<PAGE> 1
M FUNDS
Edinburgh Overseas Equity Fund
Turner Core Growth Fund
Frontier Capital Appreciation Fund
Enhanced U.S. Equity Fund
Semi-Annual Report
June 30, 1998
LOGO
<PAGE> 2
M FUND, INC.
PRESIDENT'S LETTER
July 23, 1998
Dear Contract Owners:
We are pleased to present to you the M Fund, Inc. (the "Company") Semi-Annual
Report dated June 30, 1998. The Company has been growing steadily during the
course of 1998 with total assets under management reaching over $48 million as
of June 30, 1998.
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, 1998 in addition to their outlook for the last six months
of 1998.
Sub-Advisers to the Company are: Brandes Investment Partners, L.P. for the
Brandes International Equity Fund*, Turner Investment Partners, Inc. for the
Turner Core Growth Fund, Frontier Capital Management Company, Inc. for the
Frontier Capital Appreciation Fund, and Franklin Portfolio Associates LLC 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.
* Effective July 1, 1998, Brandes Investment Partners, L.P. replaced Edinburgh
Fund Managers plc and the name of the Edinburgh Overseas Equity Fund was
changed to Brandes International Equity Fund.
<PAGE> 3
EDINBURGH OVERSEAS EQUITY FUND
The Edinburgh Overseas Equity Fund returned 12.25% for the six months ended
June 30, 1998. The MSCI EAFE Index returned 15.90% for the same period.
The last quarter was characterized by a general flight to quality which
resulted in further gains in the U.S. and Continental European markets and
pronounced weakness in the emerging markets of the Pacific and Latin America.
United Kingdom equities recorded a modest decline primarily due to the
somewhat unexpected rise in short term interest rates and the negative impact
which this is having on the manufacturing sector.
In local terms the Japanese market was broadly unchanged. With economic
activity levels continuing to contract and further problems emerging in the
banking sector the Yen has exhibited further weakness against the U.S. Dollar.
The sharp contraction now being seen in economic activity levels across
Asia has led to a fall in all markets in the region. Currencies have also
remained under pressure.
Continental European markets have benefited from the recovery in economic
activity in the core economies of France and Germany. Merger and acquisition
activity has remained to the fore and high equity demand associated with the
development of private sector pension plans remains a positive support.
Despite the fundamentally stronger economic background, Latin American
markets have been hit hard by the problems in Asia and also from the flight out
of smaller stock markets. The continued weakness of oil prices has also been a
negative factor, particularly in Mexico and Venezuela.
EDINBURGH FUND MANAGERS PLC
INVESTMENT SUB-ADVISER TO THE EDINBURGH OVERSEAS EQUITY FUND
2
<PAGE> 4
TURNER CORE GROWTH FUND
The Turner Core Growth Fund returned 20.56% for the six month period ended
June 30, 1998. The Wilshire 5000 Stock Index returned 15.47% while the average
growth stock fund tracked by Lipper Analytic Services returned 15.10% for the
same period.
While this rising tide of a stock market may lift all boats (the S&P 500
Index, for one, reached 38 all-time highs over the past six months), not all
boats are lifted equally. In the period, growth stocks outperformed value
stocks; the return of the Russell 3000 Growth Index, for instance, exceeded that
of the Russell 3000 Value Index by 7.54 percentage points. The popularity of
growth stocks enhanced the performance of the Turner Core Growth Fund's
holdings, which have a Wall Street consensus earnings forecast of 17.8% in the
next 12 months, as calculated by I/B/E/S International, versus about 12% for the
Wilshire 5000 Stock Index.
Altogether, the stock market reveled in near-perfect economic conditions.
The U.S. economy entered its eighth consecutive year of expansion, with no
recession yet in sight. Interest rates and inflation were low, a throwback to
the 1950's and corporate earnings continued to grow at a steady pace, albeit
less spectacularly than has been the rule over the past five years. Also, the
market continued to be sustained by a mighty demographic force: baby boomers
investing heavily in 40l(k) and Keogh plans and Individual Retirement Accounts
to prepare for retirement -- a force that figures to fuel demand for stocks for
a long time to come, in our judgment.
We think the Turner Core Growth Fund is well positioned for the market
environment ahead. As we have noted in previous reports, the historical pattern
has been that when corporate earnings slow, companies with strong earnings
prospects generate premium returns. As always, the Fund is invested in a
diversified array of companies whose earnings meet or exceed Wall Street's
consensus expectations, with minimal cash positions and sector weightings that
closely approximate the sector weightings of the index.
TURNER INVESTMENT PARTNERS, INC.
INVESTMENT SUB-ADVISER TO THE TURNER CORE GROWTH FUND
3
<PAGE> 5
FRONTIER CAPITAL APPRECIATION FUND
The Frontier Capital Appreciation Fund returned 2.02% for the six months
ended June 30, 1998. The Russell 2500 Stock Index returned 5.66% for the same
period.
Under performance relative to our index is a result of the capitalization
weightings in the fund's portfolio. The best performing sector within the
Russell 2500 has been those companies with market capitalizations over $1
billion. While this represents two-thirds of the index, it comprises just
one-quarter of the fund's portfolio. Currently 42% of the portfolio is invested
in companies that are less than $500 million in size, as compared to just 13% in
the Russell 2500. These smaller companies have generated the lowest returns in
the index. In summary, larger companies have outperformed smaller companies. The
Fund is considerably overweighted in small cap companies. There is currently a
preference for large cap companies in the market today and outperformance of
large cap vs. small cap exists even within the small and mid cap index, the
Russell 2500. However, we believe that this is also indicative of where the
greatest inefficiencies and opportunities exist, which is precisely why we have
chosen to overweight the smaller cap companies.
The dominance of the large cap segment of the U.S. equity market has
continued for some time now. We are currently in the eighth year of a bull
market with economic uncertainty at its highest level in years. The problems in
Southeast Asia have made it increasingly difficult for many companies,
particularly larger, multinational companies, to sustain recent historically
high growth rates. However, notwithstanding lower growth expectations for larger
companies, they are, in aggregate, perceived as having earnings growth that is
more certain than smaller sized companies and thus enjoy a premium for this
certainty. In fact, it was the fourth quarter of 1997, following the Asian
crisis, that large cap companies again resumed their out-performance after four
previous months of significant under performance compared to smaller cap
companies. Flow of investments into larger cap, more liquid companies by mutual
funds and foreign investors has continued despite significant earnings estimate
reductions for the companies in the S&P 500 Index during 1998. In periods of
uncertainty, investors seek safety and liquidity. These preferences have
resulted in recent high valuations of the large cap segment of the market,
valuations which we believe are not sustainable and will revert in favor of
small cap companies. We believe that eventually investors will be willing to
accept increased liquidity risk to own companies whose earnings are expected to
grow at a much faster rate than the companies in the S&P 500 Index.
FRONTIER CAPITAL MANAGEMENT CO., INC.
INVESTMENT SUB-ADVISER TO THE FRONTIER CAPITAL APPRECIATION FUND
4
<PAGE> 6
ENHANCED U.S. EQUITY FUND
The Enhanced U.S. Equity Fund returned 17.96% for the six months ended June
30, 1998. The S&P 500 Stock Index returned 17.71% for the same period.
Active portfolio management in the U.S. large cap arena has become more
challenging in recent years. Contributing to this difficult environment is the
valuation levels of individual stocks and indices for which there is little, or
no, historical precedent. Our approach helps mitigate this problem by focusing
on relative differences in attractiveness of stocks, not absolute levels. The
Fund has benefited from this approach, and in our rigorous application of a risk
model to structure the holdings relative to the benchmark.
We continue to view U.S. equities as being on the "rich" side in terms of
valuation along traditional measures such as price to earnings ratios and yield.
The positive performance of U.S. equities during the last three years has been
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.
Our outlook for the future is positive. We have demonstrated an ability to
outperform most active managers in a difficult period for active management. In
periods when active management outperforms indexing, we believe that we will
outperform both our peers and indexing alternatives to a meaningful degree.
FRANKLIN PORTFOLIO ASSOCIATES, LLC
INVESTMENT SUB-ADVISER TO THE ENHANCED U.S. EQUITY FUND
5
<PAGE> 7
EDINBURGH OVERSEAS EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- ----------
<C> <S> <C>
FOREIGN COMMON STOCKS - 90.5%
ARGENTINA - 0.7%
690 Inversiones y Representaciones SA
GDR................................ $ 20,096
1,140 Telecom Argentina Stet - France
Telecom SA ADR..................... 33,986
----------
54,082
----------
AUSTRALIA - 2.1%
800 AMP Limited*......................... 9,386
3,000 Lend Lease Corp. Ltd. ............... 60,802
34,000 Orogen Minerals...................... 45,377
8,000 Westpac Banking Corp. Ltd. .......... 48,915
----------
164,480
----------
BRAZIL - 1.1%
2,700 Centrais Electricas Brasileiras SA
ADR................................ 41,202
270 Centrais Geradoras do Sul do Brasil
SA - ADR*.......................... 1,949
400 Telecomunicacoes Brasileiras S.A. -
Telebras ADR....................... 43,675
----------
86,826
----------
DENMARK - 1.5%
1,025 Den Danske Bank...................... 123,116
----------
FRANCE - 10.7%
800 AXA-UAP.............................. 89,981
1,030 Suez Lyonnaise Des Eaux-Dumez........ 169,517
200 Pinault-Printemps-Redoute SA......... 167,392
2,000 Rhone-Poulenc SA..................... 112,808
740 Societe Generale..................... 153,858
1,250 Total SA Class B..................... 162,512
----------
856,068
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- ----------
<C> <S> <C>
GERMANY - 5.2%
3,050 Bayer AG............................. $ 157,976
2,490 Mannesmann AG........................ 256,146
----------
414,122
----------
HONG KONG - 0.7%
80,000 Cathay Pacific Airways............... 56,273
----------
ITALY - 6.1%
22,900 ENI SpA.............................. 149,235
120,000 Montedison SpA....................... 148,569
26,000 Telecom Italia SpA................... 190,023
----------
487,827
----------
JAPAN - 10.5%
3,000 Bridgestone Corp. ................... 71,140
2,000 Canon, Inc. ......................... 45,547
5 East Japan Railway Co. .............. 23,569
1,000 Fuji Photo Film...................... 34,919
1,000 Honda Motor Co. Ltd. ................ 35,714
1,000 Ito-Yokado Co. Ltd. ................. 47,209
440 Nichiei Co. Ltd. .................... 30,029
500 Nintendo Co. Ltd. ................... 46,450
9 Nippon Telegraph & Telephone......... 74,826
1,000 Secom Co. Ltd. ...................... 57,909
3,000 Shiseido Company Ltd. ............... 34,182
1,000 Sony Corp. .......................... 86,394
5,000 Sumitomo Electric Industries......... 50,716
2,000 Taisho Pharmaceutical Co. Ltd. ...... 37,449
700 Takefuji Corporation................. 32,389
600 TDK Corp. - ADR*..................... 44,700
2,000 Terumo Corp. ........................ 31,810
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 8
EDINBURGH OVERSEAS EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- ----------
<C> <S> <C>
FOREIGN COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
2,100 Tohoku Electric Power Co., Inc. ..... $ 31,048
1,000 Toyota Motor Corp. .................. 25,954
----------
841,954
----------
MALAYSIA - 0.3%
20,000 Tanjong Plc.......................... 27,709
----------
MEXICO - 0.6%
8,240 Cemex SA de CV - Class CPO........... 30,812
5,700 Kimberly Clark de Mexico SA de CV -
Class A............................ 20,173
----------
50,985
----------
NETHERLANDS - 8.5%
2,300 Baan Company, NV*.................... 82,703
3,660 ING Groep NV......................... 239,805
4,785 Koninklijke Ahold NV................. 153,698
5,300 Verenigde Nederlandse
Uitgeversbedrijven Verenigd
Bezit.............................. 192,661
----------
668,867
----------
PHILIPPINES - 0.2%
14,000 Equitable Banking Corp. ............. 19,472
----------
SINGAPORE - 0.8%
6,120 Overseas Chinese Banking Corp. ...... 20,829
6,380 Singapore Press Holdings Ltd. ....... 42,672
----------
63,501
----------
SPAIN - 1.9%
9,370 Iberdrola SA......................... 152,144
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- ----------
<C> <S> <C>
SWEDEN - 6.0%
7,600 Astra AB A........................... $ 155,335
20,000 Nordbanken Holding AB................ 146,709
6,200 Telefonaktiebolaget LM Ericsson B.... 181,141
----------
483,185
----------
SWITZERLAND - 8.6%
68 Baloise Holding Ltd.*................ 55,765
136 Baloise Holding Ltd. - Rights*....... 111,440
108 Novartis AG.......................... 179,988
550 UBS AG - Registered*................. 204,820
215 Zurich Versicherungs-Gesellschaft.... 137,418
----------
689,431
----------
THAILAND - 0.1%
50,000 National Finance & Securities Public
Co. Ltd.*.......................... 3,910
----------
UNITED KINGDOM - 24.9%
8,000 BAA Plc.............................. 86,444
2,700 Barclays Plc......................... 77,920
13,000 British Aerospace Plc................ 99,655
8,900 British Petroleum Co. Plc............ 129,910
11,600 British Telecommunications Plc....... 143,361
29,800 Centrica Plc*........................ 50,267
9,988 Diageo Plc........................... 118,435
7,250 General Electric Plc................. 62,539
6,400 GKN Plc.............................. 81,608
4,100 Glaxo Wellcome Plc................... 123,185
6,200 Greenalls Group Plc.................. 53,948
3,700 HSBC Holdings Plc.................... 93,988
1,600 HSBC Holdings Plc (Hong Kong)........ 39,133
7,600 Kingfisher Plc....................... 122,485
5,730 Legal and General Group Plc.......... 61,198
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 9
EDINBURGH OVERSEAS EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- ----------
<C> <S> <C>
FOREIGN COMMON STOCKS (CONTINUED)
UNITED KINGDOM (CONTINUED)
10,000 Lloyds TSB Group Plc................. $ 140,038
5,000 Marks & Spencer Plc.................. 45,552
5,150 MEPC Plc............................. 45,327
2,200 Provident Financial Plc.............. 34,538
7,900 Smithkline Beecham Plc............... 96,513
6,600 Ti Group Plc......................... 50,153
7,200 Unilever Plc......................... 76,718
6,900 Vodafone Group Plc................... 87,638
1,700 Zeneca Group Plc..................... 73,023
----------
1,993,576
----------
TOTAL FOREIGN COMMON STOCKS (Cost
$6,172,043)........................ 7,237,528
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
- ---------- ----- -------- ----------
<C> <S> <C> <C> <C>
CONVERTIBLE FOREIGN BONDS - 2.3%
FRANCE - 1.8%
1,380,000F Finaxa............. 2.75% 01/01/06 148,370
----------
JAPAN - 0.5%
$ 39,000 MBL International Finance -
(Bermuda).......... 3.00% 11/30/02 37,391
----------
TOTAL CONVERTIBLE FOREIGN BONDS (Cost
$124,946).......................... 185,761
----------
TOTAL INVESTMENTS - 92.8% (Cost
$6,296,989)........................ 7,423,289
Other Assets and Liabilities
(net) - 7.2%....................... 578,483
----------
NET ASSETS - 100.0%.................. $8,001,772
==========
</TABLE>
NOTES TO THE PORTFOLIO OF INVESTMENTS:
ADR American Depositary Receipt
GDR Global Depositary Receipt
F French Franc
* Non-income producing security.
See accompanying notes to financial statements.
8
<PAGE> 10
EDINBURGH OVERSEAS EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
At June 30, 1998, 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................................... 13.8%
Insurance................................. 10.7
Pharmaceuticals........................... 7.5
Oil & Gas................................. 6.1
Chemicals................................. 5.2
Telephone Systems......................... 4.8
Retailers................................. 4.8
Communications............................ 4.6
Heavy Machinery........................... 3.2
Media - Broadcasting & Publishing......... 2.9
Electric Utilities........................ 2.8
Automotive................................ 2.7
Electronics............................... 2.4
Municipal Services........................ 2.1
Electrical Equipment...................... 2.0
Food Retailers............................ 1.9
Commercial Services....................... 1.7
Real Estate............................... 1.6
Beverages, Food & Tobacco................. 1.5
Cosmetics & Personal Care................. 1.4
Financial Services........................ 1.3
Aerospace & Defense....................... 1.3
Medical Supplies.......................... 1.2
Computer Software & Processing............ 1.0
Entertainment & Leisure................... 0.9
Airlines.................................. 0.7
Restaurants............................... 0.7
Metals.................................... 0.6
Household Products........................ 0.4
Building Materials........................ 0.4
Transportation............................ 0.3
Forest Products & Paper................... 0.3
----
92.8%
====
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 11
TURNER CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ ----------
<C> <S> <C>
COMMON STOCKS - 95.6%
ADVERTISING - 0.8%
1,640 Outdoor Systems, Inc. ............... $ 45,920
----------
AIRLINES - 1.8%
710 AMR Corporation*..................... 59,107
590 US Airways Group, Inc.*.............. 46,757
----------
105,864
----------
APPAREL RETAILERS - 0.5%
710 Abercrombie & Fitch Co. - Class A*... 31,240
----------
AUTOMOTIVE - 1.9%
1,110 Federal-Mogul Corp. ................. 74,925
710 Ford Motor Co. ...................... 41,890
----------
116,815
----------
BANKING - 6.1%
986 Associates First Capital Corp. ...... 75,799
780 Chase Manhattan Corp. ............... 58,890
351 First Union Corp. ................... 20,449
1,900 Heller Financial, Inc.*.............. 57,000
970 Mellon Bank Corp. ................... 67,536
630 SunTrust Banks, Inc. ................ 51,227
900 U.S. BanCorp......................... 38,700
----------
369,601
----------
BEVERAGES, FOOD & TOBACCO - 2.3%
860 McCormick & Co., Inc. ............... 30,718
910 Pepsico, Inc. ....................... 37,481
60 Quaker Oats Co. ..................... 3,296
320 Ralston-Ralston Purina Group......... 37,380
1,270 Whitman Corp. ....................... 29,131
----------
138,006
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ ----------
<C> <S> <C>
BUILDING MATERIALS - 1.4%
1,000 Lowe's Companies, Inc. .............. $ 40,563
600 Southdown, Inc. ..................... 43,539
----------
84,102
----------
CHEMICALS - 1.4%
1,170 Dupont (E.I.) de Nemours............. 87,311
----------
COMMERCIAL SERVICES - 3.0%
2,420 Allied Waste Industries, Inc.*....... 58,080
1,550 Paychex, Inc. ....................... 63,066
900 Sylvan Learning Systems, Inc.*....... 29,475
795 United Rentals, Inc.*................ 33,390
----------
184,011
----------
COMMUNICATIONS - 2.9%
1,210 AirTouch Communications*............. 70,709
570 Ascend Communications, Inc.*......... 28,251
680 CIENA Corp.*......................... 47,345
670 McLeodUSA, Inc. Class A*............. 26,046
----------
172,351
----------
COMPUTER SOFTWARE & PROCESSING - 13.6%
650 America Online, Inc. ................ 68,900
440 BMC Software, Inc. .................. 22,853
1,170 Cisco Systems, Inc. ................. 107,713
1,030 Computer Associates International,
Inc. .............................. 57,229
1,480 Compuware Corp.*..................... 75,665
780 DST Systems, Inc.*................... 43,680
570 Fiserv, Inc.*........................ 24,207
1,600 HBO & Co. ........................... 56,400
500 Intuit, Inc.*........................ 30,625
1,140 Microsoft Corp. ..................... 123,548
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 12
TURNER CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ ----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
COMPUTER SOFTWARE & PROCESSING (CONTINUED)
990 Network Associates, Inc. ............ $ 47,396
610 Peoplesoft*.......................... 28,670
1,610 Sungard Data Systems, Inc.*.......... 61,784
870 VERITAS Software Corp.*.............. 35,996
230 Yahoo! Inc.*......................... 36,225
----------
820,891
----------
COMPUTERS & INFORMATION - 2.7%
500 Comverse Technology, Inc.*........... 25,938
820 Dell Computer Corp. ................. 76,106
640 EMC Corp. ........................... 28,680
720 Storage Technology Corp. ............ 31,230
----------
161,954
----------
CONGLOMERATES - 2.0%
1,130 Republic Industries, Inc.*........... 28,250
1,490 Tyco International Ltd. ............. 93,870
----------
122,120
----------
COSMETICS & PERSONAL CARE - 3.2%
560 Avon Products, Inc. ................. 43,400
570 Colgate-Palmolive Co. ............... 50,160
1,050 Gillette Co. ........................ 59,522
1,660 The Dial Corp. ...................... 43,056
----------
196,138
----------
ELECTRIC UTILITIES - 0.8%
880 AES Corp.*........................... 46,255
----------
ELECTRICAL EQUIPMENT - 0.5%
770 Kuhlman Corp. ....................... 30,463
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ ----------
<C> <S> <C>
ELECTRONICS - 1.7%
955 Intel Corp. ......................... $ 70,789
660 PMC-Sierra, Inc.*.................... 30,938
----------
101,727
----------
ENTERTAINMENT & LEISURE - 0.8%
450 Walt Disney Co. ..................... 47,278
----------
ENVIRONMENTAL CONTROLS - 0.7%
860 USA Waste Services, Inc.*............ 42,463
----------
FINANCIAL SERVICES - 4.4%
800 American Express Co. ................ 91,200
1,070 Morgan Stanley, Dean Witter & Co. ... 97,771
980 Providian Financial Corp. ........... 76,991
----------
265,962
----------
FOOD RETAILERS - 0.5%
520 Starbucks Corporation*............... 27,787
----------
HEALTH CARE PROVIDERS - 0.8%
780 Universal Health Services, Inc. -
Class B*........................... 45,532
----------
HEAVY CONSTRUCTION - 1.1%
1,970 McDermott International, Inc. ....... 67,842
----------
HOME CONSTRUCTION, FURNISHINGS &
APPLIANCES - 0.9%
655 Home Depot........................... 54,406
----------
HOUSEHOLD PRODUCTS - 3.3%
740 Black & Decker Corp. ................ 45,140
1,125 Illinois Tool Works, Inc. ........... 75,023
870 Procter & Gamble Co. ................ 79,224
----------
199,387
----------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 13
TURNER CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ ----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
INSURANCE - 5.3%
1,230 Ace Ltd. ............................ $ 47,970
770 Equitable Companies, Inc. ........... 57,702
550 EXEL Ltd. ........................... 42,797
430 Mercury General Corp.*............... 27,708
250 Progressive Corp. ................... 35,250
1,795 Travelers Group...................... 108,822
----------
320,249
----------
MEDIA - BROADCASTING & PUBLISHING - 2.0%
560 Clear Channel Communications,
Inc.*.............................. 61,110
1,180 Cox Communications, Inc. - Class
A*................................. 57,156
----------
118,266
----------
MEDICAL SUPPLIES - 2.7%
545 Becton, Dickinson & Co. ............. 42,306
860 Boston Scientific Corp.*............. 61,597
920 Medtronics, Inc. .................... 58,650
----------
162,553
----------
METALS - 1.4%
1,070 Danaher Corp. ....................... 39,256
740 Masco Corp. ......................... 44,770
----------
84,026
----------
OFFICE EQUIPMENT - 1.2%
740 Xerox Corp. ......................... 75,203
----------
OIL & GAS - 6.6%
3,120 EEX Corp.*........................... 29,250
1,600 El Paso Natural Gas Co. ............. 61,200
1,345 Exxon................................ 95,915
960 Mobil Corp. ......................... 73,560
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ ----------
<C> <S> <C>
OIL & GAS (CONTINUED)
1,590 Royal Dutch Petroleum Co. ........... $ 87,152
1,474 Williams Companies, Inc. ............ 49,748
----------
396,825
----------
PHARMACEUTICALS - 7.0%
620 Bristol-Myers Squibb Co. ............ 71,261
700 McKesson Corporation................. 56,875
700 Merck & Co, Inc. .................... 93,625
890 Pfizer, Inc. ........................ 96,732
450 Schering-Plough Corp. ............... 41,231
930 Warner Lambert Co. .................. 64,519
----------
424,243
----------
RESTAURANTS - 0.9%
820 McDonald's Corporation............... 56,580
----------
RETAILERS - 3.4%
1,110 CVS Corp. ........................... 43,221
460 Kohl's Corp.*........................ 23,862
760 Office Depot, Inc.*.................. 23,987
1,400 Safeway, Inc. ....................... 56,963
1,420 Walgreen Co. ........................ 58,664
----------
206,697
----------
TELEPHONE SYSTEMS - 4.4%
740 Intermedia Communications, Inc.*..... 31,034
1,700 Qwest Communications International,
Inc.*.............................. 59,288
1,230 Sprint Corp. ........................ 86,715
1,820 WorldCom, Inc.*...................... 88,156
----------
265,193
----------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 14
TURNER CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ ----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
TEXTILES, CLOTHING & FABRICS - 0.9%
980 Sara Lee Corp........................ $ 54,819
----------
TRANSPORTATION - 0.7%
1,020 Carnival Corp. Class A............... 40,418
----------
TOTAL INVESTMENTS - 95.6% (Cost
$4,680,044)........................ 5,770,498
Other Assets and Liabilities
(net) - 4.4%....................... 264,709
----------
NET ASSETS - 100.0%.................. $6,035,207
==========
NOTES TO THE PORTFOLIO OF
INVESTMENTS:
* Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 15
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
COMMON STOCKS - 92.2%
AEROSPACE & DEFENSE - 1.0%
6,000 Orbital Sciences Corp.*............. $ 224,250
-----------
AIRLINES - 0.6%
5,120 American West Holdings Corp.*....... 146,240
-----------
BANKING - 0.8%
9,700 Advanta Corp. - Class B............. 192,788
-----------
BEVERAGES, FOOD & TOBACCO - 1.1%
16,200 Northland Cranberries, Inc. - Class
A................................. 250,088
-----------
BUILDING MATERIALS - 1.3%
6,860 Cameron Ashley Building Products*... 115,763
7,910 Elcor Corp. ........................ 199,727
-----------
315,490
-----------
CHEMICALS - 2.0%
32,500 Compass Plastics & Technologies,
Inc.*............................. 73,125
7,330 Hexcel Corp.*....................... 165,841
3,300 Lesco, Inc. ........................ 61,875
5,300 Rubbermaid, Inc. ................... 175,894
-----------
476,735
-----------
COMMERCIAL SERVICES - 5.7%
3,400 Analytical Surveys, Inc.*........... 124,525
8,700 Angelica Corp. ..................... 182,700
34,000 Celgene Corp.*...................... 361,250
7,400 Computer Learning Centers, Inc.*.... 184,075
7,500 Jostens, Inc. ...................... 180,937
11,500 Lo-Jack Corp.*...................... 143,031
9,300 Quanta Services, Inc.*.............. 136,594
1,200 Stone & Webster, Inc. .............. 47,550
-----------
1,360,662
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
COMMUNICATIONS - 10.9%
6,700 360 Communications Co.*............. $ 214,400
11,200 ACE*COMM Corp.*..................... 63,000
5,620 ADC Telecommunications, Inc.*....... 205,305
3,680 AirTouch Communications*............ 215,050
8,200 ANTEC Corp.*........................ 190,138
31,930 Arch Communications Group, Inc.*.... 125,724
6,600 Cable Design Technologies*.......... 136,125
9,000 Digital Microwave Corp. ............ 65,250
7,200 Harmon Industries, Inc. ............ 171,000
11,900 Intervoice, Inc.*................... 211,225
7,100 Newbridge Network Corp.*............ 169,956
4,000 Omnipoint Corp.*.................... 91,750
8,500 Paging Network, Inc.*............... 119,000
10,700 PictureTel Corporation*............. 98,975
9,100 Tollgrade Communications, Inc.*..... 234,325
6,630 Transaction Network Services,
Inc.*............................. 139,644
4,700 Xylan Corporation*.................. 140,119
-----------
2,590,986
-----------
COMPUTER SOFTWARE & PROCESSING - 14.1%
4,700 Ansoft Corp.*....................... 54,638
10,300 ANSYS, Inc.*........................ 101,713
8,750 BARRA, Inc.*........................ 214,375
4,200 FileNet Corp.*...................... 121,275
5,200 FORE Systems, Inc.*................. 137,800
1,400 GTech Holdings Corp.*............... 47,163
11,700 Information Resources, Inc.*........ 216,450
24,300 ISG International Software Group
Ltd.*............................. 249,075
5,200 Kronos, Inc.*....................... 188,500
7,940 Level 8 Systems, Inc.*.............. 71,460
32,200 Mentor Graphics Corp.*.............. 340,112
4,561 Network Associates, Inc. ........... 218,358
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 16
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
COMPUTER SOFTWARE & PROCESSING (CONTINUED)
5,800 Network Equipment Technology,
Inc.*............................. $ 90,988
5,600 Project Software & Development,
Inc.*............................. 112,350
7,550 Sandisk Corp.*...................... 104,284
11,600 STB Systems, Inc.*.................. 145,000
2,800 Synopsys, Inc.*..................... 128,100
15,300 System Software Associates, Inc.*... 109,012
2,800 Tecnomatix Technologies Ltd.*....... 56,000
21,460 The Learning Co., Inc.*............. 635,752
-----------
3,342,405
-----------
COMPUTERS & INFORMATION - 3.0%
13,800 Box Hill Systems Corp.*............. 95,738
7,200 Data General Corp.*................. 107,550
6,730 Evans & Sutherland Computer Co.*.... 169,512
11,600 In Focus Systems, Inc. ............. 81,925
6,500 Seagate Technology, Inc. ........... 154,781
2,800 Telxon Corp. ....................... 90,650
-----------
700,156
-----------
CONTAINERS & PACKAGING - 0.7%
11,390 US Can Corp.*....................... 167,291
-----------
COSMETICS & PERSONAL CARE - 0.4%
4,480 Wesley Jessen VisionCare, Inc.*..... 103,600
-----------
ELECTRIC UTILITIES - 0.8%
5,260 Calenergy, Inc.*.................... 158,129
-----------
ELECTRICAL EQUIPMENT - 1.1%
8,400 Artesyn Technologies, Inc.*......... 134,400
3,900 SBS Technologies, Inc.*............. 117,488
-----------
251,888
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
ELECTRONICS - 11.1%
10,600 American Superconductor Corp.*...... $ 127,200
7,400 Analog Devices, Inc.*............... 181,762
10,300 Applied Micro Circuits Corp.*....... 266,512
5,100 Atmel Corp.*........................ 69,488
2,200 Black Box Corp.*.................... 73,013
15,400 Cypress Semiconductor Corp.*........ 128,012
5,800 Essex International, Inc.*.......... 137,025
5,800 Exar Corp.*......................... 121,800
14,500 FARO Technologies, Inc.*............ 153,156
2,850 Harman International Industries..... 109,725
3,020 Lattice Semiconductor*.............. 85,787
4,100 Level One Communications, Inc.*..... 96,350
9,930 LSI Logic*.......................... 229,011
4,800 Microchip Technology, Inc.*......... 125,400
3,900 Read-Rite Corp.*.................... 35,344
2,610 Rogers Corp.*....................... 86,130
4,400 SpeedFam International, Inc.*....... 81,125
8,600 TelCom Semiconductor, Inc.*......... 44,075
18,860 Trimble Navigation Ltd.*............ 305,296
10,770 VLSI Technology*.................... 180,734
-----------
2,636,945
-----------
ENTERTAINMENT & LEISURE - 3.2%
14,900 American Coin Merchandising,
Inc.*............................. 294,275
20,380 Galoob Lewis Toys, Inc.*............ 203,800
8,220 International Game Technology....... 199,335
10,610 Sodak Gaming*....................... 66,313
-----------
763,723
-----------
FOREST PRODUCTS & PAPER - 2.7%
15,200 Gaylord Container Corp. - Class
A*................................ 116,850
13,160 Louisiana Pacific Corp.............. 240,170
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 17
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FOREST PRODUCTS & PAPER (CONTINUED)
8,800 Stone Container Corp.*.............. $ 137,500
4,300 Willamette Industries, Inc.......... 137,600
-----------
632,120
-----------
HEALTH CARE PROVIDERS - 2.5%
9,200 Apple Orthodontix, Inc.*............ 55,200
3,200 Coventry Health Care, Inc.*......... 47,600
7,100 Laser Vision Centers, Inc.*......... 86,088
4,600 Lincare Holdings, Inc.*............. 193,487
6,200 Sunrise Assisted Living, Inc.*...... 213,125
-----------
595,500
-----------
HEAVY CONSTRUCTION - 0.4%
11,680 Perini Corp.*....................... 100,010
-----------
HEAVY MACHINERY - 2.8%
8,920 Brown & Sharpe Manufacturing Co.*... 107,040
13,700 Central Sprinkler Corp.*............ 109,600
26,630 Insituform Technologies*............ 368,658
3,500 Lam Research Corp.*................. 66,937
-----------
652,235
-----------
HOME CONSTRUCTION, FURNISHINGS &
APPLIANCES - 1.1%
9,400 Heilig-Meyers Co.................... 115,737
6,200 Virco Manufacturing Corp............ 139,500
-----------
255,237
-----------
INSURANCE - 1.2%
3,090 Conseco, Inc........................ 144,457
3,100 HCC Insurance Holdings, Inc......... 68,200
2,480 United Wisconsin Services........... 70,370
-----------
283,027
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
MEDIA - BROADCASTING & PUBLISHING - 3.7%
900 Gibson Greetings, Inc.*............. $ 22,500
11,730 Mail-Well, Inc. .................... 254,394
30,100 Network Event Theater, Inc.*........ 127,925
1,400 Scholastic Corp.*................... 55,825
7,320 Scientific Games Holdings Corp.*.... 168,360
4,340 Viacom, Inc. - Class B*............. 252,805
-----------
881,809
-----------
MEDICAL SUPPLIES - 0.7%
5,700 Merit Medical Systems, Inc.*........ 50,587
10,800 Visible Genetics Inc.*.............. 106,650
-----------
157,237
-----------
MEDICAL & BIO-TECHNOLOGY - 2.3%
11,040 Neoprobe Corp.*..................... 30,360
8,700 VISX, Inc.*......................... 517,650
-----------
548,010
-----------
METALS - 4.5%
21,370 Birmingham Steel Corp. ............. 264,454
1,420 Carpenter Technology................ 71,355
4,300 CommScope, Inc.*.................... 69,606
5,400 J&L Specialty Steel, Inc. .......... 32,062
7,950 Oregon Steel Mills.................. 148,069
6,000 Quanex Corp. ....................... 181,875
2,800 Reliance Steel & Aluminum Co. ...... 108,150
9,300 Synalloy Corp. ..................... 125,550
1,100 Texas Industries, Inc. ............. 58,300
-----------
1,059,421
-----------
OIL & GAS - 2.0%
4,470 Carbo Ceramics, Inc. ............... 152,538
4,480 COHO Energy, Inc.*.................. 30,240
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 18
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
OIL & GAS (CONTINUED)
4,225 Louis Dreyfus Natural Gas Corp.*.... $ 80,011
4,780 Noble Drilling Corp.*............... 115,019
1,700 Vastar Resources, Inc. ............. 74,269
2,770 Wiser Oil Co. ...................... 30,643
-----------
482,720
-----------
PHARMACEUTICALS - 2.3%
6,100 Alkermes, Inc.*..................... 109,038
17,700 Cellegy Pharmaceuticals, Inc.*...... 98,456
19,030 DUSA Pharmaceuticals, Inc.*......... 129,642
8,700 Protein Design Labs, Inc.*.......... 209,615
-----------
546,751
-----------
REAL ESTATE - 3.0%
3,700 Boston Properties, Inc. - REIT...... 127,650
14,080 CB Richard Ellis Services Group,
Inc.*............................. 470,800
195 Horizon Group Properties,
Inc. - REIT*...................... 1,286
1,500 LaSalle Partners, Inc.*............. 66,750
3,900 Prime Retail, Inc. - REIT........... 46,556
-----------
713,042
-----------
RETAILERS - 0.8%
4,300 Claire's Stores, Inc................ 88,150
15,200 National Vision Associates, Ltd.*... 100,700
-----------
188,850
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
TELEPHONE SYSTEMS - 1.3%
4,400 Century Communications Corp.*....... $ 82,500
8,300 Periphonics Corporation*............ 104,269
6,140 Western Wireless Corp. - Class A*... 122,416
-----------
309,185
-----------
TEXTILES, CLOTHING & FABRICS - 1.2%
25,000 Hartmarx Corp.*..................... 189,063
2,800 Unifi, Inc. ........................ 95,900
-----------
284,963
-----------
TRANSPORTATION - 1.9%
10,300 ABC Rail Products Corp.*............ 177,675
8,600 Celadon Group, Inc.*................ 163,400
3,370 USFreightways Corp. ................ 110,683
-----------
451,758
-----------
TOTAL INVESTMENTS - 92.2% (Cost
$20,851,923)...................... 21,823,251
Other Assets and Liabilities
(net) - 7.8%...................... 1,855,236
-----------
NET ASSETS - 100.0%................. $23,678,487
===========
</TABLE>
NOTES TO THE PORTFOLIO OF INVESTMENTS:
REIT - Real Estate Investment Trust
* Non-income producing security.
See accompanying notes to financial statements.
17
<PAGE> 19
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
COMMON STOCKS - 97.7%
AEROSPACE & DEFENSE - 1.7%
1,200 General Dynamics.................... $ 55,800
1,100 Lockheed Martin Corp. .............. 116,462
-----------
172,262
-----------
AIRLINES - 0.6%
600 AMR Corporation*.................... 49,950
200 FDX Corp.*.......................... 12,550
-----------
62,500
-----------
APPAREL RETAILERS - 0.4%
946 Abercrombie & Fitch Co. - Class
A*................................ 41,624
-----------
AUTOMOTIVE - 3.4%
500 Dana Corp. ......................... 26,750
5,500 Ford Motor Co. ..................... 324,500
-----------
351,250
-----------
BANKING - 9.1%
1,441 Associates First Capital Corp. ..... 110,777
3,300 Banc One Corp. ..................... 184,181
2,400 BankAmerica Corp. .................. 207,450
100 Bankers Trust New York Corp. ....... 11,606
600 First Union Corp. .................. 34,950
100 Golden West Financial Corp. ........ 10,631
1,100 H.F. Ahmanson & Co. ................ 78,100
3,800 Nationsbank Corp. .................. 290,700
500 Norwest Corp. ...................... 18,688
-----------
947,083
-----------
BEVERAGES, FOOD & TOBACCO - 2.6%
400 Adolph Coors Co. ................... 13,600
400 Coca-Cola Co. ...................... 34,200
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
BEVERAGES, FOOD & TOBACCO (CONTINUED)
400 Dole Food Company................... $ 19,875
1,500 Philip Morris Co. .................. 59,063
2,700 Quaker Oats Co. .................... 148,331
-----------
275,069
-----------
BUILDING & CONSTRUCTION - 0.8%
2,200 Centex Corp. ....................... 83,050
-----------
CHEMICALS - 1.9%
300 B.F. Goodrich Co. .................. 14,887
1,600 Dow Chemical........................ 154,700
300 Nalco Chemical Co. ................. 10,538
600 Rubbermaid, Inc. ................... 19,912
-----------
200,037
-----------
COMMERCIAL SERVICES - 1.8%
300 AccuStaff, Inc.*.................... 9,375
4,000 Dun & Bradstreet Corp. ............. 144,500
700 Fluor Corp. ........................ 35,700
-----------
189,575
-----------
COMMUNICATIONS - 5.1%
4,800 AirTouch Communications*............ 280,500
2,964 Lucent Technologies................. 246,568
-----------
527,068
-----------
COMPUTER SOFTWARE & PROCESSING - 2.8%
500 Automatic Data Processing, Inc. .... 36,438
1,200 Deluxe Corp. ....................... 42,975
1,700 Microsoft Corp. .................... 184,237
1,300 Oracle Corp. ....................... 31,931
-----------
295,581
-----------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 20
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
COMPUTERS & INFORMATION - 3.1%
4,300 Apple Computer, Inc.*............... $ 123,356
3,400 Compaq Computer..................... 96,475
1,500 EMC Corp. .......................... 67,219
900 Tech Data Corp.*.................... 38,587
-----------
325,637
-----------
CONGLOMERATES - 2.9%
700 Raychem Corp. ...................... 20,694
4,500 Tyco International Ltd. ............ 283,500
-----------
304,194
-----------
CONTAINERS & PACKAGING - 0.9%
800 Avery-Dennison Corp. ............... 43,000
1,100 Crown Cork & Seal, Inc. ............ 52,250
-----------
95,250
-----------
ELECTRIC UTILITIES - 4.2%
400 American Electric Power Co.,
Inc. ............................. 18,150
100 Baltimore Gas and Electric Co. ..... 3,106
2,100 DTE Energy Company ................. 84,787
1,100 FPL Group, Inc. .................... 69,300
3,211 Houston Industries, Inc. ........... 99,140
900 PP&L Resources, Inc. ............... 20,419
3,000 Public Service Enterprise Group,
Inc. ............................. 103,312
1,300 Southern Company ................... 35,994
-----------
434,208
-----------
ELECTRICAL EQUIPMENT - 0.4%
800 Thomas & Betts Corp. ............... 39,400
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
ELECTRONICS - 0.8%
100 Harris Corporation.................. $ 4,469
500 Intel Corp. ........................ 37,062
800 Motorola, Inc. ..................... 42,050
-----------
83,581
-----------
ENTERTAINMENT & LEISURE - 1.1%
1,100 Walt Disney Co. .................... 115,569
-----------
FINANCIAL SERVICES - 4.3%
2,500 Federal Home Loan Mortgage Corp. ... 117,656
400 Federal National Mortgage
Association....................... 24,300
3,360 Morgan Stanley, Dean Witter &
Co. .............................. 307,020
-----------
448,976
-----------
FOOD RETAILERS - 3.4%
2,200 Albertson's, Inc. .................. 113,988
7,587 Archer-Daniels-Midland.............. 146,998
400 Interstate Bakeries Corp. .......... 13,275
1,700 Supervalu, Inc. .................... 75,438
-----------
349,699
-----------
FOREST PRODUCTS & PAPER - 1.0%
2,200 IKON Office Solutions, Inc. ........ 32,037
700 Mead Corp. ......................... 22,225
700 Tenneco, Inc. ...................... 26,644
500 Union Camp Corp. ................... 24,813
-----------
105,719
-----------
HEALTH CARE PROVIDERS - 0.8%
1,000 Beverly Enterprises, Inc.*.......... 13,813
2,700 Healthsouth Corp. .................. 72,056
-----------
85,869
-----------
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 21
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HEAVY CONSTRUCTION - 0.0%
100 McDermott International, Inc. ...... $ 3,444
-----------
HEAVY MACHINERY - 3.4%
2,600 Caterpiller, Inc. .................. 137,475
1,200 Cooper Industries, Inc. ............ 65,925
200 Deere & Co. ........................ 10,575
600 Dover Corp. ........................ 20,550
1,500 Ingersoll Rand Co. ................. 66,094
1,000 Parker-Hannifin Corp. .............. 38,125
200 WW Grainger, Inc. .................. 9,962
-----------
348,706
-----------
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES -
3.0%
2,650 Home Depot.......................... 220,116
1,300 Whirlpool Corp. .................... 89,375
-----------
309,491
-----------
HOUSEHOLD PRODUCTS - 0.4%
400 Procter & Gamble Co. ............... 36,425
-----------
INSURANCE - 9.3%
1,900 Allstate Corp. ..................... 173,969
2,000 American International Group........ 292,000
1,800 Conseco, Inc. ...................... 84,150
200 General Re Corp. ................... 50,700
300 Jefferson Pilot Corp. .............. 17,381
300 Marsh & McLennan Co., Inc. ......... 18,131
3,148 Travelers Group..................... 190,848
2,200 United Healthcare Corp. ............ 139,700
-----------
966,879
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
MEDIA - BROADCASTING & PUBLISHING - 3.3%
300 Dow Jones & Co., Inc. .............. $ 16,725
1,300 Gannett Co, Inc. ................... 92,381
900 Knight-Ridder, Inc. ................ 49,556
1,200 Tele-Communications, Inc.*.......... 46,125
1,000 Tribune Co. ........................ 68,813
1,100 Viacom, Inc.*....................... 64,075
-----------
337,675
-----------
MEDICAL SUPPLIES - 1.5%
400 Guidant Corp. ...................... 28,525
3,700 Thermo Electron Corp.*.............. 126,494
-----------
155,019
-----------
METALS - 1.2%
1,500 Newell Co. ......................... 74,719
1,000 Nucor Corp. ........................ 46,000
-----------
120,719
-----------
OIL & GAS - 5.3%
500 Amoco............................... 20,813
500 Ashland, Inc. ...................... 25,812
500 Baker Hughes, Inc. ................. 17,281
800 Chevron Corp. ...................... 66,450
500 Coastal Corp. ...................... 34,906
1,800 Exxon............................... 128,363
300 Helmerich & Payne, Inc. ............ 6,675
500 Mobil Corp. ........................ 38,312
800 Pennzoil............................ 40,500
1,900 Schlumberger Ltd. .................. 129,794
1,200 Sun Co., Inc. ...................... 46,575
-----------
555,481
-----------
</TABLE>
See accompanying notes to financial statements.
20
<PAGE> 22
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
(PERCENTAGES OF NET ASSETS)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS - 6.7%
1,000 Abbott Laboratories................. $ 40,875
1,000 American Home Products Corp. ....... 51,750
2,000 Cardinal Health, Inc. .............. 187,500
200 Genentech, Inc.*.................... 13,575
1,400 Johnson & Johnson................... 103,250
2,200 Merck & Co, Inc. ................... 294,250
455 PharMerica, Inc.*................... 5,488
-----------
696,688
-----------
RESTAURANTS - 0.1%
1,000 Ryans Family Steak House, Inc.*..... 10,250
-----------
RETAILERS - 5.4%
700 Costco Co., Inc.*................... 44,144
6,000 Dayton-Hudson Corp. ................ 291,000
3,800 Wal-Mart Stores, Inc. .............. 230,850
-----------
565,994
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ -----------
<C> <S> <C>
TELEPHONE SYSTEMS - 4.9%
5,200 AT&T Corp. ......................... $ 297,050
3,200 Bell Atlantic Corp. ................ 146,000
500 BellSouth Corporation............... 33,563
700 WorldCom, Inc.*..................... 33,906
-----------
510,519
-----------
TEXTILES, CLOTHING & FABRICS - 0.1%
100 VF Corp. ........................... 5,150
-----------
TOTAL INVESTMENTS - 97.7%
(Cost $8,470,180)................... 10,155,641
Other Assets and Liabilities
(net) - 2.3%...................... 234,046
-----------
NET ASSETS - 100.0%................. $10,389,687
===========
</TABLE>
NOTES TO THE PORTFOLIO OF INVESTMENTS:
* Non-income producing security.
See accompanying notes to financial statements.
21
<PAGE> 23
M FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
<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......... $7,423,289 $5,770,498 $21,823,251 $10,155,641
Cash............................................ 477,896 186,833 2,342,991 153,971
Foreign currency, at value (Note 1)**........... 4,560 -- -- --
Receivable from:
Securities sold............................ -- 11,023 1,400 50,775
Dividends and interest..................... 32,540 4,711 15,482 14,971
Investment Adviser (Note 2)................ 27,628 37,080 -- 26,339
Deferred organization expense................... 50,603 50,603 50,603 50,603
---------- ---------- ----------- -----------
Total assets........................... 8,016,516 6,060,748 24,233,727 10,452,300
---------- ---------- ----------- -----------
LIABILITIES:
Payable for:
Securities purchased....................... -- 7,618 510,129 48,689
Unrealized depreciation on forward foreign
currency contracts (Note 6).............. 4 -- -- --
Investment Adviser (Note 2)................ -- -- 29,740 --
Accrued expenses and other liabilities..... 14,740 17,923 15,371 13,924
---------- ---------- ----------- -----------
Total liabilities...................... 14,744 25,541 555,240 62,613
---------- ---------- ----------- -----------
NET ASSETS.......................................... $8,001,772 $6,035,207 $23,678,487 $10,389,687
========== ========== =========== ===========
NET ASSETS CONSIST OF:
Paid-in capital................................. $7,264,626 $4,665,662 $22,881,688 $ 8,359,806
Undistributed net investment income
(distributions in excess of net investment
income)....................................... 38,732 6,952 (16,667) 36,905
Accumulated net realized gain (loss) on
investments and foreign currency
transactions.................................. (427,789) 272,139 (157,862) 307,515
Net unrealized appreciation on investments,
forward currency contracts, and net other
assets........................................ 1,126,203 1,090,454 971,328 1,685,461
---------- ---------- ----------- -----------
NET ASSETS.......................................... $8,001,772 $6,035,207 $23,678,487 $10,389,687
========== ========== =========== ===========
SHARES OUTSTANDING.................................. 715,623 370,877 1,564,203 585,233
========== ========== =========== ===========
Net asset value, offering price and redemption price
per share......................................... $ 11.18 $ 16.27 $ 15.14 $ 17.75
========== ========== =========== ===========
* Cost of investments.............................. $6,296,989 $4,680,044 $20,851,923 $ 8,470,180
** Cost of foreign currency......................... $ 4,490 -- -- --
</TABLE>
See accompanying notes to the financial statements.
22
<PAGE> 24
M FUND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<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..................................... $ 9,091 $ 5,040 $ 68,366 $ 3,838
Dividends*................................... 83,346 17,991 35,225 68,214
--------- -------- --------- ----------
Total investment income............. 92,437 23,031 103,591 72,052
--------- -------- --------- ----------
EXPENSES:
Investment Advisory fee (Note 2)............. 37,502 10,293 93,988 24,054
Custody and administration fees.............. 69,362 57,116 58,349 56,268
Professional fees............................ 13,333 12,259 12,259 12,259
Shareholder reporting........................ 2,737 2,737 2,737 2,737
Directors' fees and expenses................. 5,207 5,207 5,207 5,207
Amortization of organization costs........... 10,208 10,208 10,208 10,208
Other........................................ 4,056 4,056 4,056 4,056
--------- -------- --------- ----------
Total expenses...................... 142,405 101,876 186,804 114,789
Less: Expenses reimbursable by the Adviser
(Note 2)................................... (95,824) (85,819) (66,546) (79,692)
--------- -------- --------- ----------
Net operating expenses....................... 46,581 16,057 120,258 35,097
--------- -------- --------- ----------
NET INVESTMENT INCOME (LOSS)..................... 45,856 6,974 (16,667) 36,955
--------- -------- --------- ----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investment transactions................. (171,175) 298,955 (100,846) 307,658
Foreign currency transactions........... 4,633 -- -- --
--------- -------- --------- ----------
Net realized gain (loss)................ (166,542) 298,955 (100,846) 307,658
--------- -------- --------- ----------
Net change in unrealized appreciation
(depreciation) on:
Investments............................. 885,505 591,526 478,060 1,082,249
Forward currency and net other asset.... (107) -- -- --
--------- -------- --------- ----------
Net change in unrealized
appreciation during the period.... 885,398 591,526 478,060 1,082,249
--------- -------- --------- ----------
NET REALIZED AND UNREALIZED GAIN................. 718,856 890,481 377,214 1,389,907
--------- -------- --------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS..................................... $ 764,712 $897,455 $ 360,547 $1,426,862
========= ======== ========= ==========
* Net of foreign taxes withheld of:.............. $ 11,683 $ 175 $ 14 $ 57
</TABLE>
See accompanying notes to the financial statements.
23
<PAGE> 25
M FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EDINBURGH OVERSEAS TURNER CORE
EQUITY FUND GROWTH FUND
------------------------------- -------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997 (UNAUDITED) 1997
---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income (loss)......... $ 45,856 $ 40,332 $ 6,974 $ 10,026
Net realized gain (loss) on
investment and foreign currency
transactions....................... (166,542) (148,305) 298,955 310,733
Net change in unrealized appreciation
on investments, forward currency
contracts, foreign currency, and
other assets....................... 885,398 165,207 591,526 418,627
----------- ----------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations.......... 764,712 57,234 897,455 739,386
----------- ----------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income........... - (42,365) (925) (10,958)
In excess of net investment income... - (17,077) - -
From net realized capital gains...... - - (1,222) (312,314)
In excess of net realized capital
gains.............................. - - - (25,594)
Tax return of capital................ - (25,490) - -
----------- ----------- ---------- ----------
Total distributions to
shareholders.................. - (84,932) (2,147) (348,866)
----------- ----------- ---------- ----------
FUND SHARE TRANSACTIONS (NOTE 4):
Proceeds from shares sold............ 2,343,845 4,061,904 1,908,934 1,883,531
Net asset value of shares issued on
reinvestment of distributions...... - 103,163 2,147 417,785
Cost of shares repurchased........... (1,140,770) (1,280,581) (591,324) (874,625)
----------- ----------- ---------- ----------
Net increase in net assets resulting
from Fund share transactions....... 1,203,075 2,884,486 1,319,757 1,426,691
----------- ----------- ---------- ----------
TOTAL CHANGE IN NET ASSETS............... 1,967,787 2,856,788 2,215,065 1,817,211
NET ASSETS:
Beginning of period.................. 6,033,985 3,177,197 3,820,142 2,002,931
----------- ----------- ---------- ----------
End of period *...................... $ 8,001,772 $ 6,033,985 $6,035,207 $3,820,142
=========== =========== ========== ==========
* Including undistributed net
investment income (distributions in
excess of net investment income)
of:.................................. $ 38,732 $ (7,124) $ 6,952 $ 903
</TABLE>
See accompanying notes to the financial statements.
24
<PAGE> 26
M FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FRONTIER CAPITAL ENHANCED U.S.
APPRECIATION FUND EQUITY FUND
-------------------------------- --------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997 (UNAUDITED) 1997
---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM:
OPERATIONS:
Net investment income (loss)...... $ (16,667) $ (11,254) $ 36,955 $ 39,150
Net realized gain (loss) on
investment and foreign currency
transactions.................... (100,846) 521,608 307,658 201,780
Net change in unrealized
appreciation on investments,
forward currency contracts,
foreign currency, and other
assets.......................... 478,060 328,082 1,082,249 467,676
----------- ----------- ----------- ----------
Net increase (decrease) in net
assets resulting from
operations...................... 360,547 838,436 1,426,862 708,606
----------- ----------- ----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income........ - - (932) (39,983)
In excess of net investment
income.......................... - - - -
From net realized capital gains... (125,049) (391,663) (28,674) (204,015)
In excess of net realized capital
gains........................... - - - -
Tax return of capital............. - - - -
----------- ----------- ----------- ----------
Total distributions to
shareholders............... (125,049) (391,663) (29,606) (243,998)
----------- ----------- ----------- ----------
FUND SHARE TRANSACTIONS (NOTE 4):
Proceeds from shares sold......... 8,098,324 19,956,544 1,982,380 5,516,206
Net asset value of shares issued
on reinvestment of
distributions................... 125,049 513,452 29,606 313,092
Cost of shares repurchased........ (1,408,832) (7,294,264) (364,367) (531,235)
----------- ----------- ----------- ----------
Net increase in net assets
resulting from Fund share
transactions.................... 6,814,541 13,175,732 1,647,619 5,298,063
----------- ----------- ----------- ----------
TOTAL CHANGE IN NET ASSETS............ 7,050,039 13,622,505 3,044,875 5,762,671
NET ASSETS:
Beginning of period............... 16,628,448 3,005,943 7,344,812 1,582,141
----------- ----------- ----------- ----------
End of period *................... $23,678,487 $16,628,448 $10,389,687 $7,344,812
=========== =========== =========== ==========
* Including undistributed net
investment income (distributions
in excess of net investment
income) of:....................... $ (16,667) $ - $ 36,905 $ 882
</TABLE>
See accompanying notes to the financial statements.
25
<PAGE> 27
M FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EDINBURGH OVERSEAS TURNER CORE
EQUITY FUND GROWTH FUND
---------------------------------------------- -----------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 1998 DECEMBER 31, DECEMBER 31, JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 1996(a) (UNAUDITED) 1997 1996(a)
---------------- ------------ ------------ ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 9.96 $ 9.88 $10.00 $13.50 $11.60 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)................... 0.18 0.07 0.06 0.06 0.04 0.06
Net realized and unrealized
gain (loss) on
investments.............. 1.04 0.15 (0.12) 2.72 3.22 1.94
------ ------ ------ ------ ------ ------
Total from investment
operations........... 1.22 0.22 (0.06) 2.78 3.26 2.00
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income................... -- (0.07) (0.06) (0.00)(+) (0.04) (0.06)
In excess of net investment
income................... -- (0.03) -- -- -- --
From net realized capital
gains.................... -- -- -- (0.00)(+) (1.22) (0.34)
In excess of net realized
capital gains............ -- -- -- -- (0.10) --
Tax return of capital...... -- (0.04) -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions.... -- (0.14) (0.06) (0.01) (1.36) (0.40)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD....................... $11.18 $ 9.96 $ 9.88 $16.27 $13.50 $11.60
====== ====== ====== ====== ====== ======
TOTAL RETURN................... 12.25%* 2.26% (0.63)%* 20.56%* 28.32% 19.99%*
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's).................. $8,002 $6,034 $3,177 $6,035 $3,820 $2,003
Net expenses to average
daily net assets before
interest expense**....... 1.30% 1.30% 1.30% 0.70% 0.70% 0.70%
Net expenses to average
daily net assets after
interest expense**....... 1.30% 1.30% 1.30% 0.70% 0.70% 0.78%
Net investment income
(loss) to average daily
net assets**............. 1.28% 0.83% 0.67% 0.30% 0.34% 0.55%
Portfolio turnover rate.... 28% 74% 65% 90% 206% 258%
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**... 3.97% 4.94% 7.34% 4.44% 6.20% 8.51%
Net investment income
(loss)**............. (1.39)% (2.81)% (5.37)% (3.44)% (5.16)% (7.26)%
</TABLE>
(a) Funds commenced operations on January 4, 1996
(+) Distribution amount less than 0.01.
* Not annualized
** Annualized for periods less than one year
See accompanying notes to the financial statements.
26
<PAGE> 28
M FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FRONTIER CAPITAL ENHANCED U.S.
APPRECIATION FUND EQUITY FUND
---------------------------------------------- -----------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 1998 DECEMBER 31, DECEMBER 31, JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 1996(a) (UNAUDITED) 1997 1996(a)
---------------- ------------ ------------ ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 14.92 $ 12.52 $10.00 $ 15.09 $11.85 $10.00
------- ------- ------ ------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)................... (0.01) 0.00 0.00 0.14 0.08 0.12
Net realized and unrealized
gain (loss) on
investments.............. 0.31 2.76 3.03 2.57 3.78 2.25
------- ------- ------ ------- ------ ------
Total from investment
operations........... 0.30 2.76 3.03 2.71 3.86 2.37
------- ------- ------ ------- ------ ------
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income................... -- -- -- (0.00)(+) (0.09) (0.12)
In excess of net investment
income................... -- -- -- -- -- --
From net realized capital
gains.................... (0.08) (0.36) (0.51) (0.05) (0.53) (0.40)
In excess of net realized
capital gains............ -- -- -- -- -- --
Tax return of capital...... -- -- -- -- -- --
------- ------- ------ ------- ------ ------
Total distributions.... (0.08) (0.36) (0.51) (0.05) (0.62) (0.52)
------- ------- ------ ------- ------ ------
NET ASSET VALUE, END OF
PERIOD....................... $ 15.14 $ 14.92 $12.52 $ 17.75 $15.09 $11.85
======= ======= ====== ======= ====== ======
TOTAL RETURN................... 2.02%* 22.13% 30.31%* 17.96%* 32.68% 23.67%*
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's).................. $23,678 $16,628 $3,006 $10,390 $7,345 $1,582
Net expenses to average
daily net assets before
interest expense**....... 1.15% 1.15% 1.15% 0.80% 0.80% 0.80%
Net expenses to average
daily net assets after
interest expense**....... 1.15% 1.15% 1.20% 0.80% 0.80% 0.80%
Net investment income
(loss) to average daily
net assets**............. (0.16)% (0.13)% (0.30)% 0.84% 1.17% 1.43%
Portfolio turnover
rate................... 26% 61% 140% 28% 52% 79%
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**........... 1.79% 2.86% 8.19% 2.62% 5.42% 12.45%
Net investment income
(loss)**............. (0.80)% (1.84)% (7.34)% (0.98)% (3.45)% (10.22)%
</TABLE>
(a) Funds commenced operations on January 4, 1996
(+) Distribution amount less than 0.01.
* Not annualized
** Annualized for periods less than one year
See accompanying notes to the financial statements.
27
<PAGE> 29
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
M Fund, Inc. (the "Company") was incorporated in Maryland on August 11, 1995 and
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company. The Company consists of
four separate diversified investment portfolios: Edinburgh Overseas Equity Fund,
Turner Core Growth Fund, Frontier Capital Appreciation Fund and Enhanced U.S.
Equity Fund (the "Funds"), each of which is, in effect, a separate mutual fund.
Each 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 and variable life contracts issued by John Hancock
Variable Life Insurance Co., Pacific Life Insurance Co. and New York Life
Insurance Co.
Each Fund's investment objective is either 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
28
<PAGE> 30
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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 investment 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 Funds' Investment Adviser, acting under the
supervision of the Board of Directors, reviews the value of the collateral and
the creditworthiness of those banks and dealers with which the Fund enters into
repurchase agreements to evaluate potential risks.
FOREIGN CURRENCY
Edinburgh Overseas Equity Fund may invest in non-U.S. dollar denominated assets.
Foreign currencies, investments and other assets and liabilities of the Fund are
translated into U.S. dollars at the exchange rates available at twelve noon
Eastern Time. Purchases and sales of investment securities, income receipts and
expense payments are translated into U.S. dollars at the prevailing exchange
rate on the respective dates of such transactions.
The Fund does not isolate that portion of the results 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
29
<PAGE> 31
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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 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
30
<PAGE> 32
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
deferral of net realized capital losses recognized subsequent to October.
Permanent differences relating to shareholder distributions will result in
differing characterization of distributions made by each Fund and
reclassifications to paid-in capital.
FEDERAL INCOME TAXES
Each Fund intends 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 or excise tax is necessary. For federal income
tax purposes, the Edinburgh Overseas Equity Fund had a capital loss carryforward
of $20,515 expiring in 2004 and $133,846 expiring in 2005, as of December 31,
1997, which is available to offset future capital gains. The Edinburgh Overseas
Equity Fund and the Turner Core Growth Fund elected to defer to their fiscal
years ending December 31, 1998, $105,080 and $24,458, respectively, of losses
recognized during the period November 1, 1997 to December 31, 1997.
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.
31
<PAGE> 33
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (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, 1998.
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 paid 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 reimbursed 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 six months ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- ----------
<S> <C> <C>
Edinburgh Overseas Equity Fund........................... $ 3,086,570 $1,884,553
Turner Core Growth Fund.................................. 5,185,272 3,979,147
Frontier Capital Appreciation Fund....................... 12,694,358 4,780,154
Enhanced U.S. Equity Fund................................ 4,110,136 2,409,289
</TABLE>
At June 30, 1998, 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........ $ 6,296,989 $1,602,640 $ (476,340) $1,126,300
Turner Core Growth Fund............... 4,680,044 1,107,601 (17,147) 1,090,454
Frontier Capital Appreciation Fund.... 20,851,923 3,039,320 (2,067,992) 971,328
Enhanced U.S. Equity Fund............. 8,470,180 1,880,783 (195,322) 1,685,461
</TABLE>
32
<PAGE> 34
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. SHARES OF BENEFICIAL INTEREST
At June 30, 1998 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 EQUITY FUND TURNER CORE GROWTH FUND
------------------------------ ----------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997 (UNAUDITED) 1997
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Shares sold........................ 217,833 400,630 130,102 146,803
Shares repurchased................. (107,940) (126,803) (42,283) (68,463)
Distributions reinvested........... -- 10,362 133 31,971
-------- -------- ------- -------
Net increase....................... 109,893 284,189 87,952 110,311
Fund shares:
Beginning of period.............. 605,730 321,541 282,925 172,614
-------- -------- ------- -------
End of period.................... 715,623 605,730 370,877 282,925
======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
FRONTIER CAPITAL APPRECIATION FUND ENHANCED U.S. EQUITY FUND
----------------------------------- ----------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997 (UNAUDITED) 1997
--------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Shares sold....................... 533,315 1,325,768 119,140 369,645
Shares repurchased................ (91,904) (487,715) (22,371) (38,550)
Distributions reinvested.......... 8,348 36,393 1,672 22,172
--------- --------- ------- -------
Net increase...................... 449,759 874,446 98,441 353,267
Fund shares:
Beginning of period............. 1,114,444 239,998 486,792 133,525
--------- --------- ------- -------
End of period................... 1,564,203 1,114,444 585,233 486,792
========= ========= ======= =======
</TABLE>
33
<PAGE> 35
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (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 are limited to 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, 1998,
the Edinburgh Overseas Equity Fund had the following open forward currency
exchange contracts:
<TABLE>
<CAPTION>
SETTLEMENT MARKET UNREALIZED
TYPE CURRENCY DATE $U.S. VALUE VALUE DEPRECIATION
- -------- ------------ ---------- ----------- ------ ------------
<S> <C> <C> <C> <C> <C>
Purchase Swiss Franc 07/08/98 $901 $899 $(2)
Sale Japanese Yen 07/01/98 78 80 (2)
</TABLE>
7. CONCENTRATION
At June 30, 1998, 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.
34
<PAGE> 36
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. BENEFICIAL INTEREST
At June 30, 1998, the ownership of each fund was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF OWNERSHIP
----------------------------------------------------------------
JOHN HANCOCK PACIFIC NEW YORK
M LIFE VARIABLE LIFE LIFE LIFE
INSURANCE CO. INSURANCE CO. INSURANCE CO. INSURANCE CO.
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Edinburgh Overseas Equity Fund.......... 28.5% 60.1% 11.4% --
Turner Core Growth Fund................. 30.8% 36.0% 33.1% 0.1%
Frontier Capital Appreciation Fund...... 6.9% 56.1% 36.7% 0.3%
Enhanced U.S. Equity Fund............... 18.6% 11.0% 69.4% 1.0%
</TABLE>
9. SUBSEQUENT EVENT
Effective July 1, 1998 the name of the Edinburgh Overseas Equity Fund was
changed, pursuant to a vote of the majority of the Directors of the Company, to
Brandes International Equity Fund. This change was made in connection with the
change in Sub-adviser to Brandes Investment Partners L.P. replacing Edinburgh
Fund Managers plc. The investment objective of the Brandes International Equity
Fund is long-term capital appreciation. The Brandes International Equity Fund
seeks to achieve its objective by investing principally in equity securities of
foreign issuers.
35
