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Previous: PEPSI COLA PUERTO RICO BOTTLING CO, 10-Q, 1997-08-14 |
Next: PSB HOLDINGS INC /WI/, 10-Q, 1997-08-14 |
M FUNDS
Edinburgh Overseas Equity Fund
Turner Core Growth Fund
Frontier Capital Appreciation Fund
Enhanced U.S. Equity Fund
Semi-Annual Report
June 30, 1997
[LOGO]
M FUND, INC.
PRESIDENT'S LETTER
August 2, 1997
Dear Contract Owners:
We are pleased to present to you the M Fund, Inc. (the "Company") Semi-Annual
Report dated June 30, 1997. The Company has been growing steadily during the
course of 1997 with total assets under management reaching over $17.8 million as
of June 30, 1997.
Sub-Advisers to the portfolios, under the direction of M Financial Investment
Advisers, Inc., the investment adviser to the Company, have prepared the
attached discussion of results for each portfolio of the Company for the period
beginning January 1, 1997 and ending June 30, 1997 in addition to their outlook
for the last six months of 1997.
Sub-Advisers to the Company are: 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 U.S.
Equity Fund.
The M Fund Board of Directors, in coordination with M Financial Investment
Advisers, Inc. and M Fund's participating 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
The Edinburgh Overseas Equity Fund returned 10.33% for the six months ended
June 30, 1997. The MSCI EAFE Index returned 11.16% for the same period.
The outlook for global financial markets continues to be favorable provided
inflation, which has been reported at lower than expected levels, remains under
control. If this trend can be maintained, the valuations to bonds and equities
will not be threatened. In the short term, however, many markets have had very
strong runs in the first half of 1997, and a period of consolidation in the
summer months is anticipated.
The Fund benefited from strong stock selection in Continental Europe and, at
the country level, its overweight position to Latin America. Total return was
dampened due to above average cash balances -- a function of additional cash
flow during the quarter.
Solid economic growth and subdued levels of inflation continue to benefit US
corporate earnings. Record mutual fund inflows underpin equity valuations. The
strength of the US dollar has benefited Continental European markets although
international returns were reduced by currency weakness. In the UK, equities
reacted positively to the election of a Labour government. Foreign buying boosts
Japanese equities with international returns being further enhanced by the
appreciation of the Yen, while the Pacific area experienced mixed fortunes. Hong
Kong rose sharply ahead of the handover to China, but economic uncertainties, on
the other hand, depressed Malaysia, the Philippines and Thailand.
World stockmarkets continued to benefit from low levels of inflation and
high levels of liquidity in the second quarter. The underlying trend of US
interest rates was a powerful factor influencing world markets, and the decision
of the Federal Reserve Board to keep interest rates unchanged, acted as a
catalyst for higher bond and equity prices.
Looking further out, we expect economic activity to continue to expand into
1998 but this is likely to lead to global growth being more synchronized than in
recent years. As a result, there may be a need for some modest increases in
interest rates if inflation is to be kept under control. Provided monetary
authorities take the required policy initiatives in advance of serious inflation
pressures developing, rather than reacting after the event, bond and equity
valuations should remain intact.
EDINBURGH FUND MANAGERS PLC
INVESTMENT SUB-ADVISER TO THE EDINBURGH OVERSEAS EQUITY FUND
2
TURNER CORE GROWTH FUND
The Turner Core Growth Fund returned 11.41% for the six months ended June
30, 1997. The Wilshire 5000 Stock Index returned 17.65% while the average growth
fund tracked by Lipper Analytical Services returned 14.28% for the same period.
The stock market provided investors with unusually disparate returns over
the six months ending June 30, 1997. Daily volatility has increased to more
normal long-term standards, which is double the abnormally low levels seen in
1995 and 1996. The defining moment this year came on March 25th when the Federal
Reserve raised the Fed Funds rate 25 basis points to 5.50%. This action threw
both the stock and bond markets into a tailspin for the remainder of March and
most of April. The stock market corrected nearly 10 percent and the 30-year
Treasury bond sold off to yield 7.17% at its low. The stock market pulled out of
the furious decline to post big gains during the second quarter. Contrary to Fed
concerns about a possible resurgence of inflation, the economy and stock market
continued to chug along without interruption. This was the result of two major
factors: (1) investors believed the scenario of moderate economic growth, low
inflation, and a strong dollar would continue; and (2) corporations continued to
post healthy earnings.
Once again, market capitalization played a dominant role in differentiating
returns throughout the first half of 1997. The S&P 500 Index, which is a
capitalization weighted index dominated by the largest companies, returned 20.6%
for the first six months of 1997. Conversely, small capitalization stocks earned
less than half of their large cap counterparts, growing only 10.2% through the
end of June, according to the Russell 2000 Index. Even the Russell Midcap Index
suffered relative to large cap stocks, gaining only 12.6%. The worst-performing
segment of the market was small capitalization growth stocks, according to the
Russell 2000 Growth Index, earning a modest 5.2%.
In light of our investment approach (with almost half the portfolio in
medium cap stocks), it is not surprising that our performance lagged the S&P 500
Index during this type of investment environment.
As was the case in 1996, we owned most of the handful of large cap, high
flying stocks that propelled the equity market during the first half of 1997.
Our diversified investment process won't allow us to concentrate a large portion
of the portfolio in a small number of securities. As a result, we will always
struggle when investors are so narrowly focused on a relatively few very large
cap companies. We tend to hold around 100 securities, which will greatly
outperform the market when the broad market begins to rally. We have a
significant commitment to medium and small cap growth companies, and in fact
have increased this commitment since the end of March.
Stock selection continues to be favorable as the portfolio experiences a
higher percentage of companies with rising earnings estimates and a lower
percentage of falling earnings estimates than the S&P 500 Index. The incidence
of positive earnings surprises has also been better for the portfolio, while
experiencing fewer negative earnings surprises than the market. The portfolio is
attractively priced with 63 percent higher earnings growth than the S&P 500
compared to only a 23 percent premium in price. We saw the beginning of the
recovery in the broad market during June and as of this writing in July. We are
optimistic that this recovery will extend for some time, allowing us to generate
superior returns.
TURNER INVESTMENT PARTNERS, INC.
INVESTMENT SUB-ADVISER TO THE TURNER CORE GROWTH FUND
3
FRONTIER CAPITAL APPRECIATION FUND
The Frontier Capital Appreciation Fund returned 10.34% for the six months ended
June 30, 1997. The Russell 2500 Stock Index returned 11.25% for the same period.
Smaller and medium cap stocks have underperformed the larger cap stocks for
a considerable period of time. This trend appeared to reverse in May, although,
it is unclear whether small stocks will sustain the momentum initiated.
We are cautiously optimistic for the balance of 1997. Benefiting the stock
market are strong mutual fund inflows and a benign outlook on interest rates and
inflation, factors which are expected to remain in place for the foreseeable
future. However, we believe corporate profit growth in the S&P 500, which has
compounded at 14% annually over the last five years, is not sustainable. We look
for earnings growth to begin to track more closely with nominal GDP growth in
the 5-6% range. As overall profit growth decelerates, investors increasingly may
be willing to pay higher multiples for above average growth, much of which will
be found in small and mid cap stocks.
FRONTIER CAPITAL MANAGEMENT CO., INC.
INVESTMENT SUB-ADVISER TO THE FRONTIER CAPITAL APPRECIATION FUND
4
ENHANCED U.S. EQUITY FUND
The Enhanced U.S. Equity Fund returned 16.57% for the six months ended June
30, 1997. The S&P 500 Index returned 20.61% for the same period.
After a brief though sharp correction in March, the stock market resumed its
relentless march to new heights in the second quarter. Records were broken so
often that market commentators made only brief mention of the fact. Even small
stocks participated in the strong second quarter advance although the indices
still lagged their large cap counterparts. Clearly the domestic market finds
itself in a veritable sweet-spot wherein the environment is almost perfect for
stocks. Favorable factors include low inflation, a firm dollar, a moderately
growing economy, healthy profits, and strong cash flows into equity mutual
funds. In fact, the outlook seems so bright for equities that we ask ourselves
the question -- "can it get any better than this?"
Here at Franklin Portfolio Associates we have been and continue to be
cautious about the stock market. The strength of the advance does little to
diminish that attitude. Assuming the first half return for the S&P 500 holds for
the full year, the annual return for the market from 1926 will be 10.8%. From
1982 the annual return will be 15.6% and for the three year period the return
will 26.9%. With the P/E ratio on the S&P 500 at 20x 1997 estimated earnings of
$46, the market is not a bargain. We do not believe that further market gains
can come from multiple expansion, so the bullish case needs to be made from
earnings growth. Earnings for the S&P 500 have grown at a double digit rate for
six consecutive years -- twice the longest string of double digit gains since
the index's inception in 1926. The economic expansion is in its sixth year and
by all measures is late in the cycle. Thus we have a potential for a
double-barrel negative surprise -- a contraction in P/E's and a shortfall in
earnings. In our view, the prospect for a contraction in equity prices grows as
the market advances.
Our outlook for the future remains positive despite a short term concern for
the level of equity prices. The U.S. economy is structurally sound and we
continue to see gains in productivity and efficiency. We have demonstrated an
ability to outperform our active manager peers over both short and long time
periods and feel confident in our ability to do so in the future.
FRANKLIN PORTFOLIO ASSOCIATES
INVESTMENT SUB-ADVISER TO THE ENHANCED U.S. EQUITY FUND
5
EDINBURGH OVERSEAS EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ ----------
<S> <C> <C>
FOREIGN COMMON STOCK -- 90.0%
ARGENTINA -- 0.9%
10,780 CIADEA SA $ 46,360
----------
AUSTRALIA -- 3.9%
15,000 Gio Australian Holdings Ltd. 46,417
3,000 Lend Lease Corp. Ltd. 63,399
34,000 Orogen Minerals Ltd. 97,257
----------
207,073
----------
BRAZIL -- 2.3%
4,000 Centrais Electricas Brasileiras SA
ADR 118,712
----------
FRANCE -- 9.3%
1,500 AXA-UAP 93,338
1,200 Elf Aquitaine SA 129,524
1,030 Suez Lyonnaise des Eaux SA 103,810
2,000 Rhone-Poulenc, Class A 81,719
740 Societe Generale 82,645
----------
491,036
----------
GERMANY -- 5.7%
1,345 Deutsche Bank AG 78,634
249 Mannesmann AG 111,003
150 Siemens AG 8,912
450 Thyssen AG 106,630
----------
305,179
----------
GREAT BRITAIN -- 15.9%
9,500 British Telecommunications Plc. 70,506
15,000 Burton Group Plc. 29,390
3,000 EMI Group Plc. 53,789
10,000 General Electric Plc. 59,738
2,500 GKN Plc. 43,035
GREAT BRITAIN (CONTINUED)
2,000 Glaxo Wellcome Plc. $ 41,267
4,500 Guinness Plc. 44,029
1,800 HSBC Holdings Plc. 55,366
17,500 Ladbroke Group Plc. 68,432
6,500 Legal and General Group Plc. 43,859
10,000 Lloyds TSB Group Plc. 102,502
3,000 Scottish & Newcastle Plc. 32,273
3,000 Severn Trent Plc. 38,813
11,250 Shell Transport & Trading Co. 76,658
2,400 Zeneca Group Plc. 79,313
----------
838,970
----------
HONG KONG -- 2.5%
6,000 Cheung Kong Holdings Ltd. 59,249
2,400 HSBC Holdings Plc. 72,183
----------
131,432
----------
ITALY -- 1.7%
15,700 Ente Nazionale Indrocarburi Spa. 88,904
----------
JAPAN -- 27.2%
3,000 Amada Co., Ltd. 26,464
1,000 Aoyama Trading Co. Ltd. 32,141
1,000 Best Denki Co. Ltd. 10,743
2,000 Bridgestone Corp. 46,465
2,000 Canon Sales Co., Inc. 46,640
1,000 Canon, Inc. 27,250
5,000 Daihatsu Motor Co. Ltd. 29,434
4,000 Daiwa Industries Ltd. 36,333
6 DDI Corp. 44,334
1,000 Fuji Photo Film 40,264
4,000 Fujikura Ltd. 37,382
3,000 Hankyu Department Stores 31,966
</TABLE>
See accompanying notes to financial statements.
6
EDINBURGH OVERSEAS EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ ----------
<S> <C> <C>
FOREIGN COMMON STOCK (CONTINUED)
JAPAN (CONTINUED)
4,000 Hitachi Ltd. $ 44,718
3,000 Isetan 37,207
2,000 Kajima Corp. 11,721
2,000 Matsushita Electric Industrial Co.,
Ltd. 40,351
4,000 Matsushita Electric Works 45,417
4,000 Mitsui Fudosan 55,199
3,000 Mitsui Trust & Banking 22,665
6,000 Mitsui & Co. 57,644
2,000 Mori Seiki 32,141
4,000 NGK Spark Plug 43,670
4,000 Nihon Cement Co. Ltd. 19,145
3,000 Nippon Comsys Corp. 44,543
8,000 Nippon Sheet Glass Co. Ltd. 29,486
5 Nippon Telegraph & Telephone 48,037
3,000 Nippon Yusen Kabushiki Kaisha 11,660
6,000 Nissan Motors 46,587
3,000 Nitto Denko Corp. 58,430
14,000 NKK Corp. 30,080
1,000 Ono Pharmaceutical Co. 35,285
720 People Co. Ltd. 24,525
1,000 Promise Co. Ltd. 57,295
3,000 Sekisui Chemical Co. 30,394
4,000 Showa Corp. 33,923
2,000 Sumitomo Electric Industries 33,539
11,000 Sumitomo Metal Industries 31,320
2,000 Taiyo Yuden Co., Ltd. 33,015
1,000 Terumo Corp. 19,127
1,000 The Bank of Tokyo Mitsubishi 20,088
5,000 Toei 34,281
----------
1,440,909
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
MALAYSIA -- 1.3%
30,000 Guinness Anchor Berhad $ 66,561
----------
MEXICO -- 0.7%
8,000 Cemex, SA de C.V. -- Class A 34,410
----------
NETHERLANDS -- 5.5%
2,860 Ing Groep NV 131,928
995 Koninklijke Ahold NV 83,986
3,330 Verenigde Nederlandse
Uitgeversbedrijven Verenigd
Bezit 73,664
----------
289,578
----------
NEW ZEALAND -- 0.6%
18,000 Restaurant Brands New Zealand
Ltd.* 31,124
----------
SINGAPORE -- 1.7%
8,000 DBS Land Ltd. 25,292
6,120 Overseas Chinese Banking Corp. 63,353
----------
88,645
----------
SPAIN -- 1.3%
820 Banco Bilbao Vizcaya, SA 66,642
----------
SWEDEN -- 4.0%
7,600 Astra AB, Class A 141,835
2,000 Nordbanken AB 67,652
----------
209,487
----------
SWITZERLAND -- 5.5%
54 ABB AG 81,771
60 Nestle SA 79,181
80 Novartis 127,939
----------
288,891
----------
TOTAL FOREIGN COMMON
STOCK (Cost $4,222,365) 4,743,913
----------
</TABLE>
See accompanying notes to financial statements.
7
EDINBURGH OVERSEAS EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
<TABLE>
<CAPTION>
FACE MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
------ ---- ------- --------
<S> <C> <C> <C> <C>
FOREIGN BOND -- 0.9%
CAYMAN ISLANDS
Y5,000,000 STB Cayman Capital Ltd.
(Cost $43,213) 0.50% 10/01/07 $ 49,265
-----------
CONVERTIBLE FOREIGN BOND -- 1.0%
JAPAN
Y6,000,000 Fuji International Finance
(Cost $53,210) 0.25% 02/01/02 53,976
-----------
TOTAL INVESTMENTS -- 91.9%
(Cost $4,318,788) 4,847,154
Other Assets and Liabilities (net) -- 8.1% 425,705
-----------
TOTAL NET ASSETS -- 100.0% $ 5,272,859
===========
NOTES TO THE PORTFOLIO OF INVESTMENTS:
ADR American Depositary Receipt
* Non-income producing security.
Y-- Japanese Yen.
</TABLE>
See accompanying notes to financial statements.
8
EDINBURGH OVERSEAS EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
At June 30, 1997, 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 14.5%
Pharmaceuticals 8.4
Electrical Equipment 5.7
Oil & Gas 5.6
Automotive 5.5
Beverages, Food & Tobacco 4.2
Heavy Machinery 3.9
Real Estate 3.9
Insurance 3.5
Financial Services 3.0
Metals 3.0
Entertainment & Leisure 2.8
Retailers 2.5
Building Materials 2.4
Commercial Services 2.4
Electric Utilities 2.3
Telephone Systems 2.2
Chemicals 2.1
Media -- Broadcasting & Publishing 2.0
Manufacturing 2.0
Municipal Services 2.0
Communications 1.7
Food Retailers 1.6
Wholesale Trade 1.1
Electronics 1.1
Household Products 0.8
Water Companies 0.7
Restaurants 0.6
Building & Construction 0.2
Transportation 0.2
-----
91.9%
=====
</TABLE>
See accompanying notes to financial statements.
9
TURNER CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS -- 96.1%
AEROSPACE & DEFENSE -- 1.3%
425 AlliedSignal, Inc. $ 35,700
--------
AIRLINES -- 1.5%
770 Southwest Airlines, Inc. 19,924
340 UAL Corp.* 24,331
--------
44,255
--------
AUTOMOTIVE -- 1.8%
820 Federal-Mogul Corp. 28,700
520 Lear Corp.* 23,075
--------
51,775
--------
BANKING -- 3.8%
480 Associates First Capital Corp. 26,640
245 Citicorp 29,538
300 First Bank System, Inc. 25,613
410 Nationsbank Corp. 26,445
--------
108,236
--------
BEVERAGES, FOOD & TOBACCO -- 6.0%
620 Archer-Daniels-Midland 14,570
640 Coca-Cola Co. 43,200
300 ConAgra 19,238
900 Pepsico, Inc. 33,806
730 Philip Morris Co. 32,394
330 Quaker Oats Co. 14,809
630 Tyson Foods, Inc. 12,049
--------
170,066
--------
CHEMICALS -- 3.7%
720 Dupont (E.I.) de Nemours 45,270
910 Monsanto Co. 39,187
580 Sigma Aldrich Corp. 20,336
--------
104,793
--------
COMMERCIAL SERVICES -- 5.5%
800 AccuStaff, Inc.* $ 18,950
340 Apollo Group, Inc.* 11,985
600 Browning-Ferris Industries, Inc. 19,950
360 Corrections Corporation of America* 14,310
710 Paychex, Inc. 26,980
210 Quintiles Transnational Corp.* 14,621
940 Service Corp. International 30,903
490 United Waste Systems, Inc.* 20,090
--------
157,789
--------
COMMUNICATIONS -- 3.2%
630 ADC Telecommunications, Inc.* 21,026
1,020 AirTouch Communications* 27,923
910 Bay Networks* 24,172
1,260 Tel-Save Holdings, Inc.* 19,215
--------
92,336
--------
COMPUTER SOFTWARE -- 6.0%
370 Autodesk, Inc. 14,176
390 Automatic Data Processing, Inc. 18,330
300 Compuware Corp.* 14,325
580 Electronics for Imaging, Inc.* 27,405
320 Microsoft Corp.* 40,440
550 Oracle Corp.* 27,706
560 Peoplesoft* 29,540
--------
171,922
--------
COMPUTERS & INFORMATION -- 3.4%
410 HBO & Co. 28,239
540 Storage Technology Corp.* 24,030
1,160 Sun Microsystems, Inc.* 43,174
--------
95,443
--------
</TABLE>
See accompanying notes to financial statements.
10
TURNER CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
CONGLOMERATES -- 1.2%
830 Republic Industries, Inc.* $ 20,646
210 Tyco Lab 14,608
--------
35,254
--------
COSMETICS & PERSONAL CARE -- 1.6%
510 Alberto-Culver Co. 11,889
360 Gillette Co. 34,110
--------
45,999
--------
ELECTRIC UTILITIES -- 0.9%
350 AES Corp.* 24,763
--------
ELECTRONICS -- 9.2%
270 Altera Corp.* 13,635
420 Applied Materials, Inc.* 29,741
460 KLA Instruments Corp.* 22,425
820 Micron Technology, Inc. 32,749
510 Motorola, Inc. 38,760
670 National Semiconductor Corp.* 20,519
150 SCI Systems, Inc.* 9,563
410 Tellabs, Inc.* 22,909
450 Teradyne, Inc.* 17,663
230 Texas Instruments Inc. 19,334
970 Ultratech Stepper, Inc.* 22,189
470 Vishay Intertechnology, Inc.* 13,601
--------
263,088
--------
ENTERTAINMENT & LEISURE -- 1.6%
360 Callaway Golf Co. 12,780
270 Time Warner, Inc. 13,028
250 Walt Disney Co. 20,063
--------
45,871
--------
VALUE
SHARES (NOTE 1)
------ --------
FINANCIAL SERVICES -- 3.3%
570 American Express Co. $ 42,465
560 Merrill Lynch & Co., Inc. 33,390
600 The Money Store, Inc. 17,213
--------
93,068
--------
FOOD RETAILERS -- 1.0%
160 CPC International, Inc. 14,770
500 General Nutrition Co., Inc.* 14,000
--------
28,770
--------
FOREST PRODUCTS & PAPER -- 1.2%
270 Champion International Corp. 14,918
370 International Paper Co. 17,968
--------
32,886
--------
HEALTH CARE PROVIDERS -- 2.2%
450 Health Management
Associates, Inc.* 12,825
590 Healthsouth Corp.* 14,713
630 PhyCor, Inc.* 21,696
470 Renal Treatment Centers, Inc.* 12,631
--------
61,865
--------
HOME CONSTRUCTION, FURNISHINGS &
APPLIANCES -- 0.8%
310 Home Depot 21,371
--------
HOUSEHOLD PRODUCTS -- 1.6%
160 Clorox Co. 21,120
175 Procter & Gamble Co. 24,719
--------
45,839
--------
INSURANCE -- 8.4%
200 Ace Ltd. 14,775
200 Aetna, Inc. 20,475
560 Allstate Corp. 40,880
</TABLE>
See accompanying notes to financial statements.
11
TURNER CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
180 American International Group. $ 26,888
540 Conseco, Inc. 19,980
370 Hartford Life, Inc.* 13,875
290 Oxford Health Plans, Inc* 20,808
350 St. Paul Co., Inc. 26,688
540 SunAmerica, Inc. 26,325
440 Travelers Group 27,748
--------
238,442
--------
LODGING -- 1.4%
490 HFS, Inc.* 28,420
430 Hilton Hotels Corp. 11,422
--------
39,842
--------
MEDICAL SUPPLIES -- 0.7%
340 Boston Scientific Corp.* 20,889
--------
METALS -- 1.1%
170 Aluminum Co. of America 12,814
260 Reynolds Metals Co. 18,525
--------
31,339
--------
OFFICE EQUIPMENT -- 0.7%
460 Danka Business Systems Plc, ADR 18,803
--------
OIL & GAS -- 9.9%
270 Amoco 23,460
655 Exxon 40,283
900 Global Industries Ltd.* 21,023
640 Louisiana Land &
Exploration Corp. 36,560
440 Mobil Corp. 30,745
640 Ocean Energy, Inc.* 29,600
590 Santa Fe International Corp.* 20,060
600 Tosco Corp. 17,963
800 Unocal Corp. 31,050
737 Williams Companies, Inc. 32,244
--------
282,988
--------
VALUE
SHARES (NOTE 1)
------ --------
PHARMACEUTICALS -- 4.0%
360 Bristol-Myers Squibb Co. $ 29,160
280 Eli Lilly & Co. 30,608
360 Merck & Co, Inc. 37,260
140 Warner Lambert Co. 17,395
--------
114,423
--------
RETAILERS -- 3.0%
540 Borders Group, Inc.* 13,028
220 CKE Restaurants, Inc. 6,958
580 CompUSA, Inc.* 12,470
380 CVS Corp. 19,475
260 Dollar Tree Stores, Inc.* 13,098
400 Walgreen Co. 21,450
--------
86,479
--------
TELEPHONE SYSTEMS -- 5.3%
870 Cincinnati Bell, Inc. 27,405
540 Qwest Communications
International, Inc.* 14,715
785 Sprint Corp. 41,311
440 Teleport Communications* 15,015
1,650 WorldCom, Inc.* 52,800
--------
151,246
--------
TEXTILES, CLOTHING & FABRICS -- 0.8%
570 Sara Lee Corp. 23,726
--------
TOTAL INVESTMENTS -- 96.1% (Cost
$2,403,907) 2,739,266
Other Assets and Liabilities
(net) -- 3.9% 110,517
--------
TOTAL NET ASSETS -- 100.0% $2,849,783
=========
NOTES TO THE PORTFOLIO OF INVESTMENTS:
ADR American Depositary Receipt
* Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
12
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS -- 87.9%
AEROSPACE & DEFENSE -- 0.9%
1,160 Banner Aerospace, Inc.* $ 10,295
1,700 BE Aerospace, Inc.* 53,763
--------
64,058
--------
AIRLINES -- 1.0%
2,420 American West Holdings Corp.* 35,090
2,480 Mesaba Holdings, Inc.* 36,580
--------
71,670
--------
BUILDING MATERIALS -- 1.3%
2,460 Cameron Ashley Building Products* 34,133
2,140 Elcor Corp. 59,653
--------
93,786
--------
CHEMICALS -- 2.6%
3,750 Brunswick Technologies, Inc.* 35,156
4,430 Hexcel Corp.* 76,418
300 Lesco, Inc. 5,550
1,270 Spartech Corp. 16,510
3,390 Wellman, Inc. 58,901
--------
192,535
--------
COMMERCIAL SERVICES -- 3.6%
2,100 Fine Host Corp.* 66,150
2,230 Jacobs Engineering Group* 59,931
1,210 Lason, Inc.* 34,031
9,900 Magal Security Systems Ltd.* 47,025
2,120 Protection One, Inc.* 28,620
700 Stone & Webster, Inc. 29,881
200 Youth Services International, Inc.* 2,425
--------
268,063
--------
VALUE
SHARES (NOTE 1)
------ --------
COMMUNICATIONS -- 8.4%
3,000 360 Communications Co.* $ 51,375
1,320 ADC Telecommunications, Inc.* 44,055
580 AirTouch Communications* 15,878
4,530 Arch Communications Group, Inc.* 34,541
1,740 Boston Technology, Inc.* 51,439
3,100 Coherent Communications
Systems Corp.* 77,500
800 Digital Microwave Corp.* 24,000
1,560 DSC Communications* 34,710
3,000 Harmon Industries, Inc. 64,500
1,800 Omnipoint Corp.* 29,925
3,180 Scientific-Atlanta, Inc. 69,563
Telefonaktiebolaget LM
1,800 Ericsson ADR. 70,875
3,430 Transaction Network Services, Inc.* 48,449
--------
616,810
--------
COMPUTER SOFTWARE -- 8.6%
5,000 Broadway & Seymour, Inc.* 63,125
1,000 FileNet Corp.* 14,500
8,600 ISG International Software
Group Ltd.* 109,650
3,840 Level 8 Systems, Inc.* 62,400
4,220 Network General Corp.* 62,773
10,030 Optika Imaging Systems* 50,150
2,070 Platinum Technology, Inc.* 27,428
3,850 Sandisk Corp.* 56,306
5,200 State of the Art, Inc.* 57,200
5,960 The Learning Co, Inc.* 55,875
4,940 Wonderware Corp.* 69,778
--------
629,185
--------
</TABLE>
See accompanying notes to financial statements.
13
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)(CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
COMPUTERS & INFORMATION -- 3.4%
1,200 Bell & Howell Co.* $ 36,975
700 Ciprico, Inc.* 10,675
3,760 Cirrus Logic, Inc.* 39,480
4,330 Evans & Sutherland Computer Co.* 120,699
1,200 Seagate Technology, Inc.* 42,225
--------
250,054
--------
CONTAINERS & PACKAGING -- 1.0%
4,990 US Can Corp.* 71,108
--------
COSMETICS & PERSONAL CARE -- 0.9%
2,880 Wesley Jessen VisionCare, Inc.* 68,760
--------
ELECTRIC UTILITIES -- 0.5%
960 Calenergy, Inc.* 36,480
--------
ELECTRICAL EQUIPMENT -- 2.1%
4,070 Encore Wire Corp.* 124,135
3,680 Invivo Corp.* 28,520
--------
152,655
--------
ELECTRONICS -- 11.9%
5,300 Aavid Thermal Technologies* 109,313
6,070 Aeroflex, Inc.* 31,109
1,300 Atmel Corp.* 36,400
1,000 Black Box Corp.* 40,250
1,650 DII Group, Inc.* 72,600
2,600 Essex International, Inc.* 72,475
1,350 Harman International Industries 56,869
340 Intel Corp. 48,216
1,220 Lattice Semiconductor* 68,930
930 LSI Logic* 29,760
810 Maxim Intergrated Products* 46,069
1,330 Oak Industries, Inc.* 38,238
VALUE
SHARES (NOTE 1)
------ --------
ELECTRONICS (CONTINUED)
1,780 Rogers Corp.* $ 62,745
2,860 Semiconductor Packaging
Materials* 25,383
6,810 Spectrum Control, Inc.* 29,368
1,760 Trimble Navigation Ltd* 31,240
3,070 VLSI Technology* 72,529
--------
871,494
--------
ENTERTAINMENT & LEISURE -- 2.7%
3,980 Galoob Lewis Toys, Inc.* 75,123
2,820 International Game Technology 50,055
4,710 Sodak Gaming* 69,473
--------
194,651
--------
ENVIROMENTAL CONTROLS -- 0.9%
3,910 Safety Kleen 65,981
--------
FINANCIAL SERVICES -- 1.1%
1,500 Aames Financial Corp. 27,750
3,900 Prime Retail, Inc. 52,406
--------
80,156
--------
FOREST PRODUCTS & PAPER -- 1.0%
3,460 Louisiana Pacific Corp. 73,093
--------
HEALTH CARE PROVIDERS -- 1.0%
4,600 Apple Orthodontix, Inc.* 41,688
1,900 Coventry Corp.* 28,738
--------
70,426
--------
HEAVY CONSTRUCTION -- 0.6%
5,580 Perini Corp.* 41,153
--------
</TABLE>
See accompanying notes to financial statements.
14
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)(CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HEAVY MACHINERY -- 2.3%
3,820 Brown & Sharpe Manufacturing Co.* $ 57,778
1,400 Greenfield Industries, Inc. 37,800
12,030 Insituform Technologies* 73,684
--------
169,262
--------
HOME CONSTRUCTION, FURNISHINGS &
APPLIANCES -- 0.9%
3,520 Fieldcrest Cannon, Inc.* 66,880
--------
INSURANCE -- 3.8%
1,420 American Annuity Group, Inc. 25,560
1,890 Conseco, Inc. 69,930
1,200 HCC Insurance Holdings, Inc. 32,025
4,140 John Alden Financial Corp. 86,681
1,900 Mid Atlantic Medical
Services, Inc.* 29,569
980 United Wisconsin Services 33,014
--------
276,779
--------
MANUFACTURING -- 1.2%
3,505 Halter Marine Group, Inc.* 84,131
9,630 Oneita Industries, Inc.* 3,912
--------
88,043
--------
MEDIA -- BROADCASTING &
PUBLISHING -- 3.1%
4,420 International Imaging Material* 71,825
2,265 Mail-Well, Inc.* 64,553
2,920 Scientific Games Holdings Corp.* 60,225
940 Viacom, Inc.* 28,200
--------
224,803
--------
VALUE
SHARES (NOTE 1)
------ --------
MEDICAL SUPPLIES -- 1.8%
4,680 CNS, Inc.* $ 42,705
14,400 I-Flow Corp.* 56,700
1,900 Merit Medical Systems, Inc.* 12,588
3,240 Uroquest Medical Corp.* 21,060
--------
133,053
--------
MEDICAL & BIO-TECHNOLOGY -- 4.2%
6,910 American Service Group, Inc.* 98,468
10,122 Interferon Sciences, Inc.* 91,098
2,340 Neoprobe Corp.* 32,760
1,400 Pharmaceutical Product
Development, Inc.* 30,800
2,200 VISX, Inc.* 52,250
--------
305,376
--------
METALS -- 3.9%
2,770 Birmingham Steel Corp. 42,935
1,420 Carpenter Technology 64,951
2,400 General Cable Corp.* 61,500
2,300 J&L Specialty Steel, Inc. 27,600
2,200 Lukens, Inc. 41,388
2,350 Oregon Steel Mills 46,853
--------
285,227
--------
OIL & GAS -- 3.9%
2,430 American Exploration Co.* 35,539
1,370 Carbo Ceramics, Inc. 37,333
9,680 COHO Energy, Inc.* 102,850
2,280 Noble Drilling Corp.* 51,443
3,250 Wiser Oil Co. 59,922
--------
287,087
--------
</TABLE>
See accompanying notes to financial statements.
15
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)(CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS -- 1.7%
3,180 Anesta Corp.* $ 60,420
5,630 DUSA Pharmaceuticals, Inc.* 34,836
1,820 NeXstar Pharmaceuticals, Inc.* 25,935
--------
121,191
--------
REAL ESTATE -- 3.0%
1,400 Boston Properties, Inc.* 38,500
6,080 CB Commercial Real Estate
Services Group, Inc.* 183,920
--------
222,420
--------
RETAILERS -- 0.5%
2,000 Claire's Stores, Inc. 35,000
--------
TELEPHONE SYSTEMS -- 0.6%
2,940 Western Wireless Corp.* 46,673
--------
TEXTILES, CLOTHING & FABRICS -- 1.1%
2,200 Sport-Haley, Inc.* 36,850
1,200 Unifi, Inc. 44,850
--------
81,700
--------
VALUE
SHARES (NOTE 1)
------ --------
TRANSPORTATION -- 1.9%
3,100 Celadon Group, Inc.* $ 35,650
4,980 OMI Corp.* 47,621
2,070 USFreightways Corp. 53,561
--------
136,832
--------
WHOLESALE TRADE -- 0.5%
1,370 Central Garden & Pet Co.* 34,250
--------
TOTAL INVESTMENTS -- 87.9%
(Cost $5,702,692) 6,426,694
Other Assets and Liabilities
(net) -- 12.1% 881,145
--------
TOTAL NET ASSETS -- 100.0% $7,307,839
==========
NOTES TO THE PORTFOLIO OF INVESTMENTS:
ADR American Depositary Receipt
* Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
16
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS -- 94.7%
AEROSPACE & DEFENSE -- 1.0%
200 General Dynamics $ 15,000
83 Lockheed Martin Corp. 8,596
--------
23,596
--------
AUTOMOTIVE -- 1.4%
900 Ford Motor Co. 33,975
--------
BANKING -- 7.4%
100 Banc One Corp. 4,844
800 BankAmerica Corp. 51,650
100 Bankers Trust New York Corp. 8,700
200 Chase Manhattan Corp. 19,413
100 First Union Corp. 9,250
100 Golden West Financial Corp. 7,000
400 H.F. Ahmanson & Co. 17,200
200 J.P. Morgan & Co., Inc. 20,875
500 Nationsbank Corp. 32,250
200 PNC Bank Corp. 8,325
--------
179,507
--------
BEVERAGES, FOOD & TOBACCO -- 4.3%
1,045 Archer-Daniels-Midland 24,558
500 Coca-Cola Co. 33,750
400 Great Atlantic & Pacific Tea Co. 10,875
800 Philip Morris Co. 35,500
--------
104,683
--------
BUILDING & CONSTRUCTION -- 0.8%
400 Centex Corp. 16,250
80 Martin Marietta Materials Inc. 2,590
--------
18,840
--------
VALUE
SHARES (NOTE 1)
------ --------
CHEMICALS -- 2.6%
500 Dow Chemical $ 43,563
300 Praxair, Inc. 16,800
100 Sigma Aldrich Corp. 3,506
--------
63,869
--------
COMMERCIAL SERVICES -- 0.8%
100 AccuStaff, Inc.* 2,369
300 Dun & Bradstreet Corp. 7,875
300 Service Corp. International 9,863
--------
20,107
--------
COMMUNICATIONS -- 1.9%
600 AirTouch Communications* 16,425
432 Lucent Technologies 31,131
--------
47,556
--------
COMPUTER SOFTWARE -- 1.5%
200 Automatic Data Processing, Inc. 9,400
100 Deluxe Corp. 3,413
100 Microsoft Corp.* 12,638
100 Oracle Corp.* 5,038
100 Shared Medical Systems Corp. 5,400
--------
35,889
--------
COMPUTERS & INFORMATION -- 5.7%
800 Compaq Computer* 79,400
100 Data General Corp.* 2,600
100 Dell Computer Corp.* 11,744
100 Storage Technology Corp.* 4,450
600 Sun Microsystems, Inc.* 22,331
400 Tech Data Corp.* 12,575
200 Western Digital* 6,325
--------
139,425
--------
</TABLE>
See accompanying notes to financial statements.
17
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
CONGLOMERATES -- 2.0%
100 Dover Corp. $ 6,150
200 Raychem Corp. 14,861
400 Tyco Lab 27,825
--------
48,836
--------
CONTAINERS & PACKAGING -- 0.8%
200 Avery-Dennison Corp. 8,025
200 Crown Cork & Seal, Inc. 10,688
--------
18,713
--------
COSMETICS & PERSONAL CARE -- 0.4%
100 Gillette Co. 9,475
--------
ELECTRIC UTILITIES -- 5.8%
100 Consolidated Edison of New York 2,944
700 Entergy Corp. 19,163
1,300 Houston Industries, Inc. 27,869
400 Northern States Power Co. 20,700
1,000 PacifiCorp 22,000
400 PP&L Resources, Inc. 7,975
1,300 Public Service Enterprise
Group, Inc. 32,500
400 Unicom Corp. 8,900
--------
142,051
--------
ELECTRICAL EQUIPMENT -- 1.1%
400 General Electric 26,150
--------
ELECTRONICS -- 2.9%
500 Intel Corp. 70,906
--------
ENTERTAINMENT & LEISURE -- 1.3%
400 Walt Disney Co. 32,100
--------
VALUE
SHARES (NOTE 1)
------ --------
FINANCIAL SERVICES -- 1.9%
300 Green Tree Financial Corp. $ 10,688
660 Morgan Stanley, Dean Witter,
Discover and Co. 28,421
200 Providian Financial Corp. 6,425
--------
45,534
--------
FOOD RETAILERS -- 1.4%
100 Interstate Bakeries Corp. 5,931
800 Supervalu, Inc. 27,600
--------
33,531
--------
HEALTH CARE PROVIDERS -- 1.9%
400 Beverly Enterprises* 6,500
400 Columbia/HCA Healthcare Corp. 15,725
400 Healthsouth Corp.* 9,975
300 Wellpoint Health Networks, Inc.* 13,763
--------
45,963
--------
HEAVY MACHINERY -- 3.0%
200 Caterpiller, Inc. 21,475
300 Cooper Industries, Inc. 14,925
600 Ingersoll Rand Co. 37,050
--------
73,450
--------
HOME CONSTRUCTION, FURNISHINGS &
APPLIANCES -- 1.7%
500 Home Depot 34,469
300 Oakwood Homes Corp. 7,200
--------
41,669
--------
HOUSEHOLD PRODUCTS -- 0.8%
150 Blyth Industries, Inc.* 5,063
100 Procter & Gamble Co. 14,125
--------
19,188
--------
</TABLE>
See accompanying notes to financial statements.
18
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE -- 9.2%
87 Aegon N.V. ARS $ 6,087
100 Allstate Corp. 7,300
600 American International Group 89,625
300 CIGNA Corp. 53,250
1,099 Travelers Group 69,306
--------
225,568
--------
LODGING -- 1.0%
400 HFS, Inc.* 23,200
--------
MEDIA -- BROADCASTING &
PUBLISHING -- 2.4%
200 Gannett Co., Inc. 19,750
400 Kingworld Productions, Inc. 14,000
200 Knight-Ridder, Inc. 9,813
300 Tribune Co. 14,419
--------
57,982
--------
MEDICAL SUPPLIES -- 1.6%
400 Alza Corp.* 11,600
300 Tenet Healthcare Corp.* 8,869
500 US Surgical Corp. 18,625
--------
39,094
--------
METALS -- 1.8%
200 Nucor Corp. 11,300
100 Phelps Dodge Corp. 8,519
700 USX-US Steel Group, Inc. 24,544
--------
44,363
--------
VALUE
SHARES (NOTE 1)
------ --------
OFFICE EQUIPMENT -- 0.9%
1,100 Moore Corp. Ltd $ 21,656
--------
OIL & GAS -- 9.5%
200 Atlantic Richfield Co. 14,100
200 Baker Hughes, Inc. 7,738
700 Burlington Resources, Inc. 30,888
800 Exxon 49,200
100 Halliburton Co. 7,925
200 Helmerich & Payne, Inc. 11,525
100 Imperial Oil Ltd 5,138
100 Noram Energy Corp. 1,525
400 Pennzoil 30,700
300 Phillips Petroleum Co. 13,125
400 Royal Dutch Petroleum 21,750
100 Texaco 10,875
200 Union Pacific Resources
Group, Inc. 4,975
300 USX-Marathon Group 8,663
200 Western Atlas, Inc.* 14,650
--------
232,777
--------
PHARMACEUTICALS -- 7.6%
400 Abbott Laboratories 26,700
200 American Home Products Corp. 15,300
100 Amgen, Inc.* 5,813
900 Johnson & Johnson 57,938
800 Merck & Co, Inc. 82,800
--------
188,551
--------
RESTAURANTS -- 0.1%
300 Ryans Family Steak House, Inc* 2,569
--------
</TABLE>
See accompanying notes to financial statements.
19
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
RETAILERS -- 6.5%
500 Costco Co., Inc.* $ 16,438
1,100 Dayton-Hudson Corp. 58,506
300 Federated Department Stores* 10,425
250 Snap-On, Inc. 9,844
400 TJX Co., Inc. 10,550
1,100 Wal-Mart Stores, Inc. 37,194
700 Woolworth Corp.* 16,800
--------
159,757
--------
TELEPHONE SYSTEMS -- 1.0%
100 Bell Atlantic Corp. 7,588
500 WorldCom, Inc.* 16,000
--------
23,588
--------
TEXTILES, CLOTHING & FABRICS -- 0.3%
100 Liz Claiborne 4,663
100 Russell Corp. 2,963
--------
7,626
--------
VALUE
SHARES (NOTE 1)
------ --------
TRANSPORTATION -- 0.4%
100 Union Pacific Corp. $ 7,050
100 Yellow Corp.* 2,238
--------
9,288
--------
TOTAL INVESTMENTS -- 94.7%
(Cost 1,936,296) 2,311,032
Other Assets and Liabilities
(net) -- 5.3% 130,927
--------
TOTAL NET ASSETS -- 100.0% 2,441,959
=========
NOTES TO THE PORTFOLIO OF INVESTMENTS:
ARS American Registered Shares
* Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
20
M FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<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 ........................ $ 4,847,154 $ 2,739,266 $ 6,426,694 $ 2,311,032
Cash .............................................. 472,293 14,889 1,126,340 55,255
Foreign currency, at value (Note 1)** ............. 122,829 -- -- --
Receivable from:
Securities sold ............................... 124,600 43,747 844 8,801
Capital stock subscriptions ................... -- 1,838 -- 6,642
Dividends and interest ........................ 14,360 2,477 5,068 4,224
Investment Adviser (Note 2) ................... 29,709 38,078 16,402 32,155
Deferred organization expense ..................... 71,188 71,188 71,188 71,188
----------- ----------- ----------- -----------
Total assets ............................... 5,682,133 2,911,483 7,646,536 2,489,297
----------- ----------- ----------- -----------
LIABILITIES:
Payable for securities purchased .................. 393,906 45,384 329,536 35,171
Capital stock redemptions ......................... 311 -- 299 --
Accrued expenses and other liabilities ............ 15,057 16,316 8,862 12,167
----------- ----------- ----------- -----------
Total liabilities .......................... 409,274 61,700 338,697 47,338
----------- ----------- ----------- -----------
NET ASSETS ........................................... $ 5,272,859 $ 2,849,783 $ 7,307,839 $ 2,441,959
=========== =========== =========== ===========
Net assets consist of:
Paid-in capital ................................... $ 4,829,326 $ 2,482,267 $ 6,586,436 $ 1,948,066
Undistributed net investment income
(distributions in excess of net investment
income) ......................................... 33,735 7,283 (1,953) 13,771
Accumulated net realized gain (loss) on investments
and foreign currency transactions ............... (118,361) 24,874 (646) 105,386
Net unrealized appreciation on investments,
forward currency contracts, and net other assets 528,159 335,359 724,002 374,736
----------- ----------- ----------- -----------
NET ASSETS ........................................... $ 5,272,859 $ 2,849,783 $ 7,307,839 $ 2,441,959
=========== =========== =========== ===========
SHARES OUTSTANDING ................................... 483,700 220,629 529,059 176,820
=========== =========== =========== ===========
Net asset value, offering price and redemption price
per share .......................................... $ 10.90 $ 12.92 $ 13.81 $ 13.81
=========== =========== =========== ===========
* Cost of investments ............................... $ 4,318,788 $ 2,403,907 $ 5,702,692 $ 1,936,296
** Cost of foreign currency .......................... $ 123,484 -- -- --
</TABLE>
See accompanying notes to the financial statements.
21
M FUND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<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 ........................................ $ 10,913 $ 2,557 $ 21,633 $ 1,654
Dividends* ...................................... 46,616 12,298 8,235 19,423
--------- --------- --------- ---------
Total investment income .................. 57,529 14,855 29,868 21,077
--------- --------- --------- ---------
EXPENSES:
Investment Advisory fee (Note 2) ................ 20,860 5,465 24,904 5,580
Custody and administration fees ................. 58,380 54,442 52,132 48,930
Professional fees ............................... 10,216 9,224 9,224 9,224
Shareholder reporting ........................... 2,717 2,717 2,717 2,717
Directors' fees and expenses .................... 4,215 4,215 4,215 4,215
Amortization of organization costs .............. 10,208 10,208 10,208 10,208
Other ........................................... 3,323 3,323 3,323 3,323
--------- --------- --------- ---------
Total expenses ........................... 109,919 89,594 106,723 84,197
Less: Expenses reimbursable by the Adviser (Note 2)
(84,092) (81,092) (74,902) (76,081)
--------- --------- --------- ---------
Net operating expenses .......................... 25,827 8,502 31,821 8,116
--------- --------- --------- ---------
NET INVESTMENT INCOME (LOSS) ....................... 31,702 6,353 (1,953) 12,961
--------- --------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investment transactions ..................... (14,385) 23,293 50,867 74,620
Foreign currency transactions ............... 13,808 -- -- --
--------- --------- --------- ---------
Net realized gain (loss) ................. (577) 23,293 50,867 74,620
--------- --------- --------- ---------
Net change in unrealized appreciation
(depreciation) on:
Investments ................................. 452,779 255,058 558,816 239,200
Forward currency and net other assets ....... (218) -- -- --
--------- --------- --------- ---------
Net unrealized appreciation during the
period .................................. 452,561 255,058 558,816 239,200
--------- --------- --------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ............ 451,984 278,351 609,683 313,820
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ....................................... $ 483,686 $ 284,704 $ 607,730 $ 326,781
========= ========= ========= =========
* Net of foreign taxes withheld of: $ 6,819 -- -- $ 88
</TABLE>
See accompanying notes to the financial statements.
22
M FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EDINBURGH OVERSEAS TURNER CORE
EQUITY FUND GROWTH FUND
----------- -----------
SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED PERIOD
JUNE 30, ENDED JUNE 30, ENDED
1997 DECEMBER 31, 1997 DECEMBER 31,
UNAUDITED 1996(a) UNAUDITED 1996(a)
--------- ------- --------- -------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income (loss) .............................. $ 31,702 $ 16,426 $ 6,353 $ 9,868
Net realized gain (loss) on investment and foreign
currency transactions ................................... (577) (115,841) 23,293 60,656
Net change in unrealized appreciation on
investments, forward currency contracts,
foreign currency, and other assets ...................... 452,561 75,598 255,058 80,301
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations ......................................... 483,686 (23,817) 284,704 150,825
----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................ -- (18,231) -- (9,844)
From net realized capital gains ........................... -- -- -- (59,075)
----------- ----------- ----------- -----------
Total distributions to shareholders ................ -- (18,231) -- (68,919)
----------- ----------- ----------- -----------
FUND SHARE TRANSACTIONS (NOTE 4):
Proceeds from shares sold ................................. 2,375,112 3,391,448 1,112,380 3,875,674
Net asset value of shares issued on reinvestment
of distributions ........................................ 18,231 -- 68,919 --
Cost of shares repurchased ................................ (781,367) (212,203) (619,151) (1,974,649)
----------- ----------- ----------- -----------
Net increase in net assets resulting from Fund
share transactions ...................................... 1,611,976 3,179,245 562,148 1,901,025
----------- ----------- ----------- -----------
TOTAL CHANGE IN NET ASSETS ................................... 2,095,662 3,137,197 846,852 1,982,931
NET ASSETS:
Beginning of period ....................................... 3,177,197 40,000 2,002,931 20,000
----------- ----------- ----------- -----------
End of period* ............................................ 5,272,859 3,177,197 2,849,783 2,002,931
=========== =========== =========== ===========
* Including undistributed net investment income
(distributions in excess of net investment income)
of: $ 33,735 $ 2,033 $ 7,283 $ 930
(a) Funds commenced operations on January 4, 1996
</TABLE>
See accompanying notes to the financial statements.
23
M FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FRONTIER CAPITAL ENHANCED U.S.
APPRECIATION FUND EQUITY FUND
----------------- -----------
SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED PERIOD
JUNE 30, ENDED JUNE 30, ENDED
1997 DECEMBER 31, 1997 DECEMBER 31,
UNAUDITED 1996(a) UNAUDITED 1996(a)
--------- ------- --------- -------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income (loss) .............................. $ (1,953) $ (5,885) $ 12,961 $ 16,304
Net realized gain (loss) on investment and foreign
currency transactions ................................... 50,867 75,231 74,620 83,462
Net change in unrealized appreciation on
investments, forward currency contracts,
foreign currency, and other assets ...................... 558,816 165,186 239,200 135,536
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations ......................................... 607,730 234,532 326,781 235,302
----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................ -- -- -- (16,399)
From net realized capital gains ........................... -- (121,789) -- (52,695)
----------- ----------- ----------- -----------
Total distributions to shareholders ................ -- (121,789) -- (69,094)
----------- ----------- ----------- -----------
FUND SHARE TRANSACTIONS (NOTE 4):
Proceeds from shares sold ................................. 5,988,161 4,878,023 710,748 1,397,149
Net asset value of shares issued on reinvestment
of distributions ........................................ 121,789 -- 69,094 --
Cost of shares repurchased ................................ (2,415,784) (2,004,823) (246,805) (1,216)
----------- ----------- ----------- -----------
Net increase in net assets resulting from Fund
share transactions ...................................... 3,694,166 2,873,200 533,037 1,395,933
----------- ----------- ----------- -----------
TOTAL CHANGE IN NET ASSETS ................................... 4,301,896 2,985,943 859,818 1,562,141
NET ASSETS:
Beginning of period ....................................... 3,005,943 20,000 1,582,141 20,000
----------- ----------- ----------- -----------
End of period* ............................................ 7,307,839 3,005,943 2,441,959 1,582,141
=========== =========== =========== ===========
* Including undistributed net investment income
(distributions in excess of net investment income)
of: $ (1,953) -- $ 13,771 $ 810
(a) Funds commenced operations on January 4, 1996
</TABLE>
See accompanying notes to the financial statements.
24
M FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EDINBURGH OVERSEAS TURNER CORE
EQUITY FUND GROWTH FUND
----------- -----------
SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED PERIOD
JUNE 30, ENDED JUNE 30, ENDED
1997 DECEMBER 31, 1997 DECEMBER 31,
UNAUDITED 1996(a) UNAUDITED 1996(a)
--------- ------- --------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.88 $10.00 $11.60 $10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ...................... 0.06 0.06 0.03 0.06
Net realized and unrealized gain (loss) on
investments ..................................... 0.96 (0.12) 1.29 1.94
------- ------- ------- -------
Total from investment operations ........... 1.02 (0.06) 1.32 2.00
------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ........................ -- (0.06) -- (0.06)
From net realized gains ........................... -- -- -- (0.34)
------- ------- ------- -------
Total distributions ........................ -- (0.06) -- (0.40)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD .......................$ 10.90 $ 9.88 $ 12.92 $ 11.60
======= ======= ======= =======
TOTAL RETURN* ........................................ 10.33% (0.63)% 11.41% 19.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .................$ 5,273 $ 3,177 $ 2,850 $ 2,003
Net expenses to average daily net assets before
interest expense** .............................. 1.30% 1.30% 0.70% 0.70%
Net expenses to average daily net assets after
interest expense** ............................... -- 1.30% -- 0.78%
Net investment income (loss) to average daily net
assets** ......................................... 1.59% 0.67% 0.52% 0.55%
Portfolio turnover rate ............................ 38% 65% 102% 258%
Average commission rate paid*** ...................$0.0385 $0.0474 $0.0599 $0.0600
Without the reimbursement of expenses by the
adviser, the ratio of net expenses and net
investment income (loss) to average net assets
would have been:
Expenses before interest expense ................ 5.53% 7.34% 7.38% 8.51%
Net investment income (loss) ....................(2.64)% (5.37)% (6.16)% (7.26)%
</TABLE>
(a) Funds commenced operations on January 4, 1996
* Not annualized
** 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.
See accompanying notes to the financial statements.
25
M FUND, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FRONTIER CAPITAL ENHANCED U.S.
APPRECIATION FUND EQUITY FUND
----------------- -----------
SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED PERIOD
JUNE 30, ENDED JUNE 30, ENDED
1997 DECEMBER 31, 1997 DECEMBER 31,
UNAUDITED 1996(a) UNAUDITED 1996(a)
--------- ------- --------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............... $12.52 $10.00 $11.85 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ..................... 0.00 0.00 0.07 0.12
Net realized and unrealized gain (loss) on
investments ................................... 1.29 3.03 1.89 2.25
------ ------ ------ ------
Total from investment operations ......... 1.29 3.03 1.96 2.37
------ ------ ------ ------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ....................... -- -- -- (0.12)
From net realized gains .......................... -- (0.51) -- (0.40)
------ ------ ------ ------
Total distributions ....................... -- (0.51) -- (0.52)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ...................... $ 13.81 $ 12.52 $ 13.81 $ 11.85
======= ======= ======= =======
TOTAL RETURN* ....................................... 10.34% 30.31% 16.57% 23.67%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ................ $ 7,308 $ 3,006 $ 2,442 $ 1,582
Net expenses to average daily net assets before
interest expense** ............................. 1.15% 1.15% 0.80% 0.80%
Net expenses to average daily net assets after
interest expense** .............................. -- 1.20% -- 0.80%
Net investment income (loss) to average daily net
assets** ........................................ (0.07)% (0.30)% 1.28% 1.43%
Portfolio turnover rate ........................... 44% 140% 35% 79%
Average commission rate paid*** ...................$0.0380 $0.0362 $0.0347 $0.0227
Without the reimbursement of expenses by
the adviser, the ratio of net expenses and
net investment income (loss) to average net
assets would have been:
Expenses before interest expense ............... 3.86% 8.19% 8.30% 12.45%
Net investment income (loss) ................... (2.78)% (7.34)% (6.22)% (10.22)%
</TABLE>
(a) Funds commenced operations on January 4, 1996
* Not annualized
** 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.
See accompanying notes to the financial statements.
26
M FUND, INC.
NOTES TO FINANCIAL STATEMENT (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 Company offers its shares to separate accounts of certain insurance
companies as the underlying funding vehicle for certain variable annuity and
variable life insurance policies offered by members of M Financial Group and
issued by certain life insurance companies affiliated with M Financial Group.
Shares of the Company may also be sold to qualified pension and retirement
plans. Currently shares of the Company are offered only to separate accounts
funding variable annuity contracts issued by John Hancock Variable Life
Insurance Co. and Pacific Mutual Life Insurance Co.
Each of the Funds' investment objective seeks long term capital appreciation or
total return. Edinburgh Overseas Equity Fund's investment objective is long-term
capital appreciation with reasonable investment risk through active management
and investment in common stocks and common stock equivalents of foreign issuers,
Turner Core Growth Fund seeks long-term capital appreciation through a
diversified portfolio of common stocks that show strong earning potential with
reasonable market prices, Frontier Capital Appreciation Fund seeks maximum
capital appreciation through investment in common stocks of companies of all
sizes, with emphasis on stocks of small to medium capitalization companies (i.e.
companies with market capitalization of less than $3 billion), Enhanced U.S.
Equity Fund's objective is above market total return through investment in
common stock of companies perceived to provide a return higher than that of the
S&P 500 at approximately the same level of investment risk as the S&P 500.
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
27
M FUND, INC.
NOTES TO FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 for which there are no readily
available market quotations or 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
Each 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 and Enhanced U.S. 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 for 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
28
M FUND, INC.
NOTES TO FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 transactions.
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, INVESTMENT INCOME AND EXPENSES
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. Investment
income is recorded net of foreign taxes withheld where the recovery of such
taxes is uncertain. Non-cash dividends included in dividend income, if any, are
recorded at the fair market value of the securities received. Most expenses of
the Company can be directly attributed to a fund. Expenses which cannot be
directly attributed are apportioned between funds in the Company.
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. Distributions are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may
29
M FUND, INC.
NOTES TO FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
differ from generally accepted accounting principles. These differences are
primarily due to differingtreatments of income and gains on various investment
securities held by each Fund, timing differences, including the deferral of wash
sales and the deferral of net realized capital losses recognized subsequent to
October 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 continue 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
Advisory Agreement provides for the Funds to pay the Adviser a quarterly 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 L.L.C. 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.
30
M FUND, INC.
NOTES TO FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
2. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES -- (CONTINUED)
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, 1997.
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
short-term investments, for the period January 1, 1997 through June 30, 1997,
were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -----
<S> <C> <C>
Edinburgh Overseas Equity Fund $ 2,963,674 $ 1,335,958
Turner Core Growth Fund 2,862,377 2,287,963
Frontier Capital Appreciation Fund 5,271,065 2,150,498
Enhanced U.S. Equity Fund 1,339,752 650,959
</TABLE>
At June 30, 1997, 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>
FEDERAL TAX BASIS TAX BASIS
INCOME UNREALIZED UNREALIZED NET UNREALIZED
TAX COST APPRECIATION DEPRECIATION APPRECIATION
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Edinburgh Overseas Equity Fund $ 4,318,788 $ 600,385 $ (72,019) $ 528,366
Turner Core Growth Fund 2,403,907 351,158 (15,799) 335,359
Frontier Capital Appreciation Fund 5,702,692 968,306 (244,304) 724,002
Enhanced U.S. Equity Fund 1,936,296 395,678 (20,942) 374,736
</TABLE>
31
M FUND, INC.
NOTES TO FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
4. SHARES OF BENEFICIAL INTEREST
For the period January 1, 1997 through June 30, 1997 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 FOR THE PERIOD FOR THE PEIROD
JANUARY 1, 1997- JANUARY 4, 1996- JANUARY 1, 1997- JANUARY 4, 1996-
JUNE 30, 1997 DECEMBER 31, 1996(a) JUNE 30, 1997 DECEMBER 31, 1996(a)
------------- -------------------- ------------- --------------------
<S> <C> <C> <C> <C>
Shares sold 238,854 338,734 92,652 358,098
Shares repurchased (78,559) (21,193) (50,630) (187,484)
Distributions reinvested 1,864 -- 5,993 --
------- ------- -------
Net increase 162,159 317,541 48,015 170,614
Fund shares:
Beginning of period 321,541 4,000 172,614 2,000
------- ------- ------- -----
End of period 483,700 321,541 220,629 172,614
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FRONTIER CAPITAL ENHANCED U.S.
APPRECIATION FUND EQUITY FUND
----------------- -----------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PEIROD
JANUARY 1, 1997- JANUARY 4, 1996- JANUARY 1, 1997- JANUARY 4, 1996-
JUNE 30, 1997 DECEMBER 31, 1996(a) JUNE 30, 1997 DECEMBER 31, 1996(a)
------------- -------------------- ------------- --------------------
<S> <C> <C> <C> <C>
Shares sold 465,976 417,701 57,226 131,623
Shares repurchased (186,721) (179,703) (19,796) (98)
Distributions reinvested 9,806 -- 5,865 --
------- -------- ------- --------
Net increase 289,061 237,998 43,295 131,525
Fund shares:
Beginning of period 239,998 2,000 133,525 2,000
------- ------- ------- -------
End of period 529,059 239,998 176,820 133,525
======= ======= ======= =======
</TABLE>
(a) The Funds commenced operations on January 4, 1996.
32
M FUND, INC.
NOTES TO FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
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.
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 Fund has 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. At June 30, 1997,
the Fund had no open forward currency exchange contracts.
7. CONCENTRATION
At June 30, 1997, 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.
8. BENEFICIAL INTEREST
At June 30, 1997, the ownership of each fund was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF OWNERSHIP
-----------------------
JOHN HANCOCK PACIFIC
M LIFE VARIABLE LIFE MUTUAL LIFE
INSURANCE CO. INSURANCE CO. INSURANCE CO.
------------- ------------- -------------
<S> <C> <C> <C>
Edinburgh Overseas Equity Fund 41.6% 49.7% 8.7%
Turner Core Growth Fund 46.9% 37.7% 15.4%
Frontier Capital Appreciation Fund 19.7% 51.2% 29.1%
Enhanced U.S. Equity Fund 59.0% -- 41.0%
</TABLE>
33
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