LIFE CYCLE MUTUAL FUNDS(TM), INC.
LIFE CYCLE EQUITY FUND(TM)
LIFE CYCLE BOND FUND(TM)
LIFE CYCLE RETIREMENT INCOME FUND(TM)
LIFE CYCLE HARVEST FUND(TM)
SEMI - ANNUAL REPORT
JANUARY 31, 1996
INVESTMENT ADVISER
- ------------------
BENSON WHITE & COMPANY
656 East Swedesford Road
Wayne, Pennsylvania 19087
ADMINISTRATOR
- -------------
FURMAN SELZ LLC
230 Park Avenue
New York, New York 10169
DISTRIBUTOR
- -----------
LIFE CYCLE MUTUAL FUNDS DISTRIBUTORS, INC.
230 Park Avenue
New York, New York 10169
CUSTODIAN
- ---------
THE BANK OF NEW YORK
90 Washington Street
New York, New York 10286
COUNSEL
- -------
BATTLE FOWLER LLP
75 East 55th Street
New York, New York 10022
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS OF LIFE CYCLE MUTUAL
FUNDS, INC. ITS USE IN CONNECTION WITH ANY OFFERING OF THE FUND'S SHARES
IS AUTHORIZED ONLY IN CASE OF A CONCURRENT OR PRIOR DELIVERY OF THE
FUND'S CURRENT PROSPECTUS.
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM) INC.
LIFE CYCLE EQUITY FUND(TM)
LIFE CYCLE BOND FUND(TM)
LIFE CYCLE RETIREMENT INCOME FUND(TM)
LIFE CYCLE HARVEST FUND(TM)
Dear Fellow Shareholders:
This is our inaugural letter to you, our fellow shareholders of the
Life Cycle Mutual Funds. Before we begin, we want to say thank you to each and
every one of you for becoming a shareholder. We know it was a big step to take.
It is not easy to give a new organization stewardship and control over your
money. We realize that. We want you to know that we have a clear understanding
of how important your money is to you.
The goal of the Life Cycle Mutual Funds is to build and fund a base
retirement benefit for each and every one of our shareholders. Your funds are
not interested in promoting unrealistic or unattainable objectives. Instead, the
approach is careful, disciplined, and realistic. The Life Cycle Program is
unique because it both identifies the retirement problem and then goes on to
provide a framework to solve it. The program is built on the dictum that he who
makes the fewer mistakes will generally win.
As a shareholder in the Life Cycle Mutual Funds, you are at the center
of the investment process. We understand that this money does not belong to the
investment manager--it belongs to the shareholders. Because of this focus, the
Life Cycle Mutual Funds will tend to look at things differently from the rest of
the mutual fund industry.
Many investors have been conditioned to believe that getting the
maximum return as fast as you can is the single most important thing about
investing. There is nothing wrong with this approach except that it is
one-sided, and as such, without balance. Imbalances lead to extremes, and
investing is no exception. However, the fact remains that the more you stretch
to make a "killing" in the markets, the more likely it is that you will engage
in speculation and place your investment at risk. Put in another way, with sole
attention given to generating higher returns, investors sometimes overstep the
bounds of good judgment, and make investments that are fundamentally
speculative.
Rest assured that your funds will not engage in speculative activity.
And while nothing will ever prevent your money from being at risk regardless of
where it is invested, your funds will do their utmost to manage those risks
prudently on your behalf. We believe there is no room for speculation with
retirement money. Instead, the funds will pursue a disciplined path that seeks
to produce solid returns while attempting to solve the basic retirement problem.
The enclosed financial statements reflect the financial condition of
the four mutual funds as of the end of January, 1996. The short period from the
time of inception in October, 1995 to the end of January, 1996 effectively
precludes any meaningful comments on the performance of the portfolios
themselves. Much of the time since inception has been given over to the
construction of the initial portfolios, the details of which appear in the
financial statements.
MARKET COMMENTARY
One of the most important things to remember when thinking about the
capital markets is that they merely provide the forum where people buy and sell
securities. In and of themselves, the markets do not produce profits for
investors. This is very easy to forget in the hustle and bustle of the runaway
stock market investors experienced during 1995.
<PAGE>
In our opinion, there were a number of reasons for this strong showing.
Most importantly, the continued strong influx of retirement investment assets
meant that, on balance, there were more buyers than sellers, a phenomenon that
always makes for higher prices. Put simply, more people wanted to own stocks.
Simultaneously, corporate earnings were relatively strong, adding to
the appearance of corporate prosperity. Inflation was dampened by the continued
globalization of many markets as well as the implementation of new technologies
throughout the world's economies. Low interest rates caused the government's
budget deficit to shrink, and both the stock and bond markets were reassured by
the apparent movement to balance the budget on a more permanent basis.
We would be the last to declare that we know which direction any market
will take. Markets are unpredictable because there are too many variables for
them to be any other way. There is no doubt about it, 1995 was a tremendous
year. It was a year that makes many people forget that bad markets are a
perfectly normal occurrence. One fine day, at some point in the future, stocks
will tumble 20%, 30% or 40% over some period of time, and those folks who never
thought the market could behave that way will be sorely chastened. We can't tell
you when this might happen, or how long or deep such a bear market might be. But
it will happen, make no mistake about it. Remember, in investing, as in life, it
is easier to stay out of trouble than to get out of trouble, and to stay out of
trouble, you need to follow a sound investing discipline. Otherwise you will
fall into the "hot fund" syndrome, and always be chasing after last year's big
winner.
THE LIFE CYCLE MUTUAL FUNDS
Since this is our first management letter to you, we though it
appropriate to review the fundamental investing strategies undertaken by the
Life Cycle Program, and the Life Cycle Mutual Funds.
LIFE CYCLE PROGRAM(TM)
The Life Cycle Program is an individualized account management service
that imposes a long term discipline to the retirement investing process. The
program uses shares of the Life Cycle Equity Fund to build long-term wealth, and
to help protect retirement assets from the erosion of inflation. The program
uses shares of the Life Cycle Bond Fund to stabilize the value of the retirement
account, to serve as a repository for value exchanged from the Life Cycle Equity
Fund, and to gradually provide a vehicle that funds a base retirement benefit.
The program uses shares of the Life Cycle Retirement Income Fund to generate
retirement income that helps fund your retirement benefit, as well as to serve
as a repository of value exchanged from the Life Cycle Equity Fund. The program
uses shares of the Life Cycle Harvest Fund as a repository for incremental
harvesting of gains from the Life Cycle Equity Fund, and as the first target for
systematic withdrawals to support retirement expenses.
LIFE CYCLE EQUITY FUND
At any given time, the Life Cycle Equity Fund holds forty stocks plus a
small amount of cash to service the need for redemptions and to pay expenses.
The forty stocks are purchased on the basis of their high quality fundamental
characteristics, and their relatively high dividend income. There are no
exceptions to this rule.
Under normal conditions, the stocks in the Life Cycle Equity Fund will
continue to be held in the portfolio until such time as a six month periodic
screening is scheduled. The next screening is to take place in early May, 1996,
based on the March, 1996 quarterly fundamental data as reported to the SEC, and
the market prices in effect when all the fundamental data becomes accessible. At
that time, all stocks in the Standard & Poors 500
<PAGE>
Index will be screened for quality and dividend yields. Those stocks that are
currently held in the portfolio, but no longer qualify, will be sold. Newly
qualified stocks will be selected as replacements for those stocks sold to once
again bring the portfolio up to forty stocks. The intent is to hold all stock
positions as close to an equal weighting as possible.
LIFE CYCLE BOND FUND
The Life Cycle Bond Fund, when fully invested, will ultimately take the
form of an intermediate laddered "buy and hold" portfolio consisting primarily
of U.S. Treasury and other federal obligations, investment grade corporation
bonds, and cash. The ladder will be weighted more heavily on the shorter end
than the longer end.
Under the credit market conditions existing as of the end of January,
1996, the fund had invested in two Treasury obligations, and held almost two
thirds of its assets in short term cash equivalent securities. The reason for
this was that, at the time, shorter debt obligations were yielding more than
intermediate obligations. Until there was sufficient additional yield incentive
to continue to build the laddered portfolio by purchasing bonds that (as of
today's reckoning) would mature in the year 2000, 2001 and 2002, the balance of
the portfolio was invested in cash.
LIFE CYCLE RETIREMENT INCOME FUND
The Life Cycle Retirement Income Fund, when fully invested, will
ultimately take the form of an intermediate laddered "buy and hold" portfolio
consisting primarily of U.S. Treasury and other federal obligations, investment
grade corporation bonds, mortgaged backed securities and cash. The ladder will
be weighted more heavily on the longer end than the shorter end.
Under the credit market conditions existing as of the end of January,
1996, the fund had invested in three Treasury obligations, and held a little
more than half of its assets in short term cash equivalent securities. The
reason for this was that, at the time, shorter debt obligations were yielding
more than intermediate obligations. Until there was sufficient additional yield
incentive to continue to build the laddered portfolio by purchasing bonds that
(as of today's reckoning) would mature in the year 2001, 2002 and 2003, the
balance of the portfolio was invested in cash.
LIFE CYCLE HARVEST FUND
The Life Cycle Harvest Fund consists of amounts harvested from the Life
Cycle Equity Fund in accordance with the Life Cycle Program, as well as amounts
that have been invested into the Life Cycle Program that await automatic
age-specific asset allocation.
Because the Life Cycle Mutual Funds are newly formed, there has been no
harvesting activity to date. All Life Cycle Harvest Fund assets are therefore
invested in cash equivalent debt securities.
Yours truly,
/s/ Clay B. Mansfield /s/ Timothy W. Cinningham
Clay B. Mansfield Timothy W. Cunningham
Chairman and shareholder President and shareholder
March 9, 1996
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
THE LIFE CYCLE EQUITY FUND(TM)
PORTFOLIO OF INVESTMENTS (UNAUDITED) - JANUARY 31, 1996
SHARES COST VALUE
- -------------- ------------ ------------
COMMON STOCKS - 91.87%
AUTO RELATED - 5.19%
600 Dana Corp........................ $ 16,858 $ 19,725
400 Genuine Parts Co................. 16,070 17,800
--------- ---------
32,928 37,525
--------- ---------
BANKS - 12.01%
500 Banc One Corp.................... 18,314 18,937
300 Barnett Banks Inc................ 17,216 17,550
400 First Chicago NBD Bancorp........ 15,221 15,550
500 KeyCorp.......................... 17,713 18,375
500 National City Corp............... 16,126 16,312
--------- ---------
84,590 86,724
--------- ---------
ELECTRONICS - 1.93%
400 National Service Industries, Inc. 12,521 13,950
--------- ---------
FINANCIAL SERVICES - 11.52%
400 Boatmen's Bancshares Inc......... 15,708 17,150
400 Corestates Financial Corp........ 14,896 16,000
300 First Union Corp................. 16,090 17,362
200 Morgan (J.P.) & Company, Inc..... 15,698 16,250
500 U.S. Bancorp..................... 16,026 16,438
--------- ---------
78,418 83,200
--------- ---------
FOOD PROCESSING - 2.14%
450 Heinz (H.J.) Co.................. 14,395 15,469
--------- ---------
FOREST PRODUCTS & PAPER - 2.55%
400 Weyerhaeuser Co.................. 17,520 18,450
--------- ---------
INSURANCE - 9.11%
500 American General Corp............ 17,339 18,875
300 Lincoln National Corp............ 14,152 15,862
200 Marsh & McLennan Cos., Inc....... 17,198 18,200
400 USLife Corp...................... 11,702 12,850
--------- ---------
60,391 65,787
--------- ---------
MANUFACTURING - 2.68%
300 Minnesota Mining & Manufacturing Co 18,240 19,350
--------- ---------
OIL / GAS - 12.62%
200 Amoco Corp....................... 13,135 14,075
400 Ashland Inc...................... 13,396 14,700
300 Chevron Corp..................... 15,216 15,562
200 Exxon Corp....................... 15,285 16,050
500 Panhandle Eastern Corp........... 13,588 14,438
500 Phillips Petroleum Co............ 16,301 16,313
--------- ---------
86,921 91,138
--------- ---------
See accompanying notes to financial statements.
4
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
THE LIFE CYCLE EQUITY FUND(TM)
PORTFOLIO OF INVESTMENTS (CONTINUED) - JANUARY 31, 1996
SHARES COST VALUE
- -------------- ------------ ------------
COMMON STOCKS (CONTINUED)
PUBLISHING & PRINTING - 2.13%
700 Harland (John H.) Co............. $ 14,790 $ 15,400
--------- ---------
RESTAURANTS - 2.04%
700 Luby's Cafeterias Inc............ 15,331 14,700
--------- ---------
RETAIL - 5.06%
400 Penney (J.C.) Co................. 18,795 19,600
900 TJX Companies Inc................ 14,396 16,988
--------- ---------
33,191 36,588
--------- ---------
TELECOMMUNICATIONS - 4.72%
500 Alltel Corp...................... 14,938 15,688
400 GTE Corp......................... 16,845 18,400
--------- ---------
31,783 34,088
--------- ---------
TOBACCO - 2.53%
400 American Brands, Inc............. 17,207 18,250
--------- ---------
TOOLS - 2.14%
300 Stanley Works.................... 14,891 15,450
--------- ---------
UTILITIES - 13.50%
500 Baltimore Gas & Electric Co...... 13,346 14,375
500 Consolidated Edison of New York.. 14,988 16,875
300 Duke Power Co.................... 13,440 14,925
700 Nicor Inc........................ 18,644 19,075
600 Southern Co...................... 14,151 15,225
400 Union Electric Co................ 16,033 17,050
--------- ---------
90,602 97,525
--------- ---------
TOTAL INVESTMENTS - 91.87% $623,719 + 663,594
========
CASH AND OTHER ASSETS,
NET OF LIABILITIES - 8.13% 58,744
---------
NET ASSETS - 100.00% $ 722,338
=========
+ Cost for book and tax purposes is substantially the same.
See accompanying notes to financial statements.
5
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
THE LIFE CYCLE BOND FUND(TM)
PORTFOLIO OF INVESTMENTS (UNAUDITED) - JANUARY 31, 1996
PRINCIPAL COST VALUE
- -------------- ------------ -----------
U. S. TREASURY OBLIGATIONS - 34.71%
$20,000 Notes, 4.75%, 10/31/1998.............. $ 19,635 $ 19,846
20,000 Notes, 5.50%, 02/28/1999.............. 20,006 20,247
-------- --------
39,641 40,093
-------- --------
TOTAL INVESTMENTS - 34.71% $ 39,641 + 40,093
========
CASH AND OTHER ASSETS, NET OF LIABILITIES - 65.29% 75,426
---------
NET ASSETS - 100.00% $115,519
========
+ Cost for book and tax purposes is substantially the same.
See accompanying notes to financial statements.
6
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
THE LIFE CYCLE RETIREMENT INCOME FUND(TM)
PORTFOLIO OF INVESTMENTS (UNAUDITED) - JANUARY 31, 1996
PRINCIPAL COST VALUE
- -------------- ------------ -----------
U. S. TREASURY OBLIGATIONS - 48.98%
$25,000 Notes, 5.125%, 11/30/1998............. $ 24,816 $ 25,047
25,000 Notes, 5.50%, 04/15/2000.............. 25,027 25,338
30,000 Notes, 5.75%, 10/31/2000.............. 30,203 30,601
-------- --------
80,046 80,986
-------- --------
TOTAL INVESTMENTS - 48.98% $ 80,046 + 80,986
========
CASH AND OTHER ASSETS,
NET OF LIABILITIES - 51.02% 84,350
--------
NET ASSETS - 100.00% $165,336
========
+ Cost for book and tax purposes is substantially the same.
See accompanying notes to financial statements.
7
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JANUARY 31, 1996
<TABLE>
<CAPTION>
EQUITY BOND RETIREMENT HARVEST
FUND FUND INCOME FUND FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (cost $623,719; $39,641;
$80,046; $0) ......................................... $ 663,594 $ 40,093 $ 80,986 $ 0
Cash .................................................... 14,882 45,317 54,525 977,557
Interest and dividends receivable ....................... 1,272 964 1,365 3,744
Receivable for Fund shares sold ......................... 9,701 0 0 0
Receivable from Adviser (Note 3) ........................ 25,274 23,668 23,012 19,533
Unamortized organization expense ........................ 31,372 31,409 31,409 31,408
---------- ---------- ---------- ----------
Total assets.................................. 746,095 141,451 191,297 1,032,242
---------- ---------- ---------- ----------
LIABILITIES
Income distribution payable ............................. 86 289 372 2,092
Organization expense payable ............................ 3,195 7,217 7,217 3,232
Accrued expenses......................................... 20,476 18,426 18,372 20,423
---------- ---------- ---------- ----------
Total liabilities............................. 23,757 25,932 25,961 25,747
---------- ---------- ---------- ----------
NET ASSETS .............................................. $ 722,338 $ 115,519 $ 165,336 $1,006,495
========== ========== ========== ==========
NET ASSETS CONSIST OF:
Capital Stock, $0.001 par value per share (20
billion shares authorized) ........................... $ 68 $ 12 $ 16 $ 101
Additional paid-in capital .............................. 682,805 115,055 164,380 1,006,394
Accumulated net realized loss on investments ............ (410) 0 0 0
Net unrealized appreciation on investments .............. 39,875 452 940 0
---------- ---------- ---------- ----------
NET ASSETS .............................................. $ 722,338 $ 115,519 $ 165,336 $1,006,495
========== ========== ========== ==========
SHARES OF BENEFICIAL INTEREST
Shares of beneficial interest outstanding ............... 68,004 11,519 16,451 100,649
========== ========== ========== ==========
Net Asset Value per share ............................... $ 10.62 $ 10.03 $ 10.05 $ 10.00
========== ========== ========== ==========
Maximum Offering Price per share ($10.62,
$10.03, $10.05, $10.00 / 0.9625,
respectively) ........................................ $ 11.03 $ 10.42 $ 10.44 $ 10.39
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
EQUITY BOND RETIREMENT HARVEST
FUND FUND INCOME FUND FUND
October 2, 1995* October 4, 1995* October 4, 1995* October 4, 1995*
through through through through
January 31, 1996 January 31, 1996 January 31, 1996 January 31, 1996
-------------------- -------------------- -------------------- -------------------
INVESTMENT INCOME
<S> <C> <C> <C> <C>
Interest income......................... $ 809 $ 1,241 $ 1,577 $ 15,097
Dividend income ........................ 4,351 0 0 0
-------- -------- -------- --------
Total income .......................... 5,160 1,241 1,577 15,097
-------- -------- -------- --------
EXPENSES
Administrative ......................... 20,833 20,833 20,833 20,833
Audit .................................. 4,000 4,000 4,000 4,000
Legal .................................. 3,750 3,750 3,750 3,750
Custodian .............................. 2,910 616 535 1,027
Printing ............................... 2,500 2,500 2,500 2,500
Amortization of organization
expenses ............................ 2,245 2,208 2,208 2,208
Registration ........................... 2,168 2,168 2,168 1,953
Trustees fees........................... 1,500 1,500 1,500 1,500
Advisory ............................... 1,045 184 229 2,500
12b-1 Distribution fees ................ 1,045 184 229 2,500
Transfer agent.......................... 1,018 948 520 536
Pricing ................................ 790 214 138 0
Miscellaneous .......................... 850 851 879 851
-------- -------- -------- --------
Total expenses before
waivers/reimbursements ......... 44,654 39,956 39,489 44,158
Less expenses waived/ reimbursed
by Adviser ..................... (41,944) (39,477) (38,894) (37,658)
-------- -------- -------- --------
Net expenses...................... 2,710 479 595 6,500
-------- -------- -------- --------
Net investment income .................. 2,450 762 982 8,597
-------- -------- -------- --------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized loss on investments ....... (410) 0 0 0
Net change in unrealized appreciation
on investments ...................... 39,875 452 940 0
-------- -------- -------- --------
Net realized and unrealized gain
on investments ................. 39,465 452 940 0
-------- -------- -------- --------
Net increase in net assets resulting
from operations ..................... $ 41,915 $ 1,214 $ 1,922 $ 8,597
======== ======== ======== ========
* Commencement of operations..
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
EQUITY BOND RETIREMENT HARVEST
FUND FUND INCOME FUND FUND
October 2, 1995* October 4, 1995* October 4, 1995* October 4, 1995*
through through through through
January 31, 1996 January 31, 1996 January 31, 1996 January 31, 1996
-------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income .................. $ 2,450 $ 762 $ 982 $ 8,597
Net realized loss on investments ....... (410) 0 0 0
Net change in unrealized appreciation on
investments ......................... 39,875 452 940 0
--------- --------- --------- ----------
Net increase in net assets resulting from
operations .......................... 41,915 1,214 1,922 8,597
--------- --------- --------- ----------
DIVIDENDS TO SHAREHOLDERS
From net investment income ............. (2,450) (762) (982) (8,597)
--------- --------- --------- ----------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares .......... 660,004 89,594 161,939 1,735,138
Net asset value of shares issued to
shareholders in reinvestment of
dividends ........................... 2,361 473 607 6,401
Net asset value of shares redeemed ..... (4,492) 0 (23,150) (760,044)
--------- --------- --------- ----------
Net increase in net assets from capital
share transactions .................. 657,873 90,067 139,396 981,495
--------- --------- --------- ----------
Total increase in net assets ........... 697,338 90,519 140,336 981,495
NET ASSETS
Beginning of period .................... 25,000 25,000 25,000 25,000
--------- --------- --------- ----------
End of period........................... $ 722,338 $ 115,519 $ 165,336 $ 1,006,495
========= ========= ========= ===========
</TABLE>
* Commencement of operations.
10
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - JANUARY 31, 1996
1. DESCRIPTION. Life Cycle Mutual Funds(TM), Inc. (the "Fund") is
registered under the Investment Company Act of 1940, as amended, as an open
ended, management investment company and currently consists of four separate
investment portfolios (the "Portfolios"): the Life Cycle Equity Fund(TM) (the
"Equity Fund"), the Life Cycle Bond Fund(TM) (the "Bond Fund"), the Life Cycle
Retirement Income Fund(TM) (the "Retirement Income Fund"), and the Life Cycle
Harvest Fund(TM) (the "Harvest Fund"). The Portfolios are offered in connection
with an age-based asset allocation program (the "Life Cycle Program") which is
designed to meet the long-term retirement investment needs of individual
investors. The Life Cycle Program is intended to manage investors' retirement
assets by making disciplined age-based asset allocation decisions to achieve
this overall objective.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of the
significant accounting policies followed by the Fund:
A. PORTFOLIO VALUATION. The net asset value per share of the Portfolios is
calculated as of 4:00 p.m. (Eastern Time). Securities listed on an exchange
are valued at the last sales price prior to the time the valuation is made.
If there has been no sale since the immediately previous valuation, then
current bid price is used. Quotations are taken from the exchange where the
security is primarily traded. Over-the-counter securities are valued on the
basis of the closing bid price. Assets for which market quotations are not
readily available are valued in accordance with procedures established by
the Fund's Board of Directors, including use of an independent pricing
service. Short-term securities with maturities of 60 days or less are
valued at amortized cost, if their terms to maturity at purchase were 60
days or less, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity at purchase exceeded 60 days.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions
are recorded on a trade date basis. Realized gains and losses from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including
amortization of premium and accretion of discount, is accrued daily.
C. DISTRIBUTIONS TO SHAREHOLDERS. The Bond Fund, Retirement Income Fund,
and Harvest Fund declare dividends from net investment income daily and
distribute that income monthly. The Equity Fund declares and distributes
net investment income on a quarterly basis. Net realized capital gains will
be declared and distributed annually. Distributions are recorded on the
ex-dividend date.
D. FEDERAL INCOME TAX. It is the policy of each of the Portfolios to
qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended. By so qualifying, the Portfolios
will not be subject to Federal income taxes to the extent that they
distribute all of their taxable income for the fiscal year. The Portfolios
also intend to meet the distribution requirements to avoid the payment of
an excise tax.
E. ORGANIZATION EXPENSES. Costs incurred in connection with the
organization and initial registration of the Fund have been deferred and
are being amortized on a straight-line basis over sixty months beginning
with each Portfolio's commencement of operations. In the event any of the
initial shares of any of the Portfolios are redeemed, the appropriate
Portfolio will be reimbursed for any unamortized organization expenses in
the same proportion as the number of shares redeemed bears to the number of
initial shares held at time of redemption.
F. DETERMINATION OF NET ASSET VALUE AND CALCULATION OF EXPENSES. Expenses
directly attributable to a Portfolio are charged to that Portfolio. Other
expenses are allocated proportionately among each Portfolio within the Fund
in relation to the net assets of each Portfolio or on another reasonable
basis.
3. INVESTMENT ADVISORY, ADMINISTRATIVE AND OTHER TRANSACTIONS WITH
AFFILIATES. The Fund has entered into an investment advisory agreement (the
"Investment Advisory Agreement") with Benson White & Company (the "Adviser").
The Investment Advisory Agreement provides for the Adviser to supervise all
aspects of the Fund's operations and provide investment advice and portfolio
management services to the Fund. Subject to the supervision of the Fund's Board
of Directors, the Adviser makes each Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the portfolio investments. The Adviser is also responsible for the
management and implementation of the Life Cycle Program. Pursuant to the terms
of the Investment Advisory Agreement, the Adviser is paid a monthly advisory fee
equal to 0.75% of each Portfolio's average daily net assets per annum. For the
11
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) - JANUARY 31, 1996
period ended January 31, 1996, the Advisor earned fees of $1,045, $184, $229,
$2,500, for the Equity, Bond, Retirement Income, and Harvest Funds,
respectively. For the period ended January 31, 1996, the Advisor waived fees of
$1,045, $184, $229, $2,500, for the Equity, Bond, Retirement Income, and Harvest
Funds, respectively.
Furman Selz LLC ("Furman Selz") provides the Fund with administrative, fund
accounting, dividend disbursing and transfer agency services pursuant to an
administrative services agreement (the "Administrative Services Agreement").
Pursuant to the Administrative Services Agreement, Furman Selz receives a fee,
payable monthly, equal to 0.20% of the Fund's aggregate average net assets,
subject to a minimum of $250,000 per year. For the period ended January 31,
1996, Furman Selz earned $83,332 for services provided to the Fund, consisting
of $20,833 from each of the four individual portfolios.
The Adviser has voluntarily agreed to cap the expense ratios at 1.95% for each
Portfolio. In order to maintain that expense ratio, the Adviser has agreed to
reimburse expenses as follows: Equity Fund - $40,899; Bond Fund - $39,293;
Retirement Income Fund - $38,665; Harvest Fund - $35,158.
4. SECURITIES TRANSACTIONS.
A. PURCHASE AND SALE TRANSACTIONS. The aggregate amount of purchases and
sales of investment securities, other than short-term securities, for the
period ended January 31, 1996 were as follows:
<TABLE>
<CAPTION>
COMMON STOCKS U.S. GOVERNMENT OBLIGATIONS
------------------------ -------------------------------
PURCHASES SALES PURCHASES SALES
------------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Equity Fund.............. 631,074 6,945 0 0
Bond Fund................ 0 0 39,641 0
Retirement Income Fund... 0 0 80,046 0
</TABLE>
B. FEDERAL INCOME TAX BASIS. Cost for book and Federal income tax purposes
were identical as of January 31, 1996. Gross unrealized appreciation and
depreciation of investment securities at January 31, 1996, based on cost
for Federal income tax purposes was as follow:
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
Equity Fund ............ $40,506 $ (631) $39,875
Bond Fund .............. 452 0 452
Retirement Income Fund.. 940 0 940
5. CAPITAL SHARE TRANSACTIONS. The Fund is authorized to issue 20
billion shares of beneficial interest with a par value of $0.001 each.
Transactions in shares of the Portfolios are as follows:
<TABLE>
<CAPTION>
RETIREMENT
EQUITY FUND BOND FUND INCOME FUND HARVEST FUND
October 2, 1995* October 4, 1995* October 4, 1995* October 4, 1995*
through through through through
January 31, 1996 January 31, 1996 January 31, 1996 January 31, 1996
----------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Beginning balance................... 2,500 2,500 2,500 2,500
-------- -------- -------- --------
Shares sold......................... 65,713 8,971 16,205 173,512
Shares issued in reinvestment of
dividends ........................ 228 48 61 641
Shares redeemed..................... (437) 0 (2,315) (76,004)
-------- -------- -------- --------
Net increase in shares.............. 65,504 9,019 13,951 98,149
-------- -------- -------- --------
Ending Balance...................... 68,004 11,519 16,451 100,649
======== ======== ======== ========
</TABLE>
* Commencement of Operations.
12
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
FINANCIAL HIGHLIGHTS + (UNAUDITED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
EQUITY BOND RETIREMENT HARVEST
FUND FUND INCOME FUND FUND
October 2, 1995* October 4, 1995* October 4, 1995* October 4, 1995*
through through through through
January 31, 1996 January 31, 1996 January 31, 1996 January 31, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income.................. 0.04 0.11 0.11 0.09
Net realized and unrealized gain
on investments....................... 0.62 0.03 0.05 0.00
------- ------- ------- -------
Total from Investment Operations 0.66 0.14 0.16 0.09
------- ------- ------- -------
Less Distributions:
Dividends from net investment
income............................... (0.04) (0.11) (0.11) (0.09)
------- ------- ------- -------
Net Asset Value, End of Period............... $ 10.62 $ 10.03 $ 10.05 $ 10.00
======= ======= ======= =======
Total Return................................. 6.20% 1.37% 1.59% 0.85%
Net Assets, End of Period (in thousands)..... $ 722 $ 116 $ 165 $ 1,006
Ratios to Average Net Assets of:
Net investment income**................ 1.76% 3.10% 3.21% 2.58%
Expenses before waivers/
reimbursements**..................... 32.13% 162.66% 129.41% 13.24%
Expenses net of waivers/
reimbursements**..................... 1.95% 1.95% 1.95% 1.95%
Portfolio Turnover Rate...................... 2% 0 0 0
</TABLE>
* Commencement of operations.
+ Per share amounts based on the average number of shares outstanding
during the period from commencement of operations to January 31, 1996.
** Annualized.
13
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
BOARD OF DIRECTORS
Clay B. Mansfield * Frederik Fazer
Chairman Director
Timothy W. Cunningham * Thomas Flanigan
President Director
Robert Straniere
Director
* "Interested Person" as that term is defined in the Investment Company Act of
1940.
- --------------------------------------------------------------------------------
OFFICERS
Timothy W. Cunningham Gordon M. Forrester
President and Secretary Assistant Treasurer
Clay B. Mansfield Sheryl Hirschfeld
Assistant Secretary Assistant Secretary
Joan V. Fiore John J. Pileggi
Assistant Secretary Treasurer
