<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)
Annual Report
July 31, 1996
Investment Advisor
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
Independent Accountants
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
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)
September 27, 1996
Dear Fellow Shareholders:
These are interesting times for investors. By most comparative historic
measurements of value, the stock market is very highly valued. If we examine
price to book value ratios, for example, stocks could be considered wildly
overpriced. By other measures, however, stocks are fully priced, but not
dangerously so. This makes it especially difficult for investors to judge what
might happen next.
Bond prices, on the other hand, have dropped due to increases in interest
rates. This increase in rates stems as much from the fear of inflation as it
does from signs of actual inflation. As measured by traditional indicators
such as the Consumer Price Index, inflation appears relatively quiet. It
appears that prices have been held down by a combination of the globalization
of labor and the implementation of technology.
Life Cycle Equity Fund
As of August 31, 1996, the average fundamental valuations of stocks making up
the Standard & Poor's 500 Index appears overvalued in an historic context.
Consider three important factors most analysts consider when valuing
stocks--price to earnings, price to book value, and the dividend yield:
o Historically, the ratio of stock prices to earnings has averaged
about 15.5. At the end of August this year, the ratio of price to
earnings on the S&P 500 was 18.7.
o Historically, stocks sell at an average of approximately 160% of
their book value. At the end of August, the S&P 500 was selling at an
average of about 375% of book value.
o Finally, historically, dividends have averaged approximately 4.5%.
At the end of August, the dividend yield on the S&P 500 was
approximately 2.25%.
There are those who would argue that the prices to earnings ratios are not far
out of line compared to the historic averages, that the price to book ratio is
less important than it used to be, and that dividend yields are increasingly
being replaced by corporate stock buy back programs. However, it is better to
err on the side of prudence when it comes to investing, and the Life Cycle
Equity Fund has been positioned carefully to avoid becoming a victim of other
investors' speculative excesses.
For comparative purposes, as of August 31, 1996, the Life Cycle Equity Fund
was much more fairly valued compared to historic valuations. Specifically, the
equity portfolio had an average price to earnings ratio of 12.7, and average
price to book ratio of 2.13, and an average dividend yield of 4.27%.
<PAGE>
The most important of these measures of value involves the dividend yield. All
stocks in the Life Cycle Equity Fund pay a hefty dividend. This makes them
productive assets in the sense that they produce a tangible benefit to their
owners in the form of cash. Investing in productive assets becomes especially
important during unsettling times when the stock market appears overvalued.
The Life Cycle Equity Fund has also been positioned with more cash in the
portfolio than might otherwise be the case. There are times to be aggressive
in the capital markets, and times to be cautious. We believe this is a time to
err on the side of caution. Consequently, as of the end of August, the
portfolio was approximately 14% cash.
The Life Cycle Bond Fund and the Life Cycle Retirement income Funds
The Life Cycle Bond Fund and the Life Cycle Retirement income Funds have also
been positioned with caution. While we do not attempt to anticipate the
direction or magnitude of interest rate movements, we do attempt to position
the portfolios conservatively to protect the investor from an overexposure to
bond price volatility.
Interest rates have increased since we last wrote you in March of this year.
This increase has depressed the value of the bonds in the two portfolios. One
way to protect the portfolio from price loss involves holding shorter maturity
bonds, as they fall less in price for any given increase in prevailing
interest rates. Thus, the average weighted maturity of both bond funds is
quite short, amounting to 2.20 years for the Life Cycle Bond Fund, and 2.56
years for the Life Cycle Retirement Income Fund.
The Life Cycle Harvest Fund
The Life Cycle Harvest Fund continues to be invested in money market
securities and is managed to maintain as stable a net asset value as possible.
This portfolio structure is intended to be conservative, with little risk
exposure to the loss of principal.
Yours truly,
/s/ Clay B. Mansfield /s/ Timothy W. Cunningham
- --------------------------- --------------------------
Clay B. Mansfield Timothy W. Cunningham
Chairman and shareholder President and shareholder
<PAGE>
A $10,000 investment in the Life Cycle Equity Fund, with a maximum sales load
of 3.75%, made on the inception date would have increased to $10,400 (as of
July 31, 1996). The graph below shows how this compares to our benchmark.
Total return for the life of the Fund was 4.00%.
LIFE CYCLE LIPPER EQUITY
EQUITY FUND INCOME INDEX
----------- ------------
10/02/95 9,625 10,000
10/31/95 9,307 9,894
11/30/95 9,702 10,310
12/31/95 10,032 10,565
01/31/96 10,265 10,806
02/29/96 10,342 10,885
03/31/96 10,343 11,022
04/30/96 10,617 11,122
05/31/96 10,723 11,298
06/30/96 10,771 11,319
07/31/96 10,400 10,947
A $10,000 investment in the Life Cycle Bond Fund, with a maximum sales load of
3.75%, made on the inception date would have decreased to $9,662 (as of July
31, 1996). The graph below shows how this compares to our benchmark. Total
return for the life of the Fund was -3.38%.
LIFE CYCLE SALOMON 3-7 YR
BOND FUND BOND INDEX
----------- --------------
10/02/95 9,625 10,000
10/31/95 9,651 10,129
11/30/95 9,669 10,282
12/31/95 9,714 10,393
01/31/96 9,757 10,495
02/29/96 9,732 10,361
03/31/96 9,643 10,270
04/30/96 9,623 10,209
05/31/96 9,604 10,191
06/30/96 9,662 10,301
07/31/96 9,662 10,335
A $10,000 investment in the Life Cycle Retirement Income Fund, with a maximum
sales load of 3.75%, made on the inception date would have decreased to $9,623
(as of July 31, 1996). The graph below shows how this compares to our
benchmark. Total return for the life of the Fund was -3.77%.
LIFE CYCLE SALOMON 7-10 YR
RTM INCOME FUND BOND INDEX
--------------- ---------------
10/02/95 9,625 10,000
10/31/95 9,651 10,284
11/30/95 9,668 10,557
12/31/95 9,724 10,828
01/31/96 9,778 10,832
02/29/96 9,718 10,318
03/31/96 9,611 10,110
04/30/96 9,574 9,906
05/31/96 9,549 9,888
06/30/96 9,621 10,091
07/31/96 9,623 10,090
* No graph is presented for the Life Cycle Harvest Funds as it invests in only
short-term securities and in the opinion of the Advisor, there is no suitable
benchmark for comparison.
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
The Life Cycle Equity Fund(TM)
Portfolio of Investments - July 31, 1996
<TABLE>
<CAPTION>
Shares Cost Value
- ---------- ------------ ------------
<S> <C> <C>
Common Stocks - 80.65%
Banks - 8.95%
1,850 Banc One Corp.................. $ 65,022 $ 64,056
1,400 First Chicago NBD Bancorp...... 59,571 53,900
1,900 KeyCorp......................... 72,002 73,388
2,100 National City Corp.............. 70,862 72,712
------------ ------------
267,457 264,056
------------ ------------
Chemicals - 2.13%
2,100 Nalco Chemical Co............... 63,914 63,000
------------ ------------
Financial Services - 6.94%
1,700 Boatmen's Bancshares Inc........ 66,777 68,000
2,000 Corestates Financial Corp....... 83,401 78,500
1,700 U.S. Bancorp.................... 52,802 58,225
------------ ------------
202,980 204,725
------------ ------------
Forest Products & Paper - 4.37%
1,900 Potlatch Corp................... 79,908 71,250
1,200 Union Camp Corp................ 63,972 57,600
------------ ------------
143,880 128,850
------------ ------------
Holding Companies - 2.50%
2,300 Eastern Enterprises............ 81,491 73,887
------------ ------------
Insurance - 10.95%
1,900 American General Corp.......... 68,039 66,025
1,500 Lincoln National Corp........... 78,510 63,938
700 Marsh & McLennan Cos., Inc...... 66,948 63,438
1,300 St. Paul Companies, Inc......... 66,216 67,275
2,100 USLife Corp..................... 65,372 62,475
------------ ------------
345,085 323,151
------------ ------------
Oil / Gas - 12.84%
1,000 Amoco Corp..................... 69,745 66,875
500 Atlantic Richfield Co.......... 57,093 58,000
700 Exxon Corp...................... 57,548 57,575
600 Mobil Corp...................... 66,336 66,225
2,700 Oneok Inc....................... 70,025 71,212
1,200 Tenneco Inc..................... 63,670 59,100
------------ ------------
384,417 378,987
------------ ------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
The Life Cycle Equity Fund(TM)
Portfolio of Investments (continued) - July 31, 1996
<TABLE>
<CAPTION>
Shares Cost Value
------ ------------ ------------
<S> <C> <C>
Common Stocks (continued)
Telecommunications - 8.15%
1,900 Alltel Corp. ................................................ $ 63,064 $ 52,013
1,100 Ameritech Corp. ............................................ 62,079 61,050
1,000 Bell Atlantic Corp. ......................................... 62,435 59,125
1,400 SBC Communication, Inc. ..................................... 69,384 68,425
---------- --------
256,962 240,613
---------- --------
Tobacco - 2.78%
1,800 American Brands, Inc. ....................................... 82,295 81,900
---------- --------
Utilities - 21.04%
2,400 Baltimore Gas & Electric Co. ................................ 68,580 61,800
1,800 Carolina Power & Light Inc.Co. .............................. 64,233 64,800
2,600 Consolidated Edison of New York ............................. 82,844 70,200
1,400 Duke Power Co. .............................................. 68,530 67,025
2,000 General Public Utilities Corp. .............................. 63,120 65,000
2,400 Nicor Inc. .................................................. 66,043 68,100
2,600 Pacific Enterprises ......................................... 65,155 76,375
3,200 Peco Energy Co. ............................................. 78,369 75,200
3,200 Southern Co. ................................................ 77,730 72,400
---------- --------
634,604 620,900
---------- --------
Total Investments - 80.65% $2,463,085 + 2,380,069
==========
Cash and other assets, net of liabilities - 19.35% 571,151
----------
Net Assets - 100.00% $2,951,220
==========
+ Cost for book and tax purposes is substantially the same.
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
The Life Cycle Bond Fund(TM)
Portfolio of Investments - July 31, 1996
<TABLE>
<CAPTION>
Principal Cost Value
----------- --------- ---------
<S> <C> <C> <C>
U. S. Treasury Obligations - 65.85%
$40,000 Bills, 4.93%, 08/22/1996 ......................................... $ 39,887 $ 39,887
20,000 Notes, 4.75%, 10/31/1998 ........................................ 19,706 19,377
20,000 Notes, 5.50%, 02/28/1999 ........................................ 20,006 19,605
40,000 Notes, 5.50%, 12/31/2000 ........................................ 39,926 38,413
30,000 Notes, 5.625%, 02/28/2001 ....................................... 29,173 28,910
--------- ---------
148,698 146,192
--------- ---------
Total Investments - 65.85% $148,698 + 146,192
==========
Cash and other assets, net of liabilities - 34.15% 75,827
---------
Net Assets - 100.00% $222,019
=========
+ Cost for book and tax purposes is substantially the same.
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
The Life Cycle Retirement Income Fund(TM)
Portfolio of Investments - July 31, 1996
<TABLE>
<CAPTION>
Principal Cost Value
----------- -------- --------
<S> <C> <C> <C>
U. S. Treasury Obligations - 71.36%
$30,000 Bills, 4.93% 08/22/1996 ............................................... $ 29,915 $ 29,915
25,000 Notes, 5.125%, 11/30/1998 ............................................. 24,856 24,380
25,000 Notes, 5.50%, 04/15/2000 .............................................. 25,026 24,202
40,000 Notes, 5.50%, 12/31/2000 .............................................. 39,925 38,413
30,000 Notes, 5.75%, 10/31/2000 .............................................. 30,190 29,132
50,000 Notes, 5.625%, 02/28/2001 ............................................. 48,589 48,181
-------- --------
198,501 194,223
-------- --------
Total Investments - 71.36% $198,501 + 194,223
========
Cash and other assets, net of liabilities - 28.64% 77,939
--------
Net Assets - 100.00% $272,162
========
+ Cost for book and tax purposes is substantially the same.
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
The Life Cycle Harvest Fund(TM)
Portfolio of Investments - July 31, 1996
<TABLE>
<CAPTION>
Principal Cost Value
- ----------- --------- ---------
<S> <C> <C> <C>
U. S. Treasury Obligations - 75.14%
$100,000 Bills, 4.87%, 08/15/1996 ............................................... $ 99,813 $ 99,813
100,000 Bills, 4.96%, 08/22/1996 ............................................... 99,715 99,715
100,000 Bills, 5.11%, 09/19/1996 ............................................... 99,314 99,314
100,000 Bills, 5.04%, 09/26/1996 ............................................... 99,227 99,227
100,000 Bills, 5.17%, 10/10/1996 ............................................... 99,008 99,008
100,000 Bills, 5.18%, 10/17/1996 ............................................... 98,907 98,907
100,000 Bills, 5.25%, 10/24/1996 ............................................... 98,791 98,791
--------- ---------
694,775 694,775
--------- ---------
Total Investments - 75.14% $694,775 + 694,775
========
Cash and other assets, net of liabilities - 24.86% 229,918
-------
Net Assets - 100.00% $924,693
========
+ Cost for book and tax purposes is substantially the same.
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
Statements of Assets and Liabilities
July 31, 1996
<TABLE>
<CAPTION>
EQUITY BOND RETIREMENT HARVEST
FUND FUND INCOME FUND FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments, at value (cost $2,463,085,
$148,698; $198,501 $694,775) ......... $ 2,380,069 $ 146,192 $ 194,223 $ 694,775
Cash .................................... 229,331 31,870 36,297 191,944
Receivable for investments sold ......... 265,744 0 0 0
Receivable for fund shares sold ......... 24,764 0 0 0
Interest and dividends receivable ....... 9,601 1,838 2,636 1,870
Receivable from affiliate ............... 0 0 7,017 0
Receivable from Advisor (Note 3) ........ 51,678 32,037 27,646 28,792
Unamortized organization expense ........ 28,023 28,060 22,219 28,060
----------- ----------- ----------- -----------
Total assets ................... 2,989,210 239,997 290,038 945,441
----------- ----------- ----------- -----------
LIABILITIES
Payable for fund shares repurchased ..... 0 0 600 0
Organization expense payable ............ 9,431 9,431 9,431 9,430
Accrued expenses......................... 28,559 8,547 7,845 11,318
----------- ----------- ----------- -----------
Total liabilities .............. 37,990 17,978 17,876 20,748
----------- ----------- ----------- -----------
NET ASSETS .............................. $ 2,951,220 $ 222,019 $ 272,162 $ 924,693
=========== =========== =========== ===========
NET ASSETS CONSIST OF:
Capital Stock ........................... $ 276 $ 23 $ 28 $ 92
Additional paid-in capital .............. 2,917,439 224,502 276,412 924,901
Accumulated net realized gain / (loss) on
investments .......................... 116,521 0 0 (300)
Net unrealized depreciation on
investments .......................... (83,016) (2,506) (4,278) 0
----------- ----------- ----------- -----------
NET ASSETS .............................. $ 2,951,220 $ 222,019 $ 272,162 $ 924,693
=========== =========== =========== ===========
Shares of beneficial interest outstanding 276,239 22,605 27,883 92,499
=========== =========== =========== ===========
Net Asset Value per share ............... $ 10.68 $ 9.82 $ 9.76 $ 10.00
=========== =========== =========== ===========
Maximum Offering Price per share ($10.68,
$9.82, $9.76, $10.00 / 0.9625,
respectively) ........................ $ 11.10 $ 10.20 $ 10.14 $ 10.39
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
Statements of Operations
<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
July 31, 1996 July 31, 1996 July 31, 1996 July 31, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest.............................................. $ 3,965 $ 5,095 $ 6,616 $ 36,633
Dividend ............................................. 52,140 0 0 0
--------- --------- --------- ---------
Total income .................................... 56,105 5,095 6,616 36,633
--------- --------- --------- ---------
EXPENSES
Administrative (Note 3) .............................. 52,083 52,083 52,083 52,083
Audit ................................................ 16,690 1,885 1,975 6,025
Legal ................................................ 13,230 1,405 1,270 5,931
Custodian ............................................ 7,203 1,348 1,022 1,873
Amortization of organization expenses ................ 5,600 5,563 4,387 5,563
Registration ......................................... 7,454 6,554 6,554 6,854
Directors' fees ...................................... 3,000 3,000 3,000 3,000
Advisory (Note 3)..................................... 11,685 856 1,064 6,218
12b-1 Distribution fees............................... 10,880 795 938 5,055
Transfer agent (Note 3) .............................. 5,571 4,048 1,714 1,648
Insurance ............................................ 3,985 3,985 3,985 3,985
Miscellaneous ........................................ 7,118 5,681 5,495 5,126
--------- --------- --------- ---------
Total expenses before waivers ................... 144,499 87,203 83,487 103,361
Less expenses waived / reimbursed ............... (115,446) (84,976) (80,793) (87,093)
--------- --------- --------- ---------
Net expenses .................................... 29,053 2,227 2,694 16,268
--------- --------- --------- ---------
Net investment income ................................ 27,052 2,868 3,922 20,365
--------- --------- --------- ---------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain / (loss) on investments ............ 116,521 0 0 (300)
Net unrealized depreciation on investments............ (83,016) (2,506) (4,278) 0
--------- --------- --------- ---------
Net realized and unrealized gain / (loss) on
investments ....................................... 33,505 (2,506) (4,278) (300)
--------- --------- --------- ---------
Net increase / (decrease) in net assets resulting from
operations ........................................ $ 60,557 $ 362 $ (356) $ 20,065
========= ========= ========= =========
</TABLE>
* Commencement of operations..
See accompanying notes to financial statements.
10
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
Statements of Changes in Net Assets
<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
July 31, 1996 July 31, 1996 July 31, 1996 July 31, 1996
-------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income ................. $ 27,052 $ 2,868 $ 3,922 $ 20,365
Net realized gain / (loss) on
investments ........................ 116,521 0 0 (300)
Net change in unrealized
depreciation on investments ........ (83,016) (2,506) (4,278) 0
---------- -------- ---------- -------------
Net increase / (decrease) in net
assets resulting from
operations ......................... 60,557 362 (356) 20,065
---------- -------- ---------- -------------
DIVIDENDS TO SHAREHOLDERS
From net investment income ............ (27,052) (2,868) (3,922) (20,365)
---------- -------- ---------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares ......... 3,759,918 198,264 299,865 2,279,287
Net asset value of shares issued
to shareholders in
reinvestment of dividends .......... 17,037 2,868 3,922 20,098
Net asset value of shares
redeemed .............................. (884,240) (1,607) (52,347) (1,399,392)
---------- -------- ---------- -------------
Net increase in net assets from
capital share transactions ......... 2,892,715 199,525 251,440 899,993
---------- -------- ---------- -------------
Total increase in net assets .......... 2,926,220 197,019 247,162 899,693
NET ASSETS
Beginning of period ................... 25,000 25,000 25,000 25,000
---------- -------- ---------- -------------
End of period ......................... $2,951,220 $222,019 $ 272,162 $ 924,693
========== ======== ========== =============
</TABLE>
* Commencement of operations.
See accompanying notes to financial statements.
11
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
Notes to Financial Statements - July 31, 1996
1. DESCRIPTION. Life Cycle Mutual Fundso, 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 (collectively the "Portfolios"): the Life Cycle Equity
Fundo (the "Equity Fund"), the Life Cycle Bond Fundo (the "Bond Fund"), the
Life Cycle Retirement Income Fundo (the "Retirement Income Fund"), and the
Life Cycle Harvest Fundo (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.
G. Use of Estimates. Estimates and assumptions are required to be made
regarding assets, liabilities, and changes in net assets resulting from
operations when financial statements are prepared. Actual results could
differ from these amounts.
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 "Advisor").
The Investment Advisory Agreement provides for the Advisor 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 Advisor makes each Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the portfolio investments. The Advisor is also responsible for the
12
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
Notes to Financial Statements (continued) - July 31, 1996
management and implementation of the Life Cycle Program. Pursuant to the terms
of the Investment Advisory Agreement, the Advisor is paid a monthly advisory
fee equal to 0.75% of each Portfolio's average daily net assets per annum. For
the period ended July 31, 1996, the Advisor earned fees of $11,685, $856,
$1,064, $6,218, for the Equity, Bond, Retirement Income, and Harvest Funds,
respectively. For the period ended July 31, 1996, the Advisor voluntarily
waived fees of $11,685, $856, $1,064, $6,218, 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, plus out of pocket expenses. For
the period ended July 31, 1996, Furman Selz earned $208,332 for services
provided to the Fund, consisting of $52,083 from each of the four individual
portfolios.
The Fund entered into a distribution agreement (the "Distribution Agreement")
with Life Cycle Mutual Funds Distributors, Inc., an affiliate of Furman Selz.
Under the Distribution Agreement, Life Cycle Mutual Funds Distributors, Inc.,
as agent for the Fund, agrees to use its best efforts as sole distributor of
the Funds' shares. Under the agreement, the distributor will receive an annual
fee of up to 0.75% of average daily net assets in return for financing certain
distribution and shareholder related activities related to the Funds' shares.
During the period ended July 31, 1996, the actual rates incurred by the Funds
were: 0.73%, 0.69%, 0.67% and 0.60% for the Equity, Bond, Retirement Income
and Harvest Funds, respectively.
The Advisor has voluntarily agreed to cap the expense ratios at 1.95% for each
Portfolio. In order to maintain that expense ratio, the Advisor has agreed to
reimburse expenses as follows: Equity Fund - $103,761; Bond Fund - $84,120;
Retirement Income Fund - $79,729; Harvest Fund - $80,875
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 July 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Common Stocks U.S. Government Obligations
-------------------------------------- --------------------------------------
Purchases Sales Purchases Sales
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Equity Fund ............... $4,525,975 $2,179,412 $ 0 $ 0
Bond Fund ................. 0 0 108,653 0
Retirement Income Fund..... 0 0 170,036 0
</TABLE>
B. Federal Income Tax Basis. Cost for book and Federal income tax
purposes were substantially the same as of July 31, 1996. Gross
unrealized appreciation and depreciation of investment securities
at July 31, 1996, based on cost for Federal income tax purposes
was as follow:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Net Unrealized
Appreciation Depreciation Depreciation
------------ ------------ --------------
<S> <C> <C> <C>
Equity Fund ..................... $28,786 $ (111,802) $(83,016)
Bond Fund ....................... 0 (2,506) (2,506)
Retirement Income Fund .......... 0 (4,278) (4,278)
Harvest Fund .................... 0 0 0
</TABLE>
13
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
Notes to Financial Statements (continued) - July 31, 1996
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
Bond Fund Income Fund
Equity Fund October October 4, Harvest Fund
October 2, 1995* 4, 1995* 1995* October 4, 1995*
through through through through
July 31, 1996 July 31, 1996 July 31, 1996 July 31, 1996
-------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Beginning balance ................. 2,500 2,500 2,500 2,500
-------------------- -------------------- ------------------- -------------------
Shares sold ....................... 351,123 19,977 30,286 227,927
Shares issued in reinvestment of
dividends ......................... 1,598 291 397 2,010
Shares redeemed ................... (78,982) (163) (5,300) (139,938)
-------------------- -------------------- ------------------- -------------------
Net increase in shares ............ 273,739 20,105 25,383 89,999
-------------------- -------------------- ------------------- -------------------
Ending Balance .................... 276,239 22,605 27,883 92,499
==================== ==================== =================== ===================
</TABLE>
* Commencement of Operations.
6. SUBSEQUENT EVENT. On July 1, 1996, Furman Selz announced that it
had entered into an agreement pursuant to which its mutual funds division
would be acquired by BISYS Group, Inc. ("BISYS") subject to certain
conditions. It is anticipated that, following consummation of that
transaction, services currently provided to the Funds by Furman Selz will be
provided by BISYS and certain affiliates under terms and conditions
substantially the same as those currently in effect with respect to such
services.
14
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
Financial Highlights+
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
July 31, 1996 July 31, 1996 July 31, 1996 July 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 .............. 0.12 0.22 0.24 0.20
Net realized and unrealized gain /
loss on investments ............ 0.68 (0.18) (0.24) 0.00
-------- --------- -------- ---------
Total from Investment Operations ... 0.80 0.04 0.00 0.20
-------- --------- -------- ---------
Less Distributions:
Dividends from net investment
income ......................... (0.12) (0.22) (0.24) (0.20)
-------- --------- -------- ---------
Net Asset Value, End of Period .......... $10.68 $9.82 $9.76 $10.00
======== ========= ======== =========
Total Return ............................ 8.05% 0.39% (0.02)% 2.05%
Net Assets, End of Period (in
thousands) ......................... $2,951 $222 $272 $925
Ratios to Average Net Assets of:
Net investment income** ............ 1.82% 2.51% 2.83% 2.44%
Expenses before waivers** .......... 9.70% 76.34% 60.32% 12.38%
Expenses net of waivers** .......... 1.95% 1.95% 1.95% 1.95%
Portfolio Turnover Rate ................. 132% 0 0 0
Average Commission Rate ................. $0.03 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 July 31, 1996.
** Annualized.
See accompanying notes to financial statements.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of the Life Cycle Funds, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Life Cycle Equity, Life Cycle
Bond, Life Cycle Retirement Income, and Life Cycle Harvest Funds (the "Funds")
of the Life Cycle Mutual Funds, Inc. as of July 31, 1996, and the related
statements of operations, changes in net assets and the financial highlights
for each of the periods then ended. 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 audit.
We conducted our audit 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 July 31, 1996, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides 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
each of the respective portfolios comprising the Life Cycle Mutual Funds, Inc.
as of July 31, 1996, and the results of their operations, the changes in their
net assets and their financial highlights for each of the respective periods
then ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 25, 1996
<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
Clay B. Mansfield Sheryl Hirschfeld
Chairman of the Board and Treasurer Assistant Secretary
Timothy W. Cunningham William Hastings, Jr.
President and Secretary Assistant Secretary
Joan V. Fiore John J. Pileggi
Assistant Secretary Assistant Treasurer
Gordon M. Forrester
Assistant Treasurer
