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RNC Mutual Fund Group, Inc.
Annual Report
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For the Year Ended
September 30, 2000
<PAGE>
TABLE OF CONTENTS
RNC MONEY MARKET FUND
Shareholder Letter.................................................... 1
Investment Portfolio.................................................. 2
Statement of Assets and Liabilities................................... 3
Statement of Operations............................................... 4
Statement of Changes in Net Assets.................................... 5
Financial Highlights.................................................. 6
RNC EQUITY FUND
Shareholder Letter.................................................... 7
Investment Portfolio.................................................. 10
Statement of Assets and Liabilities................................... 12
Statement of Operations............................................... 13
Statement of Changes in Net Assets.................................... 14
Financial Highlights.................................................. 15
RNC MUTUAL FUND GROUP, INC.
Notes to Financial Statements......................................... 16
<PAGE>
RNC MONEY MARKET FUND
Dear Shareholders,
We are pleased to provide you with the annual report for the fiscal year ending
September 30, 2000, as well as an overview of the environment prevailing during
the past six months.
The Fund continued to demonstrate favorable returns as measured against 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. Furthermore, the net
seven-day yield of 5.77% as of September 30th placed the Fund in a strong
competitive position compared to the other 312 funds, as reported by iMoneyNet,
Inc.
As the U.S. economy exhibited strong growth in the second quarter of 2000, the
Fed continued its efforts to try and contain inflationary pressures along with
moderating economic activity to a more sustainable level. In fact, by the
conclusion of the FOMC (Federal Open Market Committee) meeting of May 16th, the
targeted fed funds rate was increased by another 50 basis points to 6.50%.
Subsequently, the third quarter reflected on the possible beginning effects of
the Fed's tightening program as domestic growth was constrained to a generally
acceptable level. However, this reduction in growth could be attributed to a
combination of factors including the highest crude oil prices in 10 years that
has altered the discretionary spending pattern of consumers, at least for the
time being. As a result, we believe the FOMC may be changing their perception on
the economic risk factors, tending to a more balanced viewpoint. Therefore, we
feel the Fed may now be in a holding pattern, barring any unforeseen event,
through the fall and winter months ahead.
Given our perceived "balance of risk" assessment by the FOMC, coupled with the
prevailing yield curve structure, we are now pursuing a longer average maturity
focus as opportunities present themselves. Additionally, in consideration of the
possible slowing in economic activity, now more than ever, we will emphasize
sectors and structures exhibiting both high levels of credit quality and
liquidity characteristics.
Thank you for your continued confidence in our ability to provide a benefit to
you as a shareholder in this Fund. Please call us should you have any questions
regarding the Fund in general or your account specifically.
Sincerely,
/s/ Daniel J. Genter
Daniel J. Genter
President
RNC Mutual Fund Group, Inc.
RNC Capital Management, LLC
1
<PAGE>
RNC MONEY MARKET FUND
INVESTMENT PORTFOLIO at September 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
---------------------------------------------------------------------------------------------------
<S> <C>
COMMERCIAL PAPER: 43.8% +
$1,500,000 American Home Products Co., 6.480%, 10/30/00 $ 1,492,170
1,500,000 Barton Capital Corp., 6.510%, 10/24/00 1,493,761
1,350,000 Delaware Funding Corp., 6.500%, 10/16/00 1,346,344
1,500,000 Edison Asset Securitization Corp., 6.510%, 10/20/00 1,494,046
1,500,000 Exxon Project Investment Corp., 6.520%, 10/03/00 1,499,457
2,000,000 Greyhawk Funding LLC, 6.750%, 10/02/00 1,999,625
1,500,000 Hewlett-Packard Co., 6.510%, 10/11/00 1,497,287
1,500,000 JMG Funding Co. (LOC-Societe Generale), 6.520%, 10/02/00* 1,499,728
1,800,000 John Hancock Capital Corp., 6.520%, 10/18/00 1,794,458
1,361,000 Old Line Funding Corp., 6.510%, 10/26/00 1,354,847
1,500,000 Transamerica Asset Funding Corp., 6.520%, 10/10/00 1,497,555
1,500,000 Trident Capital Finance, Inc., 6.520%, 11/06/00 1,490,220
2,300,000 Wal-Mart Stores, Inc., 6.470%, 10/30/00 2,287,599
-----------
Total Commercial Paper 20,747,097
-----------
CORPORATE BONDS / NOTES: 9.7%
1,250,000 Ameritech Capital Funding Corp. Notes, 5.650%, 01/15/01 1,245,374
1,000,000 Ford Motor Credit Co. Euro-Dollar Debentures, 6.500%, 10/04/00 999,938
102,000 General Electric Capital Corp. Medium Term Notes, 8.770%, 02/08/01 102,601
726,000 General Motor Acceptance Corp. Medium Term Notes, 5.800%, 02/23/01 723,480
1,000,000 General Motor Acceptance Corp. Medium Term Notes, 6.750%, 06/05/01 997,246
517,000 Wheeling-Pitt Corp. Senior Notes, 9.375%, 11/15/03** 528,663
-----------
Total Corporate Bonds / Notes 4,597,302
-----------
FEDERAL AGENCY SECURITIES: 23.9%
1,000,000 Federal Home Loan Bank Bonds, 4.395%, 10/23/00 998,680
1,000,000 Federal Home Loan Bank Bonds, 5.555%, 3/29/01 993,537
1,700,000 Federal National Mortgage Association Medium Term Notes, 5.780%, 10/10/00 1,699,564
1,000,000 Federal National Mortgage Association Medium Term Notes, 12.000%, 11/13/00 1,005,940
2,628,000 Federal National Mortgage Association Medium Term Notes, 6.180%, 03/15/01 2,618,160
2,000,000 Federal National Mortgage Association Medium Term Notes, 5.375%, 04/06/01 1,984,972
2,000,000 Tennessee Valley Authority Global Bonds, 6.000%, 11/01/00 1,998,601
-----------
Total Federal Agency Securities 11,299,454
-----------
OVERNIGHT REPURCHASE AGREEMENT: 24.8%
11,738,000 Seattle Northwest Securities Corporation Government Repurchase
Agreement $11,738,000, 6.530%, dated 09/29/00, due 10/02/00,
[collaterized by $11,980,000 par value Federal Home Loan Bank Note
6.500% due 9/19/01 (collateral market value $11,980,000)] (proceeds
$11,744,387) (cost $11,738,000) 11,738,000
-----------
TOTAL INVESTMENT PORTFOLIO (cost 48,381,853): 102.2% 48,381,853
Liabilities in excess of Other Assets: (2.2%) (1,037,345)
-----------
NET ASSETS: 100.0% $47,344,508
===========
</TABLE>
+ All commercial papers are purchased at a discount. Rates shown on this
statement represent the discount yield.
* Secured by Letter of Credit.
** Refunded 11/15/2000 at 102.5; Escrowed in U.S. Treasury Securities.
See accompanying Notes to Financial Statements.
2
<PAGE>
RNC MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES at September 30, 2000
--------------------------------------------------------------------------------
ASSETS
Investment portfolio, at value (cost of $48,381,853) ..... $ 48,381,853
Cash ..................................................... 2,436
Receivables:
Interest ............................................. 405,612
Prepaid expenses ......................................... 7,239
------------
Total assets .................................... 48,797,140
------------
LIABILITIES
Payables:
Securities purchased ................................. 1,260,676
Distribution to shareholders ......................... 149,953
Advisory fees ........................................ 14,630
Accrued expenses ......................................... 27,373
------------
Total liabilities ................................ 1,452,632
------------
NET ASSETS (equivalent to $1.00 per share based on
47,345,143 shares of capital stock outstanding) .......... $ 47,344,508
============
COMPONENTS OF NET ASSETS
Paid-in capital .......................................... $ 47,345,143
Accumulated net investment income ........................ 9,345
Accumulated net realized loss on investments ............. (9,980)
------------
Net assets ........................................... $ 47,344,508
============
See accompanying Notes to Financial Statements.
3
<PAGE>
RNC MONEY MARKET FUND
STATEMENT OF OPERATIONS For the Year Ended September 30, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest .......................................... $ 2,543,548
-----------
Expenses
Advisory fees ..................................... 168,008
Distribution fees ................................. 103,123
Custody fees ...................................... 38,120
Administration fees ............................... 31,219
Legal fees ........................................ 17,839
Fund accounting fees .............................. 17,640
Registration expense .............................. 13,663
Transfer agent fees ............................... 11,902
Director fees ..................................... 6,270
Reports to shareholders ........................... 3,331
Audit fees ........................................ 2,935
Insurance expense ................................. 1,834
Miscellaneous ..................................... 15,257
-----------
Total expenses ............................... 431,141
Less: fees waived ............................ (124,335)
-----------
Net expenses ................................. 306,806
-----------
NET INVESTMENT INCOME .................... 2,236,742
-----------
REALIZED LOSS ON INVETMENTS:
Net realized loss on investments ...................... (639)
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................... $ 2,236,103
===========
See accompanying Notes to Financial Statements.
4
<PAGE>
RNC MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Year Ended Year Ended
September 30, September 30,
2000 1999
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment income ..................... $ 2,236,742 $ 1,615,703
Net realized loss on investments .......... (639) (7,017)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ..................... 2,236,103 1,608,686
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................ (2,227,397) (1,615,703)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from
net change in outstanding shares (a) .... 8,925,313 4,283,851
------------ ------------
TOTAL INCREASE IN NET ASSETS .............. 8,934,019 4,276,834
NET ASSETS
Beginning of year ......................... 38,410,489 34,133,655
------------ ------------
END OF YEAR ............................... $ 47,344,508 $ 38,410,489
============ ============
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 2000 September 30, 1999
------------------------------ ------------------------------
Shares Value Shares Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ..................... 211,798,966 $ 211,798,966 172,061,366 $ 172,061,366
Shares issued in reinvestment
of distributions................ 261,678 261,678 203,324 203,324
Shares redeemed ................. (203,135,331) (203,135,331) (167,980,839) (167,980,839)
------------- ------------- ------------- -------------
Net increase ................. 8,925,313 $ 8,925,313 4,283,851 $ 4,283,851
============= ============= ============= =============
</TABLE>
See accompanying Notes to Financial Statements.
5
<PAGE>
RNC MONEY MARKET FUND
FINANCIAL HIGHLIGHTS For a share outstanding throughout each year
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year....................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................... 0.054 0.044 0.049 0.049 0.047
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income.............................. (0.054) (0.044) (0.049) (0.049) (0.047)
------- ------- ------- ------- -------
Net asset value, end of year ............................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total return ............................................ 5.52% 4.52% 4.99% 5.01% 4.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (millions)...................... $ 47.3 $ 38.4 $ 34.1 $ 44.6 $ 37.7
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before fees waived...................................... 1.05% 1.26% 1.14% 1.08% 1.28%
After fees waived....................................... 0.74% 0.66% 0.76% 0.70% 0.90%
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS:
After fees waived ................................... 5.42% 4.48% 4.92% 4.90% 4.70%
</TABLE>
See accompanying Notes to Financial Statements.
6
<PAGE>
RNC EQUITY FUND
Dear Shareholders,
As the President and CEO of RNC Capital Management LLC, the advisor to the RNC
Equity Fund, I would like to take this opportunity to express my gratitude 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, 2000 as
well as financial statements which detail Fund expenses for the year. Finally,
you will find a listing of the Fund's holdings as of September 30, 2000.
In sharp contrast to the three previous years of the Fund's history when both
the stock market and the Fund experienced sustained progress, this past year has
been a year of relatively little progress. The fund, for the year ended
September 30, 2000, rose just 0.05% as we to were buffeted by the turbulence of
the equity markets this year. The investing landscape shifted considerably
during the past three quarters for a number of reasons. Perhaps the most obvious
culprit has been the Federal Reserve. The Fed has been determined to slow the
economy and wring out any incipient rise in inflation through a series of rate
increases. Also looking back over the past fiscal year, it becomes apparent that
valuations in the market and especially in specific sectors had reached
unsustainable levels. A period of digestion was perhaps inevitable after the
substantial performance of a number of large cap stocks in the S&P 500
especially Tech stocks, from October to March of this fiscal year. Concurrently,
the market P/E (Price to Earnings ratio) has contracted to a more reasonably
valued P/E of 22X from a peak of 27.5X reached in March. Fed tightening, while a
major contributor to the P/E compression suffered by the market, was not the
only culprit. Higher oil prices and a weak Euro presaged downward revisions in
earnings estimates for a number of companies over the past several quarters. The
earnings momentum of the 1st and 2nd quarters has proven unsustainable going
into the 2nd half of the year. Furthermore, as anxiety over earnings has risen
so too has market volatility, particularly in those individual companies which
fail to meet expectations. Unfortunately we were not immune to such
disappointments. In addition, though we were not over weighted in the Technology
sector we also received pressure from the near-term reversals in the sector from
the strong contribution to returns which it generated last year. This plunge has
been of classic bear market proportions with the average NASDAQ stock down over
50% from March highs. We have been very diligent to offset gains taken earlier
in the year with losses to avoid the "double whammy" of lower returns and
sizeable capital gains distributions.
Going forward, we believe that the market is poised for a fairly good rebound
between now and year-end. The concerns that have burdened the stock market for
much of the past nine months should abate and offer some relief to disappointed
7
<PAGE>
RNC EQUITY FUND
investors. The Fed has, in our opinion, finished raising rates and may even move
from a tightening bias to a neutral position. Oil prices have probably peaked
and, despite some potential disruptions due to unusual winter weather or Middle
East tensions, should trend lower. The Euro, which has wreaked havoc with 3rd
quarter earnings for various large cap multinationals, should recover some of
its relative value in the coming months. We believe earnings will have another
strong gain next year albeit at a lesser rate due to a slowing economy. With all
or most of these concerns proving short-lived, we believe that the stock market
can go up once again from a more favorable valuation level.
Presently, we believe that the market has moved into over sold territory and
that many of the stocks which we find attractive are undervalued. Based upon
current earnings growth rates and price to earnings ratios, many high quality
technology stocks are selling at half of the values they were at the beginning
of the year and, we believe, are 25-35% below their long-term valuations. We
believe now is the time to own these stocks based upon their outlook for the
next 12-24 months. We also see many issues in the financial and health care
areas that we find attractive based on their current earnings momentum and
valuation and our outlook for these sectors in the forth coming year is very
positive. We are glad to see that valuations in the market place appear to be
returning to more normalized levels and believe that a strategy of finding
strong companies with superior growth rates at reasonable prices will once again
prevail in the forthcoming year.
Sincerely,
/s/ Daniel J. Genter
Daniel J. Genter
President
RNC Mutual Fund Group, Inc.
RNC Capital Management, LLC
8
<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 September 30, 2000
1 Year................... 0.05%
Inception (11/1/96)...... 12.16%
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
12/31/98 15,591 17,466
3/31/99 15,942 18,278
6/30/99 17,029 19,505
9/30/99 15,666 18,226
12/31/99 17,874 20,876
3/31/00 17,866 21,294
6/30/00 16,937 20,670
9/30/00 $15,674 $20,414
Past performance is not predictive of future performance.
The S&P 500 (dividends reinvested) is an unmanaged broad market-weighted stock
index that measures the performance of 500 large cap companies traded in the U.S
and is generally considered to be representative of the U.S stock market as a
whole.
9
<PAGE>
RNC EQUITY FUND
INVESTMENT PORTFOLIO at September 30, 2000
--------------------------------------------------------------------------------
SHARES VALUE
--------------------------------------------------------------------------------
COMMON STOCKS: 98.5%
AUTO: 2.4%
8,740 Ford Motor Co. $ 221,231
-----------
BANKING: 10.8%
5,000 Bank of America Corp. 261,875
8,000 Bank of New York Co. 448,500
6,100 Chase Manhattan Corp. 281,744
-----------
992,119
-----------
CHEMICALS: 0.5%
2,000 Dow Chemical Co. (The) 49,875
-----------
COMPUTERS & PERIPHERALS: 11.9%
7,000 Dell Computer Corp.* 215,687
3,000 Hewlett-Packard Co. 291,000
6,000 Intel Corp. 249,750
3,000 International Business Machines Corp. 337,500
-----------
1,093,937
-----------
COMPUTER SOFTWARE & SERVICES: 6.5%
6,100 First Data Corp. 238,281
6,000 Microsoft Corp.* 361,500
-----------
599,781
-----------
CONSUMER STAPLES: 2.2%
3,000 Procter & Gamble Co. (The) 201,000
-----------
DIVERSIFIED: 5.6%
9,000 General Electric Co. 519,188
-----------
DIVERSIFIED MANUFACTURING: 6.0%
5,000 Honeywell International, Inc. 178,125
7,200 Tyco International, Ltd. 373,500
-----------
551,625
-----------
DRUGS: 12.6%
4,000 Abbott Laboratories 190,250
3,600 Johnson & Johnson 338,175
6,900 Pfizer, Inc. 310,069
6,900 Schering-Plough Corp. 320,850
-----------
1,159,344
-----------
ELECTRONICS: 1.3%
2,500 Agilent Technologies, Inc.* 122,344
-----------
ENERGY: 2.1%
4,500 Williams Companies, Inc. 190,125
-----------
ENTERTAINMENT: 2.5%
6,000 Walt Disney Co. (The) 229,500
-----------
FINANCIAL: 3.9%
6,666 Citigroup, Inc. 360,381
-----------
INSURANCE: 6.4%
4,450 Marsh & McLennan Companies, Inc. 590,737
-----------
INTERNET: 2.3%
4,000 America Online, Inc.* 215,000
-----------
PETROLEUM: 6.1%
3,500 Chevron Corp. 298,375
5,000 Texaco, Inc. 262,500
-----------
560,875
-----------
RETAILING-SPECIALTY: 1.0%
2,000 Lowe's Co. Inc. 89,750
-----------
TECHNOLOGY: 10.7%
10,800 Motorola, Inc. 305,100
6,000 Oracle Corp.* 472,500
4,500 Texas Instruments, Inc. 212,344
-----------
989,944
-----------
TELECOMMUNICATIONS SERVICES: 3.7%
4,000 BellSouth Corp. 161,000
3,660 Verizon Communications 177,281
-----------
338,281
-----------
TOTAL COMMON STOCKS
(cost $7,324,318) 9,075,037
-----------
10
<PAGE>
RNC EQUITY FUND
INVESTMENT PORTFOLIO at September 30, 2000 - (Continued)
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENT: 5.0%
MONEY MARKET INVESTMENT: 5.0%
$456,759 Firstar Stellar Treasury Fund (cost $456,759) 456,759
-----------
TOTAL INVESTMENTS IN SECURITIES (cost $7,781,077**): 103.5% 9,531,796
Liabilities in excess of Other Assets: (3.5%) (317,291)
-----------
NET ASSETS: 100.0% $ 9,214,505
===========
* Non-income producing security.
** At September 30, 2000, the basis of investments for federal income tax
purposes was $7,862,748.
Unrealized appreciation and depreciation were as follows:
Gross unrealized appreciation $ 2,195,780
Gross unrealized depreciation (526,732)
-----------
Net unrealized appreciation $ 1,669,048
===========
See accompanying Notes to Financial Statements.
11
<PAGE>
RNC EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES at September 30, 2000
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $7,781,077) ...... $9,531,796
Receivables:
Dividends and interest ................................. 4,171
Due from advisor ....................................... 2,193
Fund shares sold ....................................... 501
Deferred organizational costs .............................. 8,751
Prepaid expenses ........................................... 11,754
----------
Total assets ...................................... 9,559,166
----------
LIABILITIES
Payables:
Securities purchased ................................... 313,341
Distribution fees ...................................... 6,181
Due to custodian ....................................... 2,327
Accrued expenses ........................................... 22,812
----------
Total liabilities ................................. 344,661
----------
NET ASSETS ...................................................... $9,214,505
==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($9,214,505/491,591 shares outstanding;
500,000,000 shares, authorized with $0.01
par value) ................................................. $ 18.74
==========
COMPONENTS OF NET ASSETS
Paid-in capital ............................................ $7,318,079
Accumulated net realized gain on investments ............... 145,707
Net unrealized appreciation on investments ................. 1,750,719
----------
Net assets ........................................ $9,214,505
==========
See accompanying Notes to Financial Statements.
12
<PAGE>
RNC EQUITY FUND
STATEMENT OF OPERATIONS For the Year Ended September 30, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividend ............................................... $ 106,950
Interest ............................................... 10,630
---------
Total income ...................................... 117,580
---------
Expenses
Advisory fees .......................................... 99,634
Administration fees .................................... 40,000
Distribution fees ...................................... 24,908
Registration expense ................................... 21,033
Fund accounting fees ................................... 18,185
Audit fees ............................................. 15,223
Legal fees ............................................. 11,255
Transfer agent fees .................................... 10,879
Custody fees ........................................... 9,863
Amortization of deferred organizational costs .......... 8,451
Reports to shareholders ................................ 4,749
Director fees .......................................... 4,142
Insurance expense ...................................... 199
Miscellaneous .......................................... 1,057
---------
Total expenses .................................... 269,578
Less: fees waived and expenses absorbed ........... (105,169)
---------
Net expenses ...................................... 164,409
---------
NET INVESTMENT LOSS .......................... (46,829)
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments ........................... 246,152
Net unrealized depreciation on investments ................. (175,392)
---------
Net realized and unrealized gain on investments ........ 70,760
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................... $ 23,931
=========
See accompanying Notes to Financial Statements.
13
<PAGE>
RNC EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Year Ended Year Ended
September 30, September 30,
2000 1999
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment loss ........................... $ (46,829) $ (18,425)
Net realized gain on investments .............. 246,152 19,549
Net unrealized appreciation (depreciation)
on investments................................ (175,392) 1,493,244
----------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS............................ 23,931 1,494,368
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income .................... -- (9,469)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net asets derived
from net change in outstanding shares (a)..... (198,324) 1,341,163
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS .... (174,393) 2,826,062
NET ASSETS
Beginning of year ............................. 9,388,898 6,562,836
----------- -----------
END OF YEAR ................................... $ 9,214,505 $ 9,388,898
=========== ===========
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 2000 September 30, 1999
-------------------------- --------------------------
Shares Value Shares Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold ..................... 100,050 $ 2,029,893 160,612 $ 3,061,026
Shares issued in reinvestment
of distributions................ -- -- 507 9,469
Shares redeemed ................. (109,834) (2,228,217) (91,154) (1,729,332)
----------- ----------- ----------- -----------
Net increase (decrease)....... (9,784) $ (198,324) 69,965 $ 1,341,163
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE>
RNC EQUITY FUND
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30, Nov. 1, 1996*
------------------------------- through
2000 1999 1998 Sept. 30, 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ........................... $ 18.73 $ 15.21 $ 14.85 $ 12.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .................................. (0.10) (0.03) 0.01 0.02
Net realized and unrealized gain on investments................ 0.11 3.57 0.39 2.83
------- ------- ------- -------
Total from investment operations ............................... 0.01 3.54 0.40 2.85
------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income..................................... 0.00 (0.02) (0.04) 0.00
------- ------- ------- -------
Net asset value, end of period ................................. $ 18.74 $ 18.73 $ 15.21 $ 14.85
======= ======= ======= =======
Total return ................................................... 0.05% 23.29% 2.68% 23.75%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)........................... $ 9.2 $ 9.4 $ 6.6 $ 3.5
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before fees waived and expenses absorbed....................... 2.71% 2.79% 3.57% 8.50%++
After fees waived and expenses absorbed........................ 1.65% 1.65% 1.64% 1.65%++
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS:
Before fees waived and expense absorbed........................ (1.53%) (1.35%) (1.90% ) (6.53%)++
After fees waived and expenses absorbed........................ (0.47%) (0.21%) 0.03% 0.32%++
Portfolio turnover rate ........................................ 61% 46% 20% 38%+
</TABLE>
* Commencement of Operations.
++ Annualized.
+ Not Annualized.
See accompanying Notes to Financial Statements.
15
<PAGE>
RNC MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 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.
NOTE 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 Nasdaq are valued at the last reported sale
price at the close of regular trading on each day that the exchanges
are open for trading; 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.
16
<PAGE>
RNC MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
Commercial paper is valued at its discounted price and will mature at
its principal amounts, with the difference representing interest
income when received. The rate shown for the commercial papers on the
Investment Portfolio as of September 30, 2000 represent the yield at
the time of purchase.
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, 2000, the Money Fund had realized capital losses
to offset future net capital gains as follows:
Expire Expire Expire
2006 2007 2008
---- ---- ----
$2,324 $7,017 $638
C. SECURITY TRANSACTIONS AND DISTRIBUTIONS. Security transactions are
accounted for on trade date. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
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 value of the collateral is at least 102% at all times to the total
amount of the repurchase obligation, including interest. If the
counterparty defaults and the value of the collateral declines or if
the counterparty enters into an insolvency proceeding, realization of
the 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 Funds are
allocated on the basis of relative net assets.
F. DEFERRED ORGANIZATION COSTS. The Equity Fund has incurred expenses of
$39,116 in connection with its 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.
17
<PAGE>
RNC MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
H. RECLASSIFICATION OF CAPITAL ACCOUNTs. The Funds accounts and reports
distributions to shareholders in accordance with the American
Institute of Certified Public Accountant's Statement of Position 93-2:
DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF
INCOME, CAPITAL AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT
Companies. For the year ended September 30, 2000, the Equity Fund
decreased paid-in capital by $8,451 and decreased net realized gain on
investments by $38,378 due to the Equity Fund experiencing a net
investment loss during the year. Net assets were not affected by this
change.
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the year ended September 30, 2000, 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, 2000, the Equity Fund incurred $99,634 in advisory fees
and the Money Fund incurred $168,008.
The Funds are responsible for their own operating expenses. The Advisor has
agreed to limit the Equity Fund total expenses to not more than 1.65% of the
average daily net assets. Any fee withheld or voluntarily reduced and/or any
Fund expenses absorbed by the Advisor voluntarily or pursuant to an agreed upon
expense cap shall be reimbursed by the Fund to the Advisor, if so requested by
the Advisor, anytime before the end of the third fiscal year following the year
to which the fees waived and expenses absorbed relate, provided the aggregate
amount of the Fund's current operating expenses for such fiscal year does not
exceed the applicable limitation on Fund expenses. Any such reimbursement is
also contingent up Board of Directors review and approval prior to the time the
reimbursement is initiated. The Fund must pay its current ordinary operating
expenses before the Advisor is entitled to any reimbursement. For the year ended
September 30, 2000, the Advisor waived fees and reimbursed expenses in the
amount of $105,169 for the Equity Fund and waived fees of $21,212 for the Money
Fund.
18
<PAGE>
RNC MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
Investment Company Administration, L.L.C. (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 the Funds' expenses and reviews the
Funds' expense accruals. For its services, the Administrator receives a monthly
fee at the following annual rate:
RNC EQUITY
Under $100 million $40,000 or 0.10% of average daily net assets,
whichever is greater
$100 to $200 million 0.05% of average daily net assets
$200 million thereafter 0.03% of average daily net assets
RNC MONEY MARKET
Under $100 million $25,000 or 0.075% of average daily net assets,
whichever is greater
$100 to $200 million 0.05% of average daily net assets
$200 million thereafter 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 Distribution 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 $24,908 in distribution fees for the year
ended September 30, 2000. The Distributor waived all its fees totaling $103,123
for the year ended September 30, 2000, for the Money Fund.
Certain officers of the Fund are officers and/or directors of the
Administrator and Distributor.
NOTE 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, 2000 were $5,937,573
and $6,156,925 respectively for the Equity Fund.
19
<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, 2000, 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
Funds' 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, 2000, 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
RNC Money Market Fund and the RNC Equity Fund as of September 30, 2000, 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
November 3, 2000
20
<PAGE>
--------------------------------------------------------------------------------
Adviser
RNC CAPITAL MANAGEMENT, LLC
11601 Wilshire Boulevard, 25th Floor
Los Angeles, California 90025
(800) 576-8229
www.rnccapital.com
Custodian
FIRSTAR INSTITUTIONAL CUSTODY SERVICES
425 Walnut Street
Cincinnati, Ohio 45202
Transfer Agent
ICA FUND SERVICES CORPORATION
4455 East Camelback Road, Suite 261E
Phoenix, Arizona 85108
Legal Counsel
PAUL, HASTINGS, JANOFSKY & WALKER, LLP
345 California Street, 29th Floor
San Francisco, California 94104
Auditors
TAIT, WELLER & BAKER
8 Penn Center Plaza, Suite 800
Philadelphia, Pennsylvania 19103
--------------------------------------------------------------------------------
This report is intended for the shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
