M FUNDS
Edinburgh Overseas Equity Fund
Turner Core Growth Fund
Frontier Capital Appreciation Fund
Enhanced U.S. Equity Fund
Annual Report
December 31, 1996
[LOGO]
M FUND, INC.
PRESIDENT'S LETTER
January 8, 1997
Dear Contract Owners:
We are pleased to present to you the M Fund, Inc. (the "Company") 1996 Annual
Report dated December 31, 1996. It has been one year since the introduction of M
Fund, a series fund proprietary to the M Financial Group. The Company began
operations on January 4, 1996 and quickly gained popularity during the course of
the year with net assets under management growing to more than $10 million.
The Company is an investment company consisting of four separate diversified
Funds. These Funds 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 Funds, under the direction of M Financial Investment
Advisers, the investment adviser to the Company, have prepared the attached
discussions of the results for each Fund for the year ended December 31, 1996
and the outlook for the first six months of 1997.
Sub-Advisers to the Company 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
President
M Fund, Inc.
EDINBURGH OVERSEAS EQUITY FUND
The Edinburgh Overseas Equity Fund returned -0.6% for the period January 4,
1996, commencement of operations, to December 31, 1996. The MSCI EAFE Index
returned 6.1% for the year ended December 31, 1996.
Most overseas equity markets have moved higher over the period to December
31, 1996 although returns to U.S. investors were reduced by the strength of the
U.S. Dollar -- particularly against the Yen and the Deutschmark. The best
returns during the period came from the European markets with the UK and
Scandinavian areas performing strongly. Optimism regarding prospects for Hong
Kong, ahead of the handover to China, enabled this market to rise by nearly 20%
over the period. The major area of disappointment has been Japan, where
investors have become increasingly disillusioned by the pace of economic
recovery and by continued uncertainties within the financial sector.
During the period, country allocation has been the primary contributor to
the Fund's underperformance compared to the benchmark index. Specifically, its
overweight exposure to Japan and Thailand and the corresponding underweight
allocation to European countries. Stock selection showed mixed performance with
strong returns from investments in Hong Kong and Sweden. Near term, as a
precautionary short term tactical measure, the Fund's Japanese exposure has been
reduced from 25% to 20%.
Interest rate trends have remained a dominant influence on global financial
markets. The slowing U.S. economy reduced the immediate prospect of higher short
term interest rates and, as a result, there was and continues to be an inflow
into the U.S. market from mutual funds. Additionally, Japanese investors seeking
to enhance returns by diversifying internationally have been major buyers of
both U.S. bonds and equities. In the U.K., where a strong economic recovery is
taking place and where short term rates look set to move higher, the impending
General Election will be in the forefront of investors' minds. In Continental
Europe, further modest cuts in the interest rates may be seen, given the
sluggish nature of the recovery.
EDINBURGH FUND MANAGERS PLC
INVESTMENT SUBADVISER TO THE EDINBURGH OVERSEAS EQUITY FUND
2
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE EDINBURGH OVERSEAS EQUITY FUND AND MSCI EAFE INDEX
[INSERT GRAPH SEE SAMPLE AND ATTACHED PLOT POINTS]
[COPY FOR GRAPH IS AS FOLLOWS}
Edinburgh Overseas Equity Fund MSCI EAFE Index
1/4/96 10,000 10,000
3/31/96 10,077 10,296
6/30/96 10,264 10,466
9/30/96 9,992 10,403
12/31/96 9,940 11,610
Average Annual Total Return for the Fund for the period ended 12/31/96
Since 1/4/96*: (0.6)%
The Fund's total return is calculated net of Fund management and operating
expenses. Past performance is not predictive of future performance. Persons who
invest in the Fund through a variable annuity or variable life insurance
contract should note this graph does not reflect separate account expenses
deducted by the insurance company.
- ----------
* Fund's inception date
** 1/1/96 to 12/31/96
MORGAN STANLEY CAPITAL INTERNATIONAL -- EUROPE, AUSTRALIA, FAR EAST INDEX
The arithmetic, market value-weighted average of the performance of over 900
securities listed on the stock exchanges of the following 20 countries:
Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore,
Spain, Sweden, Switzerland, and the United Kingdom. The Index is calculated on a
total return basis, which includes reinvestment of gross dividends before
deduction of withholding taxes.
3
TURNER CORE GROWTH FUND
The Turner Core Growth Fund returned 20.0% for the period January 4, 1996,
commencement of operations, to December 31, 1996. The Willshire 5000 Stock Index
returned 21.2% for the year ended December 31, 1996. The average growth fund
tracked by Lipper Analytical Services returned 19.24% for the year ended
December 31, 1996.
During 1996, large capitalization, blue-chip stocks led the U.S. stock
market to record levels. Fueled by low inflation, slow-but-steady economic
growth, rising corporate earnings and a stable interest rate environment, U.S.
stocks registered their second consecutive year of strong double-digit returns
culminating in the best two-year compound return since 1974-75 and fifth best on
record.
Several factors contributed to the performance of the Fund. Our bottom-up
stock selection process was effective in identifying companies like Intel,
Microsoft and IBM which continued to report exceptionally strong quarterly
earnings growth. Secondly, our disciplined approach to maintaining industry
sector allocations nearly identical to their proportion of the S&P 500 Index
added significant value, particularly since we had full market weightings in the
Energy and Financial Services sectors (sectors where growth managers rarely
focus). Energy holdings, during the year, such as Flores & Rucks, Smith
International and Chesapeake Corporation enjoyed substantial price appreciation
as drilling, oil service and exploration companies benefited from increased
demand for energy resources. The climate for Financial Service companies was
also quite favorable in light of stable-to-declining interest rates. Our
holdings of money center banks such as Citicorp, Chase Manhattan and NationsBank
allowed us to capture exceptionally strong performance and lend further support
to our belief that we can discover companies with superior earnings growth even
in non-growth sectors.
The market's advance for the year, and especially the last six-months, was
narrowly based as relatively few of the largest-cap stocks accounted for an
unusually large portion of the Index's return. The impact of owning the largest
capitalization stocks is evidenced even within the biggest 500 stocks: the
performance of the top quintile or biggest 100 stocks exceeded the fourth and
fifth quintiles by 10% and 6%, respectively. Toward year-end investors turned
more defensive and favored blue-chip, value-oriented stocks with steady,
reliable earnings growth and sufficient liquidity to enable an easier exit
should the market fall from its record level. By comparison, stocks of medium
and smaller growth companies lagged significantly.
In this type of environment, two factors will impede our performance: (1)
our strategic but selective commitment to medium and smaller capitalization
growth companies which have been significant contributors to the strategy's long
term results; and (2) our risk-control discipline which limits individual
security positions to a maximum 2% position, at cost: when large cap stocks are
favored, our holdings are at a proportional weighting disadvantage relative to
those individual stocks comprising more than two percent of the benchmark index.
Despite an exceptionally volatile investment climate during which investors
have overlooked the superior earnings growth rates and relatively low valuations
of medium and smaller growth companies, we will adhere to our time proven
discipline and maintain our strategic allocation to these segments of the
market. We believe that investors will begin to seek attractive opportunities
outside of the narrow range of the large cap, blue-chip companies and continue
to favor the types of growth stocks held within the Fund.
TURNER INVESTMENT PARTNERS, INC.
INVESTMENT SUBADVISER TO THE TURNER CORE GROWTH FUND
4
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE TURNER CORE GROWTH FUND AND WILSHIRE 5000 STOCK INDEX
[INSERT GRAPH SEE SAMPLE AND ATTACHED PLOT POINTS]
[COPY FOR GRAPH IS AS FOLLOWS]
Turner Core Growth Fund Wilshire 5000 Stock Index
1/4/96 10,000 10,000
3/31/96 10,651 10,562
6/30/96 11,228 11,027
9/30/96 11,614 11,339
12/31/96 12,000 12,120
Average Annual Total Return for the Fund for the period ended 12/31/96
Since 1/4/96*: 20.0%
The Fund's total return is calculated net of Fund management and operating
expenses. Past performance is not predictive of future performance. Persons who
invest in the Fund through a variable annuity or variable life insurance
contract should note this graph does not reflect separate account expenses
deducted by the insurance company.
- ----------
* Fund's inception date
** 1/1/96 to 12/31/96
WILSHIRE 5000 STOCK INDEX
A capitalization weighted stock index representing all domestic common stocks
traded regularly on the organized exchanges. The index is the broadest measure
of the aggregate domestic stock market.
5
FRONTIER CAPITAL APPRECIATION FUND
The Frontier Capital Appreciation Fund returned 30.3% for the period January
4, 1996, commencement of operations, to December 31, 1996. The Russell Midcap
Index returned 19.0% for the year ended December 31, 1996. The larger cap S&P
500 Index returned 22.8% for the year ended December 31, 1996.
1996 was the third consecutive year in which the small and mid cap averages
have lagged the S&P 500. The underperformance of this sector appears to reflect
the preference of investors for liquidity in a period in which corporate profit
gains have been relatively abundant with S&P 500 companies earnings again ahead
more than 10% for the year.
Looking forward, however, we believe that both the economy and corporate
profit growth will moderate this year. We are now in the seventieth month of
economic expansion, the fourth longest in the current century. Personal
consumption expenditures, which represented 68% of GDP in 1996, still hold the
key to economic growth. While consumer confidence remains high, consumer debt,
fostered by the ready availability of credit, has risen to historically high
levels. With unemployment down to 5.4%, the work force is at close to full
utilization. All of this suggests that real GDP growth is likely to slow from
last year's above average 3% rate to a more trendline rate of about 2%. If, as
we anticipate, GDP growth slows and inflation remains moderate (3%+ as measured
by the CPI), corporate profit gains are unlikely to sustain the double digit
pace of recent years. Earnings growth for many mature larger cap companies has
been well above trendline as margins have been helped by downsizing and
restructuring actions. For the large multinationals that dominate the S&P 500
Index, the relative weakness in the dollar, until recently, has also bolstered
profitability. These benefits are expected to lessen going forward, and in the
case of the dollar, reverse in 1997, suggesting that corporate profit growth may
slow to under 10%.
Slower overall profit growth should imply higher premiums for companies that
can deliver above average earnings performance. Small and mid cap companies with
strong secular growth characteristics and low foreign exposure should be
especially attractive. This is particularly true with the relative valuations
for small and mid caps having been depressed by the underperformance of the past
three years. Given this backdrop, we continue to underweight the consumer sector
and overweight the capital spending and business services sectors in the Fund
versus the benchmark index. Corporate capital spending, particularly technology
related, continues to grow at above average rates, reflective of the pressures
to sustain and enhance productivity and profitability gains. The service sectors
tend to be less economically sensitive and are thus less vulnerable to the
slowing trends we anticipate.
FRONTIER CAPITAL MANAGEMENT CO., INC.
INVESTMENT SUBADVISER TO THE FRONTIER CAPITAL APPRECIATION FUND
6
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
FRONTIER CAPITAL APPRECIATION FUND AND RUSSELL MIDCAP STOCK INDEX
[INSERT GRAPH SEE SAMPLE AND ATTACHED PLOT POINTS]
[COPY FOR GRAPH IS AS FOLLOWS]
Frontier Capital Appreciation Fund Russell Midcap Index
1/4/96 10,000 10,000
3/31/96 10,927 10,602
6/30/96 11,931 10,900
9/30/96 12,436 11,242
12/31/96 13,030 11,900
Average Annual Total Return for the Fund for the period ended 12/31/96
Since 1/4/96*: 30.3%
The Fund's total return is calculated net of Fund management and operating
expenses. Past performance is not predictive of future performance. Persons who
invest in the Fund through a variable annuity or variable life insurance
contract should note this graph does not reflect separate account expenses
deducted by the insurance company.
- ----------
* Fund's inception date
** 1/1/96 to 12/31/96
RUSSELL MIDCAP STOCK INDEX
A capitalization weighted stock index representing the 200-800 ranked domestic
stocks in terms of market capitalization. The index captures the performance of
medium sized companies.
7
ENHANCED U.S. EQUITY FUND
The Enhanced U.S. Equity Fund returned 23.7% for the period January 4, 1996,
commencement of operations, to December 31, 1996. The S&P 500 Index returned
22.8% for the year ended December 31, 1996.
Relative performance was particularly strong during the beginning of the
period as the Fund became fully invested in stocks. One factor hindering
performance as the year progressed was a capitalization effect which was
concentrated in the very largest stocks within the S&P 500 Index. For instance,
the largest 25 stocks in the S&P 500 had a total return during the year of
28.4%. The largest 100 stocks had a return of 26.5%. The smallest 400 issues of
the S&P had a return of only 17.9%, which in turn, still bested the 16.5% gain
produced by the Russell 2000 Index. It was a difficult year for stock selection
techniques because a relatively small group of stocks, which account for a
disproportionate percentage of the S&P 500 Index, drove the strong performance.
As the year progressed day to day market volatility increased and there has
been increased speculation and concern on the future direction of inflation,
interest rates and corporate profits. A steady flow of new cash into equity
mutual funds has kept the U.S. equity market in the "new high" territory for
quite some time. For the year, the top industry performers of the S&P 500 Index,
were Oil Services (57.4%), Miscellaneous Finance (40.4%), Banks (38.9%), Apparel
& Textiles (38.7%), Business Machines (37.5%) and Electronics (35.5%). Sub par
returns were generated by Trucking (-6.9%), Iron & Steel (6.4%), Precious Metals
(0.7%), Media (0.9%) and Telephones (2.6%).
We continue to view equities as being slightly on the "rich" side. The
positive performance of U.S. equities during 1996 was the result of an almost
ideal environment of steady growth and mild inflation. These conditions could
continue for some time, although a historical perspective might suggest this
expansion is getting a little "long in the tooth". 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.
FRANKLIN PORTFOLIO ASSOCIATES
INVESTMENT SUBADVISER TO THE ENHANCED U.S. EQUITY FUND
8
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE ENHANCED U.S. EQUITY FUND AND S&P 500 STOCK INDEX
[INSERT GRAPH SEE SAMPLE AND ATTACHED PLOT POINTS]
[COPY FOR GRAPH IS AS FOLLOWS]
Enhanced US Equity Fund S&P 500 Stock Index
1/4/96 10,000 10,000
3/31/96 10,875 10,538
6/30/96 11,194 11,007
9/30/96 11,432 11,342
12/31/96 12,370 12,280
Average Annual Total Return for the Fund for the period ended 12/31/96
Since 1/4/96*: 23.7%
The Fund's total return is calculated net of Fund management and operating
expenses. Past performance is not predictive of future performance. Persons who
invest in the Fund through a variable annuity or variable life insurance
contract should note this graph does not reflect separate account expenses
deducted by the insurance company.
- ----------
* Fund's inception date
** 1/1/96 to 12/31/96
S&P 500 STOCK INDEX
A capitalization weighted index of 500 large stocks, representing approximately
70% of the broad U.S. equity market. The stocks represent the largest companies
in 88 industries. The index is calculated on a total return basis, which
includes reinvestment of gross dividends before deduction of withholding taxes.
9
EDINBURGH OVERSEAS EQUITY FUND
PORTFOLIO OF INVESTMENTS
(PERCENTAGES OF TOTAL NET ASSETS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
FOREIGN COMMON STOCK -- 85.8%
ARGENTINA -- 1.6%
10,780 Ciadea* $ 51,214
--------
AUSTRALIA -- 4.3%
3,000 Lend Lease Corp Ltd. 58,183
34,000 Orogen Minerals* 79,183
--------
137,366
--------
BRAZIL -- 2.3%
4,000 Centrais Electricas Brasileiras SA 74,295
--------
FRANCE -- 6.5%
1,200 Elf Aquitaine SA 109,308
1,030 Lyonnaise des Eaux-Dumez SA 95,928
--------
205,236
--------
GERMANY -- 10.2%
2,400 Hoechst AG 113,409
249 Mannesmann AG 107,951
2,200 Siemens AG 103,672
--------
325,032
--------
GREAT BRITAIN -- 15.3%
12,000 Chubb Security Plc. 67,122
5,000 EMI Group Plc. 118,632
5,000 GKN Plc. 85,741
10,000 Lloyds TSB Group Plc. 73,749
10,190 Smithkline Beecham Plc. 141,310
--------
486,554
--------
HONG KONG -- 8.0%
Henderson Land Development
15,000 Co. Ltd. 151,270
4,800 HSBC Holdings Plc. 102,709
--------
253,979
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
ITALY -- 2.5%
15,700 Ente Nazionale Indrocarburi Spa $ 80,809
--------
JAPAN -- 18.8%
2,000 Best Denki Co. Ltd. 23,141
2 DDI Corp. 13,229
4,000 Fujikura Ltd. 32,052
3,000 Hankyu Department Stores 30,567
4,000 Hitachi Ltd. 37,302
2,000 Kajima Corp. 14,299
14,000 Kobe Steel Ltd.* 29,497
2,000 Mitsui Fudosan 20,033
3,000 Mitsui & Co. 24,350
1,000 Mori Seiki 13,816
1,000 Murata Manufacturing Co. Ltd. 32,812
2,000 NEC Corp. 24,178
4,000 Nihon Cement Co. Ltd. 20,413
3 Nippon Telegraph & Telephone 22,744
3,000 Nippon Yusen Kabushiki Kaisha 13,574
4,000 Nissan Motors 23,210
2,000 Nomura Securities Co. Ltd. 30,049
600 People Co. Limited 18,133
2,000 Sekisui Chemical Co. 20,206
2,000 Sumitomo Bank 28,840
2,000 Sumitomo Trust & Banking 20,033
1,000 Terumo Corp. 13,557
1,000 The Bank of Tokyo Mitsubishi 18,565
1,000 Tokyo Electric Power Co. Inc. 21,932
1,000 Tokyo Electron Ltd. 30,654
3,000 Topre Corp. 21,319
--------
598,505
--------
</TABLE>
See accompanying notes to financial statements.
10
EDINBURGH OVERSEAS EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
FOREIGN COMMON STOCK (CONTINUED)
MALAYSIA -- 1.7%
31,000 Renong Berhad $ 54,991
----------
MEXICO -- 1.0%
8,000 Cemex, SA de C.V. -- Class A 28,455
----------
NETHERLANDS -- 4.0%
3,330 Royal Ptt Nederland NV 127,105
----------
SINGAPORE -- 2.8%
7,100 Overseas Chinese Banking Corp. 88,287
----------
SWEDEN -- 1.9%
2,000 Nordbanken AB 60,590
----------
SWITZERLAND -- 4.9%
60 Nestle SA 64,415
80 Novartis 91,625
----------
156,040
----------
TOTAL FOREIGN COMMON
STOCK (Cost $2,652,247) 2,728,458
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
- ------ ---- ---- --------
<S> <C> <C> <C> <C>
CONVERTIBLE FOREIGN BONDS -- 1.7%
Fuji International
Y6,000,000 Finance 0.25% 02/01/02 $ 52,586
(Cost $53,210) ----------
TOTAL INVESTMENTS -- 87.5%
(Cost $2,705,457) 2,781,044
Other Assets and Liabilities
(net) -- 12.5% 396,153
----------
TOTAL NET ASSETS -- 100.0% $ 3,177,197
==========
NOTES TO THE PORTFOLIO OF INVESTMENTS:
* Non-income producing security.
Y -- Japanese Yen.
</TABLE>
See accompanying notes to financial statements.
11
EDINBURGH OVERSEAS EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
DECEMBER 31, 1996
At December 31, 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 12.4%
Pharmaceuticals 7.8
Real Estate 7.2
Oil & Gas 6.0
Automotive 5.7
Electrical Equipment 5.4
Electronics 5.0
Entertainment & Leisure 4.3
Chemicals 4.2
Commercial Services 4.0
Heavy Machinery 3.8
Electric Utilities 3.0
Municipal Services 3.0
Financial Services 2.6
Mining 2.5
Beverages, Food & Tobacco 2.0
Conglomerates 1.7
Building Materials 1.5
Retailers 1.0
Metals 0.9
Wholesale Trade 0.8
Computers & Information 0.7
Telephone Systems 0.7
Building & Construction 0.5
Transportation 0.4
Communications 0.4
----
87.5%
====
</TABLE>
See accompanying notes to financial statements.
12
TURNER CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS
(PERCENTAGES OF TOTAL NET ASSETS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS -- 94.2%
AEROSPACE & DEFENSE -- 2.5%
360 AlliedSignal, Inc. $ 24,120
250 Boeing Co. 26,594
--------
50,714
--------
AIRLINES -- 0.7%
230 UAL Corp.* 14,375
--------
AUTOMOTIVE -- 1.9%
720 Chrysler Corp. 23,760
430 Lear Corp.* 14,674
--------
38,434
--------
BANKING -- 4.5%
290 Chase Manhattan Corp. 25,883
270 Citicorp. 27,810
300 First Bank System, Inc. 20,475
170 Nationsbank Corp. 16,618
--------
90,786
--------
BEVERAGES, FOOD & TOBACCO -- 5.9%
640 Archer-Daniels-Midland 14,080
800 Coca-Cola Co. 42,100
360 ConAgra 17,910
275 Philip Morris Co. 30,972
370 Robert Mondavi Corp. Class A* 13,505
--------
118,567
--------
CHEMICALS -- 4.2%
160 Air Products & Chemicals, Inc. 11,060
280 Dupont (E.I.) de Nemours 26,425
740 Monsanto Co. 28,768
290 Sigma Aldrich Corp. 18,107
--------
84,360
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMERCIAL SERVICES -- 2.0%
460 AccuStaff, Inc.* $ 9,704
450 CUC International, Inc.* 10,688
400 Paychex, Inc. 20,575
--------
40,967
--------
COMMUNICATIONS -- 2.5%
300 AirTouch Communications* 7,575
270 Cascade Communications Corp.* 14,884
570 Omnipoint Corp.* 10,973
440 Paging Network, Inc.* 6,710
320 PairGain Technologies, Inc.* 9,740
--------
49,882
--------
COMPUTER SOFTWARE -- 8.0%
300 Cisco Systems, Inc.* 19,088
Computer Associates
145 International, Inc. 7,214
520 First Data 18,980
400 FORE Systems, Inc.* 13,150
410 Gartner Group, Inc. A* 15,964
360 Microsoft Corp.* 29,745
500 Oracle Corp.* 20,875
300 Peoplesoft* 14,381
570 Sterling Commerce, Inc.* 20,093
--------
159,490
--------
COMPUTERS & INFORMATION -- 4.6%
350 HBO & Co. 20,781
260 Hewlett-Packard, Inc. 13,065
380 Ingram Micro, Inc. A* 8,740
140 International Business Machines 21,140
250 Parametric Technology Corp.* 12,844
370 Seagate Technology, Inc.* 14,615
--------
91,185
--------
</TABLE>
See accompanying notes to financial statements.
13
TURNER CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
CONGLOMERATES -- 1.8%
220 General Electric $21,753
440 Republic Industries, Inc.* 13,723
-------
35,476
-------
CONTAINERS & PACKAGING -- 0.8%
460 Avery-Dennison Corp. 16,273
-------
COSMETICS & PERSONAL CARE -- 1.6%
350 Avon Products, Inc. 19,994
160 Gillette Co. 12,440
-------
32,434
-------
ELECTRONICS -- 4.3%
360 Applied Materials, Inc.* 12,938
230 Intel Corp. 30,116
360 Micron Technology, Inc. 10,485
160 Texas Instruments Inc. 10,200
500 Ultratech Stepper, Inc.* 11,875
310 Xilinx, Inc.* 11,412
-------
87,026
-------
ENTERTAINMENT & LEISURE -- 2.9%
490 Harley Davidson, Inc. 23,030
610 International Game Technology 11,133
340 Walt Disney Co. 23,673
-------
57,836
-------
ENVIROMENTAL CONTROLS -- 2.2%
310 US Filter Corp. 9,843
400 USA Waste Services, Inc.* 12,750
630 WMX Technologies 20,554
-------
43,147
-------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
FINANCIAL SERVICES -- 2.4%
330 Green Tree Financial Corp. $12,746
150 Household International, Inc. 13,838
70 Merrill Lynch & Co., Inc. 5,705
600 The Money Store, Inc. 16,575
-------
48,864
-------
FOOD RETAILERS -- 1.2%
170 CPC International, Inc. 13,175
140 Pioneer Hi-Bred International 9,800
-------
22,975
-------
FOREST PRODUCTS & PAPER -- 1.0%
200 Kimberly-Clark Corp. 19,050
-------
HEALTH CARE PROVIDERS -- 4.3%
580 Healthsouth Corp.* 22,403
Pacificare Health Systems, Inc.
140 Class B* 11,935
340 PhyCor, Inc.* 9,648
360 Renal Treatment Centers, Inc.* 9,180
420 Total Renal Care Holdings* 15,225
Universal Health Services, Inc.
630 Class B* 18,034
-------
86,425
-------
HOUSEHOLD PRODUCTS -- 0.9%
165 Procter & Gamble Co. 17,738
-------
INSURANCE -- 4.3%
190 American International Group 20,568
190 Jefferson Pilot Corp. 10,759
470 SunAmerica, Inc. 20,856
300 Travelers Group 13,613
550 Travelers/Aetna Property Corp. 19,456
-------
85,252
-------
</TABLE>
See accompanying notes to financial statements.
14
TURNER CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
LODGING -- 0.9%
310 HFS, Inc.* $ 18,523
--------
MANUFACTURING -- 1.0%
Minnesota Mining &
230 Manufacturing Co. 19,061
--------
MEDIA, BROADCASTING & PUBLISHING -- 0.6%
160 Gannett Co, Inc. 11,980
--------
METALS & MINING -- 0.7%
420 Titanium Metals Corp.* 13,808
--------
OIL & GAS -- 11.3%
310 Amoco 24,955
310 Chevron Corp. 20,150
320 Consolidated Natural Gas Co. 17,680
240 Exxon 23,520
350 Flores & Rucks, Inc.* 18,638
220 Halliburton Co. 13,255
260 Louisiana Land & Exploration Corp. 13,943
140 Mobil Corp. 17,115
700 Occidental Petroleum 16,363
400 Sonat, Inc. 20,600
360 United Meridian Corp.* 18,630
578 Williams Companies, Inc. 21,656
--------
226,505
--------
PHARMACEUTICALS -- 4.6%
260 Amgen Inc.* 14,138
120 Bristol-Myers Squibb Co. 13,050
280 Eli Lilly & Co. 20,440
500 Johnson & Johnson 24,875
240 Merck & Co., Inc. 19,020
--------
91,523
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
RESTAURANTS -- 1.9%
400 Boston Chicken, Inc.* $ 14,350
820 Starbucks Corp.* 23,473
----------
37,823
----------
RETAILERS -- 3.4%
430 Corporate Express, Inc.* 12,658
460 Kroger Co.* 21,390
400 Petsmart, Inc.* 8,750
420 Staples, Inc.* 7,586
450 Walgreen Co. 18,000
----------
68,384
----------
TELEPHONE SYSTEMS -- 4.3%
360 AT & T Corp. 15,660
330 Cincinnati Bell, Inc. 20,336
740 LCI International, Inc.* 15,910
200 Sprint Corp. 7,975
1,030 WorldCom, Inc.* 26,844
----------
86,725
----------
TEXTILES, CLOTHING & FABRIC -- 1.0%
350 Nike, Inc. Class B 20,913
----------
TOTAL INVESTMENTS -- 94.2%
(COST $1,806,200) 1,886,501
Other Assets and Liabilities
(net) -- 5.8% 116,430
----------
TOTAL NET ASSETS -- 100.0% $ 2,002,931
===========
NOTES TO THE PORTFOLIO OF INVESTMENTS:
* Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
15
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS
(PERCENTAGES OF TOTAL NET ASSETS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS -- 89.7%
AEROSPACE & DEFENSE -- 3.9%
4,090 Banner Aerospace, Inc.* $ 35,276
1,290 BE Aerospace, Inc.* 34,991
380 Precision Castparts Corp. 18,858
2,290 UNC, Inc.* 27,480
-------
116,605
-------
AIRLINES -- 1.9%
300 Alaska Air Group, Inc.* 6,300
1,040 America West Airlines Class B* 16,510
1,670 Mesaba Holdings, Inc.* 24,841
1,080 World Airways, Inc.* 8,775
-------
56,426
-------
BUILDING MATERIALS -- 0.7%
1,530 Cameron Ashley Building Products* 21,420
-------
BUILDING & CONSTRUCTION -- 1.6%
810 Drew Industries, Inc.* 17,820
1,450 Elcor Corp. 30,994
-------
48,814
-------
CHEMICALS -- 3.9%
1,450 AG Services of America, Inc.* 24,106
860 General Chemical Group, Inc. 20,318
2,630 Hexcel Corp.* 42,738
860 Spartech Corp. 9,568
1,230 Wellman, Inc. 21,064
-------
117,794
-------
COMMERCIAL SERVICES -- 2.8%
2,600 Fine Host Corp.* 50,050
1,030 Lason, Inc.* 21,115
1,230 Protection One, Inc.* 12,146
-------
83,311
-------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMUNICATIONS -- 5.5%
590 ADC Telecommunications, Inc.* $ 18,349
470 AirTouch Communications* 11,868
1,980 Arch Communications Group, Inc.* 18,563
1,350 Boston Technology, Inc.* 38,813
530 DSC Communications* 9,474
1,480 Microwave Power Devices, Inc.* 4,070
740 Natural Microsystems Corp.* 23,310
480 QUALCOM, Inc.* 19,140
900 Summa Four, Inc.* 7,538
1,160 Transaction Network Services, Inc.* 13,340
-------
164,465
-------
COMPUTER SOFTWARE -- 3.9%
460 Compuware Corp.* 23,058
1,600 Level 8 Systems, Inc.* 24,800
640 Network General Corp.* 19,360
2,100 State of the Art, Inc.* 25,988
1,600 The Learning Co, Inc.* 23,000
-------
116,206
-------
COMPUTERS & INFORMATION -- 6.9%
750 Cirrus Logic, Inc.* 11,625
720 Comverse Technology, Inc.* 27,225
2,230 Evans & Sutherland Computer Co.* 55,750
700 Seagate Technology, Inc.* 27,650
2,570 Sigma Designs, Inc.* 26,985
1,010 Western Digital* 57,444
-------
206,679
-------
CONGLOMERATES -- 0.4%
2,910 Worldcorp, Inc.* 12,731
-------
CONTAINERS & PACKAGING -- 1.4%
2,490 US Can Corp.* 42,019
-------
</TABLE>
See accompanying notes to financial statements.
16
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC UTILITIES -- 1.0%
850 Calenergy, Inc.* $ 28,581
--------
ELECTRICAL EQUIPMENT -- 3.3%
500 Anadigics, Inc.* 19,625
2,830 Encore Wire Corp.* 48,818
2,380 Invivo Corp.* 30,940
--------
99,383
--------
ELECTRONICS -- 13.6%
4,900 Aavid Thermal Technologies* 52,675
3,650 Aeroflex, Inc.* 17,338
1,250 Allen Group, Inc.* 27,813
2,110 Alpha Industries, Inc.* 16,616
1,060 Amphenol Corp. Class A* 23,585
930 DII Group, Inc.* 21,623
280 Harman International Industries 15,575
270 Intel Corp. 35,353
720 Lattice Semiconductor* 33,120
460 Maxim Intergrated Products* 19,895
520 Microchip Technology, Inc.* 26,455
690 Oak Industries, Inc.* 15,870
780 Rogers Corp.* 21,158
Semiconductor Packaging Materials
1,720 Co., Inc.* 18,705
4,470 Spectrum Control, Inc.* 15,086
830 Trimble Navigation Ltd.* 9,545
1,280 TSX Corp.* 11,360
1,180 VLSI Technology* 28,173
--------
409,945
--------
ENGINEERING -- 1.8%
3,890 Insituform Technologies Class A* 28,689
1,100 Jacobs Engineering Group.* 25,988
--------
54,677
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
ENTERTAINMENT & LEISURE -- 5.0%
1,650 Galoob Lewis Toys, Inc.* $ 23,100
1,190 International Game Technology 21,718
1,350 Lodgenet Entertainment Corp.* 23,963
3,020 Sodak Gaming* 46,433
1,830 Toy Biz, Inc.* 35,685
--------
150,899
--------
ENVIRONMENT CONTROLS -- 0.4%
650 Safety Kleen 10,644
--------
FOREST PRODUCTS & PAPER -- 0.9%
1,220 Louisiana Pacific Corp. 25,773
--------
HEAVY CONSTRUCTION -- 0.8%
2,720 Perini Corp.* 21,250
--------
HEAVY MACHINERY -- 0.6%
1,360 Brown & Sharpe Manufacturing Co.* 19,040
--------
HOME CONSTRUCTION, FURNISHINGS &
APPLIANCES -- 0.9%
1,670 Fieldcrest Cannon, Inc.* 26,720
--------
INSURANCE -- 4.4%
1,140 American Annuity Group, Inc. 16,103
1,040 Conseco, Inc. 66,300
1,330 John Alden Financial Corp. 24,605
770 Nymagic, Inc. 13,860
440 United Wisconsin Services 11,550
--------
132,418
--------
MANUFACTURING -- 0.6%
540 Halter Marine Group, Inc.* 7,425
5,880 Oneita Industries, Inc.* 10,290
--------
17,715
--------
</TABLE>
See accompanying notes to financial statements.
17
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MEDIA, BROADCASTING &
PUBLISHING -- 4.1%
350 Cablevision Systems Corp.* $ 10,719
2,270 International Imaging Material* 51,643
970 Jones Intercable, Inc.* 10,064
1,390 Scientific Games Holdings Corp.* 37,183
370 Viacom Inc. Class B* 12,904
-------
122,513
-------
MEDICAL SUPPLIES -- 0.9%
1,210 CNS, Inc.* 17,394
1,340 Uroquest Medical Corp.* 9,045
-------
26,439
-------
MEDICAL & BIO-TECHNOLOGY -- 1.6%
2,270 American Service Group, Inc.* 23,268
1,860 Anika Research, Inc.* 6,975
1,200 Neoprobe Corp.* 18,450
-------
48,693
-------
METALS & MINING -- 2.7%
910 Birmingham Steel Corp. 17,290
810 Carpenter Technology 29,666
400 Lukens, Inc. 8,050
1,650 Oregon Steel Mills 27,638
-------
82,644
-------
OFFICE EQUIPMENT -- 0.7%
1,820 The Peak Technologies Group.* 21,840
-------
OIL & GAS -- 5.1%
1,160 American Exploration Co.* 18,560
540 Carbo Ceramics, Inc. 11,340
2,740 COHO Energy, Inc.* 19,523
1,030 Geoscience Corp.* 13,390
450 Louisiana Land & Exploration Corp. 24,131
760 Noble Drilling Corp.* 15,105
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
OIL & GAS (CONTINUED)
400 Production Operators Corp. $ 18,600
1,730 Wiser Oil Co. 34,168
----------
154,817
----------
PHARMACEUTICALS -- 1.9%
2,060 Anesta Corp.* 39,655
2,540 DUSA Pharmaceuticals, Inc.* 17,780
----------
57,435
----------
REAL ESTATE -- 2.0%
3,020 CB Commercial Real Estate Services Group, Inc.* 60,400
----------
RETAILERS -- 0.3%
2,510 The Topp, Inc.* 10,040
----------
TELEPHONE SYSTEMS -- 1.1%
1,140 Western Wireless Corp. Class A* 15,818
680 WorldCom, Inc.* 17,723
----------
33,541
----------
TEXTILES, CLOTHING & FABRIC -- 1.0%
2,500 Sport-Haley, Inc.* 31,406
----------
TRANSPORTATION -- 1.1%
3,260 OMI Corp.* 28,525
340 Overseas Shipholding Group. 5,780
----------
34,305
----------
WHOLESALE TRADE -- 1.0%
1,370 Central Garden & Pet Co.* 28,856
----------
TOTAL INVESTMENTS -- 89.7%
(Cost $2,531,258) 2,696,444
Other Assets and Liabilities
(net) -- 10.3% 309,499
----------
TOTAL NET ASSETS -- 100.0% $3,005,943
==========
NOTES TO THE PORTFOLIO OF INVESTMENTS:
* Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
18
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS
(PERCENTAGES OF TOTAL NET ASSETS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS -- 81.3%
AEROSPACE & DEFENSE -- 0.7%
100 Boeing Co. $10,638
-------
AIRLINES -- 0.6%
100 AMR Corp.* 8,793
-------
AUTOMOTIVE -- 2.5%
900 Chrysler Corp. 29,700
300 Ford Motor Co. 9,563
-------
39,263
-------
BANKING -- 5.8%
200 BankAmerica Corp. 19,950
200 Barnett Banks, Inc. 8,225
100 Chase Manhattan Corp. 8,925
100 First Bank System, Inc. 6,825
200 First Chicago NBD Corp. 10,750
100 J.P. Morgan & Co., Inc. 9,763
200 Nationsbank Corp. 19,550
200 PNC Bank Corp. 7,525
-------
91,513
-------
BEVERAGES, FOOD & TOBACCO -- 5.2%
945 Archer-Daniels-Midland 20,790
400 Coca-Cola Co. 21,050
600 Pepsico, Inc. 17,550
200 Philip Morris Co. 22,525
-------
81,915
-------
BUILDING & CONSTRUCTION -- 1.2%
200 Centex Corp. 7,525
472 Martin Marietta Materials, Inc. 10,974
-------
18,499
-------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
CHEMICALS -- 1.6%
200 Dow Chemical $ 15,675
300 Engelhard Corp. 5,738
100 Morton International, Inc. 4,075
-------
25,488
-------
COMMERCIAL SERVICES -- 0.7%
100 AccuStaff, Inc.* 2,113
300 Service Corp International 8,400
-------
10,513
-------
COMMUNICATIONS -- 0.2%
100 DSC Communications* 1,788
32 Lucent Technologies 1,480
-------
3,268
-------
COMPUTERS & INFORMATION -- 4.6%
300 Apple Computer, Inc.* 6,263
300 Compaq Computer* 22,275
100 Data General Corp.* 1,450
200 Hewlett-Packard, Inc. 10,050
100 International Business Machines 15,100
100 Storage Technology Corp.* 4,763
500 Sun Microsystems, Inc.* 12,844
-------
72,745
-------
CONGLOMERATES -- 5.9%
400 Dover Corp. 20,100
100 Eastern Enterprises 3,538
300 General Electric 29,663
300 Raychem Corp. 24,038
300 Tyco Lab 15,863
-------
93,202
-------
</TABLE>
See accompanying notes to financial statements.
19
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
CONTAINERS & PACKAGING -- 0.8%
200 Avery-Dennison Corp. $ 7,075
100 Crown Cork & Seal, Inc. 5,438
-------
12,513
-------
COSMETICS & PERSONAL CARE -- 0.5%
100 Gillette Co. 7,775
-------
ELECTRIC UTILITIES -- 1.4%
100 Baltimore Gas and Electric 2,675
100 Edison International 1,988
100 Entergy Corp. 2,775
300 Pacificorp 6,150
300 Unicom Corp. 8,138
-------
21,726
-------
ELECTRICAL EQUIPMENT -- 0.3%
100 General Signal Corp. 4,275
-------
ELECTRONICS -- 1.1%
100 Intel Corp. 13,094
100 Polaroid Corp. 4,350
-------
17,444
-------
ENTERTAINMENT & LEISURE -- 0.1%
100 Brunswick Corp. 2,400
-------
FINANCIAL SERVICES -- 2.8%
Federal National Mortgage
100 Association 3,725
100 Merrill Lynch & Co., Inc. 8,150
400 Morgan Stanley Group, Inc. 22,850
200 Salomon, Inc. 9,425
-------
44,150
-------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
FOOD RETAILERS -- 1.3%
400 Great Atlantic & Pacific Tea Co. $12,750
300 Supervalu, Inc. 8,513
-------
21,263
-------
FOREST PRODUCTS & PAPER -- 1.1%
200 International Paper Co. 8,075
200 Weyerhauser Co. 9,475
-------
17,550
-------
HEAVY MACHINERY -- 3.5%
100 Caterpiller, Inc. 7,525
200 Cooper Industries, Inc. 8,425
200 Deere & Co. 8,125
500 Ingersoll Rand Co. 22,250
400 Input/Output, Inc.* 7,400
100 JLG Industries, Inc. 1,600
-------
55,325
-------
HOME CONSTRUCTION, FURNISHINGS &
APPLIANCES -- 1.9%
300 Black & Decker Corp. 9,038
100 Maytag Corp. 1,975
400 Newell Co. 12,600
300 Oakwood Homes Corp. 6,863
-------
30,476
-------
HOUSEHOLD PRODUCTS -- 0.7%
100 Procter & Gamble Co. 10,750
-------
INSURANCE -- 5.7%
300 American International Group 32,475
100 Loews Corp. 9,425
100 Providian Corp. 5,138
200 Safeco Corp. 7,888
800 Travelers Group 36,299
-------
91,225
-------
</TABLE>
See accompanying notes to financial statements.
20
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
LODGING -- 1.3%
200 HFS, Inc.* $11,950
300 Hilton Hotels Corp. 7,838
-------
19,788
-------
MANUFACTURING -- 0.8%
100 Eastman Kodak Co. 8,025
200 Stanley Works 5,400
-------
13,425
-------
MEDIA, BROADCASTING &
PUBLISHING -- 1.4%
400 Kingworld Productions, Inc.* 14,750
200 Knight-Ridder, Inc. 7,650
-------
22,400
-------
MEDICAL SUPPLIES -- 1.6%
300 Alza Corp.* 7,763
100 Tenet Healthcare Corp.* 2,188
400 US Surgical Corp. 15,750
-------
25,701
-------
METALS & MINING -- 0.3%
100 Newmont Mining 4,475
-------
OIL & GAS -- 7.4%
100 Ashland, Inc. 4,388
100 Atlantic Richfield Co. 13,250
200 Baker Hughes, Inc. 6,900
200 Burlington Resources, Inc. 10,075
300 Exxon 29,400
100 Halliburton Co. 6,025
200 Helmerich & Payne, Inc. 10,425
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
OIL & GAS (CONTINUED)
100 Noram Energy Corp. $ 1,538
200 Occidental Petroleum 4,675
200 Panenergy Corp. 9,000
100 Pennzoil 5,650
100 Phillips Petroleum Co. 4,425
300 Santa Fe Energy Resources, Inc.* 4,163
200 Unocal Corp. 8,125
-------
118,039
-------
PHARMACEUTICALS -- 7.1%
400 Abbott Laboratories 20,300
100 Amgen, Inc.* 5,438
600 Johnson & Johnson 29,850
400 Merck & Co., Inc. 31,700
300 Pfizer, Inc. 24,863
-------
112,151
-------
RESTAURANTS -- 0.1%
300 Ryans Family Steak House, Inc.* 2,063
-------
RETAILERS -- 5.8%
100 Brown Group, Inc. 1,838
100 CompUSA, Inc. 2,063
800 Dayton-Hudson Corp. 31,400
300 Federated Department Stores* 10,238
200 Gap Stores 6,025
100 Price/Costco, Inc.* 2,513
200 Sears Roebuck 9,225
150 Snap-On, Inc. 5,344
200 TJX Co, Inc. 9,475
600 Woolworth Corp.* 13,125
-------
91,246
-------
</TABLE>
See accompanying notes to financial statements.
21
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
(PERCENTAGES OF TOTAL NET ASSETS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TELEPHONE SYSTEMS -- 3.9%
100 Bell Atlantic Corp. $ 6,475
200 Bellsouth Corp. 8,075
400 GTE 18,200
100 MCI Communications Corp. 3,269
100 SBC Communications, Inc. 5,175
500 Sprint Corp. 19,938
-------
61,132
-------
TEXTILES, CLOTHING & FABRIC -- 0.4%
100 Liz Claiborne 3,863
100 Russell Corp. 2,975
-------
6,838
-------
TRANSPORTATION -- 1.0%
200 CSX Corp. 8,450
100 Union Pacific Corp. 6,013
100 Yellow Corp.* 1,438
-------
15,901
-------
TOTAL COMMON STOCKS
(Cost $1,151,709) 1,285,868
---------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
FOREIGN COMMON STOCK -- 1.4%
CANADA -- 1.1%
100 Imperial Oil Ltd. $ 4,700
200 Laidlaw, Inc. B 2,300
500 Moore Corp Ltd. 10,188
----------
17,188
----------
NORWAY -- 0.3%
100 Norsk Hydro AS ADR 5,363
----------
TOTAL FOREIGN COMMON
STOCK (Cost $21,174) 22,551
----------
TOTAL INVESTMENTS -- 82.7%
(Cost $1,172,883) 1,308,419
Other Assets and Liabilities
(net) -- 17.3% 273,722
----------
TOTAL NET ASSETS -- 100.0% $1,582,141
==========
NOTES TO THE PORTFOLIO OF INVESTMENTS:
ADR American Depositary Receipt
* Non-income producing security.
</TABLE>
See accompanying notes to the financial statements.
22
M FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 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 $2,781,044 $1,886,501 $2,696,444 $1,308,419
Cash 263,385 50,823 429,002 228,910
Receivable from:
Securities sold -- 6,250 -- --
Capital stock subscriptions 16,709 -- 21,705 151
Dividends and interest 7,268 1,998 2,451 3,238
Investment Adviser (Note 2) 71,868 68,566 59,179 61,177
Deferred organization expense 81,397 81,397 81,397 81,397
--------- --------- --------- ---------
Total assets 3,221,671 2,095,535 3,290,178 1,683,292
--------- --------- --------- ---------
LIABILITIES:
Distributions payable 18,231 68,919 121,789 69,094
Payable for securities purchased -- -- 139,524 10,419
Capital stock redemptions -- 431 -- --
Accrued expenses and other liabilities 26,243 23,254 22,922 21,638
--------- --------- --------- ---------
Total liabilities 44,474 92,604 284,235 101,151
--------- --------- --------- ---------
NET ASSETS $3,177,197 $2,002,931 $3,005,943 $1,582,141
========== ========== ========== ==========
NET ASSETS CONSIST OF:
Paid-in capital $3,217,350 $1,920,119 $2,892,270 $1,415,029
Undistributed net investment income
(distributions in excess of net investment
income) 2,033 930 -- 810
Accumulated net realized gain (loss) on investments
and foreign currency transactions (117,784) 1,581 (51,513) 30,766
Net unrealized appreciation on investments,
forward currency contracts, and net other assets 75,598 80,301 165,186 135,536
--------- --------- --------- ---------
NET ASSETS $3,177,197 $2,002,931 $3,005,943 $1,582,141
========== ========== ========== ==========
SHARES OUTSTANDING 321,541 172,614 239,998 133,525
========== ========== ========== ==========
Net asset value, offering price and redemption price
per share $ 9.88 $ 11.60 $ 12.52 $ 11.85
========== ========== ========== ==========
* Cost of investments $2,705,457 $1,806,200 $2,531,258 $1,172,883
</TABLE>
(a) Funds commenced operations on January 4, 1996.
See accompanying notes to the financial statements.
23
M FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 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 $ 11,445 $ 6,696 $ 12,662 $ 3,056
Dividends* 37,060 17,108 4,615 22,371
--------- --------- --------- ---------
Total investment income 48,505 23,804 17,277 25,427
--------- --------- --------- ---------
EXPENSES:
Investment Advisory fee (Note 2) 25,922 8,040 17,411 6,289
Custody and administration fees 95,893 86,827 83,817 78,416
Professional fees 19,927 17,926 17,926 17,926
Registration and filing fees 1,034 804 804 804
Shareholder reporting 4,042 4,042 4,042 4,042
Directors' fees and expenses 7,500 7,500 7,500 7,500
Amortization of organization costs 20,196 20,196 20,196 20,196
Other 6,773 6,773 6,773 6,773
--------- --------- --------- ---------
Total expenses 181,287 152,108 158,469 141,946
Interest on loans (Note 3) -- 1,443 942 --
Less: Expenses reimbursable by the Adviser (Note
2) (149,208) (139,615) (136,249) (132,823)
--------- --------- --------- ---------
Net operating expenses 32,079 13,936 23,162 9,123
--------- --------- --------- ---------
NET INVESTMENT INCOME (LOSS) 16,426 9,868 (5,885) 16,304
--------- --------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investment transactions (117,784) 60,656 75,231 83,462
Foreign currency transactions 1,943 -- -- --
--------- --------- --------- ---------
Net realized gain (loss) (115,841) 60,656 75,231 83,462
--------- --------- --------- ---------
Net change in unrealized appreciation
(depreciation) on:
Investments 75,587 80,301 165,186 135,536
Forward currency and net other assets 11 -- -- --
--------- --------- --------- ---------
Net unrealized appreciation during the
period 75,598 80,301 165,186 135,536
--------- --------- --------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) (40,243) 140,957 240,417 218,998
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ (23,817) $ 150,825 $ 234,532 $ 235,302
========= ========= ========= =========
* Net of foreign taxes withheld of: $ (5,410) -- -- $ (214)
</TABLE>
(a) Funds commenced operations on January 4, 1996
See accompanying notes to the financial statements.
24
M FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 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) $ 16,426 $ 9,868 $ (5,885) $ 16,304
Net realized gain (loss) on investment and
foreign currency transactions (115,841) 60,656 75,231 83,462
Net change in unrealized appreciation on
investments, forward currency contracts,
foreign currency, and other assets 75,598 80,301 165,186 135,536
---------- ----------- ----------- ----------
Net increase (decrease) in net assets resulting
from operations (23,817) 150,825 234,532 235,302
---------- ----------- ----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (18,231) (9,844) -- (16,399)
From net realized capital gains -- (59,075) (121,789) (52,695)
---------- ----------- ----------- ----------
Total distributions to shareholders (18,231) (68,919) (121,789) (69,094)
---------- ----------- ----------- ----------
FUND SHARE TRANSACTIONS (NOTE 5):
Proceeds from shares sold 3,391,448 3,875,674 4,878,023 1,397,149
Cost of shares repurchased (212,203) (1,974,649) (2,004,823) (1,216)
Net increase in net assets resulting from Fund
share transactions 3,179,245 1,901,025 2,873,200 1,395,933
---------- ----------- ----------- ----------
TOTAL CHANGE IN NET ASSETS 3,137,197 1,982,931 2,985,943 1,562,141
---------- ----------- ----------- ----------
NET ASSETS:
Beginning of period 40,000 20,000 20,000 20,000
---------- ----------- ----------- ----------
End of period* $3,177,197 $ 2,002,931 $ 3,005,943 $1,582,141
========== =========== =========== ==========
* Including undistributed net investment income
(distributions in excess of net investment income)
of:
$ 2,033 $ 930 -- $ 810
(a) Funds commenced operations on January 4, 1996
</TABLE>
See accompanying notes to the financial statements.
25
M FUND, INC.
FINANCIAL HIGHLIGHTS
FOR THE PERIOD ENDED DECEMBER 31, 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) 0.06 0.06 0.00 0.12
Net realized and unrealized gain (loss) on
investments (0.12) 1.94 3.03 2.25
------- ------- ------- -------
Total from investment operations (0.06) 2.00 3.03 2.37
------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.06) (0.06) -- (0.12)
From net realized gains -- (0.34) (0.51) (0.40)
------- ------- ------- -------
Total distributions (0.06) (0.40) (0.51) (0.52)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.88 $ 11.60 $ 12.52 $ 11.85
======= ======= ======= =======
TOTAL RETURN* (0.63)% 19.99% 30.31% 23.67%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 3,177 $ 2,003 $ 3,006 $ 1,582
Net expenses to average daily net assets before
interest expense** 1.30% 0.70% 1.15% 0.80%
Net expenses to average daily net assets after
interest expense** 1.30% 0.78% 1.20% 0.80%
Net investment income (loss) to average daily net
assets** 0.67% 0.55% (0.30)% 1.43%
Portfolio turnover rate 65% 258% 140% 79%
Average commission rate paid*** $0.0474 $0.0600 $0.0362 $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 7.34% 8.51% 8.19% 12.45%
Net investment income (loss) (5.37)% (7.26)% (7.34)% (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
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 (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
27
M FUND, INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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
quotation 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
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 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 Funds 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 Funds do 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 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
28
M FUND, INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 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, 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.
29
M FUND, INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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. For federal income tax purposes, the
Edinburgh Overseas Equity Fund had a capital loss carryforward of $20,515 as of
December 31, 1996 which is available to offset future capital gains. The
carryforward will expire in 2004. The Edinburgh Overseas Equity Fund and
Frontier Capital Appreciation Fund elected to defer to their fiscal years ending
December 31, 1997, $96,485 and $14,985, respectively, of losses recognized
during the period November 1, 1996 to December 31, 1996.
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 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, 1997.
30
M FUND, INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
2. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES -- (CONTINUED)
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. LOANS
Due to significant redemption activity during the periods identified below, the
following Funds incurred overdrafts permitted by the Custodian:
<TABLE>
<CAPTION>
PERIOD AVERAGE DAILY WEIGHTED AVERAGE INTEREST
OUTSTANDING BALANCE INTEREST RATE EXPENSE
----------- ------- ------------- -------
<S> <C> <C> <C> <C>
Turner Core Growth Fund 7/17/96 to 7/23/96 $1,189,640 6.24% $1,443
Frontier Capital Appreciation Fund 7/17/96 to 7/22/96 $ 906,441 6.24% $ 942
</TABLE>
4. 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 December 31, 1996, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -----
<S> <C> <C>
Edinburgh Overseas Equity Fund $ 4,264,841 $ 1,454,788
Turner Core Growth Fund 5,884,800 4,139,256
Frontier Capital Appreciation Fund 4,895,054 2,439,027
Enhanced U.S. Equity Fund 1,937,087 847,666
</TABLE>
For the period January 4, 1996 through December 31, 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>
FEDERAL TAX BASIS TAX BASIS NET UNREALIZED
INCOME UNREALIZED UNREALIZED APPRECIATION
TAX COST APPRECIATION DEPRECIATION (DEPRECIATION)
-------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Edinburgh Overseas Equity Fund $2,707,230 $ 222,690 $ (148,876) $ 73,814
Turner Core Growth Fund 1,821,372 130,049 (64,920) 65,129
Frontier Capital Appreciation Fund 2,568,705 342,332 (214,593) 127,739
Enhanced U.S. Equity Fund 1,172,882 154,825 (19,289) 135,536
</TABLE>
31
M FUND, INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
5. SHARES OF BENEFICIAL INTEREST
For the period January 4, 1996 through December 31, 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-
DECEMBER 31, 1996(A) DECEMBER 31, 1996(A)
-------------------- --------------------
<S> <C> <C>
Shares sold 338,734 358,098
Shares repurchased (21,193) (187,484)
------- --------
Net increase 317,541 170,614
Fund shares:
Beginning of period 4,000 2,000
------- -------
End of period 321,541 172,614
======= =======
</TABLE>
<TABLE>
<CAPTION>
FRONTIER CAPITAL ENHANCED U.S.
APPRECIATION FUND EQUITY FUND
----------------- -----------
FOR THE PERIOD FOR THE PERIOD
JANUARY 4, 1996- JANUARY 4, 1996-
DECEMBER 31, 1996(A) DECEMBER 31, 1996(A)
-------------------- --------------------
<S> <C> <C>
Shares sold 417,701 131,623
Shares repurchased (179,703) (98)
-------- -------
Net increase 237,998 131,525
Fund shares:
Beginning of period 2,000 2,000
-------- -------
End of period 239,998 133,525
======= =======
</TABLE>
(a) The Funds commenced operations on January 4, 1996.
6. 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.
32
M FUND, INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
7. 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 December 31,
1996, the Fund had no open forward currency exchange contracts.
8. CONCENTRATION
At December 31, 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.
9. BENEFICIAL INTEREST
At December 31, 1996, 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 62.5% 35.0% 2.5%
Turner Core Growth Fund 57.9% 33.7% 8.4%
Frontier Capital Appreciation Fund 41.9% 40.5% 17.6%
Enhanced U.S. Equity Fund 74.9% -- 25.1%
</TABLE>
33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
M Fund, Inc.
We have audited the accompanying statements of assets and liabilities of the
Edinburgh Overseas Equity Fund, Turner Core Growth Fund, Frontier Capital
Appreciation Fund and Enhanced U.S. Equity Fund (four series of M Fund, Inc.),
including the portfolios of investments, as of December 31, 1996, and the
related statements of operations, the statements of changes in net assets and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of M Fund,
Inc.'s management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
aforementioned series of M Fund, Inc. as of December 31, 1996, the results of
their operations, the changes in their net assets, and their financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 10, 1997
34
