<PAGE>
[LETTERHEAD OF AFBA APPEARS HERE]
AFBA FIVE STARS SHARES(SM)
of M.S.D&T. Funds, Inc.
Annual Report
May 31, 1997
Dear Shareholder,
It is a pleasure to present the annual report for the AFBA Five Star Shares of
M.S.D.&T. Funds, Inc. (the "Company") for the fiscal year ended May 31, 1997.
The report includes financial information and fund synopsis for the Value Equity
and Intermediate Fixed Income Funds.
Fiscal year 1997 proved to be rewarding for M.S.D.&T. Fund's shareholders as
stock prices rose and interest rates, on balance, fell. This favorable backdrop
served as the catalyst for investment returns exceeding their long-term averages
for another year. The AFBA Five Star Shares of the M.S.D.&T. Value Equity Fund
earned a total rate of return of 30.92% for the twelve month period ended May
31, 1997(1), outpacing the comparable 29.41% return on the Standard & Poor's 500
Index. The AFBA Five Star Shares of the M.S.D.&T. Intermediate Fixed Income
Fund posted a total return of 6.80% for the fiscal year ended May 31, 1997(1),
lagging somewhat its benchmark, the Lehman Brothers Intermediate
Government/Corporate Bond Index, which returned 7.38% for the fiscal year ended
May 31, 1997.
The investment adviser anticipates a more challenging environment for the
upcoming fiscal year. Domestic economic activity may experience growth above
the Federal Reserve Bank's comfort level, widely perceived to be real GDP growth
no greater than 2.5%. Although reported inflation remains well behaved, the
central bank may choose to act in a preemptive manner and increase borrowing
costs to inhibit potentially inflationary economic activity. Because traditional
measures of stock market valuation such as the price/earnings, price/book and
dividend yield ratios are at or near record levels, any increase in interest
rates may threaten current multiples. This could put additional emphasis on
earnings generation which should make stock selection critical. The adviser is
also anticipating better business conditions from developed economies which
should provide a favorable backdrop to most industrialized stock markets.
However, a synchronized worldwide expansion may have a dampening effect on bond
markets.
The pages that follow discuss the performance structure and strategy of each of
the Funds, as well as providing a detailed list of assets held (2). We
appreciate your investment in the M.S.D.&T. Funds and welcome any comments or
questions regarding the Funds.
Best Regards,
Leslie B. Disharoon
Chairman and President
<PAGE>
Shares of M.S.D.&T. Funds, Inc. are not bank deposits or obligations of, or
guaranteed, endorsed, or otherwise supported by Mercantile-Safe Deposit and
Trust Company or AFBA Industrial Bank, their parent companies or affiliates, and
such shares are not federally insured by the U.S. Government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other
governmental agency. Investment in the Funds involves risk, including the
possible loss of principal. AFBA Industrial Bank is a wholly-owned subsidiary
of Armed Forces Benefit Service, Inc. and is not affiliated with AEGON USA,
Mercantile-Safe Deposit and Trust Company, BISYS Fund Services, The Fifth Third
Bank or State Street Bank and Trust Company.
(1) Total return and principal value of investments will fluctuate with market
changes and shares, when redeemed, may be worth more or less than their original
cost. Figures for the period indicated reflect fee waivers in effect,
reinvestment of dividends and capital gains distributions as well as changes in
share price. Fee waivers may result in higher total returns than would occur if
full fees were charged. Past performance is not a guarantee of future results.
<TABLE>
<CAPTION>
Value Equity Fund Intermediate Fixed Income
----------------- -------------------------
(AFBA Five Star (AFBA Five Star
--------------- ---------------
Shares) Shares)
------- -------
<S> <C> <C>
Total Return for the one year
ended June 30, 1997 37.5% 6.6%
Inception Date 12/1/95 12/1/95
Average Annual Total Return
since inception to June 30, 1997 28.2% 4.0%
</TABLE>
(2) The composition of the Funds' holdings is subject to change.
2
<PAGE>
The M.S.D.&T. Value Equity Fund
For the fiscal year ended May 31, 1997, the AFBA Five Star Shares of the Value
Equity Fund produced a total return of 30.92%. For the same period, the S&P 500
Index returned 29.41%.
For the third consecutive year, the U.S. equity market produced returns well in
excess of the longer-term averages, reflecting an extremely positive economic
climate. The U.S. position in world trading and financial markets has markedly
improved. Many U.S. companies have become world suppliers while domestic
interest rate, inflation, productivity, employment and economic policy factors
have been supportive of superior financial market performance.
For the Value Equity Fund the domestic market's performance for large
capitalization issues and, in particular, those with export market exposure has
been beneficial. The Fund's concentration in companies and industries with
prospects for superior earnings and dividend growth has led to above average
results for the year.
The Fund has carried minimal cash reserves during the year and has remained well
diversified in a blend of issues having both growth and value characteristics.
The Fund's profile continues to show a higher dividend yield and a lower ratio
of price to earnings than is present in the general market.
The M.S.D.&T. Intermediate Fixed Income Fund
The past fiscal year saw several dramatic shifts in bond investor psychology as
the market grappled with such themes as 1) a booming economy, 2) an economic
soft landing, 3) an overstated inflation rate, 4) a resurgent economy and 5)
rising wage inflation - all within a twelve-month period. What became apparent
by the Spring of 1997 was that the U.S. economy was still expanding above its
trend rate and had just enjoyed its best combination of real growth and low
inflation in a dozen years. Additionally, the Federal Reserve openly debated
for most of the fiscal year whether or not to raise short-term interest rates in
a pre-emptory strike against a rise in the inflation rate. With the
unemployment rate below 5%, rising labor costs could start to squeeze corporate
earnings and start a cyclical rise in the inflation rate. By the end of March,
the Central Bank raised the overnight bank lending rates by 0.25% in the first
of what we envision to be a series of tightening moves.
During the course of the fiscal year, ten-year Treasuries swung between a high
yield of 7% and a low yield of 6%. However, by the end of the year, coupon
Treasury yields had barely moved from their past year's levels, having declined
4 to 19 basis points. As such, total return was primarily affected by income
yield. Additionally, sectors within the bond market that benefited from the
strong economic growth, solid earnings and lowered volatility expectations also
enjoyed yield spread compression. Lower quality corporate, near-the-money
callable securities and mortgage-backed securities performed best. In fact,
below investment grade bonds and emerging market debt enjoyed double digit
returns.
The AFBA Five Star Shares of the Intermediate Fixed Income Fund returned a solid
6.80% for the fiscal year as income was supplemented with an increase in the NAV
from $10.20 to $10.33. This performance was slightly behind the benchmark
Lehman G/C Intermediate Index which returned 7.38%. The Fund is actively
managed and the average maturity of the Fund had been extended during the first
half of the fiscal year to lock in attractive yield levels. This was
accomplished through investments in the Treasury market and some high quality
corporate notes. However, during the second half of the fiscal year, the
average maturity was reduced in order to mitigate the market value declines
associated with a renewed rise in interest rates. By year end, the average life
of the Fund stood at 3.7 years.
3
<PAGE>
Comparison of Change in Value of $10,000 Investment in
M.S.D.&T. Value Equity Fund and the S&P 500 Stock Index
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
VALUE EQUITY S&P 500
-----------------------------------
AFBA INDEX
------ -------
VALUE OF $10K INVESTED
--------------------------------------
<S> <C> <C>
11/1/95 10,000 10,000
12/1/95 10,184 10,193
1/1/96 10,284 10,540
2/1/96 10,379 10,638
3/1/96 10,424 10,740
4/1/96 10,604 10,898
5/1/96 10,775 11,179
6/1/96 10,768 11,222
7/1/96 10,359 10,726
8/1/96 10,597 10,952
9/1/96 11,029 11,568
10/1/96 11,360 11,887
11/1/96 12,293 12,786
12/1/96 12,159 12,533
1/1/97 12,915 13,316
2/1/97 12,954 13,420
3/1/97 12,591 12,869
4/1/97 13,340 13,637
5/1/97 14,105 14,467
</TABLE>
Comparison of Change in Value of $10,000 Investment In
M.S.D&T. Intermediate Fixed Income Fund and the
Lehman G/C Intermediate Bond Index
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
MSD&T INTMD LBKL INTMD
FIXED
--------------------------
AFBA INDEX
---- -----
VALUE OF $10K INVESTED
--------------------------------
<S> <C> <C>
11/1/95 10,000 10,000
12/1/95 10,103 10,105
1/1/96 10,168 10,192
2/1/96 10,030 10,073
3/1/96 9,961 10,021
4/1/96 9,900 9,986
5/1/96 9,878 9,978
6/1/96 9,981 10,084
7/1/96 10,006 10,114
8/1/96 10,002 10,122
9/1/96 10,146 10,263
10/1/96 10,329 10,444
11/1/96 10,474 10,582
12/1/96 10,391 10,515
1/1/97 10,417 10,556
2/1/97 10,430 10,576
3/1/97 10,365 10,503
4/1/97 10,483 10,627
5/1/97 10,548 10,715
</TABLE>
The S&P 500 Stock Index is an unmanaged index generally representative of the
performance of the U.S. stock market.
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index generally representative of the performance of intermediate term
government and corporate bonds.
The above indexes do not reflect the deduction of expenses associated with a
mutual fund such as investment management fees.
The value of shares of the Funds will fluctuate so that shares, when redeemed,
may be worth more or less than their original cost.
4
<PAGE>
M.S.D.&T. Funds, Inc.
VALUE EQUITY FUND
Statement of Net Assets
May 31, 1997
<TABLE>
<CAPTION>
Percentage of Number of
Net Assets Shares Value
---------- ------ -----
<S> <C> <C> <C>
COMMON STOCK 97.4%
Airlines 1.4%
Southwest Airlines Co. 76,700 $ 1,975,025
------------
Banks 7.6%
Barnett Banks, Inc. 32,000 1,684,000
CoreStates Financial Corp. 54,000 2,855,250
J.P. Morgan & Co. 27,000 2,902,500
Regions Financial Corp. 27,000 1,613,250
SunTrust Banks Inc. 36,000 1,921,500
------------
10,976,500
------------
Beverages 2.4%
Pepsico Inc. 93,000 3,417,750
------------
Chemicals 5.8%
Air Products & Chemicals Inc. 43,000 3,343,250
E.I. duPont deNemours & Co. 46,300 5,040,913
------------
8,384,163
------------
Computer Equipment 4.5%
Hewlett-Packard Co. 59,400 3,059,100
International Business Machine Corp. 40,000 3,460,000
------------
6,519,100
------------
Computer Software 2.9%
AutoDesk Inc. 24,000 933,000
Cicso Systems Inc. 24,000 1,626,000
Electronic Data Services Corp. 45,000 1,681,875
------------
4,240,875
------------
Consumer Goods 4.2%
Colgate Palmolive Co. 53,400 3,310,800
Procter & Gamble Co. 17,000 2,343,875
Rubbermaid, Inc. 15,600 434,850
------------
6,089,525
------------
Electrical Equipment 4.8%
ABB AB American Depository Receipt 15,000 2,042,813
General Electric Co. 56,000 3,381,000
Hubbell, Inc. "B" 33,800 1,537,900
------------
6,961,713
------------
Electronics 2.7%
Intel Corp. 25,300 3,832,950
------------
Foods 6.3%
CPC International, Inc. 22,000 1,892,000
Giant Food, Inc. "A" 73,500 2,420,906
McCormick & Co., Inc. 80,000 2,090,000
Nestle Registered American Depository Receipt 43,900 2,730,813
------------
9,133,719
------------
Industrial Goods 4.1%
Corning Inc. 71,000 3,576,625
PPG Industries Inc. 40,500 2,354,063
------------
5,930,688
------------
Insurance 7.9%
Chubb Corp. 55,000 3,355,000
General RE Corp. 10,000 1,752,500
Jefferson Pilot Corp. 25,000 1,590,625
Lincoln National Corp. 32,100 1,954,088
Unum Corp. 34,500 2,729,813
------------
11,382,026
------------
Iron/Steel 1.2%
Worthington Industries Inc. 93,000 1,720,500
------------
Machinery & Heavy Equipment 3.9%
Caterpillar, Inc. 27,000 2,635,875
Illinois Tool Works, Inc. 60,000 2,977,500
------------
5,613,375
------------
Manufacturing 1.6%
Eastman Kodak Co. 27,000 2,237,625
------------
Medical Instruments & Supplies 3.0%
Johnson & Johnson 73,000 4,370,875
------------
</TABLE>
See Accompanying Notes to Financial Statements.
5
<PAGE>
M.S.D.&T. Funds, Inc.
VALUE EQUITY FUND
Statement of Net Assets - Concluded
May 31, 1997
<TABLE>
<CAPTION>
Percentage of Number of
Net Assets Shares Value
---------- ------ -----
<S> <C> <C> <C>
COMMON STOCK - Continued
Natural Gas 1.2%
Questar Corp. 45,400 $ 1,781,950
------------
Oil Equipment & Services 3.6%
Halliburton Co. 22,922 1,773,590
Quaker State Corp. 40,000 605,000
Schlumberger Ltd. American Depository Receipt 23,300 2,775,613
------------
5,154,203
------------
Paper & Forest Products 1.6%
Westvaco Corp. 72,300 2,259,375
------------
Petroleum 6.1%
Amoco Corp. 29,725 2,656,672
Atlantic Richfield Co. 19,850 2,888,175
Exxon Corp. 55,000 3,258,750
------------
8,803,597
------------
Pharmaceuticals 8.0%
Bristol-Myers Squibb Co. 63,000 4,622,625
Covance, Inc. 17,100 318,487
Pfizer Inc. 39,400 4,053,275
Warner Lambert Co. 25,000 2,518,750
------------
11,513,137
------------
Retail Department Stores 2.7%
May Department Stores Co. 41,300 1,946,262
Wal-Mart Stores, Inc. 65,000 1,933,750
------------
3,880,012
------------
Technology 2.3%
Motorola, Inc. 50,000 3,318,750
------------
Telecommunications 3.0%
Ericsson (LM) Tel - American Depository Receipt 24,000 855,000
GTE Corp. 28,500 1,257,562
Lucent Technologies Inc. 34,059 2,167,003
------------
4,279,565
------------
Tobacco 2.7%
Philip Morris Inc. 90,000 3,960,000
------------
Utilities-Telephone 1.9%
MCI Communications Corp. 72,300 2,774,512
------------
TOTAL COMMON STOCK
(Cost $94,143,657) 140,511,510
------------
<CAPTION>
Par
Maturity (000)
-------- -----
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT 3.7%
Goldman Sachs & Co. (Agreement dated 5/30/97 to be
repurchased at $5,274,475, collateralized by $4,835,000
(Value $5,418,201) U.S. Treasury Notes, 7.875%, due
2/15/21)
5.38% 06/02/97 $ 5,272 5,272,111
------------
TOTAL REPURCHASE AGREEMENT
(Cost $5,272,111) 5,272,111
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $99,415,768*) 101.1% 145,783,621
LIABILITIES IN EXCESS OF OTHER ASSETS (1.1)% (1,538,427)
------ ------------
NET ASSETS 100.0% $144,245,194
===== ============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE:
Institutional Shares
($142,452,042/7,805,540) $18.25
======
AFBA Five Star Shares
($1,793,152/98,400) $18.22
======
</TABLE>
- ------------------------
* Cost for Federal income tax purposes is $99,486,926. The aggregate gross
unrealized appreciation (depreciation) for all securities is as follows:
Excess of value over tax cost..... $46,755,295
Excess of tax cost over value..... $ (458,600)
See Accompanying Notes to Financial Statements.
6
<PAGE>
M.S.D.&T. Funds, Inc.
INTERMEDIATE FIXED INCOME FUND
Statement of Net Assets
May 31, 1997
<TABLE>
<CAPTION>
Percentage of Par
Net Assets Maturity (000) Value
---------- -------- ------ ----------
<S> <C> <C> <C> <C>
AGENCY OBLIGATIONS 14.9%
Federal Home Loan Bank 2.2%
Debentures
6.34% 06/13/05 $1,000 $ 965,280
----------
Federal Home Loan Mortgage Corp. 0.3%
Mortgage Backed Securities
6.50% (Pool #E00201) 03/01/08 152 148,460
----------
Federal National Mortgage Association 4.3%
Medium Term Notes
6.08% 09/03/03 500 482,090
Mortgage Backed Securities
6.00% (Pool #227994) 07/01/08 690 660,020
7.50% (Pool #282608) 05/01/09 722 729,780
----------
1,871,890
----------
Government National Mortgage Association 8.1%
Mortgage Backed Securities
8.00% (Pool #308751) 11/15/06 232 238,616
8.00% (Pool #312726) 12/15/06 28 28,356
8.00% (Pool #319511) 12/15/06 76 78,233
6.50% (Pool #351994) 12/15/08 209 205,254
6.50% (Pool #359462) 01/15/09 237 231,856
6.00% (Pool #372668) 01/15/09 813 779,144
8.00% (Pool #389481) 04/15/09 254 261,636
8.00% (Pool #401484) 11/15/09 816 839,172
6.00% (Pool #410492) 01/15/11 156 149,167
6.00% (Pool #410497) 02/15/11 763 731,716
----------
3,543,150
----------
TOTAL AGENCY OBLIGATIONS
(Cost $6,630,163) 6,528,780
----------
CORPORATE BONDS 12.2%
Beverages 0.5%
Coca-Cola Co., Inc.
7.875% (Aa3, AA) 09/15/98 200 204,526
----------
Chemicals 0.5%
E.I. duPont de Nemours & Co.
6.00% (Aa3, AA-) 12/01/01 250 242,187
----------
Finance 2.9%
Norwest Financial, Inc.
6.125% (Aa3, AA-) 08/01/03 300 287,625
6.375% (Aa3, AA-) 11/15/03 1,000 972,500
----------
1,260,125
----------
Foods 0.6%
Kellogg Co.
5.90% (Aa1, AA) 07/15/97 250 250,041
----------
Pharmaceuticals 1.1%
SmithKline Beecham, PLC, Medium Term Notes
6.625% (Aa3/A+) 10/01/01 500 496,875
----------
Retail Department Stores 0.6%
Wal-Mart Stores, Inc.
5.50% (Aa2, AA) 09/15/97 250 249,880
----------
Utilities - Electric 2.2%
Wisconsin Electic Power Co.
6.625% (Aa3/AA) 11/15/06 1,000 967,500
----------
Utilities - Gas 2.7%
Consolidated Natural Gas Co.
5.75% (A1, AA-) 08/01/03 475 448,281
Northern Illinois Gas Co.
5.875% (Aa1, AA) 05/01/00 500 486,875
Wisconsin Natural Gas Co.
6.125% (Aa3, AA) 09/01/97 260 260,000
----------
1,195,156
----------
</TABLE>
See Accompanying Notes to Financial Statements.
7
<PAGE>
M.S.D.&T. Funds, Inc.
INTERMEDIATE FIXED INCOME FUND
Statement of Net Assets - Continued
May 31, 1997
<TABLE>
<CAPTION>
Percentage of Par
Net Assets Maturity (000) Value
---------- -------- ------ -----------
<S> <C> <C> <C> <C>
CORPORATE BONDS - Continued
Utilities - Telephone 1.1%
New England Telephone & Telegraph Co.
5.05% (Aa2, AA) 10/01/98 $ 500 $ 493,125
-----------
TOTAL CORPORATE BONDS**
(Cost $5,484,737) 5,359,415
-----------
ASSET BACKED SECURITIES 2.3%
Ford Credit Auto Owner Trust
6.750% (Aaa, AAA-) 09/15/00 1,000 1,005,480
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $1,010,546) 1,005,480
-----------
U.S. TREASURY OBLIGATIONS 51.6%
U.S. Treasury Notes
7.375% 11/15/97 1,000 1,007,740
5.875% 04/30/98 500 500,160
7.125% 10/15/98 1,000 1,013,940
5.50% 11/15/98 2,000 1,984,820
5.125% 12/31/98 1,000 986,330
5.00% 01/31/99 1,000 982,900
7.00% 04/15/99 1,000 1,014,500
6.50% 04/30/99 1,000 1,005,780
6.875% 07/31/99 1,000 1,012,740
5.75% 10/31/00 1,500 1,470,870
5.50% 12/31/00 1,000 970,600
5.625% 02/28/01 600 584,094
6.25% 04/30/01 1,000 992,760
7.50% 11/15/01 450 467,307
6.25% 02/15/03 300 296,016
7.25% 05/15/04 2,600 2,695,810
7.25% 08/15/04 2,300 2,382,915
7.875% 11/15/04 1,000 1,072,840
7.50% 02/15/05 1,100 1,156,155
7.00% 07/15/06 1,000 1,021,470
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $22,445,450) 22,619,747
-----------
COMMERCIAL PAPER 6.8%
Chemicals 2.3%
E.I. duPont de Nemours & Co.
5.50% 06/17/97 1,000 997,555
-----------
Consumer Goods 2.2%
Procter & Gamble Co.
5.50% 06/18/97 1,000 997,403
-----------
Finance 2.3%
Nestle Capital Corp.
5.47% 06/18/97 1,000 997,417
-----------
TOTAL COMMERCIAL PAPER
(Cost $2,992,375) 2,992,375
-----------
REPURCHASE AGREEMENTS 8.9%
Goldman, Sachs & Co.
(Agreement dated 5/30/97 to be repurchased
at $1,959,814 collateralized by $1,595,000
(Value $2,011,807) U.S. Treasury Notes,
11.125%, due 8/15/03)
5.38% 06/02/97 1,959 1,958,936
Merrill Lynch Government Securities, Inc.
(Agreement dated 5/30/97 to be repurchased
at $1,959,819 collateralized by $1,975,000
(Value $2,000,760) U.S. Treasury Notes,
6.125%, due 3/31/98)
5.40% 06/02/97 1,959 1,958,937
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $3,917,873) 3,917,873
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
8
<PAGE>
M.S.D.&T. Funds, Inc.
INTERMEDIATE FIXED INCOME FUND
Statement of Net Assets - Concluded
May 31, 1997
<TABLE>
<CAPTION>
Percentage of Number of
Net Assets Shares Value
---------- ------ -----
<S> <C> <C> <C>
INVESTMENT COMPANY 2.3%
Goldman Sachs Financial
Square Prime Obligations Fund 1,000,000 $ 1,000,000
-----------
TOTAL INVESTMENT COMPANY
(Cost $1,000,000) 1,000,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $43,481,144*) 99.0% 43,423,670
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.0% 424,985
----- -----------
NET ASSETS 100.0% $43,848,655
===== ===========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE:
Institutional Shares
($43,009,448 / 4,171,415) $10.31
======
AFBA Five Star Shares
($839,207 / 81,256) $10.33
======
</TABLE>
- ----------------------------
* Aggregate cost for Federal income tax purposes. The aggregate gross
unrealized appreciation (depreciation) for all securities is as follows:
Excess of value over tax cost........ $ 372,639
Excess of tax cost over value........ $ (430,113)
** The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available at May 31, 1997. These ratings are not covered
by the Report of Independent Accountants.
See Accompanying Notes to Financial Statements.
9
<PAGE>
M.S.D.&T. Funds, Inc.
Statements of Operations
For the Year Ended May 31, 1997
<TABLE>
<CAPTION>
Intermediate
Value Equity Fixed Income
Fund Fund
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Interest $195,217 $2,794,747
Dividends 2,496,932 ---
-------------- -------------
TOTAL INVESTMENT INCOME 2,692,149 2,794,747
-------------- -------------
EXPENSES:
Investment advisory fees 717,042 154,692
Administration fees 149,384 55,247
Accounting agent fees 57,338 27,402
Custodian fees 14,911 10,352
Directors' fees 5,119 2,128
Transfer agent fees 40,046 29,388
Legal 22,935 8,707
Audit 15,044 5,820
Registration fees 11,682 7,196
Pricing service fees 2,008 6,612
Other 35,418 25,588
------------- -------------
1,070,927 333,132
Fees waived by Investment Adviser (175,151) (60,993)
Fees waived by Administrator (20,468) (4,871)
------------- -------------
TOTAL EXPENSES 875,308 267,268
------------- -------------
NET INVESTMENT INCOME 1,816,841 2,527,479
------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) from investments 4,813,430 93,259
Net unrealized appreciation
(depreciation) on investments 27,165,348 418,032
------------- -------------
Net gain (loss) on investments 31,978,778 511,291
------------- -------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $33,795,619 $3,038,770
============= =============
</TABLE>
See Accompanying Notes to Financial Statements.
10
<PAGE>
M.S.D.&T. Funds, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Intermediate Intermediate
Value Value Fixed Fixed
Equity Fund Equity Fund Income Fund Income Fund
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
May 31, 1997 May 31, 1996 May 31, 1997 May 31, 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
Operations:
Net investment income $1,816,841 $2,385,328 $2,527,479 $2,448,392
Net realized gain (loss) 4,813,430 3,132,449 93,259 (58,107)
on investments
Net increase (decrease) in
unrealized appreciation
(depreciation) on investments 27,165,348 10,331,201 418,032 (1,034,652)
------------ ------------ ----------- -----------
Net increase (decrease) in net
assets resulting from operations 33,795,619 15,848,978 3,038,770 1,355,633
------------ ------------ ----------- -----------
Distributions to shareholders from:
Net investment income
Institutional Class
($.25, $.35, $.59, and $.59 per
share, respectively) (1,864,057) (2,496,063) (2,489,799) (2,444,640)
AFBA Five Star Class
($.21, $.10, $.55 and $.28 per
share, respectively) (14,126) (375) (37,680) (3,752)
Net realized capital gains
Institutional Class
($.50, $.71, $.00, and $.00 per
share, respectively) (3,679,018) (4,969,957) --- ---
AFBA Five Star Class
($.50, $.00, $.00 and $.00 per
share, respectively) (43,603) --- --- ---
------------ ------------ ----------- -----------
Total distributions to
shareholders (5,600,804) (7,466,395) (2,527,479) (2,448,392)
------------ ------------ ----------- -----------
Capital Share Transactions:
Proceeds of shares sold
Institutional Class 25,654,867 23,438,948 8,581,841 12,256,511
AFBA Five Star Class 1,121,207 316,761 469,598 354,044
Cost of shares redeemed
Institutional Class (21,862,834) (20,452,056) (11,437,189) (12,858,524)
AFBA Five Star Class (43,474) (100) (13,985) (2,093)
Value of shares issued in
reinvestment of dividends
Institutional Class 3,559,863 4,599,394 1,258,860 1,138,177
AFBA Five Star Class 57,462 369 30,173 949
------------ ------------ ----------- -----------
Increase (decrease) in net assets
derived from capital share
transactions 8,487,091 7,903,316 (1,110,702) 889,064
------------ ------------ ----------- -----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 36,681,906 16,285,899 (599,411) (203,695)
NET ASSETS:
Beginning of period 107,563,288 91,277,389 44,448,066 44,651,761
------------ ------------ ----------- -----------
End of period $144,245,194 $107,563,288 $43,848,655 $44,448,066
============ ============ =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
11
<PAGE>
M.S.D.&T. FUNDS, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
VALUE EQUITY FUND
-------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES AFBA FIVE STAR SHARES
----------------------------------------------------------------------- -----------------------------------
FOR THE FOR THE PERIOD
FOR THE YEARS ENDED YEAR ENDED DECEMBER 31, 1995(1)
MAY 31, 1997 MAY 31, 1996 MAY 31, 1995 MAY 31, 1994 MAY 31, 1993 MAY 31, 1997 TO MAY 31, 1996
------------ ------------ ------------ ------------ ------------ ------------ --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period... $ 14.58 $ 13.42 $ 12.14 $ 12.39 $ 11.36 $ 14.56 $13.61
-------- -------- ------- ------- ------- ------- ------
Income From Investment
Operations:
Net Investment
Income............... 0.74 0.33 0.35 0.29 0.29 0.62 0.14
Net Realized and
Unrealized Gain
(Loss) on
Investments.......... 3.68 1.89 1.55 (0.18) 1.13 3.75 0.91
-------- -------- ------- ------- ------- ------- ------
Total From
Investment
Operations......... 4.42 2.22 1.90 0.11 1.42 4.37 1.05
-------- -------- ------- ------- ------- ------- ------
Less Distributions:
Dividends to
Shareholders from Net
Investment Income.... (0.25) (0.35) (0.34) (0.28) (0.30) (0.21) (0.10)
Distributions to
Shareholders from Net
Capital Gains........ (0.50) (0.71) (0.28) (0.08) (0.09) (0.50) 0.00
-------- -------- ------- ------- ------- ------- ------
Total
Distributions...... (0.75) (1.06) (0.62) (0.36) (0.39) (0.71) (0.10)
-------- -------- ------- ------- ------- ------- ------
Net Asset Value, End of
Period................ $ 18.25 $ 14.58 $ 13.42 $ 12.14 $ 12.39 $ 18.22 $14.56
======== ======== ======= ======= ======= ======= ======
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return........... 31.26% 17.24% 16.22% 0.87% 12.87% 30.92% 7.72%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental
Data
Net Assets, End of
Period (000)......... $142,452 $107,233 $91,277 $53,240 $46,754 $ 1,793 $ 330
Ratio of Expenses to
Average Net Assets... 0.73%(2) 0.73%(2) 0.73%(2) 0.68%(2) 0.68%(2) 0.98%(3) 0.98%(3)(4)
Ratio of Net Income to
Average Net Assets... 1.52% 2.38% 2.99% 2.41% 2.68% 1.74% 2.36%(4)
Portfolio turnover
rate.................. 27.10% 45.15% 33.26% 61.16% 11.99% 27.10% 45.15%
Average commission rate
paid(5)............... $0.0625 $0.0625
</TABLE>
- --------
(1)Commencement of public offering.
(2) Without the waiver of advisory fees and administration fees, the ratio of
expenses to average net assets for the years ended May 31, 1997. May 31,
1996, May 31, 1995, May 31, 1994, and May 31, 1993, would have been 0.89%,
0.89%, 0.89%, 0.87%, and 0.88%, respectively.
(3) Without the waiver of advisory fees and administration fees, the ratio of
expenses to average net assets for the year ended May 31, 1997 and the pe-
riod ended May 31, 1996 would have been 1.15% and 1.15%, (annualized), re-
spectively.
(4) Annualized.
(5) Average commission rate paid on securities purchased and sold. Disclosure
is required for fiscal years beginning on or after September 1, 1995.
See Accompanying Notes to Financial Statements.
12
<PAGE>
M.S.D.&T. FUNDS, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE FIXED INCOME FUND
------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES AFBA FIVE STAR SHARES
------------------------------------------------------------------------ ---------------------------------
FOR THE FOR THE PERIOD
FOR THE YEARS ENDED YEAR ENDED DECEMBER 1, 1995(1)
MAY 31, 1997 MAY 31, 1996 MAY 31, 1995 MAY 31, 1994 MAY 31, 1993 MAY 31, 1997 TO MAY 31, 1996
------------ ------------ ------------ ------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.19 $ 10.43 $ 10.10 $ 10.55 $ 10.31 $10.20 $10.61
------- ------- ------- ------- ------- ------ ------
Income From Investment
Operations:
Net Investment Income.. 0.59 0.59 0.56 0.50 0.56 0.55 0.28
Net Realized and
Unrealized Gain (Loss)
on Investments........ 0.12 (0.24) 0.33 (0.39) 0.24 0.13 (0.41)
------- ------- ------- ------- ------- ------ ------
Total From Investment
Operations.......... 0.71 0.35 0.89 0.11 0.80 0.68 (0.13)
------- ------- ------- ------- ------- ------ ------
Less Distributions:
Dividends to
Shareholders from Net
Investment Income..... (0.59) (0.59) (0.56) (0.50) (0.56) (0.55) (0.28)
Distributions to
Shareholders from Net
Capital Gains......... -- -- -- (0.06) -- -- --
------- ------- ------- ------- ------- ------ ------
Total Distributions.. (0.59) (0.59) (0.56) (0.56) (0.56) (0.55) (0.28)
------- ------- ------- ------- ------- ------ ------
Net Asset Value, End of
Period................. $ 10.31 $ 10.19 $ 10.43 $ 10.10 $ 10.55 $10.33 $10.20
======= ======= ======= ======= ======= ====== ======
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return............ 7.12% 3.38% 9.13% 0.94% 7.94% 6.80% (1.23)%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of
Period (000).......... $43,010 $44,102 $44,652 $35,008 $28,078 $ 839 $ 346
Ratio of Expenses to
Average Net Assets.... 0.60%(2) 0.60%(2) 0.60%(2) 0.55%(2) 0.55%(2) 0.90%(3) 0.90%(3)(4)
Ratio of Net Income to
Average Net Assets.... 5.72% 5.66% 5.56% 4.75% 5.32% 5.43% 5.50%(4)
Portfolio turnover
rate................... 20.92% 52.79% 22.01% 48.58% 12.29% 20.92% 52.79%
</TABLE>
- --------
(1) Commencement of public offering.
(2) Without the waiver of advisory fees and administration fees, the ratio of
expenses to average net assets for the years ended May 31, 1997, May 31,
1996, May 31, 1995, May 31, 1994, and May 31, 1993 would have been 0.75%,
0.72%, 0.70%, 0.66%, and 0.64%, respectively.
(3) Without the waiver of advisory fees and administration fees, the ratio of
expenses to average net assets for the year ended May 31, 1997 and the pe-
riod ended May 31, 1996 would have been 1.05% and 1.06%, (annualized), re-
spectively.
(4) Annualized.
See Accompanying Notes to Financial Statements.
13
<PAGE>
M.S.D. & T. Funds, Inc.
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
M.S.D. & T. Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Company was incorporated in Maryland on March 7, 1989. The Articles of
Incorporation of the Company authorize the Board of Directors to issue up to ten
billion shares, having a par value of $.001 per share. The Company is a series
fund which is currently authorized to issue ten classes of common stock, which
represent interests of eight investment portfolios: the Prime Money Market Fund
(Class A), the Government Money Market Fund (Class B), the Tax-Exempt Money
Market Fund (Class C), the Tax-Exempt Money Market Fund (Trust) (Class D), the
Value Equity Fund (Class E and Class E - Special Series 1), the Intermediate
Fixed Income Fund (Class F and Class F - Special Series 1), the Maryland Tax-
Exempt Bond Fund (Class G) and the International Equity Fund (Class H). Class E
shares (Institutional Shares) and Class E - Special Series 1 shares (AFBA Five
Star Shares) of the Value Equity Fund and Class F shares (Institutional Shares)
and Class F - Special Series 1 shares (AFBA Five Star Shares) of the
Intermediate Fixed Income Fund represent equal pro rata interests in the
respective Fund and bear the same fees and expenses, except that AFBA Five Star
Shares of a Fund bear the fees that are payable under a Service Plan (the
"Service Plan") adopted by the Board of Directors and each class bears certain
class specific expenses. The financial statements herein relate only to the
Value Equity Fund and the Intermediate Fixed Income Fund (the "Funds").
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements.
A) Security Valuation: Investments held by the Value Equity Fund and
Intermediate Fixed Income Fund are valued at market value or, in the absence of
a market value with respect to any portfolio securities, at fair value. A
security that is primarily traded on a domestic security exchange (including
securities traded through the National Market System) is valued at the last sale
price on that exchange or, if there were no sales during the day, at the current
quoted bid price. Over-the-counter securities are valued at the mean of the most
recent available quoted bid and asked prices in the over-the-counter market.
Market or fair value may be determined on the basis of valuations provided by
one or more recognized pricing services approved by the Board of Directors,
which may rely on matrix pricing systems, electronic data processing techniques
and/or quoted bid and asked prices provided by investment dealers. Short-term
investments with maturities of 60 days or less are valued at amortized cost
which approximates fair value. The net asset value per share of each Fund will
fluctuate as the values of their respective investment portfolios change.
B) Security Transactions and Investment Income: Security transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on the accrual basis; dividend
income is recorded on the ex-dividend date. The Company accounts separately for
the assets , liabilities and operations of each Fund. Direct expenses of a Fund
are charged to that Fund while general expenses of the Company are allocated
among the Funds based on relative net assets. The investment income and expenses
(other than the expenses incurred under the Service Plan and class specific
expenses) and realized and unrealized gains and losses on the investments are
allocated to the separate classes of shares of each Fund based upon their
relative net asset value on the date income is earned or expenses and realized
and unrealized gains and losses are incurred.
C) Dividends and Distributions to Shareholders: Dividends from net investment
income are declared daily and paid monthly to shareholders of the Intermediate
Fixed Income Fund and are declared and paid quarterly to shareholders of the
Value Equity Fund. Any net realized capital gains are distributed annually.
D) Federal Income Taxes: Each of the Funds is a separate taxable entity and
intends to qualify for the tax treatment applicable to regulated investment
companies under the Internal Revenue Code of 1986, as amended, and, among other
things, is required to make the requisite distributions to its shareholders
which will relieve it from Federal income or excise taxes. Therefore, no
provision has been recorded for Federal income or excise taxes.
E) Repurchase Agreements: The Value Equity Fund and Intermediate Fixed Income
Fund may agree to purchase portfolio securities from financial institutions,
such as banks and broker-dealers, subject to the seller's agreement to
repurchase them at an agreed upon date and price. The seller will be required on
a daily basis to maintain the value of the securities subject to the repurchase
agreement at not less than the repurchase price (including accrued interest),
plus the transaction costs the Funds could expect to incur if the seller
defaults, marked-to-market daily.
14
<PAGE>
M.S.D. & T. Funds, Inc.
Notes to Financial Statements - Continued
2. INVESTMENT ADVISER, ADMINISTRATOR, DISTRIBUTOR AND OTHER RELATED PARTY
TRANSACTIONS
Mercantile-Safe Deposit and Trust Company ("Mercantile") provides investment
advisory and administration services to each Fund pursuant to Investment
Advisory Agreements and an Administration Agreement. For its services as
Adviser, Mercantile receives an advisory fee computed daily and payable monthly
at an annual rate of .60% of the average daily net assets of the Value Equity
Fund and .35% of the average daily net assets of the Intermediate Fixed Income
Fund. For its services as Administrator, Mercantile receives an administration
fee computed daily and payable monthly at an annual rate of .125% of the average
daily net assets of each Fund. Mercantile may, at its discretion, voluntarily
waive any portion of its advisory fee or its administration fee for any Fund.
Under the Service Plan with respect to AFBA Five Star Shares, institutions
("Service Organizations") agree to provide support services to their clients who
are the beneficial owners of AFBA Five Star Shares of the Value Equity and
Intermediate Fixed Income Funds. For these services, the Funds agree to pay the
Service Organizations an annual rate of .25% of the average daily net assets of
each Fund's outstanding AFBA Five Star Shares.
Shares in each Fund are sold on a continuous basis without a sales load by the
Company's distributor, BISYS Fund Services ("the Distributor"). The Distributor
receives no fee for these services.
Each director of the Company receives from the Company an annual fee of $3,500
and a fee of $1,625 for each Board meeting attended and is reimbursed for all
out-of-pocket expenses relating to attendance at meetings. Officers of the
Company do not receive compensation from the Company for serving as officers. No
person who is a director, officer or employee of the Adviser serves as a
director, officer or employee of the Company. During the year ended May 31,
1997, the Funds paid legal fees to a law firm, a partner of which serves as
Secretary of the Company.
<TABLE>
<CAPTION>
3. NET ASSETS
At May 31, 1997, net assets consisted of the following:
Value Intermediate
Equity Fixed Income
Fund Fund
-------------- ------------
<S> <C> <C>
Capital Paid-In
Institutional Class $ 94,213,205 $43,142,304
AFBA Five Star Class 1,452,225 838,686
Accumulated Realized Gain (Loss) on
Investments 1,889,447 (79,690)
Net Unrealized Appreciation
(Depreciation) on Investments 46,367,853 (57,474)
Undistributed Net Investment Income
(Distribution in Excess of Net
Investment Income) 322,464 4,829
-------------- ------------
$144,245,194 $43,848,655
============== ============
</TABLE>
4. PURCHASES & SALES OF SECURITIES
For the year ended May 31, 1997, total aggregate purchases and proceeds from
sales of investment securities (excluding short-term securities) were as
follows:
<TABLE>
<CAPTION>
U.S. U.S.
Government Government
Purchases * Sales * Purchases Sales
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Value Equity Fund $35,139,214 $28,919,627 $0 $2,761,550
Intermediate Fixed Income
Fund 3,515,501 763,795 5,004,063 16,295,867
</TABLE>
* (excluding short-term and U.S. Government securities)
15
<PAGE>
M.S.D. & T. Funds, Inc.
Notes to Financial Statements - Concluded
<TABLE>
<CAPTION>
5. CAPITAL STOCK
Transactions in shares of the Company are summarized as follows:
Value Equity Fund
-----------------------------------------------------------------------------------
Institutional Shares AFBA Five Star Shares
----------------------------- ----------------------------------------------
For the Year For the Year For the Year For the Period
Ended Ended Ended Ended
May 31, 1997 May 31, 1996 May 31, 1997 May 31, 1996
----------------------------- ----------------------------------------------
<S> <C> <C> <C> <C>
Shares Sold 1,678,124 1,678,924 74,788 22,663
Shares Redeemed (1,464,735) (1,459,804) (2,711) (7)
Shares Reinvested 226,513 335,598 3,642 25
----------------------------- ----------------- ----------------
Net Increase (Decrease) in Shares . 448,902 554,718 75,719 22,681
Shares Outstanding:
Beginning of Period 7,356,638 6,801,920 22,681 ---
----------------------------- ----------------- -----------------
End of Period 7,805,540 7,356,638 98,400 22,681
============================= ================= =================
<CAPTION>
Intermediate Fixed Income Fund
-----------------------------------------------------------------------------------
Institutional Shares AFBA Five Star Shares
------------------------------------- --------------------------------------------
For the Year For the Year For the Year For the Period
Ended Ended Ended Ended
May 31, 1997 May 31, 1996 May 31, 1997 May 31, 1996
----------------------------- ----------------------------------------------
<S> <C> <C> <C> <C>
Shares Sold 843,216 1,170,604 45,744 34,055
Shares Redeemed (1,121,470) (1,232,150) (1,349) (204)
Shares Reinvested 122,208 108,696 2,918 92
----------------------------- ----------------- ------------------
Net Increase (Decrease) in Shares . (156,046) 47,150 47,313 33,943
Shares Outstanding:
Beginning of Period 4,327,461 4,280,311 33,943 ---
----------------------------- ----------------- ----------------
End of Period 4,171,415 4,327,461 81,256 33,943
============================= ================= ================
</TABLE>
6. CAPITAL LOSS CARRYOVERS
At May 31, 1997, the following Funds had capital loss carryovers:.
<TABLE>
<CAPTION>
Capital Loss Expiration
Carryover Year
--------- ----
<S> <C> <C>
Intermediate Fixed Income Fund $ 79,690 2003 through 2005
</TABLE>
The capital loss carryovers are available to offset possible future capital
gains, if any, of the Fund.
7. SUBSEQUENT EVENT - TERMINATION OF AFBA FIVE STAR SHARES
On June 5, 1997, the Board of Directors of the Company approved the
termination of the offering of AFBA Five Star Shares of the Value Equity and
Intermediate Fixed Income Funds. Specifically, the Board approved that (i) as
of the close of business on June 6, 1997, AFBA Five Star Shares of the Funds
would no longer be offered to new investors, provided, however, that existing
holders of AFBA Five Star Shares may continue to purchase and redeem such
Shares, and will continue to receive dividends and distributions in additional
AFBA Five Star Shares if they have so elected, until August 8, 1997; and (ii) as
of the close of business on August 8, 1997, all outstanding AFBA Five Star
Shares of a Fund will be automatically exchanged for Institutional Shares of the
same Fund at net asset value without payment of any exchange fee.
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of M.S.D.&T. Funds, Inc.
We have audited the accompanying statements of net assets of M.S.D.&T.
Funds, Inc. (Value Equity Fund and Intermediate Fixed Income Fund) as of May 31,
1997, and the related statements of operations for the year then ended, and the
statements of changes in net assets and the financial highlights for each of the
periods presented. 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 May
31, 1997, 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 the financial highlights
referred to above present fairly, in all material respects, the financial
position of M.S.D.&T. Funds, Inc. (Value Equity Fund and Intermediate Fixed
Income Fund) as of May 31, 1997, the results of its operations for the year then
ended, and the changes in its net assets and its financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 18, 1997
<PAGE>
IMPORTANT TAX INFORMATION
(Unaudited)
During the fiscal year ended May 31, 1997:
24.5% of the distributions paid by the Value Equity Fund were derived from
net investment income and short-term capital gains and are taxable as
ordinary income and 75.5% were derived from long term capital gains and are
taxable at the long term capital gain rate. Of such distributions derived
from net investment income and short-term capital gains, 100% qualify for
the dividends received deduction available to corporate shareholders.
100.0% of the distributions paid by the Intermediate Fixed Income Fund were
derived from net investment income and short-term capital gains and are
taxable as ordinary income.
Investment Adviser and Administrator:
[LETTERHEAD OF MERCANTILE-SAFE DEPOSIT & TRUST COMPANY APPEARS HERE]
MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
Affiliate Mercantile Bankshares Corporation
Baltimore, Maryland
Custodian:
Fifth Third Bank
Cincinnati, Ohio
Transfer Agent:
BISYS Fund Services Ohio, Inc.
Columbus, Ohio
Distributor:
BISYS Fund Services
Columbus, Ohio
AFBA Industrial Bank is a wholly-owned subsidiary of Armed Forces Benefit
Services, Inc. AFBA Industrial Bank is not affiliated with AEGON USA,
Mercantile-Safe Deposit and Trust, BISYS Fund Services Ohio, Inc., BISYS Fund
Services or Fifth Third Bank.
This report is submitted for the general information of the shareholders of the
AFBA Five Star Shares of the M.S.D.&T. Funds, Inc. It is not authorized for
distribution to prospective investors unless accompanied or preceded by the
current Prospectus.
Shares of the Funds are not bank deposits or obligations of, or guaranteed,
endorsed or otherwise supported by Mercantile-Safe Deposit and Trust Co. or AFBA
Industrial Bank, their parent companies or affiliates and are not federally
insured or guaranteed by the U.S. Government, the Federal Deposit Insurance
Corp., the Federal Reserve Board or any other governmental agency. Investment in
the Funds involves investment risks, including possible loss of principal.
18
