<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/
Semi-Annual Report
January 31, 1998
<PAGE>
LIFE CYCLE MUTUAL FUNDS, INC.
Life Cycle Equity Fund
Portfolio of Investments - January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------------ ------------
<C> <S> <C>
Common Stocks
Auto Parts & Equipment
8,600 Genuine Parts Co. $ 285,413
------------
Banks (Major Regional)
4,400 Banc One 245,850
3,300 Fleet Financial Group, Inc. 236,362
3,400 Keycorp. 221,000
3,700 National City Corp. 222,694
------------
925,906
------------
Chemicals
2,200 Dow Chemical Co. 198,000
3,700 Eastman Chemical Co. 220,381
------------
418,381
------------
Consumer (Non-Durable)
1,000 Anheuser Busch Co., Inc. 44,938
------------
Distributors (Food & Health)
5,600 SuperValu, Inc. 245,700
------------
Electric Companies
7,700 Carolina Power & Light Co. 312,812
6,500 Consolidated Edison 268,531
4,100 Duke Power Co., Inc. 222,169
5,300 Florida Power & Light, Inc. 304,087
5,600 General Public Utilities Corp. 220,150
11,100 Southern Co. 269,869
------------
1,597,618
------------
Electronics
1,000 National Service Industries, Inc. 50,000
------------
Financial Services
4,600 First Union Corp. 221,087
------------
Financial (Diversified)
4,000 American General Corp. 225,500
------------
Insurance Brokers
3,100 Marsh & McLennan Co. 229,012
------------
Insurance (Multi-Line)
3,000 Lincoln National Corp. 227,063
4,400 Safeco Corp. 219,725
------------
446,788
------------
Medical Equipment & Supplies
5,000 Bard C.R., Inc. 155,000
------------
Metals (Diversified)
3,800 Phelps Dodge Corp. 250,325
------------
Natural Gas
5,800 Eastern Enterprises 239,975
5,600 Nicor, Inc. 225,400
6,200 Oneok, Inc. 211,963
Natural Gas, (Continued)
6,000 Pacific Enterprises $ 216,375
5,300 People's Energy Corp. 200,075
------------
1,093,788
------------
</TABLE>
<PAGE>
LIFE CYCLE MUTUAL FUNDS, INC.
Life Cycle Equity Fund
Portfolio of Investments - January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------------ ------------
<C> <S> <C>
Oil (Domestic Integrated)
4,600 Phillips Petroleum Co. 202,400
------------
Oil (International Integrated)
2,200 Amoco Corp. 179,025
2,900 Chevron Corp. 216,956
3,700 Exxon Corp. 219,456
3,100 Mobil Corp. 211,188
4,200 Texaco, Inc. 218,663
------------
1,045,288
------------
Paper & Forest Products
6,200 Westvaco Corp. 201,112
------------
Photography
3,700 Eastman Kodak Co. 241,425
------------
Shelter
1,000 Armstrong World Industries, Inc. 71,250
------------
Telephone
6,300 Alltel 269,325
5,400 Ameritech Corp. 231,863
4,300 BellSouth Corp. 260,419
------------
761,607
------------
Total Common Stocks (Cost - $7,459,820) 8,712,538
------------
Cash Sweep Account
1,243,760 Bank of New York Cash Reserve 1,243,760
------------
Total Cash Sweep Account (Cost - $1,243,760) 1,243,760
------------
Total Investments (Cost - $8,703,580) (a) $ 9,956,298
============
(a) Represents cost for federal income tax purposes and
differs from value by net unrealized appreciation of
securities as follows:
Unrealized appreciation $ 1,296,436
Unrealized depreciation (43,718)
------------
Net unrealized appreciation $ 1,252,718
============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LIFE CYCLE MUTUAL FUNDS, INC.
Life Cycle Bond Fund
Portfolio of Investments - January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Value
Amount (Note 2)
- ------------------ ------------
<C> <S> <C>
U.S. Treasury Obligations
U.S. Treasury Notes $
20,000 4.75%, 10/31/98 19,903
20,000 5.50%, 2/28/99 20,023
25,000 6.00%, 8/1/99 25,232
75,000 5.875%, 6/30/00 75,874
90,000 5.50%, 12/31/00 90,282
80,000 5.625%, 2/28/01 80,543
75,000 5.75%, 8/15/03 76,049
------------
Total U.S. Treasury Obligations (Cost - $380,499) 387,906
------------
Cash Sweep Account
48,279 Bank of New York Cash Reserve 48,279
------------
Total Cash Sweep Account (Cost - $48,279) 48,279
------------
Total Investments (Cost - $428,778) (a) $ 436,185
============
(a) Represents cost for federal income tax purposes and
differs from value by net unrealized appreciation of
securities as follows:
Unrealized appreciation $ 7,407
Unrealized depreciation ---
------------
Net unrealized appreciation $ 7,407
============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LIFE CYCLE MUTUAL FUNDS, INC.
Life Cycle Retirement Income Fund
Portfolio of Investments - January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Value
Amount (Note 2)
- ------------------- -----------
<C> <S> <C>
U.S. Treasury Obligations
U.S. Treasury Notes
50,000 5.50%, 4/15/00 $ 50,170
25,000 6.00%, 8/15/99 25,232
25,000 5.125%, 11/30/98 24,949
40,000 5.50%, 12/31/00 40,125
75,000 5.625%, 2/28/01 75,509
55,000 5.75%, 10/31/00 55,522
50,000 5.75%, 8/15/03 50,699
25,000 6.00%, 10/15/99 25,271
-----------
Total U.S. Treasury Obligations (Cost-$342,227) 347,477
-----------
Cash Sweep Account
33,710 Bank of New York Cash Reserve 33,710
-----------
Total Cash Sweep Account (Cost-$33,710) 33,710
-----------
Total Investments (Cost-$375,937) (a) $ 381,187
===========
(a) Represents cost for federal income tax purposes and
differs from value by net unrealized appreciation of
securities as follows:
Unrealized appreciation $ 5,250
Unrealized depreciation ---
-----------
Net unrealized appreciation $ 5,250
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LIFE CYCLE MUTUAL FUNDS, INC.
Life Cycle Harvest Fund
Portfolio of Investments - January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------------- -----------
<C> <S> <C>
Cash Sweep Account
682 Bank of New York Cash Reserve $ 682
-----------
Total Cash Sweep Account (Cost - $682) 682
-----------
Total Investments (Cost - $682) (a) $ 682
===========
</TABLE>
(a) Represents cost for federal income tax purposes and
financial reporting purposes.
See accompanying notes to financial statements.
<PAGE>
Life Cycle Mutual Funds, Inc.
Statements of Assets and Liabilities
January 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Retirement
Equity Bond Income Harvest
ASSETS: Fund Fund Fund Fund
------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Investments, at value (Cost $8,703,580; $428,778; $ 9,956,298 $ 436,185 $ 381,187 $ 682
$375,937 and $682, respectively)
Interest and dividends receivable 31,489 6,340 6,465 3
Unamortized organization expense 17,957 17,994 14,171 18,740
Receivable from Advisor 392,148 63,426 61,767 52,453
Allowance against receivable from Advisor (392,148) (46,464) (43,970) (43,196)
Prepaid expenses and other assets
Insurance 6,063 306 281 117
Miscellaneous 119 15,249 4,394 -
------------- ---------- -------------- -----------
Total Assets 10,011,926 493,036 424,295 28,799
------------- ---------- -------------- -----------
LIABILITIES:
Administration fee payable 272,642 13,579 13,482 12,797
12b-1 fee payable 11,991 545 466 -
Fund accounting fee payable 496 85 97 -
Audit fee payable 40,866 905 2,918 2,974
Organization expenses payable 9,431 9,431 9,431 9,430
Directors' fee payable 361 16 14 -
Custodian fee payable 1,755 1,689 1,667 -
Legal fee payable 4,809 218 186 -
Transfer agent fee payable 4,767 1,113 245 193
Miscellaneous payables - 11,250 8,365 9,605
------------- ---------- -------------- -----------
Total Liabilities 347,118 38,831 36,871 34,999
------------- ---------- -------------- -----------
NET ASSETS $ 9,664,808 $ 454,205 $ 387,424 $ (6,200)
============= ========== ============== ===========
NET ASSETS CONSIST OF:
Capital Stock $ 723 $ 49 $ 42 $ -
Additional paid in capital 8,344,650 487,900 421,355 35,825
Accumulated undistributed net investment income/(loss) (310,445) (41,151) (39,223) (41,732)
Accumulated realized gains/(losses) from investments 377,162 - - (293)
Net unrealized appreciation/(depreciation)
from investments 1,252,718 7,407 5,250 -
------------- ---------- -------------- -----------
$ 9,664,808 $ 454,205 $ 387,424 $ (6,200)
============= ========== ============== ===========
Shares of beneficial interest outstanding 723,487 49,020 42,302 266
============= ========== ============== ===========
Net Asset Value per share and redemption price
per share $ 13.36 $ 9.27 $ 9.16 $ 0.00
============= ========== ============== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
Life Cycle Mutual Funds, Inc.
Statements of Operations
For the six months ended January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Retirement
Equity Bond Income Harvest
Fund Fund Fund Fund
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 405 $ 11,395 $ 9,900 $ 987
Dividend 176,698 1,279 1,200 1,122
-------------- --------------- -------------- ---------------
Total Income 177,103 12,674 11,100 2,109
-------------- --------------- -------------- ---------------
EXPENSES:
Advisory (Note 3) 36,405 1,749 1,536 232
Administration (Note3) 113,991 5,475 4,808 726
Custodian 5,683 5,102 5,036 3,402
Legal 6,970 327 286 42
Fund accounting 1,071 243 278 27
12b-1 distribution fees (Note 3) 36,405 1,749 1,536 232
Amortization of organization expenses 3,350 2,950 2,718 2,234
Audit 20,449 1,391 3,249 45
Registration 2,823 948 942 535
Transfer agent fees (Note 3) 16,880 1,936 1,582 1,222
Directors' fees 3,879 892 873 750
Insurance 4,548 230 211 87
Miscellaneous 7,693 303 303 563
-------------- --------------- -------------- ---------------
Total expenses before waivers 260,147 23,295 23,358 10,097
Less: expenses waived (36,405) (1,749) (1,536) (232)
Less: expenses expected to be reimbursed by Advisor (128,431) (16,962) (17,797) (9,257)
Allowance charged against receivable from Advisor 128,431 - 3,882 -
-------------- --------------- -------------- ---------------
Net Expenses 223,742 4,584 7,907 608
-------------- --------------- -------------- ---------------
Net Investment Income/(Loss) (46,639) 8,090 3,193 1,501
-------------- --------------- -------------- ---------------
REALIZED AND UNREALIZED GAINS/(LOSSES)
ON INVESTMENTS
Net realized gains/(losses) on investments 378,997 - - (1)
Net change in unrealized appreciation/(depreciation)
of investments 99,037 4,472 3,860 32
-------------- --------------- -------------- ---------------
NET REALIZED AND UNREALIZED GAINS
/(LOSSES) ON INVESTMENTS: 478,034 4,472 3,860 31
-------------- --------------- -------------- ---------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 431,395 $ 12,562 $ 7,053 $ 1,532
============== =============== ============== ===============
</TABLE>
See accompanying notes to financial statements
<PAGE>
Life Cycle Mutual Funds, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Equity Fund Bond Fund
------------------------------------- -------------------------------------
For the For the
six months Year six months Year
ended ended ended ended
January 31, July 31, January 31, July 31,
1998 1997 1998 1997
--------------- --------------- ---------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income/(loss) $ (46,639) $ (140,422) $ 8,090 $ (37,816)
Net realized gains/(losses) on investments 378,997 280,574 - -
Net change in unrealized appreciation/
(depreciation) of investments 99,037 1,236,697 4,472 5,441
--------------- --------------- ---------------- ---------------
Change in net assets resulting from operations 431,395 1,376,849 12,562 (32,375)
--------------- --------------- ---------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income - - (2,780) -
In excess of net investment income - (123,384) - (8,645)
From net realized gains (258,460) (140,470) - -
--------------- --------------- ---------------- ---------------
Change in net assets from shareholder
distributions (258,460) (263,854) (2,780) (8,645)
--------------- --------------- ---------------- ---------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares 933,255 5,705,776 81,727 262,550
Net asset value of shares issued to
shareholders in reinvestment of dividends 285,348 204,665 3,562 7,693
Net asset value of shares redeemed (554,814) (1,146,572) (44,999) (47,109)
--------------- --------------- ---------------- ---------------
Change in net assets from capital share
transactions 663,789 4,763,869 40,290 223,134
--------------- --------------- ---------------- ---------------
Change in net assets 836,724 5,876,864 50,072 182,114
NET ASSETS
Beginning of year 8,828,084 2,951,220 404,133 222,019
--------------- --------------- ---------------- ---------------
End of Period $ 9,664,808 $ 8,828,084 $ 454,205 $ 404,133
=============== =============== ================ ===============
</TABLE>
See accompanying notes to financial statements
<PAGE>
Life Cycle Mutual Funds, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Retirement Income Fund Harvest Fund
------------------------------------- -------------------------------------
For the For the
six months Year six months Year
ended ended ended ended
January 31, July 31, January 31, July 31,
1998 1997 1998 1997
--------------- --------------- ---------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income/(loss) $ 3,193 $ (30,138) $ 1,501 $ (30,625)
Net realized gains/(losses) on investments - - (1) 8
Net change in unrealized appreciation/
(depreciation) of investments 3,860 5,668 32 (32)
--------------- --------------- ---------------- ---------------
Change in net assets resulting from operations 7,053 (24,470) 1,532 (30,649)
--------------- --------------- ---------------- ---------------
DISTRIBUTION TO SHAREHOLDERS
From net investment income (2,328) - (1,090) -
In excess of net investment income - (9,950) - (11,518)
--------------- --------------- ---------------- ---------------
Change in net assets from shareholder
distributions (2,328) (9,950) (1,090) (11,518)
--------------- --------------- ---------------- ---------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares 60,096 186,920 127,319 1,188,101
Net asset value of shares issued to shareholders
in reinvestment of dividends 3,429 9,205 1,451 9,943
Net asset value of shares redeemed (38,464) (76,229) (291,001) (1,924,981)
--------------- --------------- ---------------- ---------------
Change in net assets from capital share
transactions 25,061 119,896 (162,231) (726,937)
--------------- --------------- ---------------- ---------------
Change in net assets 29,786 85,476 (161,789) (769,104)
NET ASSETS
Beginning of year 357,638 272,162 155,589 924,693
--------------- --------------- ---------------- ---------------
End of period $ 387,424 $ 357,638 $ (6,200) $ 155,589
=============== =============== ================ ===============
</TABLE>
See accompanying notes to financial statements
<PAGE>
LIFE CYCLE MUTUAL FUNDS,/TM/ INC.
Financial Highlights
For a share of beneficial interest outstanding throughout each period
Equity Fund
<TABLE>
<CAPTION>
For the October 2,
six months Year 1995 (a) (b)
ended ended through
January 31, July 31, July 31,
1998 1997 1996
----------------- ---------------- -----------------
(Unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.08 $ 10.68 $ 10.00
----------------- ---------------- -----------------
Income from Investment Operations:
Net investment income (loss) (0.04) (0.16) 0.12
Net realized and unrealized gains
(losses) on investments 0.68 3.10 0.68
----------------- ---------------- -----------------
Total from Investment Operations 0.64 2.94 0.80
----------------- ---------------- -----------------
Less Distributions:
Dividends from net investment income 0.00 0.00 (0.12)
Dividends in excess of net investment income 0.00 (0.23) 0.00
Distributions from net realized gains/(losses) (0.36) (0.31) 0.00
----------------- ---------------- -----------------
Total Distributions (0.36) (0.54) (0.12)
----------------- ---------------- -----------------
Net Asset Value, End of Period $ 13.36 $ 13.08 $ 10.68
================= ================ =================
Total Return 1.82% (c) 28.13% 8.05% (c)
Net Assets, End of Period (in thousands) $ 9,665 $ 8,828 $ 2,951
Ratios to Average Net Assets of:
Net investment income (0.95%)(d) (2.39%) 1.82% (d)
Expenses net of waivers 4.57% (d) 6.44% 1.95% (d)
Expenses before waivers* 5.32% (d) 8.10% 9.70% (d)
Portfolio Turnover Rate 21.91% 60.59% 132.00%
</TABLE>
- -----------------------
(*) During the period, certain fees were voluntarily waived or
reimbursed. If such voluntary fee reductions had not occurred, the
ratios would have been as indicated.
(a) Commencement of operations.
(b) Per share amounts based on the average number of shares outstanding
during the period from commencement of operations to July 31, 1996.
(c) Not annualized.
(d) Annualized.
<PAGE>
LIFE CYCLE MUTUAL FUNDS,/(TM)/ INC.
Financial Highlights
For a share of beneficial interest outstanding throughout each period
Bond Fund
<TABLE>
<CAPTION>
For the October 4,
six months Year 1995 (a) (b)
ended ended through
January 31, July 31, July 31,
1998 1997 1996
----------------- ---------------- ----------------
(Unaudited)
<S> <C> <C> <C>
Net Assets Value, Beginning of Period $ 8.94 $ 9.82 $ 10.00
----------------- ---------------- ----------------
Income from Investment Operations:
Net investment income 0.25 (0.73) 0.22
Net realized and unrealized gains
(losses) on securities 0.14 0.15 (0.18)
----------------- ---------------- ----------------
Total from Investment Operations 0.39 (0.58) 0.04
----------------- ---------------- ----------------
Distributions:
Dividends from net investment income (0.06) 0.00 (0.22)
Dividends in excess of net investment income 0.00 (0.30) 0.00
----------------- ---------------- ----------------
Total Distributions (0.06) (0.30) (0.22)
----------------- ---------------- ----------------
Net Asset Value, End of Period $ 9.27 $ 8.94 $ 9.82
================= ================ ================
Total Return (5.77%)(c) (6.20%) 0.39%(c)
Net Assets, End of Period (in thousands) $ 454 $ 404 $ 222
Ratios to Average Net Assets of:
Net investment income 3.44%(d) (12.61%) 2.51%(d)
Expenses net of waivers 1.95%(d) 17.45% 1.95%(d)
Expenses before waivers* 9.91%(d) 19.10% 76.34%(d)
</TABLE>
- -----------------------
(*) During the period, certain fees were voluntarily waived or
reimbursed. If such voluntary fee reductions had not occurred, the
ratios would have been as indicated.
(a) Commencement of operations.
(b) Per share amounts based on the average number of shares outstanding
during the period from commencement of operations to July 31, 1996.
(c) Not annualized.
(d) Annualized.
<PAGE>
LIFE CYCLE MUTUAL FUNDS,/(TM)/ INC.
Financial Highlights
For a share of beneficial interest outstanding throughout each period
Retirement Income Fund
<TABLE>
<CAPTION>
For the October 4,
six months Year 1995 (a) (b)
ended ended through
January 31, July 31, July 31,
1998 1997 1996
----------------- ----------------- -----------------
(Unaudited)
<S> <C> <C> <C>
Net Assets Value, Beginning of Period $ 8.92 $ 9.76 $ 10.00
----------------- ----------------- -----------------
Income from Investment Operations:
Net investment income 0.18 (0.70) 0.24
Net realized and unrealized gains
(losses) on securities 0.11 0.16 (0.24)
----------------- ----------------- -----------------
Total from Investment Operations 0.29 (0.54) 0.00
----------------- ----------------- -----------------
Distributions:
Dividends from net investment income (0.05) 0.00 (0.24)
-----------------
Dividends in excess of net investment income 0.00 (0.30) 0.00
----------------- ----------------- -----------------
Total Distributions (0.05) (0.30) (0.24)
----------------- ----------------- -----------------
Net Asset Value, End of Period $ 9.16 $ 8.92 $ 9.76
================= ================= =================
Total Return (7.15%)(c) (5.74%) (0.02%)(c)
Net Assets, End of Period (in thousands) $ 387 $ 358 $ 272
Ratios to Average Net Assets of:
Net investment income 1.55%(d) (9.39%) 2.83%(d)
Expenses net of waivers 3.83%(d) 14.44% 1.95%(d)
Expenses before waivers* 11.32%(d) 16.09% 60.32%(d)
</TABLE>
- -----------------------
(*) During the period, certain fees were voluntarily waived or
reimbursed. If such voluntary fee reductions had not occurred, the
ratios would have been as indicated.
(a) Commencement of operations.
(b) Per share amounts based on the average number of shares outstanding
during the period from commencement of operations to July 31, 1996.
(c) Not annualized.
(d) Annualized.
<PAGE>
LIFE CYCLE MUTUAL FUNDS/TM/ INC.
Financial Highlights
For a share of beneficial interest outstanding throughout each period
Harvest Fund
<TABLE>
<CAPTION>
For the October 4,
six months Year 1995 (a)(b)
ended ended through
January 31, July 31, July 31,
1998(e) 1997 1996
----------------- ----------------- -----------------
(Unaudited)
<S> <C> <C> <C>
Net Assets Value, Beginning of Period $ 7.86 $ 10.00 $ 10.00
----------------- ----------------- -----------------
Income from Investment Operations:
Net investment income 0.22 (1.87) 0.20
Net realized and unrealized gains
(losses) on securities (8.01) (0.01) 0.00
----------------- ----------------- -----------------
Total from Investment Operations (7.79) (1.88) 0.20
----------------- ----------------- -----------------
Distributions:
Dividends from net investment income (0.07) 0.00 (0.20)
Dividends in excess of net investment income 0.00 (0.26) 0.00
----------------- ----------------- -----------------
Total Distributions (0.07) (0.26) (0.20)
----------------- ----------------- -----------------
Net Asset Value, End of Period $ 0.00 $ 7.86 $ 10.00
================= ================= =================
Total Return (65.88%)(c) (19.30%) 2.05%(c)
Net Assets, End of Period (in thousands) $ (6) $ 156 $ 925
Ratios to Average Net Assets of:
Net investment income 4.82% (d) (6.86%) 2.44%(d)
Expenses net of waivers 1.95% (d) 11.62% 1.95%(d)
Expenses before waivers* 32.40% (d) 13.27% 12.38%(d)
</TABLE>
- -----------------------
(*) During the period, certain fees were voluntarily waived or reimbursed. If
such voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) Commencement of operations.
(b) Per share amounts based on the average number of shares outstanding during
the period from commencement of operations to July 31, 1996.
(c) Not annualized.
(d) Annualized.
(e) Based upon average shares outstanding for the period.
<PAGE>
LIFE CYCLE MUTUAL FUNDS/TM/, INC.
Notes to Financial Statements
January 31, 1998
(Unaudited)
1. DESCRIPTION. Life Cycle Mutual Funds/TM/, Inc. (i.e., The "Fund") was
organized on June 25, 1995, and is registered under the Investment Company Act
of 1940, as amended, as an open end, management investment company and currently
consists of four separate investment portfolios (collectively the "Portfolios"):
the Life Cycle Equity Fund/TM/ (the "Equity Fund"), the Life Cycle Bond (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. The Equity Fund's investment
objective is to maximize investors' total return by investing in a portfolio of
common stocks selected from the Standard & Poor's 500 Index on the basis of such
stocks' ability to provide capital appreciation and generate dividend income.
The Bond Fund's investment objective is to maximize income consistent with the
preservation of capital. The Bond Fund intends to achieve its investment
objective, with a low risk to capital, by investing in a laddered portfolio of
bonds issued and backed by the full faith and credit of the U.S. Government and
its agencies and instrumentalities, mortgage-backed securities, and investment-
grade debt securities issued by corporations and banks. The Retirement Income
Fund's investment objective is to maximize income consistent with the
preservation of capital. The Retirement Income Fund intends to achieve its
investment objective, with moderate risk to capital, by investing in a laddered
portfolio of bonds issued and backed by the full faith and credit of the U.S.
Government and its agencies and instrumentalities, mortgage-backed securities,
and investment-grade debt securities issued by corporations and banks. The
Harvest Fund seeks to earn income consistent with the preservation of capital.
The Harvest Fund intends to achieve its investment objective by investing in a
laddered portfolio of short-term bonds issued and backed by the full faith and
credit of the U.S. Government and its agencies and instrumentalities, negotiable
CD's, repurchase agreements, and short-term corporate debt securities.
On October 7, 1997, sales of the Fund's shares were suspended by the Fund's
distributor. At a meeting of the Fund's Board of Directors held on May 29, 1998,
the Board determined that the continued operation of the Portfolios was not
economically feasible or in the best interests of the Portfolios or their
shareholders and adopted a Plan of Liquidation and Dissolution (the "Plan"). At
the same meeting, the Board accepted the resignation of Benson White & Company
("the Advisor") as the Portfolios' investment advisor and appointed Wilmington
Trust Company as the interim advisor (See also Notes 2F and 6).
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
quoted 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
<PAGE>
LIFE CYCLE MUTUAL FUNDS/TM/, INC.
Notes to Financial Statements
January 31, 1998
(Unaudited)
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
continue 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
the majority 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.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles. The
reserve against the receivable from the Advisor (See Note 2F) is not currently
deductible for federal income tax purposes. Accordingly, this "book/tax"
difference is considered a temporary difference and the dividends paid to
shareholders during the year ended July 31, 1997 have been classified as
dividends in excess of net investment income in the accompanying statements of
changes in net assets.
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 should 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.
Subsequent to July 31, 1997 a portion of the initial shares were redeemed.
To date, the redemption has not been reduced by a proportional share of the
unamortized organization expenses (See Note 2F).
F. Net Asset Value Overstatement. On October 10, 1997 the Board of Directors
of the Fund elected to establish an allowance against the receivable from the
Advisor arising from the Advisor's voluntary commitment to reimburse Fund
expenses in excess of 1.95% of average net assets (See Note 3). For financial
reporting purposes, a portion of the allowance was established against the
receivable from the Advisor at July 31, 1997. The remainder was established in
October 1997 and is reflected in the accompanying statements of operations.
While the Board in its oversight role determined that an allowance was
appropriate in October 1997, it is uncertain whether at some earlier date an
allowance should have been established as part of the Fund's daily net asset per
share (NAV)
<PAGE>
LIFE CYCLE MUTUAL FUNDS/TM/, INC.
Notes to Financial Statements
January 31, 1998
(Unaudited)
calculations. In the event that a regulator or other authority determines that
the allowance should have been established at some earlier date, NAVs and shares
outstanding could be materially impacted (defined as greater than one penny per
share) as of January 31, 1998.
In addition, throughout the period, and at January 31, 1998, the Fund had
recorded as an asset unamortized organization expenses. As discussed
previously, in the event of any redemption of the initial shares the Portfolios
would be reimbursed for any unamortized organization expenses.
Subsequent to January 31, 1998 the initial shares of the Fund were redeemed
by the Advisor and to date the unamortized organization expenses have not been
reimbursed.
The proceeds from the redemption are currently being held in escrow
amounting to $88,518 pending the final determination as to who is entitled to
those proceeds in relation to each of the matters discussed above. It is
uncertain whether the Fund will ultimately be reimbursed for its unamortized
expenses. In the event it is determined that the Fund is not entitled to
recovery of its unamortized organization expenses from the redemption proceeds,
the assets recorded for unamortized organization expenses would be written off
to expense and the net assets of the Fund would be reduced accordingly.
Subsequent to January 31, 1998, each Portfolio continued to overstate its
NAVs as a result of the aforementioned issue. These overstatements likely had a
material adverse impact on the net asset value of each Portfolio of the Fund,
but the impact has not been quantified.
G. 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.
H. 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" or
"Benson White"). 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 general 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 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 January 31, 1998, the Advisor earned fees of $36,405,
$1,749, $1,536, and $232 for the Equity, Bond, Retirement Income, and Harvest
Funds, respectively. For the period ended January 31, 1998, the Advisor
voluntarily waived fees of $36,405, $1,749, $1,536, and $232 for the
<PAGE>
LIFE CYCLE MUTUAL FUNDS/TM/, INC.
Notes to Financial Statements
January 31, 1998
(Unaudited)
Equity, Bond, Retirement Income, and Harvest Funds, respectively.
The Advisor had voluntarily agreed to cap the expense ratios at 1.95% for each
Portfolio. In order to maintain that expense ratio, the Advisor had agreed to
reimburse expenses in excess of its advisory fees as follows: Equity Fund -
$128,431; Bond Fund - $16,962; Retirement Income Fund - $17,797; Harvest Fund -
$9,257.
BISYS Fund Services ("BISYS") is responsible for providing the portfolios with
administrative, fund accounting, dividend and capital gains distribution and
transfer agency services. BISYS assumed these functions during the year ended
July 31, 1997, following the acquisition by the BISYS Group, Inc. of the Mutual
Funds Division of Furman Selz, LLC ("Furman Selz"), which organization had
previously provided these services to the portfolios.
Pursuant to an administrative services agreement, BISYS 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
January 31, 1998, BISYS earned, $113,991, $5,475, $4,808 and $726, for services
provided to Equity, Bond, Retirement Income, and Harvest Funds, respectively.
The Fund entered into a distribution agreement (the "Distribution Agreement")
with Life Cycle Mutual Funds Distributors, Inc., an affiliate of BISYS. 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 Fund's
shares. Under the agreement, the distributor will receive an annual fee of
0.75% of average daily net assets in return for financing certain distribution
and shareholder related activities related to the Fund's shares.
4. SECURITIES TRANSACTIONS. Purchase and Sale Transactions. The aggregate
amount of purchases and sales of investment securities, other than short-term
securities, for the Equity Fund was $1,880,569 and $2,121,035, respectively, for
the six months ended January 31, 1998.
<PAGE>
LIFE CYCLE MUTUAL FUNDS/TM/, INC.
Notes to Financial Statements
January 31, 1998
(Unaudited)
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 were as follows:
<TABLE>
<CAPTION>
Equity Fund Bond Fund
----------- ---------
Six Months Year Six Months Year
Ended Ended Ended Ended
January 31, July 31, January 31, July 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning balance 674,768 276,239 45,184 22,605
------- ------- ------ ------
Shares sold 69,318 477,791 8,201 26,576
Shares issued in
reinvestment of dividends 20,911 17,426 362 780
Shares redeemed (41,510) (96,688) (4,727) (4,777)
------- ------- ------ ------
Net increase in shares 48,719 398,529 3,836 22,579
------- ------- ------ ------
Ending balance 723,487 674,768 49,020 45,184
======= ======= ====== ======
<CAPTION>
Retirement Income Fund Harvest Fund
---------------------- ------------
Six Months Year Six Months Year
Ended Ended Ended Ended
January 31, July 31, January 31, July 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning balance 40,079 27,883 19,783 92,499
------ ------ ------- --------
Shares sold 6,088 19,020 12,732 118,928
Shares issued in
reinvestment of dividends 350 937 156 995
Shares redeemed (4,215) (7,761) (32,405) (192,639)
------ ------ ------- --------
Net increase/(decrease) in
shares 2,223 12,196 (19,517) (72,716)
------ ------ ------- --------
Ending balance 42,302 40,079 266 19,783
====== ====== ======= ========
</TABLE>
<PAGE>
LIFE CYCLE MUTUAL FUNDS/TM/, INC.
Notes to Financial Statements
January 31, 1998
(Unaudited)
6. SUBSEQUENT EVENTS. The Fund proposes to liquidate the assets of the
Portfolios and dissolve pursuant to the provisions of a Plan of Liquidation and
Dissolution (the "Plan") as approved by the Board of Directors on May 29, 1998,
when the Board determined that an orderly liquidation of the Portfolios' assets
was in the best interests of the Fund and its shareholders. The Plan provides
for the complete liquidation of the Portfolios and distribution of their net
assets to shareholders. If the Plan is approved by the requisite shareholder
vote, the Fund will undertake to liquidate each Portfolio's assets at market
prices and on such terms and conditions as the Fund's investment adviser shall
determine to be reasonable and in the best interests of the Portfolios and their
shareholders. The Fund will bear the costs associated with the proposed
liquidation. These financial statements do not include the costs and fees of
liquidation and dissolution.
On May 6, 1998, an additional allowance against the receivable from the
Advisor was approved and applied.
