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Previous: VANDERBILT MORT & FIN INC MAN HO CO SE SU PA TH CE SE 1995-A, 8-K, 1996-08-20 |
Next: ARV ASSISTED LIVING INC, 8-K/A, 1996-08-20 |
M FUNDS
Edinburgh Overseas Equity Fund
Turner Core Growth Fund
Frontier Capital Appreciation Fund
Enhanced U.S. Equity Fund
Semi-Annual Report
June 30, 1996
[LOGO]
M FUND, INC.
PRESIDENT'S LETTER
August 2, 1996
Dear Shareholders:
We are pleased to present to you the M Fund, Inc. (the "Fund") Semi-Annual
Report dated June 30, 1996. The Fund is an investment company consisting
of four separate diversified investment portfolios. These portfolios are
available through variable life insurance and variable annuity policies
offered by members of M Financial Group and issued by certain insurance
companies.
Sub-Advisers to the portfolios, under the direction of M Financial
Investment Advisers, the investment adviser to the Fund, have prepared the
attached discussion of the results for each portfolio of the Fund for the
period from January 4, 1996 through June 30, 1996 and the outlook for the
last six months of 1996.
Sub-Advisers to the Fund include: Edinburgh Fund Managers for the
Edinburgh Overseas Equity Fund, Turner Investment Partners for the Turner
Core Growth Fund, Frontier Capital Management for the Frontier Capital
Appreciation Fund, and Franklin Portfolio Associates for the Enhanced US
Equity Fund.
The M Fund Board of Directors in coordination with M Financial Investment
Advisers and M Fund's participating life insurance carriers remain
committed to providing opportunities to add value to shareholders.
Sincerely,
/s/ Daniel F. Byrne
DANIEL F. BYRNE
President
M Fund, Inc.
EDINBURGH OVERSEAS EQUITY FUND
Compared with the returns achieved in 1995, the returns over the six
months ended June 30, 1996 have been more modest against a background of
declining bond markets. Over this period the MSCI EAFE Index rose 5.9%.
The best performance areas have been Latin America and Continental Europe.
The worst performing area was the Pacific Basin.
Over the period the Edinburgh Overseas Equity Fund has remained
underweight in the UK, Japan and Europe while maintaining a large exposure
to the Pacific Basin ex-Japan and Latin America. This strategy has
resulted in a positive contribution from asset allocation with the fund's
overweight position in Latin America more than offsetting the negative
impact of being overweight in the Pacific and underweight in Europe. Stock
selection, however, coupled with the costs of establishing the fund had a
negative impact. As a result the fund underperformed the index rising 2.6%
for the period from commencement of operations on January 4, 1996 to June
30, 1996.
With economic growth world-wide expected to expand throughout 1996 and
1997, it is likely that monetary policy will tighten and the interest rate
cycle will therefore become less favorable for markets. However, given
that inflation is expected to remain relatively benign, the threat of
substantial rate increases is not considered a major risk. With the
exception of Japan and certain Pacific regions, corporate profits growth
in 1996 is expected to slowdown and as a result, there appears little
impetus, other than high levels of liquidity, to drive markets higher over
the short term.
Political concerns are likely to play an increasingly important role in
the UK market despite the improving economic background. By international
standards market valuations are reasonable and corporate activity, ahead
of a likely change of government, is expected to remain a feature. The
interest rate cycle in Europe is likely to remain more accommodative than
in other areas, however, equity markets are currently having to contend
with lower than anticipated profits growth over 1996. Market valuation
levels relative to bonds generally look reasonable. The sharp recovery in
the Japanese economy is expected to result in upward revisions of profits
estimates. Strong profits growth is expected to overshadow the prospect of
an increase in interest rates towards the end of the year. Continuing
above average GDP and corporate profits growth, coupled with declining
inflation is encouraging for Pacific markets. In the short term, however
markets in the region remain vulnerable to U.S. interest rate policy. A
combination of economic recovery and the potential for lower interest
rates, notwithstanding events in the USA, is a positive backdrop for Latin
American markets where valuations remain attractive by international
standards.
EDINBURGH FUND MANAGERS PLC.
INVESTMENT SUBADVISER TO THE EDINBURGH OVERSEAS EQUITY FUND
TURNER CORE GROWTH FUND
During the six months ended June 30, 1996, U.S. stocks extended their
rally that had begun in December 1994. Underpinning the market's continued
advance was a favorable climate of moderate economic growth, rising
corporate profits and low inflation. For the period from commencement of
operations on January 4, 1996, to June 30, 1996 the Turner Core Growth
Fund registered a total return of 12.3%. which compares favorably to the
10.3% return of the Wilshire 5000 Stock Index for the same period.
Several factors contributed to the strong performance of the Fund. Our
bottom-up stock selection process was generally effective in identifying
companies like HBO & Company, Harley Davidson and Service Corporation
International that reported favorable, and often exceptionally strong,
quarterly earnings growth. Secondly, in the search for companies with
prospects for continued profit increases and reasonable stock valuations,
investors redirected their attention from large cap, blue chips to the
broader mid cap and small cap markets where the Fund has a strategic
commitment. Examples of such holdings that performed well in the period
include PetSmart, Corporate Express and Paychex. In addition, surprisingly
strong earnings reports from many technology companies breathed life into
the sector, and investors realized that the poor performance of technology
stocks from November 1995 through early January, 1996 had been greatly
overdone. Our careful selection of individual companies such as Intel,
Microsoft, Stratacom and Cisco allowed us to generate exceptionally
favorable performance from our technology and technology-related holdings.
Despite the extreme market volatility in July, we believe that the
backdrop for the stock market remains very positive for the second half of
1996. Despite quarter-to-quarter fluctuations and economists' forecasts of
boom and bust, the U.S. economy is still in a period of moderate economic
growth with low inflation. Corporate productivity and competitiveness are
improving, and corporate profits continue to grow in this sixth year of
economic expansion. With an aging, saving-oriented population, and a
shrinking supply of stocks due to merger activity and corporate repurchase
programs, the supply/ demand balance for stocks continues to be favorable.
The investment climate during the first half of 1996 has favored active
stock selection, growth-style investing, and medium and small
capitalization issues. We believe that these factors will continue to
influence the equity markets and contribute to an extended period of solid
performance for the Fund.
TURNER INVESTMENT PARTNERS, INC.
INVESTMENT SUBADVISER TO THE TURNER CORE GROWTH FUND
FRONTIER CAPITAL APPRECIATION FUND
The stock market has sold off in the last few weeks of the second quarter
and into July amid growing evidence of stronger than expected economic
growth and a resultant upward push on long term interest rates. Domestic
GDP in the second quarter is estimated to have risen about 4% while
unemployment dropped to 5.3%, increasing concerns about inflation and the
likelihood of Fed tightening. These fears arose despite the reappointment
of Chairman Greenspan and the decision of the Fed not to raise rates at
their July 3rd meeting.
The unsustainable strong growth in the second quarter reflected several
factors that already have or are likely to be reversed in the second half
of the year. These included a drop in mortgage rates at the start of 1996
that contributed to a rise in refinancing activity, rebounds from the
effects of the severe winter weather, and the recovery post the Boeing and
GM strikes. We believe GDP growth will moderate in the second half to
around 2% which should ease inflation concerns.
The market's decline in late June hit small caps hardest, breaking their
four month string of outperformance. From our prospective, this selloff
had the positive effect of cooling the IPO market which had been
developing some speculative froth. The stock market, as measured by the
S&P 500 Stock Index, has now gone almost six years without at least a 10%
correction. Thus some selloff may well be overdue. Nonetheless, we do not
believe the preconditions for prolonged weakness are in place. The U.S.
economy has become globally competitive, the dollar is strong, inflation
by most measures remains moderate, and valuations in the context of
current interest rates and earnings trends appear reasonable.
Returns for the Frontier Capital Appreciation Fund were 19.3% for the
period from commencement of operations on January 4, 1996 to June 30,
1996. This compares favorably to the 10.1% gain in the S&P 500 Stock Index
and the 9.0% gain in the Russell Midcap Index.
While the market appears to be correcting some speculative excesses, we
believe the Fund continues to offer above average potential returns at
historically moderate valuations.
FRONTIER CAPITAL MANAGEMENT CO., INC.
INVESTMENT SUBADVISER TO THE FRONTIER CAPITAL APPRECIATION FUND
ENHANCED U.S. EQUITY FUND
For the period from commencement of operations on January 4, 1996 to June
30, 1996 the Enhanced U.S. Equity Fund is up 11.9% versus 10.1% for the
S&P 500 Stock Index. Relative performance was particularly strong during
the beginning of the period as the fund became fully invested in stocks.
Towards the end of the first half the portfolio's stock selection
performance stumbled slightly but the 1.8% excess return for the entire
period was quite impressive given the difficult investment environment.
Day to day volatility in the marketplace seemed to increase during the six
month period. Some fundamental weakness surfaced in the technology
sectors, and uncertainty over future earnings increased. The economy
continued on a slow upward path during the first half of the year. Long
treasuries rose in yield slightly, with the twelve month low for long
treasury prices occurring in the early part of June. Subsequent lows have
been seen in early July. The S&P 500 Stock Index rose during the six month
period, but was flat in June. The domestic political scene appeared to
become more cloudy, and uncertainty over the Russian election increased as
the quarter closed. A major factor contributing to economic uncertainty at
June's end was the doubt as to the future course of interest rates. Fear
of rate increases continually dampened market expectations. In the U.S.
Equity market, particular strength in the first half was shown by Energy
related issues, by Retail, by Automotive issues, and by Leisure stocks.
Weakness was shown in Metals, Telephone and Electric Utilities, and
Chemical issues. Smaller issues performed in line with larger stocks in
the first half. The Russell 2000 (a small stock index) outperformed the
Russell 1000 (a large stock index) in the second quarter after lagging it
in the first quarter.
We continue to view equities as being slightly on the "rich" side. We
offer the caveat that market timing is not, in our view, an ingredient of
most successful investment strategies. "Staying the course" with a
well-chosen investment mix suits most investors' needs and temperaments.
Our outlook for the future is positive. We have demonstrated an ability to
outperform most active managers in a difficult period for active
management. In periods when active management outperforms indexing we
believe that we will outperform both our peers and indexing alternatives
to a meaningful degree.
FRANKLIN PORTFOLIO ASSOCIATES
INVESTMENT SUBADVISER TO THE ENHANCED U.S. EQUITY FUND
EDINBURGH OVERSEAS EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ --------
<S> <C> <C>
FOREIGN COMMON STOCK -- 90.4%
ARGENTINA -- 2.6%
9,800 Ciadea* $ 68,135
----------
BRAZIL -- 2.2%
4,000 Centrais Electricas Brasileiras SA 58,164
----------
FRANCE -- 3.8%
1,030 Lyonnaise Des Eaux-Dumez 98,430
----------
GERMANY -- 4.5%
2,200 Siemens AG 117,601
----------
HONG KONG -- 3.2%
11,000 Henderson Land Development 82,421
----------
INDONESIA -- 3.9%
30,000 Pt Indosat 100,859
----------
ITALY -- 2.8%
19,700 Italgas 73,874
----------
JAPAN -- 30.4%
15,000 Dainippon Ink & Chemical, Inc. 77,032
12 DDI Corp. 104,829
3,000 Hankyu Department Store 39,201
29,000 Kobe Steel Ltd.* 83,474
5,000 Mitsui & Co. 45,369
4,000 Mori Seiki 80,413
2,000 Murata Manufacturing Co. Ltd. 76,027
15,000 Nihon Cement Co. Ltd. 110,614
4,000 Nomura Securities Co. Ltd. 78,220
7,000 Sumitomo Trust & Banking 95,947
----------
791,126
----------
MALAYSIA -- 3.6%
57,000 Renong Berhad 90,944
----------
NETHERLANDS -- 4.8%
3,330 Royal Ptt Nederland 126,132
----------
SINGAPORE -- 3.8%
8,000 Overseas Chinese Banking Corp. 93,551
800 Overseas Chinese Banking Rights 6,429
----------
99,980
----------
SPAIN -- 4.9%
3,700 Repsol SA 128,772
----------
SWEDEN -- 2.6%
3,500 Nordbanken Ab 67,663
----------
SWITZERLAND -- 3.5%
80 Sandoz AG 91,573
----------
THAILAND -- 4.2%
20,000 Bank of Ayudhya 110,291
----------
UNITED KINGDOM -- 9.5%
10,190 Smithkline Beecham Plc 108,912
5,000 Thorn Emi Plc 139,116
----------
248,028
----------
TOTAL FOREIGN COMMON
STOCK (Cost $2,302,213) 2,353,993
----------
TOTAL INVESTMENTS -- 90.4%
(Cost $2,302,213) 2,353,993
Other Assets and Liabilities
(net) -- 9.6% 250,894
----------
TOTAL NET ASSETS -- 100.0% $2,604,887
----------
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
At June 30, 1996, industry sector diversification of the Edinburgh
Overseas Equity Fund's investments as a percentage of net assets was as
follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY SECTOR NET ASSETS
--------------- ----------
<S> <C>
Banking 14.38%
Communications 7.90
Pharmaceuticals 7.70
Electrical Equipment 7.43
Financial Services 6.78
Entertainment & Leisure 5.34
Oil & Gas 4.94
Commercial Services 4.84
Building Materials 4.25
Conglomerates 3.49
Metals 3.20
Real Estate 3.16
Heavy Machinery 3.09
Chemicals 2.96
Gas Utilities 2.84
Automotive 2.62
Electric Utilities 2.23
Wholesale Trade 1.74
Retailers 1.51
-------
90.40%
=======
</TABLE>
See accompanying notes to financial statements.
TURNER CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ --------
<S> <C> <C>
COMMON STOCKS -- 95.4%
AEROSPACE & DEFENSE -- 1.1%
410 Boeing Company $ 35,721
----------
AIRLINES -- 1.4%
640 America West Airlines B* 14,080
380 Delta Air Lines, Inc. 31,540
----------
45,620
----------
AUTOMOTIVE -- 0.6%
300 Chrysler Corp. 18,600
----------
BANKING -- 3.7%
540 Chase Manhattan Corp. 38,138
400 Citicorp 33,050
570 Nationsbank Corp. 47,096
----------
118,284
----------
BEVERAGES, FOOD & TOBACCO -- 5.6%
870 Coca-Cola Co. 42,521
920 Dole Food Co. 39,560
730 IBP, Inc. 20,166
1,260 Pepsico, Inc. 44,573
290 Philip Morris Co. 30,160
----------
176,980
----------
CHEMICALS -- 6.0%
330 Dupont (E.I.) de Nemours 26,111
1,630 Engelhard Corp. 37,490
520 Hercules, Inc. 28,730
960 Morton International, Inc. 35,760
800 Polymer Group, Inc.* 14,000
350 Sigma Aldrich Corp. 18,725
740 Union Carbide Corp. 29,415
----------
190,231
----------
COMMERCIAL SERVICES -- 3.2%
610 CUC International, Inc.* 21,655
460 Medaphis Corp.* 18,285
615 Paychex, Inc. 29,597
530 Service Corp International 30,475
----------
100,012
----------
COMMUNICATIONS -- 7.2%
450 ADC Telecommunications, Inc.* 20,250
650 AirTouch Communications* 18,363
370 Ascend Communications, Inc.* 20,813
610 Associates First Capital Corp.* 22,951
450 Cascade Communications Corp.* 30,600
285 Glenayre Technologies, Inc.* 14,250
430 Lucent Technologies 16,286
640 MFS Communications Co., Inc.* 24,080
580 Picturetel Corp.* 22,838
230 Premisys Communications, Inc.* 14,030
450 QUALCOM, Inc.* 23,906
----------
228,367
----------
COMPUTER SOFTWARE -- 10.9%
710 America Online, Inc.* 31,063
350 BMC Software, Inc.* 20,913
720 Cisco Systems, Inc.* 40,770
560 DST Systems* 17,920
590 First Data 46,979
350 Gartner Group, Inc. A* 12,819
250 Microsoft Corp.* 30,021
380 Netscape Communications Corp.* 23,655
750 Oracle Corp.* 29,578
540 Sterling Commerce, Inc.* 20,048
500 Sun Microsystems, Inc.* 29,438
300 Uunet Technologies* 19,875
410 Xylan Corp.* 19,065
----------
342,144
----------
COMPUTERS & INFORMATION -- 1.6%
480 Cadence Design Systems, Inc.* 16,200
240 HBO & Company 16,260
190 Hewlett-Packard, Inc. 18,929
----------
51,389
----------
CONGLOMERATES -- 1.0%
350 General Electric 30,275
----------
COSMETICS & PERSONAL CARE -- 1.5%
200 Colgate-Palmolive Co. 16,950
490 Gillette Co. 30,564
----------
47,514
----------
ELECTRIC UTILITIES -- 1.4%
800 AES Corp* 22,600
840 Calenergy, Inc.* 21,420
----------
44,020
----------
ELECTRONICS -- 2.9%
420 Intel Corp. 30,844
750 LSI Logic* 19,500
450 Motorola , Inc. 28,294
760 Ultratech Stepper, Inc.* 14,250
----------
92,888
----------
ENGINEERING -- 0.6%
400 Foster Wheeler Corp. 17,950
----------
ENTERTAINMENT & LEISURE -- 1.6%
480 Harley Davidson, Inc. 19,740
510 Walt Disney Co. 32,066
----------
51,806
----------
ENVIROMENTAL CONTROLS -- 1.3%
1,290 WMX Technologies $ 42,248
----------
FINANCIAL SERVICES -- 1.6%
430 Merrill Lynch & Co. 28,004
440 Morgan Stanley Group, Inc. 21,615
----------
49,619
----------
FOOD RETAILERS -- 1.0%
430 CPC International, Inc. 30,960
----------
HEALTH CARE PROVIDERS -- 1.1%
580 Healthsouth Corp.* 20,880
460 Renal Treatment Centers, Inc.* 13,225
----------
34,105
----------
HOUSEHOLD PRODUCTS -- 1.4%
500 Procter & Gamble Co. 45,313
----------
INSURANCE -- 3.6%
320 American International Group 31,560
540 Jefferson Pilot Corp. 27,878
525 Travelers Group 23,953
1,130 Travelers/Aetna Property Corp.* 32,064
----------
115,455
----------
LODGING -- 0.7%
340 HFS, Inc.* 23,800
----------
MEDIA, BROADCASTING &
PUBLISHING -- 1.7%
1,420 Cox Communications A* 30,708
1,270 Tele-Communication, Inc.* 23,019
----------
53,727
----------
MEDICAL SUPPLIES -- 1.8%
670 Baxter International, Inc. 31,658
440 Medtronic, Inc. 24,640
----------
56,298
----------
METALS -- 0.7%
390 Aluminum Company Of America $ 22,376
----------
MINING -- 0.6%
700 Titanium Metals Corp.* 18,113
----------
OIL & GAS -- 10.2%
430 Amoco 31,121
940 Apache Corp. 30,903
410 Chesapeake Energy Corp.* 36,849
370 Exxon 32,144
1,000 Global Marine, Inc.* 13,875
770 Louisiana Land & Exploration Corp. 44,371
1,520 Noble Drilling Corp.* 21,090
760 Occidental Petroleum 18,810
1,250 Smith International* 37,656
450 Sonat, Inc. 20,250
440 Texaco 36,905
----------
323,974
----------
PHARMACEUTICALS -- 5.4%
520 Amgen, Inc.* 28,080
340 Eli Lilly & Co. 22,100
940 Johnson & Johnson 46,530
700 Merck & Co., Inc. 45,238
410 Pfizer, Inc. 29,264
----------
171,212
----------
RESTAURANTS -- 2.5%
780 Boston Chicken, Inc.* 25,350
630 McDonald Corp. 29,453
900 Starbucks Corp.* 25,425
----------
80,228
----------
RETAILERS -- 6.2%
490 Albertson's, Inc. $ 20,274
370 Bed Bath & Beyond, Inc.* 9,898
710 Corporate Express, Inc.* 28,400
560 Federated Department Stores* 19,110
910 Gap Stores 29,234
220 Nike, Inc. 22,605
520 Petsmart, Inc.* 24,830
680 Safeway, Inc.* 22,440
630 The Pep Boys 21,420
----------
198,211
----------
TELEPHONE SYSTEMS -- 4.3%
410 Cincinnati Bell, Inc. 21,371
540 Frontier Corp. 16,538
1,100 MCI Communications Corp. 28,188
500 Sprint Corp. 21,000
1,410 Teleport Communications* 26,966
430 Worldcom, Inc.* 23,811
----------
137,874
----------
TEXTILES, CLOTHING & FABRIC -- 0.3%
200 Tommy Hilfiger Corp.* 10,725
----------
TRANSPORTATION -- 0.7%
440 CSX Corp. 21,230
----------
TOTAL COMMON STOCKS
(Cost $2,884,816) 3,027,269
----------
TOTAL INVESTMENTS -- 95.4%
(Cost $2,884,816) 3,027,269
Other Assets and Liabilities
(net) -- 4.6% 147,142
----------
TOTAL NET ASSETS -- 100.0% $3,174,411
==========
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
FRONTIER CAPITAL APRECIATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ --------
<S> <C> <C>
COMMON STOCKS -- 86.7%
AEROSPACE & DEFENSE -- 4.2%
900 AAR Corp. $ 18,338
4,850 Aeroflex, Inc.* 29,706
610 Aviation Sales Company* 12,505
4,860 Banner Aerospace, Inc.* 40,703
400 BE Aerospace, Inc.* 5,200
3,160 UNC, Inc.* 26,465
----------
132,917
----------
AIRLINES -- 3.9%
390 Alaska Air Group, Inc.* 10,676
2,090 America West Airlines B* 45,980
490 Continental Airlines B* 30,258
2,520 Mesaba Holdings, Inc. 28,665
1,220 World Airways, Inc.* 8,540
----------
124,119
----------
BANKING -- 0.9%
970 Long Island Bancorp, Inc. 29,646
----------
BUILDING MATERIALS -- 0.5%
240 Texas Industries, Inc. 16,470
----------
CHEMICALS -- 2.4%
1,400 General Chemical Group, Inc. 28,350
3,060 Hexcel Corp.* 46,665
----------
75,015
----------
COMMERCIAL SERVICES -- 1.8%
1,550 Childrens Comprehensive Services* 33,325
1,460 Protection One, Inc.* 23,908
----------
57,233
----------
COMMUNICATIONS -- 8.2%
730 AirTouch Communications* 20,623
2,310 Arch Communications Group, Inc.* $ 43,024
1,210 Boston Technology, Inc.* 20,419
1,700 Centigram Communications Corp.* 26,988
100 Davox Corp.* 2,950
730 DSC Communications* 21,991
1,770 Microwave Power Devices, Inc.* 10,620
900 Natural Microsystems Corp* 31,500
2,680 Penril Datacomm Networks, Inc.* 36,180
610 QUALCOM, Inc.* 32,406
1,140 Summa Four, Inc.* 15,818
----------
262,519
----------
COMPUTER SOFTWARE -- 5.5%
1,580 4Front Software International* 9,678
850 American Business Information, Inc.* 15,513
600 Computer Task Group, Inc. 16,950
800 Compuware Corp.* 31,600
1,600 HMT Technology Corp.* 25,200
980 Network General Corp.* 21,070
2,000 ParcPlace Digitalk, Inc.* 18,250
2,200 State of the Art, Inc.* 40,700
----------
178,961
----------
COMPUTERS & INFORMATION -- 4.9%
820 Cirrus Logic, Inc.* 14,350
1,020 Comverse Technology, Inc.* 31,110
730 Datametrics Corp.* 3,650
1,560 Evans & Sutherland Computer Co.* 33,150
490 Seagate Technology, Inc.* 22,050
1,050 Softkey International, Inc.* 19,884
1,210 Western Digital* 31,611
----------
155,805
----------
CONGLOMERATES -- 0.9%
410 Medar, Inc.* $ 4,254
3,640 Worldcorp, Inc.* 24,570
----------
28,824
----------
CONTAINERS & PACKAGING -- 1.2%
2,430 US Can Corp.* 39,488
----------
ELECTRIC UTILITIES -- 1.2%
1,460 Calenergy, Inc.* 37,230
----------
ELECTRICAL EQUIPMENT -- 2.4%
3,590 Encore Wire Corp.* 37,695
590 Sheldahl, Inc.* 12,316
5,400 Spectrum Control, Inc.* 26,325
----------
76,336
----------
ELECTRONICS -- 12.5%
4,500 Aavid Thermal Technologies* 32,625
1,460 Allen Group, Inc. 31,755
2,910 Alpha Industries, Inc.* 25,826
1,330 Amphenol Corp A* 30,590
730 DII Group, Inc.* 18,615
480 Harman International Industries 23,640
490 Intel Corp. 35,984
990 Lattice Semiconductor* 23,884
480 Maxim Intergrated Products* 13,110
650 Oak Industries, Inc.* 19,256
970 Rogers Corp.* 24,117
2,480 Safetytek Corp.* 26,040
1,040 Trimble Navigation Ltd.* 20,020
970 Triquint Semiconductor, Inc.* 20,128
1,090 TSX Corp.* 30,248
1,500 VLSI Technology* 20,813
----------
396,651
----------
ENGINEERING -- 1.4%
2,660 Insituform Technologies A* $ 20,615
970 Jacobs Engineering Group* 25,584
----------
46,199
----------
ENTERTAINMENT & LEISURE -- 2.9%
1,170 Galoob Lewis Toys, Inc.* 33,053
1,480 International Game Technology 24,975
1,380 Lodgenet Entertainment Corp.* 18,975
750 Toy Biz, Inc.* 15,188
----------
92,191
----------
HEALTH CARE PROVIDERS -- 1.0%
650 Quantum Health Resources* 11,050
830 Quorum Health Group, Inc.* 21,891
----------
32,941
----------
HEAVY CONSTRUCTION -- 1.0%
2,550 Perini Corp.* 30,600
----------
INSURANCE -- 4.7%
1,210 Conseco, Inc. 48,400
2,060 John Alden Financial Corp. 45,578
970 Nymagic, Inc. 18,309
400 Paul Revere Corp. 11,000
850 United Wisconsin Services 22,100
----------
145,387
----------
MEDIA, BROADCASTING &
PUBLISHING -- 7.3%
440 Cablevision Systems Corp.* 20,350
1,240 Comcast Corp. 22,940
2,620 International Imaging Material* 62,225
1,700 Jones Intercable, Inc.* 22,738
1,030 Scientific Games Holdings Corp.* 29,870
490 TCA Cable TV, Inc. 14,823
1,710 Valassis Communications, Inc.* 31,635
730 Viacom, Inc. B* 28,379
----------
232,960
----------
MEDICAL SUPPLIES -- 0.5%
1,210 Staar Surgical Co.* 18,906
----------
MEDICAL & BIO-TECHNOLOGY -- 1.0%
3,160 Anika Research, Inc.* 19,355
490 Protein Design Labs, Inc.* 11,025
----------
30,380
----------
METALS -- 1.6%
560 Carpenter Technology 17,920
2,410 Oregon Steel Mills 33,138
----------
51,058
----------
MINING -- 0.4%
500 Titanium Metals Corp* 12,938
----------
OIL & GAS -- 4.9%
480 Anadarko Petroleum Corp. 27,840
1,700 Aquila Gas Pipeline Corp. 22,100
1,440 Geoscience Corp* 20,160
490 Louisiana Land & Exploration Corp. 28,236
720 Noble Drilling Corp.* 9,990
490 Production Operators Corp. 16,538
970 Ultramar 28,130
240 Wiser Oil Co. 3,030
----------
156,024
----------
PHARMACEUTICALS -- 0.7%
3,230 Chantal Pharmaceutical Corp.* 21,399
----------
RESTAURANTS -- 0.1%
470 Bugaboo Creek Steak House* 3,995
----------
RETAILERS -- 1.6%
2,430 Semiconductor Packaging Materials* 26,123
4,200 The Topp, Inc.* 23,625
----------
49,748
----------
TELEPHONE SYSTEMS -- 1.5%
1,070 Spectrian Corp.* 15,248
570 Worldcom, Inc.* 31,564
----------
46,812
----------
TEXTILES, CLOTHING & FABRIC -- 2.1%
1,240 Donnkenny, Inc.* 24,180
2,900 Sport-Haley, Inc.* 42,413
----------
66,593
----------
TRANSPORTATION -- 0.7%
2,670 OMI Corp* 23,029
----------
WHOLESALE TRADE -- 2.8%
2,670 Central Garden & Pet Co.* 48,060
1,310 Sodak Gaming* 39,955
----------
88,015
----------
TOTAL COMMON STOCKS
(Cost $2,625,517) 2,760,389
----------
TOTAL INVESTMENTS -- 86.7%
(Cost $2,625,517) 2,760,389
Other Assets and Liabilities
(net) -- 13.3% 423,696
----------
TOTAL NET ASSETS -- 100.0% $3,184,085
==========
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ --------
<S> <C> <C>
COMMON STOCKS -- 88.4%
AEROSPACE & DEFENSE -- 1.6%
100 Lockheed Martin Corp. $ 8,400
200 McDonnell Douglas Corp. 9,700
----------
18,100
----------
AIRLINES -- 0.7%
100 Delta Air Lines, Inc. 8,300
----------
AUTOMOTIVE -- 1.1%
200 Chrysler Corp. 12,400
----------
BANKING -- 6.8%
300 BankAmerica Corp. 22,725
100 Chase Manhattan Corp. 7,063
300 First Chicago NBD Corp. 11,738
100 First Union Corp. 6,088
100 J.P. Morgan & Co., Inc. 8,463
200 Nationsbank Corp. 16,525
100 PNC Bank Corp. 2,975
----------
75,577
----------
BEVERAGES, FOOD & TOBACCO -- 5.3%
400 Coca-Cola Co. 19,529
200 ConAgra 9,075
100 Great Atlantic & Pacific Tea Co. 3,288
200 Pepsico, Inc. 7,075
200 Philip Morris Co. 20,800
----------
59,767
----------
CHEMICALS -- 2.3%
200 Dow Chemical 15,200
100 Dupont (E.I.) de Nemours 7,913
100 Engelhard Corp. 2,300
----------
25,413
----------
COMMERCIAL SERVICES -- 1.0%
200 Service Corp International 11,500
----------
COMMUNICATIONS -- 0.4%
166 360 Communications Co.* 3,984
----------
COMPUTER SOFTWARE -- 0.5%
100 Cisco Systems, Inc.* 5,663
----------
COMPUTERS & INFORMATION -- 4.7%
100 Compaq Computer* 4,925
Computer Associates International,
100 Inc. 7,125
200 Data General Corp.* 2,600
100 Digital Equipment Corp.* 4,500
100 Hewlett-Packard, Inc. 9,963
300 Intergraph Corp.* 3,638
200 International Business Machines 19,800
----------
52,551
----------
CONGLOMERATES -- 4.2%
200 Dover Corp. 9,225
100 Eastern Enterprises 3,325
400 General Electric 34,600
----------
47,150
----------
CONTAINERS & PACKAGING -- 0.9%
100 Avery-Dennison Corp. 5,488
100 Temple Inland, Inc. 4,675
----------
10,163
----------
COSMETICS & PERSONAL CARE -- 0.6%
100 Gillette Co. 6,238
----------
ELECTRIC UTILITIES -- 3.4%
200 Central & South West Corp. 5,800
100 Consolidated Edison of New York 2,925
900 Edison International 15,863
100 Entergy Corp. 2,838
400 Unicom Corp. 11,150
----------
38,576
----------
ELECTRICAL EQUIPMENT -- 0.6%
100 Raychem Corp. $ 7,188
----------
ELECTRONICS -- 3.8%
100 Analog Devices, Inc.* 2,550
400 Applied Materials, Inc.* 12,200
300 Avnet, Inc. 12,638
300 International Rectifier Corp.* 4,838
100 Polaroid Corp. 4,563
100 Tektronix, Inc. 4,475
----------
41,264
----------
ENTERTAINMENT & LEISURE -- 0.8%
100 Fleetwood Enterprises, Inc. 3,100
100 Walt Disney Co. 6,288
----------
9,388
----------
FINANCIAL SERVICES -- 3.5%
Federal National Mortgage
200 Association 6,700
200 Merrill Lynch & Co. 13,025
300 Morgan Stanley Group, Inc. 14,738
100 Salomon, Inc. 4,400
----------
38,863
----------
FOOD RETAILERS -- 1.9%
800 Archer-Daniels-Midland 15,300
200 Supervalu, Inc. 6,300
----------
21,600
----------
FOREST PRODUCTS & PAPER -- 1.0%
200 International Paper Co. 7,375
100 Weyerhauser Co. 4,250
----------
11,625
----------
GAS UTILITIES -- 0.8%
400 Pacific Gas & Electric 9,300
----------
HEAVY MACHINERY -- 0.7%
100 Deere & Co. 4,000
100 Ingersoll Rand Co. 4,375
----------
8,375
----------
HOME CONSTRUCTION, FURNISHINGS &
APPLIANCES -- 1.5%
300 Black & Decker Corp. 11,588
100 Home Depot 5,400
----------
16,988
----------
HOUSEHOLD PRODUCTS -- 0.8%
100 Procter & Gamble Co. 9,063
----------
INDUSTRIAL TECHNOLOGY -- 0.4%
100 Millipore Corp. 4,188
----------
INSURANCE -- 6.0%
200 American International Group 19,725
100 Loews Corp. 7,888
300 Safeco Corp. 10,613
100 TransAmerica Corp. 8,100
450 Travelers Group 20,531
----------
66,857
----------
MEDIA, BROADCASTING &
PUBLISHING -- 2.8%
500 Kingworld Productions, Inc.* 18,188
300 New York Times Co. 9,788
100 Viacom, Inc. B* 3,888
----------
31,864
----------
MEDICAL SUPPLIES -- 1.0%
200 Medtronic, Inc. 11,200
----------
OIL & GAS -- 7.8%
100 Amoco 7,238
400 Exxon 34,750
100 Halliburton Co. 5,550
200 Helmerich & Payne, Inc. 7,325
100 Mobil Corp. 11,213
100 Noram Energy Corp. 1,088
100 Oneok, Inc. 2,500
300 Panenergy Corp. 9,863
100 Santa Fe Energy Resources, Inc.* 1,188
100 Williams Companies, Inc. 4,950
----------
85,665
----------
PHARMACEUTICALS -- 9.7%
400 Abbott Laboratories 17,400
200 Cardinal Health, Inc. 14,425
600 Johnson & Johnson 29,700
400 Merck & Co, Inc. 25,850
300 Pfizer, Inc. 21,413
----------
108,788
----------
RESTAURANTS -- 0.7%
100 Luby's Cafeteria, Inc. 2,350
300 Wendys International, Inc. 5,588
----------
7,938
----------
RETAILERS -- 4.3%
300 Federated Department Stores* 10,238
200 Mercantile Stores 11,725
100 Price/Costco, Inc.* 2,163
100 Sears Roebuck 4,863
100 Snap-On, Inc. 4,738
750 Staples, Inc.* 14,625
----------
48,352
----------
TELEPHONE SYSTEMS -- 6.2%
100 AT & T Corp. 6,200
100 Bell Atlantic Corp. 6,375
100 Bellsouth Corp. 4,238
300 GTE 13,425
500 MCI Communications Corp. 12,813
100 SBC Communications, Inc. 4,925
500 Sprint Corp. 21,000
----------
68,976
----------
TEXTILES, CLOTHING & FABRIC -- 0.3%
100 Liz Claiborne 3,463
----------
TRANSPORTATION -- 0.3%
100 Caliber Systems, Inc. 3,400
----------
TOTAL COMMON STOCKS
(Cost $930,773) 989,727
----------
FOREIGN COMMON STOCK -- 3.6%
CANADA -- 1.3%
100 Barrick Gold Corp. 2,713
200 Imperial Oil 8,425
200 Laidlaw, Inc. B 2,025
100 Moore Corp Ltd. 1,888
----------
15,051
----------
NETHERLANDS -- 1.4%
100 Royal Dutch Petroleum 15,375
----------
NORWAY -- 0.9%
200 Norsk Hydro AS ADR 9,775
----------
TOTAL FOREIGN COMMON
STOCK (Cost $38,442) 40,201
----------
TOTAL INVESTMENTS -- 92.0%
(Cost $969,215) 1,029,928
Other Assets and Liabilities
(net) -- 8.0% 89,499
----------
TOTAL NET ASSETS -- 100.0% $1,119,427
==========
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
* Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
M FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
EDINBURGH FRONTIER CAPITAL ENHANCED
OVERSEAS TURNER CORE APPRECIATION U.S. EQUITY
EQUITY FUND GROWTH FUND FUND FUND
----------- ----------- ---- ----
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (Note 1)* --
see accompanying portfolio of investments $2,353,993 $3,027,269 $2,760,389 $1,029,928
Cash 135,734 45,774 382,293 40,158
Foreign currency, at value (Note 1)** 3,247 -- -- --
Receivable from:
Securities sold -- 24,675 15,577 59,191
Dividends and interest 8,908 3,149 1,677 2,218
Investment Adviser (Note 2) 42,683 50,253 48,540 51,159
Deferred organization expense 94,110 94,110 94,110 94,110
------ ------ ------ ------
Total assets 2,638,675 3,245,230 3,302,586 1,276,764
--------- --------- --------- ---------
LIABILITIES:
Payable for securities purchased 10,241 44,673 34,745 73,766
Net open forward currency contracts (Note 6) 33 -- -- --
Organization expense payable (Note 5) 6,933 6,933 62,750 62,750
Accrued expenses and other liabilities 16,581 19,213 21,006 20,821
------ ------ ------ ------
Total liabilities 33,788 70,819 118,501 157,337
------ ------ ------- -------
NET ASSETS $2,604,887 $3,174,411 $3,184,085 $1,119,427
========== ========== ========== ==========
NET ASSETS CONSIST OF:
Paid-in capital $2,550,493 $3,011,464 $3,001,858 $1,000,000
Undistributed net investment income (loss) 11,761 6,771 (1,425) 8,172
Accumulated net realized gain (loss) on
investments and foreign currency transactions (9,094) 13,723 48,779 50,542
Net unrealized appreciation on investments,
forward currency contracts, and net other
assets 51,727 142,453 134,873 60,713
------ ------- ------- ------
NET ASSETS $2,604,887 $3,174,411 $3,184,085 $1,119,427
========== ========== ========== ==========
SHARES OUTSTANDING 253,778 282,736 266,884 100,000
======= ======= ======= =======
Net asset value, offering price and redemption
price per share $ 10.26 $ 11.23 $ 11.93 $ 11.19
========== ========== ========== ==========
* Cost of investments $2,302,213 $2,884,816 $2,625,517 $ 969,215
** Cost of foreign currency $ 3,227 -- -- --
</TABLE>
See accompanying notes to the financial statements.
M FUND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIOD ENDED JUNE 30, 1996(A)
<TABLE>
<CAPTION>
EDINBURGH FRONTIER CAPITAL ENHANCED
OVERSEAS TURNER CORE APPRECIATION U.S. EQUITY
EQUITY FUND GROWTH FUND FUND FUND
----------- ----------- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 5,678 $ 4,865 $ 5,896 $ 1,484
Dividends* 19,914 7,581 1,950 10,888
------ ----- ----- ------
Total investment income 25,592 12,446 7,846 12,372
------ ------ ----- ------
EXPENSES:
Investment Advisory fee (Note 2) 11,172 3,648 7,256 2,887
Custody and administration fees 42,122 37,045 36,808 37,521
Professional fees 10,895 9,937 9,936 9,936
Registration and filing fees 500 390 390 390
Directors' fees and expenses 3,836 3,836 3,836 3,836
Amortization of organization costs 9,889 9,889 9,889 9,889
Other 3,117 3,117 3,117 3,118
----- ----- ----- -----
Total expenses 81,531 67,862 71,232 67,577
Less: Expenses reimbursable by the Adviser
(Note 2) 67,700 62,187 61,961 63,377
- ------ ------ ------ ------
Net operating expenses 13,831 5,675 9,271 4,200
------ ----- ----- -----
NET INVESTMENT INCOME (LOSS) 11,761 6,771 (1,425) 8,172
------ ----- ------ -----
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investment transactions (10,603) 13,723 48,779 50,542
Foreign currency transactions 1,509 -- -- --
-----
Net realized gain (loss) (9,094) 13,723 48,779 50,542
------ ------ ------ ------
Net change in unrealized appreciation
(depreciation) on:
Investments 51,779 142,453 134,873 60,713
Forward currency and net other assets (52) -- -- --
--- --- --- ---
Net unrealized appreciation during the
period 51,727 142,453 134,873 60,713
------ ------- ------- ------
NET REALIZED AND UNREALIZED GAIN (LOSS) 42,633 156,176 183,652 111,255
------ ------- ------- -------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 54,394 $162,947 $182,227 $119,427
======== ======== ======== ========
* Net of foreign taxes withheld of: (3,192) -- -- (137)
(a) Funds commenced operations on January 4, 1996
</TABLE>
See accompanying notes to the financial statements.
M FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
FOR THE PERIOD ENDED JUNE 30, 1996(A)
<TABLE>
<CAPTION>
EDINBURGH FRONTIER CAPITAL ENHANCED
OVERSEAS TURNER CORE APPRECIATION U.S. EQUITY
EQUITY FUND GROWTH FUND FUND FUND
----------- ----------- ---- ----
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income (loss) $ 11,761 $ 6,771 $ (1,425) $ 8,172
Net realized gain (loss) on investment and
foreign currency transactions (9,094) 13,723 48,779 50,542
Net change in unrealized appreciation on
investments, forward currency contracts,
foreign currency, and other assets 51,727 142,453 134,873 60,713
------ ------- ------- ------
Net increase in net assets resulting from
operations 54,394 162,947 182,227 119,427
------ ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- -- --
From net realized capital gains -- -- -- --
------ ------- ------- -------
Total distributions to shareholders -- -- -- --
------ ------- ------- -------
FUND SHARE TRANSACTIONS (NOTE 4):
Proceeds from shares sold 2,602,435 3,289,870 3,274,804 980,000
Net asset value of shares issued on reinvestment
of distributions -- -- -- --
Cost of shares repurchased (91,942) (298,406) (292,946) --
------- -------- --------
Net increase (decrease) in net assets resulting
from Fund share transactions 2,510,493 2,991,464 2,981,858 980,000
--------- --------- --------- -------
TOTAL CHANGE IN NET ASSETS 2,564,887 3,154,411 3,164,085 1,099,427
NET ASSETS:
Beginning of period 40,000 20,000 20,000 20,000
------ ------ ------ ------
End of period* 2,604,887 3,174,411 3,184,085 1,119,427
========= ========= ========= =========
* Including undistributed net investment income
(loss) of: $ 11,761 $ 6,771 $ (1,425) $ 8,172
(a) Funds commenced operations on January 4, 1996
</TABLE>
See accompanying notes to the financial statements.
M FUND, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
FOR THE PERIOD ENDED JUNE 30, 1996(A)
<TABLE>
<CAPTION>
EDINBURGH FRONTIER CAPITAL ENHANCED
OVERSEAS TURNER CORE APPRECIATION U.S. EQUITY
EQUITY FUND GROWTH FUND FUND FUND
----------- ----------- ---- ----
<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 (loss) 0.05 0.02 (0.01) 0.08
Net realized and unrealized gain on investments 0.21 1.21 1.94 1.11
---- ---- ---- ----
Total from investment operations 0.26 1.23 1.93 1.19
---- ---- ---- ----
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- -- --
From net realized gains -- -- -- --
---- ---- ---- ----
Total distributions -- -- -- --
---- ---- ---- ----
NET ASSET VALUE, END OF PERIOD $ 10.26 $ 11.23 $ 11.93 $ 11.19
======= ======= ======= =======
TOTAL RETURN 2.60% 12.30% 19.30% 11.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 2,605 $ 3,174 $ 3,184 $ 1,119
Net expenses to average daily net assets 1.30%* 0.70%* 1.15%* 0.80%*
Net investment income (loss) to average daily
net assets 1.11%* 0.83%* (0.18)%* 1.57%*
Portfolio turnover rate 16% 61% 39% 36%
Average commission rate paid $0.04** $0.06** $0.05** $0.02**
Without the reimbursement of expenses by the
adviser, the ratio of net expenses to average
net assets would have been:
Expenses 7.70%* 8.36%* 8.82%* 12.94%*
<FN>
(a) Funds commenced operations on January 4, 1996
* Annualized
** Average commission rate paid is computed by dividing the total dollar
amount of commissions paid during the period by the total number of
shares purchased and sold during the period for which commissions were
charged. Amount is computed on a non annualized basis.
</FN>
</TABLE>
See accompanying notes to the financial statements.
M FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
M Fund, Inc. (the "Company") was incorporated in Maryland on August 11,
1995 and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company.
The Company consists of four separate diversified investment portfolios:
Edinburgh Overseas Equity Fund, Turner Core Growth Fund, Frontier Capital
Appreciation Fund and Enhanced U.S. Equity Fund, (the "Funds"), each of
which is, in effect, a separate mutual fund. All of the Funds commenced
operations on January 4, 1996.
The Funds are available through the purchase of variable life insurance
and variable annuity policies. Shares of the Funds may also be sold to
qualified pension and retirement plans. Each of the Funds seeks long term
capital appreciation or total return, and each Fund will invest primarily
in stocks and other equity securities.
1. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies for the
Funds. Such policies are in conformity with generally accepted accounting
principles for investment companies and are consistently followed by the
Funds in the preparation of the financial statements.
PORTFOLIO VALUATION
Equity securities and other similar investments traded on a recognized
U.S. or foreign securities exchange or the National Association of
Securities Dealers Automated Quotation System (NASDAQ) are valued at their
last sale price on the principal exchange on which they are traded or
NASDAQ (if NASDAQ is the principal market for such securities). If no sale
occurs, equities traded on a U.S. exchange or NASDAQ are valued at the
mean between the closing bid and asked price. Equities traded on a foreign
exchange, for which no sale occurs, are valued at the official bid price.
Unlisted equity securities for which market quotations are readily
available are valued at the last sale price or, if no sale occurs, at the
mean between the last bid and asked price. Debt securities and other
fixed-income investments of the Funds will be valued at prices supplied by
independent pricing agents approved by the Board of Directors. Short-term
obligations maturing in sixty days or less are valued at amortized cost.
Amortized cost valuation involves initially valuing a security at its
cost, and thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the security. Securities whose market value
does not, in the Adviser's opinion, reflect fair value, are valued at fair
value using methods determined in good faith by the Board of Directors.
REPURCHASE AGREEMENTS
Turner Core Growth Fund and Enhanced U.S. Equity Fund may engage in
repurchase agreement transactions. Under the terms of a typical repurchase
agreement, the Fund takes possession of an underlying debt obligation
(i.e. collateral) subject to an obligation of the seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon price and time,
thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to
market fluctuations during the Fund's holding period. The value of the
collateral is at least equal at all times to the total amount of the
repurchase obligations, including interest. In the event of counterparty
default, the Fund has the right to use the collateral to offset losses
incurred. There is potential loss to the Fund in the event the Fund is
delayed or prevented from exercising its rights to dispose of the
collateral securities, including the risk of a possible decline in the
value of the underlying securities during the period while the Fund seeks
to assert its rights. The Fund's investment adviser, acting under the
supervision of the Board of Directors, reviews the value of the collateral
and the creditworthiness of those banks and dealers with which the Fund
enters into repurchase agreements to evaluate potential risks.
FOREIGN CURRENCY
Edinburgh Overseas Equity Fund may invest in non U.S. dollar denominated
assets. Foreign currencies, investments and other assets and liabilities
of the Fund are translated into U.S. dollars at the exchange rates
available at twelve noon Eastern Time. Purchases and sales of investment
securities, income receipts and expense payments are translated into U.S.
dollars at the prevailing exchange rate on the respective dates of such
transactions.
The Fund does not isolate that portion of the results of changes in
foreign currency exchange rates from the fluctuations arising from changes
in the market prices of securities held at period end. Net realized
foreign currency gains and losses result from changes in exchange rates,
including foreign currency gains and losses between trade date and
settlement date on investment securities transactions, foreign currency
transactions and the difference between the amounts of interest and
dividends recorded on the books of the Fund and the amount actually
received. The portion of foreign currency gains and losses related to
fluctuation in exchange rates between the initial trade date and
subsequent sale trade date is included in realized gains and losses on
investment securities sold.
FORWARD FOREIGN CURRENCY CONTRACTS
Edinburgh Overseas Equity Fund may enter into forward foreign currency
exchange contracts. Forward foreign currency contracts are valued at the
forward rate and are marked-to-market daily. The change in market value is
recorded by the Fund as an unrealized gain or loss. When the contract is
closed or delivery is taken, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value of the contract at settlement date.
The use of forward foreign currency contracts does not eliminate
fluctuations in the underlying prices of the Fund's securities, but it
does establish a rate of exchange that can be achieved in the future.
Although forward foreign currency contracts can limit the risk of loss due
to a decline in the value of the hedged currency, they also limit any
potential gain that might result should the value of the currency
increase. In addition, the Fund could be exposed to risks if the
counterparties to the contracts are unable to meet the terms of their
contracts.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Realized gains
or losses from securities sold are recorded on the identified cost basis.
Interest income is recorded on the accrual basis and consists of interest
accrued and, if applicable, discount earned less premiums amortized.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities are recorded as soon as the Fund is
informed of the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Each Fund declares and pays dividends from net investment income, if any,
and distributes net short-term capital gains, if any, on an annual basis.
Each Fund also distributes, at least annually, substantially all of the
long-term capital gains in excess of available capital losses, if any,
which it realizes for each taxable year. Income distributions and capital
gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
income and gains on various investment securities held by each Fund,
timing differences and differing characterization of distributions made by
each Fund. Permanent differences relating to shareholder distributions
will result in reclassifications to paid-in capital.
FEDERAL INCOME TAXES
The Funds intend to qualify as a regulated investment company, by
complying with the requirements under Subchapter M of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
by distributing substantially all of its earnings to its shareholders.
Therefore, no provision for federal income tax is necessary.
2. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into an investment advisory agreement (the
"Advisory Agreement") with M Financial Investment Advisers, Inc.(the
"Adviser"). The Adviser is an affiliate of M Life Insurance Company ("M
Life"). The Adviser and M Life are controlled by Management Partnership, a
general partnership which does business under the name M Financial Group.
The Advisory Agreement provides for the Funds to pay the Adviser a monthly
fee at an annual rate of the value of each Fund's average daily net assets
as follows:
<TABLE>
<CAPTION>
FUND TOTAL ADVISORY FEES
---- -------------------
<S> <C>
Edinburgh Overseas Equity Fund 1.05% on the first $10 million
0.90% on the next $15 million
0.75% on the next $75 million
0.60% on amounts above $100 million
Turner Core Growth Fund 0.45%
Frontier Capital Appreciation Fund 0.90%
Enhanced U.S. Equity Fund 0.55% on the first $25 million
0.45% on the next $75 million
0.30% on amounts above $100 million
</TABLE>
The Adviser has engaged Edinburgh Fund Managers Plc., Turner Investment
Partners, Inc., Frontier Capital Management Company, Inc., and Franklin
Portfolio Associates Trust to act as sub-advisers to provide day to day
portfolio management for the Edinburgh Overseas Equity Fund, Turner Core
Growth Fund, Frontier Capital Appreciation Fund and Enhanced U.S. Equity
Fund, respectively.
The Adviser has voluntarily undertaken to waive or otherwise reimburse the
Edinburgh Overseas Equity Fund, Turner Core Growth Fund, Frontier Capital
Appreciation Fund and Enhanced U.S. Equity Fund for their operating
expenses, exclusive of advisory fees, brokerage or other portfolio
transaction expenses or expenses of litigation, indemnification, taxes or
other extraordinary expenses, to the extent that they exceed 0.25% of the
average daily net assets of the Fund through December 31, 1996.
No officer, director or employee of the Adviser, or sub-advisers receives
any compensation from the Company for serving as a director or officer of
the Company. The Company pays each Director who is not an officer or
employee of the Adviser and their affiliates, $8,000 per annum plus $500
per meeting attended and reimburses each such Director for travel and
out-of-pocket expenses.
3. PURCHASES AND SALES OF SECURITIES
Costs of purchases and proceeds from sales of investment securities,
excluding U.S. Government Securities and short-term investments, for the
period January 4, 1996 through June 30, 1996, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -----
<S> <C> <C>
Edinburgh Overseas Equity Fund $ 2,624,071 $ 311,254
Turner Core Growth Fund 3,864,269 993,177
Frontier Capital Appreciation Fund 3,200,804 624,067
Enhanced U.S. Equity Fund 1,287,951 369,277
</TABLE>
For the period January 4, 1996 through June 30, 1996, aggregated gross
unrealized appreciation for all securities in which there is an excess of
value over tax cost and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over value were as
follows:
<TABLE>
<CAPTION>
TAX BASIS TAX BASIS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
------------ ------------ --------------
<S> <C> <C> <C>
Edinburgh Overseas Equity Fund $ 127,437 $ (75,657) $ 51,780
Turner Core Growth Fund 213,038 (70,585) 142,453
Frontier Capital Appreciation Fund 261,248 (126,376) 134,872
Enhanced U.S. Equity Fund 81,571 (20,858) 60,713
</TABLE>
4. SHARES OF BENEFICIAL INTEREST
For the period January 4, 1996 through June 30, 1996 an unlimited number
of shares of beneficial interest without par value were authorized.
Changes in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
EDINBURGH OVERSEAS TURNER CORE
EQUITY FUND GROWTH FUND
----------- -----------
FOR THE PERIOD FOR THE PERIOD
JANUARY 4, 1996- JANUARY 4, 1996-
JUNE 30, 1996(A) JUNE 30, 1996(A)
---------------- ----------------
<S> <C> <C>
Shares sold 258,711 307,443
Shares repurchased (8,933) (26,707)
------ -------
Net increase 249,778 280,736
Fund shares:
Beginning of period 4,000 2,000
----- -----
End of period 253,778 282,736
======= =======
</TABLE>
4. SHARES OF BENEFICIAL INTEREST (CONTINUED)
<TABLE>
<CAPTION>
FRONTIER CAPITAL ENHANCED U.S.
APPRECIATION FUND EQUITY FUND
----------------- -----------
FOR THE PERIOD FOR THE PERIOD
JANUARY 4, 1996- JANUARY 4, 1996-
JUNE 30, 1996(A) JUNE 30, 1996(A)
---------------- ----------------
<S> <C> <C>
Shares sold 289,154 98,000
Shares repurchased (24,270) 0
------- -
Net increase 264,884 98,000
Fund shares:
Beginning of period 2,000 2,000
----- -----
End of period 266,884 100,000
======= =======
</TABLE>
(a) The Funds commenced operations on January 4, 1996.
5. ORGANIZATION COSTS
Each Fund has borne all costs in connection with its organization. Such
costs are being amortized on the straight-line method over a period of
five years from the commencement of operations for each Fund. In the event
that any of the initial shares of the Funds are redeemed during such
amortization period, the Funds will be reimbursed for any unamortized
costs in the same proportion as the number of shares redeemed bears to the
number of initial shares held at the time of redemption. The organization
expenses payable represents a liability to an affiliated company.
6. FINANCIAL INSTRUMENTS
Edinburgh Overseas Equity Fund regularly trades financial instruments with
off-balance sheet risk in the normal course of its investing activities to
assist in managing exposure to market risks, such as foreign currency
exchange rates. These financial instruments include forward currency
exchange contracts.
The notional or contractual amounts of these instruments represent the
investments the Funds have in particular classes of financial instruments
and do not necessarily represent the amounts potentially subject to risk.
The measurement of the risk associated with these instruments is
meaningful only when all related and offsetting transactions are
considered. The forward foreign currency contracts at June 30, 1996 were:
EDINBURGH OVERSEAS EQUITY FUND
<TABLE>
<CAPTION>
UNITS OF IN
SETTLEMENT DATE DELIVER/RECEIVE CURRENCY EXCHANGE FOR DEPRECIATION
--------------- --------------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Contracts to Buy:
07/03/96 Thai Baht 260,000 $10,242 $(19)
Contracts to Sell:
07/01/96 NetherlandsGuilder 4,246 $ 2,490 $(14)
</TABLE>
7. CONCENTRATION
At June 30, 1996, a substantial portion of the Edinburgh Overseas Equity
Fund's net assets consist of securities denominated in foreign currencies.
Changes in currency exchange rates will affect the value of and investment
income from such securities. Foreign securities are subject to greater
price volatility, more limited capitalization and liquidity, and higher
rates of inflation than securities of companies based in the United
States.
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