost a crushing 23.5% on average
according to Lipper Analytical Services.
While our previous shareholder letter referred to the possibility of an
outside event occurring which would alter the direction of the market, and
perhaps occasion another correction similar to October 1997, the actual degree
of decline to which the market plunged over a relatively brief period was
neither expected nor, of course, welcomed. Furthermore, heightened volatility
resulted in wide daily fluctuations in the market causing stress on a number of
individual positions, not to mention the psyche of most investors. Throughout
this turbulent
9
<PAGE>
RNC EQUITY FUND
period, we have remained virtually fully invested while seeking to take
advantage of pricing in efficiencies that typically occur during sharp
corrections. As a result, the turnover of the Fund has increased somewhat as new
positions were established in several attractively priced issues and proceeds
were raised by reducing position sizes of several issues or, in the case of two
holdings (Avnet and Halliburton), sold outright. Currently, the ten largest
holdings in the Fund equal approximately 34% of the Fund's assets.
While volatility promises to be a regular occurrence for this market,
with many trading days exceeding one percent or more in either direction, at
this juncture it appears that the worst of the decline may be over. The Federal
Reserve's intervention in the form of a 25 basis point rate cut on September 29,
1998 may well have forestalled a credit crunch as well as a domestic recession.
The equity market, in response to the rate cut, bottomed and resumed its upward
climb and is even now approaching its old highs. The longer-term outlook remains
somewhat clouded by the lack of earnings growth expected for the remainder of
this year and next year. Additional Fed rate reductions, continued benign
inflation, the absence of a recession, and some progress in addressing global
concerns will certainly be necessary if the market is to resume and sustain its
long-term uptrend and not just be confined to a wide trading and not just be
confined to a wide trading range over the next few months. (While this report is
centered on the fiscal year ending September 30, 1998, we would be remiss not to
mention that the Federal Reserve has lowered rates twice more in the past six
weeks following the initial cut, clearly sending a message to the capital
markets that a U.S. recession just is not acceptable even if the economic
conditions in Asia and various emerging markets remain precarious). Finally,
based on the assumption that the relatively brief but painful Bear market is
behind us, and in conjunction with our general approach of staying fully
invested, we are maintaining a low cash position while aggressively seeking out
mispriced securities. At all times, our stock selection remains focused on
identifying superior earnings companies with well above average long-term
potential selling at reasonable valuations. Our objective, as always, is capital
appreciation within a framework of reasonable market risk.
Once again, thank you for your ongoing participation in the RNC Equity
Fund. It is periods of market turmoil such as we have experienced over the past
several months that prove the premise that consistent long-term participation in
the market is required in order to achieve long-term objectives.
If you have any questions regarding your investment in the Fund, please
contact us at your convenience.
Sincerely,
/s/ Daniel J. Genter
DANIEL J. GENTER
President
RNC Mutual Fund Group, Inc.
RNC Capital Management LLC
10
<PAGE>
RNC EQUITY FUND
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE RNC EQUITY FUND AND THE S&P 500 INDEX
Average Annual Total Returns
Periods Ended Septembet 30, 1998
1 Year...................... 2.68%
Inception (11/1/96)......... 13.34%
RNC Equity Fund S&P 500
--------------- -------
11/1/96 $10,000 $10,000
12/31/96 10,117 10,525
3/31/97 10,233 10,758
6/30/97 11,667 12,577
9/30/97 12,375 13,460
12/31/97 12,917 13,789
3/31/98 14,427 15,655
6/30/98 14,670 16,111
9/30/98 $12,707 $14,451
Past performance is not predictive of future performance.
11
<PAGE>
RNC EQUITY FUND
INVESTMENT PORTFOLIO AT SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 97.5% Market Value
- --------------------------------------------------------------------------------
AEROSPACE: 1.1%
2,000 Boeing Company..................................... $ 68,625
--------
AUTO: 3.1%
4,300 Ford Motor Company................................. 201,831
--------
BANKING: 8.3%
7,300 Bank of New York Co................................ 199,838
3,400 Chase Manhattan Corp............................... 147,050
5,600 Norwest Corp....................................... 200,550
--------
547,438
--------
BEVERAGES: 2.1%
4,700 PepsiCo. Inc....................................... 138,356
--------
CAPITAL GOODS: 3.0%
2,500 General Electric Co................................ 198,906
--------
CHEMICALS: 2.6%
2,000 Dow Chemical Company............................... 170,875
--------
COMPUTERS & PERIPHERALS: 7.2%
3,400 HewlettPackard Company............................. 179,988
2,300 International Business Machines Corp............... 294,400
--------
474,388
--------
COMPUTER SOFTWARE & SERVICES: 1.1%
3,100 First Data Corp.................................... 72,850
--------
CONSUMER PRODUCTS: 4.1%
5,200 Avon Products, Inc................................. 145,925
1,700 Procter & Gamble Company........................... 120,594
--------
266,519
--------
DIVERSIFIED MANUFACTERS: 3.5%
4,100 Tyco International Ltd............................. 226,525
--------
See accompanying notes to financial statements.
12
<PAGE>
RNC EQUITY FUND
INVESTMENT PORTFOLIO AT SEPTEMBER 30, 1998, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
DRUGS: 20.0%
3,400 Alza Corporation................................. $ 147,475
2,700 American Home Products Corp...................... 141,413
7,000 HBO & Co......................................... 202,125
2,800 Johnson & Johnson Company........................ 219,100
3,000 Lilly (Eli) & Co................................. 234,938
1,800 Pfizer, Inc...................................... 190,687
1,700 ScheringPlough Corp.............................. 176,056
---------
1,311,794
---------
ENTERTAINMENT: 2.4%
6,300 The Walt Disney Company.......................... 159,469
---------
FINANCIAL SERVICES: 6.5%
6,000 MBNA Corp........................................ 171,750
6,800 Travelers, Inc................................... 255,000
---------
426,750
---------
FOOD MISCELLANEOUS/DIVERSIFIED: 3.0%
4,000 Bestfoods........................................ 193,750
---------
INSURANCE: 5.4%
3,900 Hartford Financial Services Group................ 185,006
3,450 Marsh & McLennan Companies....................... 171,637
---------
356,643
---------
MISCELLANEOUS: 2.3%
4,500 ITT Industries, Inc.............................. 152,437
---------
PETROLEUM: 5.4%
2,000 Chevron Corp..................................... 168,125
3,000 Texaco, Inc...................................... 188,063
---------
356,188
---------
RAW MATERIALS: 2.3%
2,800 PPG Industries................................... 152,775
---------
See accompanying notes to financial statements.
13
<PAGE>
RNC EQUITY FUND
INVESTMENT PORTFOLIO AT SEPTEMBER 30, 1998, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
RECREATIONAL: 3.4%
7,000 Carnival Corp., Class A............................ $ 222,687
----------
RETAILING: 3.9%
3,500 Lowe's Co., Inc.................................... 111,344
2,800 May Department Stores Company...................... 144,200
----------
255,544
----------
TOYS: 1.3%
3,000 Mattel Inc......................................... 84,000
----------
TELECOMMUNICATIONS SERVICES: 5.5%
2,600 BellSouth Corp..................................... 195,650
3,000 GTE Corp........................................... 165,000
----------
360,650
----------
Total Common Stocks (cost $5,966,133).............. 6,399,000
----------
Principal
Amount REPURCHASE AGREEMENT: 4.0%
- --------------------------------------------------------------------------------
$265,000 Star Bank Repurchase Agreement, 4.9%, dated 9/30/98,
due 10/1/98, collateralized by $273,070 GNMA, 6.5%,
due 2/20/24, (proceeds $265,036) (cost $265,000).... 265,000
----------
Total Investments: 101.5% (cost $6,231,133+)........ 6,664,000
Liabilities in excess of Other Assets: (1.5)%....... (101,685)
----------
Total Net Assets: 100.0%............................ $6,562,315
==========
+ Cost for Federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation....................... $ 773,469
Gross unrealized depreciation....................... (340,602)
----------
Net unrealized appreciation...................... $ 432,867
==========
See accompanying notes to financial statements.
14
<PAGE>
RNC EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES - SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities, at value (cost $6,231,133)........... $6,664,000
----------
Cash............................................................ 120
Receivables for dividends and interest.......................... 7,409
Deferred organizational costs, net (Note 2)..................... 24,177
Other assets.................................................... 18,300
----------
Total assets................................................. 6,714,006
----------
LIABILITIES:
Payable:
For securities purchased...................................... 55,838
Fund shares redeemed.......................................... 6,807
Due to advisor (Note 2)......................................... 36,263
Accrued 12b-1 expenses (Note 3)................................. 4,004
Other accrued expenses.......................................... 48,258
----------
Total liabilities............................................ 151,170
----------
NET ASSETS ..................................................... $6,562,836
==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($6,562,836/431,410 shares outstanding; 500,000,000
shares authorized with $0.01 par value)...................... $ 15.21
==========
SOURCES OF NET ASSETS:
Paid in capital................................................. $6,202,081
Accumulated net investment income............................... 9,504
Accumulated net realized loss on investments.................... (81,616)
Net unrealized appreciation of investments...................... 432,867
----------
Net assets................................................... $ 6,562,836
===========
See accompanying notes to financial statements.
15
<PAGE>
RNC EQUITY FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends......................................................... $ 78,566
Interest.......................................................... 8,530
---------
Total investment income........................................ 87,096
---------
Expenses
Advisor fees (Note 3)............................................. 51,010
Administration fees (Note 3)...................................... 40,000
Professional fees................................................. 14,984
Audit fees........................................................ 14,001
Fund accounting expense........................................... 10,262
Shareholders' Rule 12b-1 Plan expense (Note 3).................... 12,980
Transfer agent fees............................................... 9,600
Custodian expense................................................. 8,934
Amortization of deferred organizational costs (Note 2-F).......... 7,823
Directors fees.................................................... 5,344
Registration expense.............................................. 5,598
Printing expenses................................................. 1,418
Insurance expense................................................. 125
Miscellaneous expense............................................. 3,927
---------
Total expenses................................................. 186,006
Less: expenses waived and reimbursed (Note 3).................. (100,606)
---------
Net expenses................................................... 85,400
---------
NET INVESTMENT INCOME ............................................ 1,696
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized loss on investments.................................... (62,752)
Net change in unrealized depreciation of investments for the year... (12,682)
---------
Net realized and unrealized loss on investments................ (75,434)
---------
Net decrease in Net Assets Resulting from Operations ......... $ (73,738)
=========
See accompanying notes to financial statements.
16
<PAGE>
RNC EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
For the Year November 1, 1996*
Ended through
September 30, 1998 September 30, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment income............................ $ 1,696 $ 5,645
Net realized loss on investments................. (62,752) (18,864)
Net change in unrealized appreciation
(depreciation) of investments................... (12,682) 445,549
----------- -----------
Net increase (decrease) in net
assets resulting from operations.......... (73,738) 432,330
----------- -----------
Distributions to shareholders from
net investment income.......................... (12,776) 0
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold....................... 3,860,678 3,240,812
Net asset value of shares issued on
reinvestment of distributions.................. 12,775 0
Cost of shares redeemed......................... (742,171) (155,074)
----------- -----------
Total increase from capital share
transactions.............................. 3,131,282 3,085,738
----------- -----------
Total increase in net assets............... 3,044,768 3,518,068
----------- -----------
NET ASSETS:
Beginning of the period.......................... 3,518,068 0
----------- -----------
End of period (including undistributed
net investment income of $9,504 and
$5,645, respectively).......................... $ 6,562,836 $ 3,518,068
=========== ===========
CHANGE IN SHARES:
Shares sold ..................................... 237,937 248,230
Shares issued on reinvestment of distributions... 789 0
Shares redeemed.................................. (44,180) (11,366)
----------- -----------
Net increase............................... 194,546 236,864
=========== ===========
</TABLE>
* Commencement of operations.
See accompanying notes to financial statements.
17
<PAGE>
RNC EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
For the Year November 1, 1996*
Ended through
September 30, 1998 September 30, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period........... $ 14.85 $12.00
------- ------
Income from investment operations:
Net investment income.......................... .01 .02
Net realized and unrealized gain on
investments................................... .39 2.83
------- ------
Total from investment operations................. .40 2.85
------- ------
Less distributions:
From net investment income..................... (.04) .00
------- ------
Net asset value at end of period................. $ 15.21 $14.85
======= ======
Total return..................................... 2.68% 23.75%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........ $6,562 $3,518
Ratio of expenses to average net assets:
Before expense reimbursement................... 3.57% 8.50%+
After expense reimbursement.................... 1.64% 1.65%+
Ratio of net investment income (loss) to
average net assets:
Before expense reimbursement................... (1.90%) (6.53%)+
After expense reimbursement.................... 0.03% 0.32%+
Portfolio turnover rate.......................... 20.00% 38.00%
</TABLE>
* Commencement of operations.
+ Annualized.
++ Not annualized.
See accompanying notes to financial statements.
18
<PAGE>
RNC MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION
The RNC Mutual Fund Group, Inc. (the "Group"), is registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end management
investment company, with two diversified funds: The RNC Equity Fund (the "Equity
Fund") and the RNC Money Market Fund (the "Money Fund"), formerly the RNC Liquid
Assets Fund, Inc., (collectively the "Funds"). The Equity Fund began operations
on November 1, 1996. The investment objective of the Equity 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 Money
Fund's investment objective is high current income consistent with preservation
of capital and liquidity.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. 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. For the Equity Fund 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 Money 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 for the Money Fund are valued using
the amortized cost method, which approximates market value.
B. Federal Income Taxes. The Funds intend 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.
As of September 30, 1998, the Equity Fund had realized capital losses
of $38,897 to offset future net capital gains through fiscal year
ended 2005.
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.
19
<PAGE>
RNC MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
D. Repurchase Agreements. Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective
agreements mature. Provisions of the repurchase agreements ensure that
the market value of the collateral, including accrued interest
thereon, is sufficient in the event of default by the counterparty. If
the counterparty defaults and the value of the collateral declines or
if the counterparty enters an insolvency proceeding, realization of
collateral by the Funds may be delayed or limited.
E. Expenses. Expenses that are related to one of the Funds are charged
directly to that fund. Other operating expenses of the fund are
allocated to the Funds on the basis of relative net assets.
F. Deferred Organization Costs. The Equity Fund has incurred expenses of
$39,116 in connection with the organization. These costs have been
deferred and are being amortized on a straight line basis over a
period of sixty months from the date the Equity Fund commenced
operations.
G. 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
amounts of assets and liabilities at the date of the financial
statements, as well as the reported amounts of income and expenses
during the reported period. Actual results could differ from those
estimates.
3. INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the year ended September 30, 1998, RNC Capital Management LLC (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 of the personnel needed by the Funds. 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 net assets of the Equity Fund
and 0.41% based upon the average daily net assets for the Money Fund. For the
year ended September 30, 1998, the Equity Fund incurred $51,010 in advisory fees
and the Money Fund incurred $155,512 for the year ended September 30, 1998. RNC
voluntarily waived a portion of the Money Fund advisory fee, which amounted to
$51,183 or 0.13% of the Money Fund's average daily net assets.
The Funds are responsible for their own operating expenses. The Advisor
may reduce its fees or make reimbursement to the Funds at any time in order to
reduce the Funds' expenses. Any such reductions made by the Advisor in its fees
or payments or reimbursement of expenses which are the Funds' obligation are
subject to reimbursement by the Funds provided the Funds are able to effect such
reimbursement and remain in compliance with applicable laws. During the year
ended September 30, 1998 the Advisor reimbursed the Equity Fund $100,606 in fees
and expenses.
Investment Company Administration Corporation (the "Administrator") acts
as the Funds' Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Funds; prepares reports and materials to be supplied to the directors;
monitors the activities of the Funds' custodian, transfer agent and accountants;
coordinates the preparation and payment of
20
<PAGE>
RNC MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
the Funds expenses and reviews the Funds' expense accruals. For its services,
the Administrator receives a monthly fee at the following annual rate:
Under $40 million $40,000
$40 to $100 million 0.10% of average daily net assets
$100 to $200 million 0.05% of average daily net assets
Over $200 million 0.03% of average daily 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 receives no fees for its services and is an affiliate of the
Administrator.
The Funds have adopted a Shareholder Rule 12b-1 Plan (the "Plan") in
accordance with Rule 12b-1 under the 1940 Act. The Plan provides that the Funds
will pay a fee to the Distributor at an annual rate of 0.25% of the average
daily net assets of the Funds. The Equity Fund incurred $12,980 in Plan expenses
for the year ended September 30, 1998. The Distributor waived all fees totaling
$94,824 for the year ended September 30, 1998, in its capacity of Shareholder
Servicing Agent for the Money Fund.
Certain officers of the Fund are officers and/or directors of the
Administrator and Distributor.
4. PURCHASES AND SALES OF SECURITIES
Purchases and the proceeds from the sales of securities, other than
short-term investments, for the year ended September 30, 1998 were $4,107,491
and $1,008,669 respectively for the Equity Fund.
5. CHANGE IN ADVISOR
On March 31, 1998, Bank Austria America, the indirect holding company for
the Funds' Adviser, RNC Capital Management Co. ("RNC"), sold its interest in RNC
to a new limited liability company formed by the Adviser's chief executive
officer. On April 7, 1998, the Funds' shareholders approved a new Investment
Advisory Agreement between the Funds and RNC Capital Management LLC as part of
the acquisition of RNC.
21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
RNC Mutual Fund Group, Inc.
We have audited the accompanying statement of assets and liabilities of
the RNC Mutual Fund Group, Inc. composed of the RNC Money Market Fund and the
RNC Equity Fund, including the investment portfolio, as of September 30, 1998,
and the related statements of operations, the statement of changes in net
assets, and the financial highlights for each of the periods presented herein.
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, 1998, by correspondence with the custodian. 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
RNC Money Market Fund and the RNC Equity Fund as of September 30, 1998, and the
results of their operations, the changes in their net assets and the financial
highlights for each of the periods presented herein, in accordance with
generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
October 30, 1998
<PAGE>
ADVISER
RNC Capital Management LLC
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.
150 Motor Parkway, Suite 109
Hauppuage, New York 11788
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker, LLP
345 California Street, 29th Floor
San Francisco, California 94104
AUDITORS
Tait, Weller & Baker
Eight Penn Center Plaza, Suite 800
Philadelphia, Pennsylvania 19103
