<PAGE>
M FUNDS
Brandes International Equity Fund
Turner Core Growth Fund
Frontier Capital Appreciation Fund
Enhanced U.S. Equity Fund
Annual Report
December 31, 1998
[LOGO]
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M FUND, INC.
PRESIDENT'S LETTER
January 15, 1999
Dear Contract Owners:
We are pleased to present to you the M Fund, Inc. (the "Company") Annual Report
dated December 31, 1998. As of December 31, 1998, total assets under management
were in excess of $73.1 Million.
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 year
ended December 31, 1998 in addition to their outlook for 1999.
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 Co., Inc. for the Frontier
Capital Appreciation Fund, and Franklin Portfolio Associates, L.L.C. 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,
[SIGNATURE]
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>
BRANDES INTERNATIONAL EQUITY FUND
The Brandes International Equity Fund returned 15.37% for the year ended
December 31, 1998. The MSCI EAFE Index returned 20.09% for the same period. For
the period January 1, 1998 to June 30, 1998, the Fund was named the Edinburgh
Overseas Equity Fund and had a similar investment objective. During that time,
the Fund was managed by Edinburgh Fund Managers plc. For the period of July 1,
1998 to December 31, 1998, the Fund was managed by Brandes Investment Partners,
L.P.
1998 was a year of significant volatility in world markets. Throughout,
Brandes Investment Partners, L.P. consistently applied the bottom-up value
discipline we have applied to client portfolios since 1974. As a strict
Graham-Dodd value manager, Brandes searches the world for companies whose stocks
are undervalued. Upon purchase of such a stock, Brandes plans to hold it for 3-5
years, to allow it to achieve its long term, or intrinsic value. Brandes
conducts a rigorous bottom-up search. This means that it is the companies which
lead us to the countries in which we invest, not the other way around. As value
investors, we see opportunity in periods of volatility such as occurred in 1998.
These periods can provide us access to solid companies selling at discounts from
intrinsic value. Over time, we believe the market will recognize this intrinsic
value and the prices of these stocks may rise. We believe that purchasing stocks
at discounts from their long-term value can provide a margin of safety against
price declines, as well as the opportunity for profit.
Third quarter 1998 saw a sharp decline in global equity markets. This was
due, first, to deteriorating economic fundamentals in Japan, which threatened to
intensify and prolong the broader economic slump in Asia. Second, the
devaluation of the Russian ruble pressured the currencies of Latin American
nations, as investors worried that these countries would not be able to maintain
their managed currency systems.
Not even the previously high-flying markets of Europe were immune to the
bearish sentiment. Worries about exposure of European banks to defaulted loans
in Russia were primarily responsible for the correction.
In a dramatic turnaround, a sustained injection of liquidity into financial
markets by central banks world-wide, in the fourth quarter, helped restore
investor confidence in the global economy and unleashed a rally in international
equity markets.
In Latin America, equity markets surged as the Brazilian government's
approval of an International Monetary Fund (IMF) loan package and related
austerity measures calmed investor fears about a possible devaluation of the
real. Compared to gains in emerging-Asia and Latin America, returns from most
developed equity markets were relatively modest. Still, many European markets
rebounded, while Japanese stocks were buoyed by a $500 billion rescue package
for that country's long-suffering banking sector.
The sharp down-up pattern in global equity markets in 1998 was caused by
shifts in sentiment, not by changes in long-term business fundamentals. This is
an important distinction. As value investors, we expect markets to overreact and
misvalue securities on a regular basis. Indeed, those mispricings are what
provide
2
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Brandes with the opportunity to buy quality businesses at levels which offer a
reasonable margin of safety. We also believe that over longer periods sentiment
becomes neutralized, allowing investors to focus on fundamentals.
OUTLOOK
The short-term global economic picture appears brighter at year-end than it
did three months ago. Concerted action on the part of central banks world-wide
assuaged investors' fears about systemic financial weakness, relieved liquidity
shortfalls, and alleviated early signs of a credit crunch.
While these are positive developments, significant problems remain. In Latin
America, the decline in commodity prices is squeezing economies in Venezuela and
Mexico, while Brazil struggles with the political realities of imposing severe
austerity measures in the face of a deepening recession. In Asia, signs of a
cyclical recovery are beginning to appear on the horizon, but needed financial
reforms are still in the relatively early stage of implementation.
Though the daily ups and downs of stock prices make headlines, we remind
investors that keeping our collective eyes on the big picture is what makes for
sound financial futures. Our goal is to filter out short-term factors in an
effort to search for the kind of solid businesses that will build wealth for
investors over time.
BRANDES INVESTMENT PARTNERS, L.P.
INVESTMENT SUB-ADVISER TO THE BRANDES INTERNATIONAL EQUITY FUND
3
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE BRANDES INTERNATIONAL GROWTH FUND AND MSCI EAFE INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000
PLOT POINTS BRANDES INTERNATIONAL GROWTH FUND MSCI EAFE INDEX**
<S> <C> <C>
1/4/96 $10,000 $10,000
3/31/96 $10,077 $10,296
6/30/96 $10,264 $10,468
9/30/96 $9,992 $10,403
12/31/96 $9,940 $10,610
3/31/97 $9,634 $10,442
6/30/97 $10,962 $11,799
9/30/97 $10,857 $11,697
12/31/97 $10,162 $10,780
3/31/98 $11,503 $12,365
6/30/98 $11,411 $12,493
9/30/98 $9,778 $10,722
12/31/98 $11,728 $12,945
Average Annual Total Return for the periods ended
12/31/98:
One Year: 15.37%
Since 1/4/96*: 5.46%
</TABLE>
THE FUND'S TOTAL RETURN IS CALCULATED NET OF INVESTMENT ADVISORY FEES 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 12/31/98
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, The Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland, and the United Kingdom. It includes the
effect of reinvested dividends, net of foreign taxes withheld, and is measured
in U.S. dollars. The index is calculated on a total return basis.
4
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TURNER CORE GROWTH FUND
The Turner Core Growth Fund returned 34.56% for the year ended December 31,
1998 to outpace both the Wilshire 5000 Stock Index and the Lipper Growth Funds
Average. The Wilshire 5000 gained 23.44%; the average growth fund tracked by
Lipper Inc., 22.86%.
The Turner Core Growth Fund's strong performance can largely be attributed
to four factors:
One, in a market that continued to bestow the biggest rewards on the biggest
stocks generally, we held overweighted positions in certain large stocks. For
instance, Microsoft, our largest holding, has the largest market capitalization
of any stock. We also owned such capitalization heavyweights as Cisco Systems,
Dell Computer, Intel, American Home Products, Bristol-Myers Squibb, and MCI
WorldCom. Indeed, such stocks dominated the results of the broad indexes. For
instance, just nine large stocks -- 2% of all S&P 500 stocks -- accounted for
43% of the index's return.
Two, in an economy in which the growth rate of corporate earnings slowed,
our ability to pick the stocks of companies with superior earnings prospects
paid off. Indeed, our stock selection was generally excellent, with investments
in most market sectors outperforming the corresponding index sectors. Even in
the mid-capitalization segment whose performance paled in comparison with that
of the large-cap segment, our stock picks were generally solid and in some cases
impressive. Some of our biggest winners, with returns exceeding 50%, were from
the mid-cap segment (which constitutes about 20% of the Fund's holdings).
Three, in an environment in which investors severely penalized companies
that reported disappointing earnings, we succeeded in avoiding "bombshells" such
as semiconductor capital-equipment makers, money-center banks, and other
companies with profit problems stemming from exposure to Asia's financial
crisis. However, as we saw signs of Asia's problems abating in the fourth
quarter, we began to increase our positions in such companies, whose share
prices had become unjustifiably low in our estimation.
And four, in a year in which growth stocks outperformed value stocks in all
capitalization segments, in which the broad-based Russell 3000 Growth Index beat
its value counterpart by a stunning 21.52 percentage points, our own
growth-oriented holdings were ideally qualified to excel. Indeed, the growth
potential of our holdings was -- and remains -- above-average.
In an increasingly earnings-driven market, we think our ability to identify
the best growth companies should again prove invaluable in 1999. As always, the
Turner Core Growth 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 S&P 500 Index.
TURNER INVESTMENT PARTNERS, INC.
INVESTMENT SUB-ADVISER TO THE TURNER CORE GROWTH FUND
5
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE TURNER CORE GROWTH FUND AND WILSHIRE 5000 STOCK INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000 PLOT POINTS TURNER GROWTH FUND WILSHIRE 5000 INDEX**
<S> <C> <C>
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
3/31/97 $11,632 $12,200
6/30/97 $13,357 $14,260
9/30/97 $15,146 $15,651
12/31/97 $15,384 $15,914
3/31/98 $17,291 $18,024
6/30/98 $18,600 $18,376
9/30/98 $16,703 $16,166
12/31/98 $20,761 $19,644
Average Annual Total Return for the periods ended
12/31/98:
One Year: 34.56%
Since 1/4/96*: 27.57%
</TABLE>
THE FUND'S TOTAL RETURN IS CALCULATED NET OF INVESTMENT ADVISORY FEES 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 12/31/98
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.
6
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FRONTIER CAPITAL APPRECIATION FUND
The Frontier Capital Appreciation Fund returned 1.68% for the year ended
December 31, 1998. The Russell 2500 stock index returned 0.38% during the same
period.
1998 was a difficult year for the small and mid cap sector of the stock
market, with the small cap Russell 2000 index falling 2.5% for the year versus a
28.6% gain for the S&P 500. According to data from Prudential Securities, this
more than 31 percentage point performance gap between large and small cap stocks
was the biggest since 1937. The returns generated by the popular averages in
1998 masked the difficult environment for most stocks. For example, according to
Merrill Lynch, more stocks declined in value during the year than increased in
value on both the New York Stock Exchange and the NASDAQ. In particular, on the
NASDAQ, where the bulk of the stocks in your portfolio are traded, 1,690 stocks
finished the year higher compared to 3,351 that fell in value.
When comparing the 1998 returns for your portfolios to that of our
benchmark, the Russell 2500, there are two issues to keep in mind. First, we
believe the stock market during 1998 was more size and liquidity driven than
earnings growth driven. This had a very meaningful negative impact on our
returns as the median capitalization of our portfolios was below that of the
index for the entire year. For example, companies over $200 billion in the index
gained 25.9 during the year, while those companies with valuations below $25
million fell 24.1%. Second, the performance of the Internet stocks had a very
positive impact on the Russell 2500. While we do not have final numbers yet, we
estimate that if you exclude Internet stocks, the Russell 2500 would have
declined by 1.5% - 2.5% for the year. The impact would be even greater for the
growth component of this index.
We have been encouraged by the performance of small and mid cap stocks since
the market bottom of October 8, 1998. Since that date, the small cap Russell
2000 has rallied 36% versus 28% for the S&P 500. In addition, net cash flows
into aggressive growth mutual funds, which traditionally favor small and mid cap
stocks, were at 71% of all equity mutual funds net cash flows in October. This
was the highest proportion since January 1990. Until the past few months, the
market has been exceptionally narrow with most of the gains attributable to a
small number of very large cap companies. If the market is to continue to
advance, we would expect participation to broaden to the lagging small and mid
cap sectors that represent the best relative values.
FRONTIER CAPITAL MANAGEMENT CO., INC.
INVESTMENT SUB-ADVISER TO THE FRONTIER CAPITAL APPRECIATION FUND
7
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE FRONTIER CAPITAL APPRECIATION FUND AND RUSSELL 2500 STOCK INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000 FRONTIER CAPITAL RUSSELL 2500
PLOT POINTS APPRECIATION FUND STOCK INDEX**
<S> <C> <C>
1/4/96 $10,000 $10,000
3/31/96 $10,927 $10,586
6/30/96 $11,931 $11,026
9/30/96 $12,436 $11,275
12/31/96 $13,030 $11,903
3/31/97 $12,464 $11,505
6/30/97 $14,372 $13,243
9/30/97 $17,477 $15,143
12/31/97 $15,905 $14,803
3/31/98 $17,081 $16,320
6/30/98 $16,260 $15,640
9/30/98 $12,844 $12,657
12/31/98 $16,206 $14,860
Average Annual Total Return for the periods ended
12/31/98:
One Year: 1.68%
Since 1/4/96*: 17.46%
</TABLE>
THE FUND'S TOTAL RETURN IS CALCULATED NET OF INVESTMENT ADVISORY FEES 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 12/31/98
RUSSELL 2500 STOCK INDEX
The 2,500 smallest capitalization securities in the Russell 3000 Index,
representing approximately 7% of the Russell 3000 total market capitalization.
The index is reconstituted annually in June, based upon the May 31 market
capitalization rankings. The index is calculated on a total return basis, which
includes reinvestment of gross dividends before deduction of withholding taxes.
8
<PAGE>
ENHANCED U.S. EQUITY FUND
The Enhanced U.S. Equity Fund returned 23.69% for the year ended December
31, 1998. The S&P 500 Index returned 28.57% for the same period.
The investors in the Enhanced U.S. Equity Fund ("Fund") have been generously
rewarded since its inception in January, 1996. The annualized return since
inception through December 1998 was 26.7%. It has been a period of time
characterized by exceptional returns to the largest capitalization stocks and a
renewed emphasis on mergers and takeovers. As this recent three year period came
to a close, volatility amongst stock returns increased significantly and the
performance gap between "growth" and "value" stocks widened considerably. During
1998 the mild though consistent bias to "value" in the Enhanced U.S. Equity Fund
was a slight drag on performance when compared to the passive S&P 500 Index. We
think the mild "value" tilt in the Fund may provide investors with some comfort
if U.S. equity returns are less robust in coming years.
Managing the Fund was quite challenging in 1998. It was a period of time
during which global economic events dominated the business news and expectations
regarding economic growth and investment opportunities were changing rapidly. At
mid-year the Fund was up almost 18%, slightly ahead of the S&P 500 index. During
the third quarter the Fund was down 13% while the S&P 500 lost 10%. Returns to
large cap U.S. stocks surged ahead during the fourth quarter with the Fund up
over 20%. While the momentum measures in our stock selection approach performed
well during the second half of 1998, the relative value measures performed very
poorly. In addition, and perhaps more significant, any portfolio which was not
heavily weighted in the very largest companies during 1998 had a tendency to
under perform. While the Fund's holdings were well diversified across the
capitalization range of the S&P 500 index it was not overweighted in the largest
stocks. Regardless, the Fund's performance, while lagging the S&P 500 Index,
compared quite favorably with our large cap peers.
We look forward to the investment challenges of 1999 and beyond and feel
strongly that the Enhanced U.S. Equity Fund is an excellent choice as the large
cap component of a long term diversified investment program. We very much
appreciate your continued support and will do our best to provide competitive
returns within the context of a broadly diversified core portfolio invested in
large U.S. stocks.
FRANKLIN PORTFOLIO ASSOCIATES, L.L.C.
INVESTMENT SUB-ADVISOR TO THE ENHANCED U.S. EQUITY FUND
9
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE ENHANCED U.S. EQUITY FUND AND S&P 500 STOCK INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000 US ENHANCED S&P 500
PLOT POINTS EQUITY FUND STOCK INDEX**
<S> <C> <C>
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
3/31/97 $12,456 $12,614
6/30/97 $14,413 $14,816
9/30/97 $16,105 $15,926
12/31/97 $16,405 $16,383
3/31/98 $18,727 $18,668
6/30/98 $19,392 $19,285
9/30/98 $16,879 $17,365
12/31/98 $20,333 $21,063
Average Annual Total Return for the periods ended
12/31/98:
One Year: 23.69%
Since 1/4/96*: 26.69%
</TABLE>
THE FUND'S TOTAL RETURN IS CALCULATED NET OF INVESTMENT ADVISORY FEES 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 12/31/98
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.
10
<PAGE>
BRANDES INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
FOREIGN COMMON STOCKS - 96.0%
ARGENTINA - 2.5%
11,200 YPF Sociedad Anonima - ADR.............. $ 312,900
-----------
BRAZIL - 5.7%
17,300 Banco Bradesco SA - ADR................. 95,935
2,700 Centrais Electricas Brasileiras SA - ADR
Class B............................... 25,923
23,100 Centrais Electricas Brasileiras
SA - ADR*............................. 198,840
270 Centrais Geradoras do Sul do Brasil
SA - ADR*............................. 1,676
15,400 Cia Cervejaria Brahma - ADR............. 145,338
1,000 Embratel Partipacoes SA - ADR*.......... 13,938
14,700 Petroleo Brasileiro SA - ADR............ 166,686
100 Tele Celular Sul Participacoes
SA - ADR*............................. 1,744
333 Tele Centro Oeste Celular Participacoes
SA - ADR*............................. 978
200 Tele Centro Sul Participacoes
SA - ADR*............................. 8,363
20 Tele Leste Celular Participacoes
SA - ADR*............................. 568
50 Tele Nordeste Celular Participacoes
SA - ADR*............................. 925
20 Tele Norte Celular Participacoes
SA - ADR*............................. 451
1,000 Tele Norte Leste Participacoes
SA - ADR*............................. 12,438
200 Tele Sudeste Celular Participacoes
SA - ADR*............................. 4,138
50 Telemig Celular Participacoes
SA - ADR*............................. 1,063
400 Telesp Celular Partcipacoes SA - ADR*... 7,000
1,000 Telesp Participacoes SA - ADR*.......... 22,125
-----------
708,129
-----------
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
DENMARK - 2.2%
2,045 Den Danske Bank......................... $ 274,734
-----------
FRANCE - 8.5%
900 Alcatel................................. 109,973
2,400 Compagnie Financiere de Paribas*........ 208,241
2,600 Elf-Aquitaine SA........................ 300,049
3,100 Michelin (CGDE) - Class B............... 123,773
1,250 PSA Peugeot Citroen..................... 193,158
740 Societe Generale........................ 119,637
-----------
1,054,831
-----------
GERMANY - 5.2%
3,000 BASF AG................................. 114,502
16,200 Deutsche Telekom AG..................... 532,757
-----------
647,259
-----------
HONG KONG - 9.2%
105,000 Citic Pacific Ltd. ..................... 226,346
78,000 Hutchison Whampoa Ltd. ................. 551,246
81,000 Swire Pacific Ltd. - Class A............ 362,811
-----------
1,140,403
-----------
ITALY - 4.1%
15,000 ENI SpA................................. 98,260
48,500 Telecom Italia SpA...................... 412,042
-----------
510,302
-----------
JAPAN - 19.3%
5,000 Daiichi Pharmaceutical Co., Ltd. ....... 84,301
88,000 Hitachi Ltd. ........................... 544,049
7 Japan Tobacco, Inc. .................... 69,861
29,000 Komatsu, Ltd. .......................... 151,883
6,300 Kyocera Corp. .......................... 332,179
16,000 Matsushita Electric Industrial Co. ..... 282,482
90,000 Mitsubishi Heavy Industries, Ltd. ...... 349,746
26,000 Nippon Oil Co. ......................... 90,475
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
BRANDES INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
FOREIGN COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
<TABLE>
<C> <S> <C>
3,000 Ono Pharmaceutical Co. ................. $ 93,531
33,000 Tokio Marine & Fire Insurance Co.,
Ltd. ................................. 393,464
-----------
2,391,971
-----------
KOREA - 1.4%
7,000 Korea Electric Power Corp. ............. 173,400
-----------
MEXICO - 2.8%
7,100 Telefonos de Mexico SA - ADR............ 345,681
-----------
NETHERLANDS - 5.2%
6,800 ING Groep NV............................ 414,369
4,600 Koninklijke KPN NV...................... 230,122
-----------
644,491
-----------
SINGAPORE - 3.4%
46,000 Development Bank of Singapore Ltd. ..... 415,142
-----------
SOUTH AFRICA - 1.9%
18,200 De Beers - Centenary.................... 231,739
-----------
SPAIN - 3.1%
10,400 Argentaria SA........................... 269,440
6,600 Union Electrica Fenosa, SA.............. 114,226
-----------
383,666
-----------
SWITZERLAND - 1.2%
360 Swisscom AG*............................ 150,491
-----------
UNITED KINGDOM - 18.8%
17,000 Allied Zurich Plc*...................... 253,152
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
UNITED KINGDOM (CONTINUED)
<TABLE>
<C> <S> <C>
3,900 BOC Group Plc........................... $ 55,679
19,000 British American Tobacco Plc............ 166,794
85,300 British Steel Plc....................... 126,102
134,000 BTR Plc................................. 276,000
31,188 Diageo Plc.............................. 354,345
18,400 HSBC Holdings Plc (Hong Kong)........... 458,392
3,700 HSBC Holdings Plc....................... 100,178
15,400 Imperial Chemical Industries Plc........ 133,273
16,900 Marks & Spencer Plc..................... 115,726
11,700 Reuters Group Plc....................... 122,630
5,600 Rio Tinto Plc........................... 65,020
12,100 Royal & Sun Alliance Insurance Group
Plc................................... 98,634
-----------
2,325,925
-----------
VENEZUELA - 1.5%
10,200 Cia Anonima Telefonos de
Venezuela - ADR....................... 181,688
-----------
TOTAL INVESTMENTS - 96.0% (Cost
$11,282,031).......................... 11,892,757
Other Assets and Liabilities
(net) - 4.0%.......................... 490,559
-----------
TOTAL NET ASSETS - 100.0%............... $12,383,316
-----------
-----------
NOTES TO THE PORTFOLIO OF INVESTMENTS:
ADR American Depositary Receipt
* Non-income producing security.
Percentages indicated are based on Net Assets.
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
BRANDES INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
(UNAUDITED)
DECEMBER 31, 1998
At December 31, 1998, industry sector diversification of the Brandes
International Equity Fund's investments as a percentage of net assets was as
follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY SECTOR NET ASSETS
- -------------------------------------------------- -------------
<S> <C>
Banking........................................... 15.7%
Telephone Systems................................. 12.2%
Insurance......................................... 9.4%
Industrial - Diversified.......................... 9.2%
Oil & Gas......................................... 7.8%
Electronics....................................... 7.1%
Heavy Machinery................................... 6.3%
Beverages, Food & Tobacco......................... 5.9%
Communications.................................... 4.2%
Electric Utilities................................ 4.1%
Automotive........................................ 2.6%
Chemicals......................................... 2.5%
Mining............................................ 2.4%
Electrical Equipment.............................. 2.3%
Pharmaceuticals................................... 1.4%
Metals............................................ 1.0%
Media - Broadcasting & Publishing................. 1.0%
Retailers......................................... 0.9%
---
96.0%
---
---
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
TURNER CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
COMMON STOCKS - 98.5%
AIRLINES - 0.4%
590 FDX Corp.*.............................. $ 52,510
-----------
AUTOMOTIVE - 2.7%
1,995 Federal-Mogul Corp. .................... 118,703
2,285 Ford Motor Co. ......................... 134,101
900 General Motors Corp. ................... 64,406
1,660 Lear Corp.*............................. 63,910
-----------
381,120
-----------
BANKING - 5.8%
1,420 Chase Manhattan Corp. .................. 96,649
2,510 Federal Home Loan Mortgage Corp. ....... 161,738
2,015 Firstar Corp. .......................... 187,899
3,030 Fleet Financial Group, Inc. ............ 135,403
1,955 Mellon Bank Corp. ...................... 134,406
1,095 Wachovia Corp. ......................... 95,744
-----------
811,839
-----------
BEVERAGES, FOOD & TOBACCO - 5.1%
2,470 Coca-Cola Co. .......................... 165,181
3,700 Coca-Cola Enterprises, Inc. ............ 132,275
2,470 Pepsico, Inc. .......................... 101,116
3,325 Philip Morris Co. ...................... 177,888
2,300 RJR Nabisco Holdings Corp. ............. 68,281
2,290 SYSCO Corp. ............................ 62,832
-----------
707,573
-----------
CHEMICALS - 0.4%
1,150 Dupont (E.I.) de Nemours................ 61,022
-----------
COMMERCIAL SERVICES - 0.7%
1,930 Paychex, Inc. .......................... 99,274
-----------
COMMUNICATIONS - 1.5%
1,010 AirTouch Communications*................ 72,846
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
COMMUNICATIONS (CONTINUED)
<TABLE>
<C> <S> <C>
2,160 General Instrument Corp.*............... $ 73,305
950 Tellabs, Inc.*.......................... 65,134
-----------
211,285
-----------
COMPUTER SOFTWARE & PROCESSING - 10.6%
2,940 Affiliated Computer Services, Inc. -
A*.................................... 132,300
925 America Online, Inc.*................... 148,000
1,200 Automatic Data Processing, Inc. ........ 96,225
1,500 Ceridian Corp.*......................... 104,719
2,570 Cisco Systems, Inc.*.................... 238,528
1,280 Compuware Corp.*........................ 100,000
3,420 Microsoft Corp.*........................ 474,311
2,430 Oracle Corp.*........................... 104,794
240 Yahoo! Inc.*............................ 56,865
-----------
1,455,742
-----------
COMPUTERS & INFORMATION - 5.9%
3,300 Compaq Computer......................... 138,394
1,405 Dell Computer Corp.*.................... 102,828
2,125 Diebold, Inc. .......................... 75,836
1,260 EMC Corp.*.............................. 107,100
930 International Business Machines......... 171,818
3,670 Seagate Technology, Inc.*............... 111,018
1,290 Sun Microsystems, Inc.*................. 110,456
-----------
817,450
-----------
CONGLOMERATES - 1.5%
2,750 Tyco International Ltd. ................ 207,453
-----------
COSMETICS & PERSONAL CARE - 0.7%
1,070 Colgate-Palmolive Co. .................. 99,376
-----------
ELECTRONICS - 7.5%
1,220 Altera Corp.*........................... 74,268
4,535 Applied Materials, Inc.*................ 193,588
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
TURNER CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
ELECTRONICS (CONTINUED)
<TABLE>
<C> <S> <C>
470 Broadcom Corp. - Class A*............... $ 56,753
1,990 Intel Corp. ............................ 235,939
1,500 KLA Instruments Corp.*.................. 65,063
2,055 Micron Technology, Inc.*................ 103,906
2,580 MIPS Technologies, Inc.*................ 82,560
1,660 Motorola, Inc. ......................... 101,364
1,560 Teradyne, Inc.*......................... 66,105
975 Xilinx, Inc.*........................... 63,497
-----------
1,043,043
-----------
ENTERTAINMENT & LEISURE - 2.1%
3,035 Liberty Media Group - Class A*.......... 139,800
2,525 Time Warner, Inc. ...................... 156,708
-----------
296,508
-----------
FINANCIAL SERVICES - 3.3%
4,100 Citigroup, Inc. ........................ 202,950
2,015 Federal National Mortgage Association... 149,110
1,500 Merrill Lynch & Co. .................... 100,125
-----------
452,185
-----------
FOOD RETAILERS - 1.3%
1,795 Kroger Co.*............................. 108,598
1,230 Starbucks Corporation*.................. 69,034
-----------
177,632
-----------
HEALTH CARE PROVIDERS - 0.5%
3,290 Health Management Associates, Inc.*..... 71,146
-----------
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES - 1.1%
2,405 Home Depot.............................. 147,156
-----------
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
HOUSEHOLD PRODUCTS - 1.2%
550 Clorox Co-Del........................... $ 64,247
2,170 Corning Inc. ........................... 97,650
-----------
161,897
-----------
INSURANCE - 3.9%
2,215 American General Corp. ................. 172,770
1,833 American International Group............ 177,065
1,250 Jefferson Pilot Corp. .................. 93,750
1,720 UNUM Corp. ............................. 100,405
-----------
543,990
-----------
MEDIA - BROADCASTING & PUBLISHING - 4.2%
2,555 Comcast Corp. - Class A................. 149,947
3,080 Fox Entertainment Group, Inc. - Class
A*.................................... 77,578
3,010 Infinity Broadasting Corp. - Class A*... 82,399
4,945 Tele-Communications, Inc.*.............. 273,520
-----------
583,444
-----------
MEDICAL SUPPLIES - 1.2%
2,320 Becton, Dickinson & Co. ................ 99,035
865 Medtronics, Inc. ....................... 64,226
-----------
163,261
-----------
METALS - 2.1%
1,000 Aluminum Company of America (ALCOA)..... 74,563
2,380 Masco Corp. ............................ 68,425
6,415 USX-US Steel Group, Inc. ............... 147,545
-----------
290,533
-----------
OFFICE EQUIPMENT - 1.0%
1,200 Xerox Corp. ............................ 141,600
-----------
OIL & GAS - 6.5%
2,375 Chevron Corp. .......................... 196,977
1,830 Columbia Energy Group................... 105,683
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
TURNER CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
OIL & GAS (CONTINUED)
<TABLE>
<C> <S> <C>
1,750 Enron Corporation....................... $ 99,859
3,275 Exxon................................... 239,484
7,970 Ocean Energy, Inc.*..................... 50,311
3,885 Texaco.................................. 205,419
-----------
897,733
-----------
PHARMACEUTICALS - 11.5%
1,020 Amgen, Inc.*............................ 106,654
1,050 Bristol-Myers Squibb Co. ............... 140,503
2,490 Eli Lilly & Co. ........................ 221,299
2,875 Johnson & Johnson....................... 241,141
1,885 McKesson Corporation.................... 149,033
1,660 Pfizer, Inc. ........................... 208,226
3,830 Schering-Plough Corp. .................. 211,608
2,725 Warner Lambert Co. ..................... 204,886
1,850 Watson Pharmaceuticals, Inc.*........... 116,319
-----------
1,599,669
-----------
RESTAURANTS - 0.4%
1,215 Tricon Global Restaurants, Inc.*........ 60,902
-----------
RETAILERS - 8.0%
190 Amazon.com, Inc*........................ 61,038
1,250 Best Buy Co., Inc.*..................... 76,719
1,840 CVS Corp. .............................. 101,200
1,290 Dayton-Hudson Corp. .................... 69,983
3,143 Gap Stores.............................. 176,766
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
RETAILERS (CONTINUED)
<TABLE>
<C> <S> <C>
2,255 Safeway, Inc.*.......................... $ 137,414
2,330 Staples, Inc.*.......................... 101,792
2,650 Walgreen Co. ........................... 155,190
2,910 Wal-Mart Stores, Inc. .................. 236,983
-----------
1,117,085
-----------
TELEPHONE SYSTEMS - 7.4%
1,460 Century Telephone Enterprises, Inc. .... 98,550
1,390 Global Crossing Ltd.*................... 62,723
1,830 GTE Corp. .............................. 118,950
1,660 Level 3 Communications, Inc.*........... 71,587
3,705 MCI WorldCom, Inc.*..................... 265,832
3,050 NEXTLINK Communications, Inc. - Class
A*.................................... 86,543
2,270 Qwest Communications International,
Inc.*................................. 113,500
2,460 Sprint Corp. ........................... 206,945
-----------
1,024,630
-----------
TOTAL INVESTMENTS - 98.5% (Cost
$11,547,422).......................... 13,677,058
Other Assets and Liabilities
(net) - 1.5%.......................... 202,996
-----------
TOTAL NET ASSETS - 100.0%............... $13,880,054
-----------
-----------
NOTES TO THE PORTFOLIO OF INVESTMENTS:
* Non-income producing security.
Percentages indicated are based on Net Assets.
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
COMMON STOCKS - 95.2%
AEROSPACE & DEFENSE - 1.6%
11,200 Orbital Sciences Corp.*................. $ 495,600
-----------
BANKING - 0.5%
13,000 Advanta Corp. - Class B................. 143,813
-----------
BUILDING MATERIALS - 1.9%
9,060 Cameron Ashley Building Products*....... 118,346
15,310 Elcor Corp.............................. 494,704
-----------
613,050
-----------
CHEMICALS - 0.4%
14,630 Hexcel Corp.*........................... 122,526
-----------
COMMERCIAL SERVICES - 7.5%
17,300 American Oncology Resources, Inc.*...... 251,931
12,600 Angelica Corp. ......................... 234,675
47,400 Celgene Corp.*.......................... 728,775
10,400 Jostens, Inc. .......................... 272,350
17,700 Lo-Jack Corp.*.......................... 210,188
13,800 Quanta Services, Inc.*.................. 304,463
7,300 Stone & Webster, Inc. .................. 242,725
8,600 Vincam Group, Inc.*..................... 151,038
-----------
2,396,145
-----------
COMMUNICATIONS - 9.9%
27,400 ACE*COMM Corp.*......................... 174,675
7,400 Cable Design Technologies*.............. 136,900
26,600 Coyote Network Systems, Inc.*........... 196,175
10,100 Crown Castle International Corp.*....... 237,350
13,400 Digital Microwave Corp.*................ 91,707
10,700 Intervoice, Inc.*....................... 369,150
16,400 Newbridge Network Corp.*................ 498,150
15,200 Omnipoint Corp.*........................ 141,550
24,300 Paging Network, Inc.*................... 113,906
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
COMMUNICATIONS (CONTINUED)
<TABLE>
<C> <S> <C>
41,600 PictureTel Corporation*................. $ 275,600
6,600 Polycom, Inc.*.......................... 146,850
1,800 QUALCOMM Inc.*.......................... 93,263
12,000 Tollgrade Communications, Inc.*......... 231,000
13,330 Transaction Network Services, Inc.*..... 267,433
9,600 Xylan Corporation*...................... 168,600
-----------
3,142,309
-----------
COMPUTER SOFTWARE & PROCESSING - 15.5%
5,600 American Management Systems, Inc.*...... 224,000
35,200 Ansoft Corp.*........................... 171,600
23,200 ANSYS, Inc.*............................ 255,200
6,500 BARRA, Inc.*............................ 153,563
6,800 FORE Systems, Inc.*..................... 124,525
28,600 Information Resources, Inc.*............ 291,363
43,600 ISG International Software Group
Ltd.*................................. 525,925
6,800 Kronos, Inc.*........................... 301,325
46,600 Mentor Graphics Corp.*.................. 396,100
11,700 Pathways Group, Inc. (The)*............. 199,631
8,300 Project Software & Development, Inc.*... 278,050
19,900 Quickturn Design Systems, Inc.*......... 284,819
13,050 Sandisk Corp.*.......................... 184,331
32,900 STB Systems, Inc.*...................... 220,019
6,600 Synopsys, Inc.*......................... 358,050
43,300 System Software Associates, Inc.*....... 304,455
24,660 The Learning Co., Inc.*................. 639,619
-----------
4,912,575
-----------
COMPUTERS & INFORMATION - 3.8%
5,900 Bell & Howell Co.*...................... 223,094
26,500 Box Hill Systems Corp.*................. 142,438
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
COMPUTERS & INFORMATION (CONTINUED)
<TABLE>
<C> <S> <C>
15,600 Data General Corp.*..................... $ 256,425
25,600 In Focus Systems, Inc.*................. 227,200
11,200 Seagate Technology, Inc.*............... 338,800
2,500 Telxon Corp. ........................... 34,688
-----------
1,222,645
-----------
CONTAINERS & PACKAGING - 1.0%
18,590 US Can Corp.*........................... 332,296
-----------
ELECTRICAL EQUIPMENT - 0.9%
13,100 Artesyn Technologies, Inc.*............. 183,400
5,500 SBS Technologies, Inc.*................. 101,750
-----------
285,150
-----------
ELECTRONICS - 15.3%
23,200 3Dfx Interactive, Inc.*................. 292,900
1,400 Aavid Thermal Technologies*............. 23,625
39,200 American Superconductor Corp.*.......... 401,800
10,400 Analog Devices, Inc.*................... 326,300
7,700 Applied Micro Circuits Corp.*........... 261,560
7,500 Arrow Electronics, Inc.*................ 200,156
9,800 Atmel Corp.*............................ 150,063
6,500 Benchmark Electronics, Inc.*............ 238,063
4,400 Black Box Corp.*........................ 166,650
100 Cerprobe Corp.*......................... 1,344
37,600 Cypress Semiconductor Corp.*............ 312,550
8,600 Exar Corp.*............................. 138,675
5,650 Harman International Industries......... 215,406
4,320 Lattice Semiconductor*.................. 198,315
11,700 Level One Communications, Inc.*......... 415,350
17,130 LSI Logic*.............................. 276,221
4,500 Microchip Technology, Inc.*............. 166,500
10,700 Micron Technology, Inc.*................ 541,019
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
ELECTRONICS (CONTINUED)
<TABLE>
<C> <S> <C>
16,000 Read-Rite Corp.*........................ $ 236,501
40,460 Trimble Navigation Ltd.*................ 293,335
-----------
4,856,333
-----------
ENTERTAINMENT & LEISURE - 1.7%
23,900 American Coin Merchandising, Inc.*...... 140,413
11,520 International Game Technology........... 280,080
15,710 Sodak Gaming*........................... 130,589
-----------
551,082
-----------
FOREST PRODUCTS & PAPER - 2.0%
23,700 Gaylord Container Corp. - Class A*...... 145,163
15,860 Louisiana Pacific Corp. ................ 290,436
5,600 Willamette Industries, Inc. ............ 187,600
-----------
623,199
-----------
HEALTH CARE PROVIDERS - 3.3%
15,300 Centennial HealthCare Corp.*............ 237,150
8,500 Laser Vision Centers, Inc.*............. 188,329
12,200 Sunrise Assisted Living, Inc.*.......... 632,875
-----------
1,058,354
-----------
HEAVY CONSTRUCTION - 0.3%
13,400 Layne Christensen Co.*.................. 98,825
-----------
HEAVY MACHINERY - 2.6%
10,314 Albany International Corp. Class A*..... 195,313
10,020 Brown & Sharpe Manufacturing Co.*....... 80,160
13,400 Central Sprinkler Corp.*................ 129,813
17,930 Insituform Technologies*................ 259,985
5,300 Lam Research Corp.*..................... 94,406
7,100 Varco International, Inc.*.............. 55,025
-----------
814,702
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
<TABLE>
<C> <S> <C>
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES - 0.5%
8,960 Virco Manufacturing Corp. .............. $ 164,640
-----------
INSURANCE - 1.5%
4,690 Conseco, Inc. .......................... 143,338
8,800 HCC Insurance Holdings, Inc. ........... 155,100
19,200 Mid Atlantic Medical Services, Inc.*.... 188,400
-----------
486,838
-----------
MEDIA - BROADCASTING & PUBLISHING - 3.3%
26,430 Mail-Well, Inc.*........................ 302,293
18,000 Network Event Theater, Inc.*............ 232,875
2,000 Scholastic Corp.*....................... 107,250
9,720 Scientific Games Holdings Corp.*........ 183,465
2,900 Viacom, Inc.*........................... 214,600
-----------
1,040,483
-----------
MEDICAL SUPPLIES - 2.5%
7,100 EndoSonics Corp.*....................... 70,556
4,700 Haemonetics Corp.*...................... 106,925
12,600 Mentor Corp. ........................... 295,313
22,100 Merit Medical Systems, Inc.*............ 146,413
14,400 Visible Genetics Inc.*.................. 163,800
-----------
783,007
-----------
MEDICAL & BIO-TECHNOLOGY - 1.1%
4,000 VISX, Inc.*............................. 349,750
-----------
METALS - 3.7%
29,600 Armco Inc.*............................. 129,500
27,170 Birmingham Steel Corp. ................. 113,774
1,300 Carpenter Technology.................... 44,119
8,200 Howmet International, Inc.*............. 132,225
7,300 Northwest Pipe Co.*..................... 117,713
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
METALS (CONTINUED)
<TABLE>
<C> <S> <C>
12,350 Oregon Steel Mills...................... $ 146,656
14,200 Quanex Corp. ........................... 320,388
1,600 Reliance Steel & Aluminum Co. .......... 44,200
13,000 Synalloy Corp. ......................... 113,750
-----------
1,162,325
-----------
OIL & GAS - 1.4%
4,200 BJ Services Company*.................... 65,625
8,480 Noble Drilling Corp.*................... 109,710
4,900 Transocean Offshore, Inc. .............. 131,381
3,300 Vastar Resources, Inc. ................. 142,519
-----------
449,235
-----------
PHARMACEUTICALS - 6.5%
16,700 Advanced Polymer Systems, Inc.*......... 89,763
16,600 Alkermes, Inc.*......................... 368,313
4,800 AmeriSource Health Corp. Class A*....... 312,000
25,700 Cellegy Pharmaceuticals, Inc.*.......... 89,950
700 Copley Pharmaceutical, Inc.*............ 7,263
28,330 DUSA Pharmaceuticals, Inc.*............. 208,934
14,300 Pharmacopeia, Inc.*..................... 135,850
3,300 Pharmacyclics, Inc.*.................... 84,150
47,500 PharMerica, Inc.*....................... 285,000
21,700 Protein Design Labs, Inc.*.............. 501,804
-----------
2,083,027
-----------
REAL ESTATE - 1.6%
8,100 Boston Properties, Inc. - REIT.......... 247,050
9,580 CB Richard Ellis Services Group,
Inc.*................................. 173,638
2,500 LaSalle Partners, Inc.*................. 73,594
-----------
494,282
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
FRONTIER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
<TABLE>
<C> <S> <C>
RETAILERS - 1.3%
7,200 Claire's Stores, Inc.................... $ 147,600
25,500 PETsMART, Inc.*......................... 280,500
-----------
428,100
-----------
TELEPHONE SYSTEMS - 2.0%
5,800 Century Communications Corp.*........... 183,969
9,340 Western Wireless Corp. - Class A*....... 205,480
6,500 WinStar Communications, Inc.*........... 253,500
-----------
642,949
-----------
TEXTILES, CLOTHING & FABRICS - 0.4%
5,900 Unifi, Inc. ............................ 115,419
-----------
TRANSPORTATION - 1.2%
7,800 Coach USA, Inc.*........................ 270,563
5,100 Westinghouse Air Brake Co............... 124,631
-----------
395,194
-----------
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
TOTAL INVESTMENTS - 95.2% (Cost
$27,716,518).......................... $30,263,853
Other Assets and Liabilities
(net) - 4.8%.......................... 1,514,042
-----------
TOTAL NET ASSETS - 100.0%............... $31,777,895
-----------
-----------
NOTES TO THE PORTFOLIO OF INVESTMENTS:
REIT - Real Estate Investment Trust
* Non-income producing security.
Percentages indicated are based on Net Assets.
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
COMMON STOCKS - 97.8%
AEROSPACE & DEFENSE - 1.0%
1,100 Lockheed Martin Corp. .................. $ 93,225
500 United Technologies Corp. .............. 54,375
-----------
147,600
-----------
AIRLINES - 1.3%
3,300 AMR Corporation*........................ 195,938
-----------
APPAREL RETAILERS - 0.5%
946 Abercrombie & Fitch Co. - Class A*...... 66,930
500 The Limited, Inc. ...................... 14,563
-----------
81,493
-----------
AUTOMOTIVE - 1.2%
1,200 Dana Corp. ............................. 49,050
2,200 Ford Motor Co. ......................... 129,113
-----------
178,163
-----------
BANKING - 5.8%
5,200 Bank One Corporation.................... 265,525
6,589 BankAmerica Corp. ...................... 396,164
400 Capital One Financial Corp. ............ 46,000
500 Chase Manhattan Corp. .................. 34,031
1,700 Fleet Financial Group, Inc. ............ 75,969
800 SunTrust Banks, Inc. ................... 61,200
336 Washington Mutual, Inc. ................ 12,831
-----------
891,720
-----------
BEVERAGES, FOOD & TOBACCO - 2.8%
100 Adolph Coors Co. ....................... 5,644
1,800 Anheuser-Busch Companies, Inc. ......... 118,125
300 Coca-Cola Co. .......................... 20,063
400 General Mills, Inc. .................... 31,100
2,900 Quaker Oats Co. ........................ 172,550
1,900 Seagram Co., Ltd. (The)................. 72,200
-----------
419,682
-----------
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
BUILDING & CONSTRUCTION - 1.1%
3,700 Centex Corp. ........................... $ 166,731
-----------
CHEMICALS - 0.9%
1,100 B.F. Goodrich Co. ...................... 39,463
1,000 Dow Chemical............................ 90,938
-----------
130,401
-----------
COMMERCIAL SERVICES - 0.7%
600 EG&G, Inc. ............................. 16,688
1,200 Fluor Corp. ............................ 51,075
700 R.R. Donnelley & Sons Co. .............. 30,669
-----------
98,432
-----------
COMMUNICATIONS - 6.7%
6,800 AirTouch Communications*................ 490,450
2,600 General Instrument Corp.*............... 88,238
3,864 Lucent Technologies..................... 425,040
100 Tellabs, Inc.*.......................... 6,856
-----------
1,010,584
-----------
COMPUTER SOFTWARE & PROCESSING - 3.7%
600 Deluxe Corp. ........................... 21,938
1,700 Microsoft Corp.*........................ 235,769
5,200 Oracle Corp.*........................... 224,250
2,400 Unisys Corp.*........................... 82,650
-----------
564,607
-----------
COMPUTERS & INFORMATION - 4.2%
7,400 Apple Computer, Inc.*................... 302,938
1,900 EMC Corp.*.............................. 161,500
5,500 Seagate Technology, Inc.*............... 166,375
-----------
630,813
-----------
CONGLOMERATES - 2.9%
5,500 Tyco International Ltd. ................ 414,906
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
<TABLE>
<C> <S> <C>
ELECTRIC UTILITIES - 6.6%
2,700 Central & South West Corp. ............. $ 74,081
1,200 Dominion Resources, Inc. ............... 56,100
2,100 DTE Energy Company...................... 90,038
1,100 FPL Group, Inc. ........................ 67,788
5,511 Houston Industries, Inc. ............... 177,041
4,100 PG&E Corporation........................ 129,150
4,500 Public Service Enterprise Group,
Inc. ................................. 180,000
7,400 Southern Company........................ 215,063
-----------
989,261
-----------
ELECTRICAL EQUIPMENT - 0.2%
800 Thomas & Betts Corp. ................... 34,650
-----------
ELECTRONICS - 3.9%
1,100 Honeywell, Inc. ........................ 82,844
4,200 Intel Corp. ............................ 497,951
-----------
580,795
-----------
ENTERTAINMENT & LEISURE - 1.6%
2,800 Eastman Kodak Company................... 201,600
1,400 Walt Disney Co. ........................ 42,000
-----------
243,600
-----------
FINANCIAL SERVICES - 5.0%
21 Berkshire Hathaway Inc. - Class B*...... 49,350
3,448 Citigroup, Inc. ........................ 170,676
1,700 Dun & Bradstreet Corp. ................. 53,656
1,900 Federal Home Loan Mortgage Corp. ....... 122,431
700 Federal National Mortgage Association... 51,800
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
FINANCIAL SERVICES (CONTINUED)
<TABLE>
<C> <S> <C>
1,400 Lehman Brothers Holdings, Inc. ......... $ 61,688
3,360 Morgan Stanley, Dean Witter & Co. ...... 238,560
-----------
748,161
-----------
FOOD RETAILERS - 3.0%
2,400 Albertson's, Inc. ...................... 152,850
7,966 Archer-Daniels-Midland.................. 136,916
400 Interstate Bakeries Corp. .............. 10,575
5,400 Supervalu, Inc. ........................ 151,200
-----------
451,541
-----------
FOREST PRODUCTS & PAPER - 0.2%
1,800 Louisiana Pacific Corp. ................ 32,963
-----------
HEALTH CARE PROVIDERS - 0.5%
4,800 Healthsouth Corp.*...................... 74,100
-----------
HEAVY CONSTRUCTION - 0.2%
1,500 McDermott International, Inc. .......... 37,031
-----------
HEAVY MACHINERY - 1.5%
500 Dover Corp. ............................ 18,313
4,500 Ingersoll Rand Co. ..................... 211,219
-----------
229,532
-----------
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES - 4.0%
6,300 Home Depot.............................. 385,481
2,400 Newell Co. ............................. 99,000
500 Pulte Corporation....................... 13,906
1,000 Rubbermaid, Inc. ....................... 31,438
1,300 Whirlpool Corp. ........................ 71,988
-----------
601,813
-----------
HOUSEHOLD PRODUCTS - 0.2%
300 Procter & Gamble Co. ................... 27,394
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
<TABLE>
<C> <S> <C>
INSURANCE - 6.4%
3,600 Allstate Corp. ......................... $ 139,050
4,800 American International Group............ 463,800
2,400 Conseco, Inc. .......................... 73,350
300 Jefferson Pilot Corp. .................. 22,500
2,700 Marsh & McLennan Co., Inc. ............. 157,781
2,800 United Healthcare Corp. ................ 120,575
-----------
977,056
-----------
MEDIA - BROADCASTING & PUBLISHING - 3.9%
3,800 Gannett Co, Inc. ....................... 245,100
900 Knight-Ridder, Inc. .................... 46,013
1,200 Tele-Communications, Inc.*.............. 66,375
800 Tribune Co. ............................ 52,800
2,400 Viacom, Inc.*........................... 177,600
-----------
587,888
-----------
MEDICAL SUPPLIES - 1.7%
1,800 Allergan, Inc. ......................... 116,550
200 Guidant Corp. .......................... 22,050
7,400 Thermo Electron Corp.*.................. 125,338
-----------
263,938
-----------
METALS - 0.4%
2,000 Barrick Gold Corp. ..................... 39,000
1,900 Placer Dome Inc. ....................... 21,850
-----------
60,850
-----------
OIL & GAS - 3.4%
900 Ashland, Inc. .......................... 43,538
3,900 Coastal Corp. .......................... 136,256
2,000 Enron Corporation....................... 114,125
2,200 Exxon................................... 160,875
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
OIL & GAS (CONTINUED)
<TABLE>
<C> <S> <C>
400 Mobil Corp. ............................ $ 34,850
1,200 Sempra Energy........................... 30,450
-----------
520,094
-----------
PHARMACEUTICALS - 10.3%
1,000 Abbott Laboratories..................... 49,000
5,200 American Home Products Corp. ........... 292,825
4,800 Cardinal Health, Inc. .................. 364,200
200 Genentech, Inc.*........................ 15,938
1,400 Johnson & Johnson....................... 117,425
3,500 Merck & Co, Inc. ....................... 516,906
300 Pfizer, Inc. ........................... 37,631
1,500 Pharmacia & Upjohn, Inc. ............... 84,938
1,100 Warner Lambert Co. ..................... 82,706
-----------
1,561,569
-----------
RESTAURANTS - 0.1%
1,000 Ryans Family Steak House, Inc.*......... 12,375
-----------
RETAILERS - 5.5%
5,300 Dayton-Hudson Corp. .................... 287,525
700 Federated Department Stores*............ 30,494
3,500 KMart Corp.*............................ 53,594
5,600 Wal-Mart Stores, Inc. .................. 456,050
-----------
827,663
-----------
TELEPHONE SYSTEMS - 6.3%
7,000 AT&T Corp. ............................. 526,750
3,700 Bell Atlantic Corp. .................... 196,100
1,400 BellSouth Corp. ........................ 69,825
1,600 MCI WorldCom, Inc.*..................... 114,800
700 U.S. West, Inc. ........................ 45,238
-----------
952,713
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
ENHANCED U.S. EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- -----------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
<TABLE>
<C> <S> <C>
TEXTILES, CLOTHING & FABRICS - 0.1%
200 VF Corp. ............................... $ 9,375
-----------
TOTAL INVESTMENTS - 97.8% (Cost
$12,198,786).......................... 14,755,432
Other Assets and Liabilities
(net) - 2.2%.......................... 326,998
-----------
TOTAL NET ASSETS - 100.0%............... $15,082,430
-----------
-----------
NOTES TO THE PORTFOLIO OF INVESTMENTS:
* Non-income producing security.
Percentages indicated are based on Net Assets.
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
M FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
BRANDES FRONTIER CAPITAL ENHANCED
INTERNATIONAL 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............................................. $11,892,757 $13,677,058 $30,263,853 $14,755,432
Cash......................................................... 921,153 667,392 1,410,927 544,499
Receivable from:
Securities sold.......................................... -- 184,987 490,709 --
Capital stock subscriptions.............................. -- 82,366 20,599 16,899
Dividends and interest................................... 22,602 7,531 17,842 19,341
Investment Adviser, net (Note 2)......................... 25,737 38,805 -- 29,091
Deferred organization expense................................ 40,023 40,023 40,023 40,023
------------- ------------- ---------------- -----------
Total assets......................................... 12,902,272 14,698,162 32,243,953 15,405,285
------------- ------------- ---------------- -----------
LIABILITIES:
Payable for:
Securities purchased..................................... -- 637,997 393,368 191,215
Capital stock redemptions................................ 487,180 150,648 28,396 103,229
Investment Adviser (Note 2).............................. -- -- 14,039 --
Accrued expenses and other liabilities................... 31,776 29,463 30,255 28,411
------------- ------------- ---------------- -----------
Total liabilities.................................... 518,956 818,108 466,058 322,855
------------- ------------- ---------------- -----------
NET ASSETS....................................................... $12,383,316 $13,880,054 $31,777,895 $15,082,430
------------- ------------- ---------------- -----------
------------- ------------- ---------------- -----------
NET ASSETS CONSIST OF:
Paid-in capital.............................................. $11,772,799 $11,046,352 $30,508,021 $12,626,750
Undistributed net investment income (distributions in excess
of net investment income).................................. (715) -- -- --
Accumulated net realized gain (loss) on investments and
foreign currency transactions.............................. -- 706,166 (1,285,468) (100,966)
Net unrealized appreciation on investments and net other
assets..................................................... 611,232 2,127,536 2,555,342 2,556,646
------------- ------------- ---------------- -----------
NET ASSETS....................................................... $12,383,316 $13,880,054 $31,777,895 $15,082,430
------------- ------------- ---------------- -----------
------------- ------------- ---------------- -----------
SHARES OUTSTANDING............................................... 1,142,006 777,818 2,106,530 834,599
------------- ------------- ---------------- -----------
------------- ------------- ---------------- -----------
Net asset value, offering price and redemption price per share... $ 10.84 $ 17.84 $ 15.09 $ 18.07
------------- ------------- ---------------- -----------
------------- ------------- ---------------- -----------
* Cost of investments........................................... $11,282,031 $11,547,422 $27,716,518 $12,198,786
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
M FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BRANDES FRONTIER CAPITAL ENHANCED
INTERNATIONAL TURNER CORE APPRECIATION U.S. EQUITY
EQUITY FUND GROWTH FUND FUND FUND
------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest..................................................... $ 38,669 $ 16,480 $ 105,801 $ 12,226
Dividends*................................................... 164,780 48,405 88,893 156,675
------------- ----------- ---------------- -----------
Total investment income.............................. 203,449 64,885 194,694 168,901
------------- ----------- ---------------- -----------
EXPENSES:
Investment Advisory fee (Note 2)............................. 92,993 28,917 211,960 58,138
Custody and administration fees.............................. 149,488 119,551 128,395 116,084
Professional fees............................................ 31,678 29,808 29,808 29,868
Shareholder reporting........................................ 5,178 5,178 5,178 5,178
Directors' fees and expenses................................. 8,875 8,875 8,875 8,875
Amortization of organization costs........................... 20,486 20,486 20,486 20,486
Other........................................................ 7,366 7,167 8,231 8,400
------------- ----------- ---------------- -----------
Total expenses....................................... 316,064 219,982 412,933 247,029
Less: Expenses reimbursable by the Adviser (Note 2).......... (200,780) (174,954) (141,932) (162,354)
------------- ----------- ---------------- -----------
Net operating expenses....................................... 115,284 45,028 271,001 84,675
------------- ----------- ---------------- -----------
NET INVESTMENT INCOME (LOSS)..................................... 88,165 19,857 (76,307) 84,226
------------- ----------- ---------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investment transactions.................................. 838,501 954,676 (1,228,603) 250,664
Foreign currency transactions............................ (13,965) -- -- --
------------- ----------- ---------------- -----------
Net realized gain (loss)................................. 824,536 954,676 (1,228,603) 250,664
------------- ----------- ---------------- -----------
Net change in unrealized appreciation on:
Investments.............................................. 369,612 1,628,144 2,062,074 1,952,550
Forward currency and net other assets.................... 815 -- -- --
------------- ----------- ---------------- -----------
Net change in unrealized appreciation................ 370,427 1,628,144 2,062,074 1,952,550
------------- ----------- ---------------- -----------
NET REALIZED AND UNREALIZED GAIN................................. 1,194,963 2,582,820 833,471 2,203,214
------------- ----------- ---------------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $1,283,128 $2,602,677 $ 757,164 $2,287,440
------------- ----------- ---------------- -----------
------------- ----------- ---------------- -----------
* Net of foreign taxes withheld of:.............................. $ 15,932 $ 175 $ 14 $ 131
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
M FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BRANDES INTERNATIONAL TURNER CORE
EQUITY FUND GROWTH FUND
--------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income........................................ $ 88,165 $ 40,332 $ 19,857 $ 10,026
Net realized gain (loss) on investment and foreign currency
transactions............................................... 824,536 (148,305) 954,676 310,733
Net change in unrealized appreciation on investments, forward
currency contracts, foreign currency, and other assets..... 370,427 165,207 1,628,144 418,627
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations......... 1,283,128 57,234 2,602,677 739,386
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................... (63,907) (42,365) (20,760) (10,958)
In excess of net investment income........................... -- (17,077) (1,451) --
From net realized capital gains.............................. (567,349) -- (221,904) (312,314)
In excess of net realized capital gains...................... (69,238) -- -- (25,594)
Tax return of capital........................................ -- (25,490) -- --
------------ ------------ ------------ ------------
Total distributions to shareholders...................... (700,494) (84,932) (244,115) (348,866)
------------ ------------ ------------ ------------
FUND SHARE TRANSACTIONS (NOTE 4):
Proceeds from shares sold.................................... 7,277,243 4,061,904 10,510,061 1,883,531
Net asset value of shares issued on reinvestment of
distributions.............................................. 700,494 103,163 244,115 417,785
Cost of shares repurchased................................... (2,211,040) (1,280,581) (3,052,826) (874,625)
------------ ------------ ------------ ------------
Net increase in net assets resulting from Fund share
transactions............................................... 5,766,697 2,884,486 7,701,350 1,426,691
------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS....................................... 6,349,331 2,856,788 10,059,912 1,817,211
NET ASSETS:
Beginning of year............................................ 6,033,985 3,177,197 3,820,142 2,002,931
------------ ------------ ------------ ------------
End of year *................................................ $12,383,316 $ 6,033,985 $13,880,054 $3,820,142
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
* Including undistributed net investment income (distributions
in excess of net investment income) of:...................... $ (715) $ (7,124) $ -- $ 903
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
M FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FRONTIER CAPITAL ENHANCED U.S.
APPRECIATION FUND EQUITY FUND
--------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income (loss)................................. $ (76,307) $ (11,254) $ 84,226 $ 39,150
Net realized gain (loss) on investment and foreign currency
transactions............................................... (1,228,603) 521,608 250,664 201,780
Net change in unrealized appreciation on investments, forward
currency contracts, foreign currency, and other assets..... 2,062,074 328,082 1,952,550 467,676
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
operations................................................. 757,164 838,436 2,287,440 708,606
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................... -- -- (85,107) (39,983)
In excess of net investment income........................... -- -- (1,344) --
From net realized capital gains.............................. (125,048) (391,663) (279,242) (204,015)
In excess of net realized capital gains...................... -- -- (101,027) --
Tax return of capital........................................ -- -- -- --
------------ ------------ ------------ ------------
Total distributions to shareholders...................... (125,048) (391,663) (466,720) (243,998)
------------ ------------ ------------ ------------
FUND SHARE TRANSACTIONS (NOTE 4):
Proceeds from shares sold.................................... 21,363,350 19,956,544 7,278,986 5,516,206
Net asset value of shares issued on reinvestment of
distributions.............................................. 125,048 513,452 466,720 313,092
Cost of shares repurchased................................... (6,971,067) (7,294,264) (1,828,808) (531,235)
------------ ------------ ------------ ------------
Net increase in net assets resulting from Fund share
transactions............................................... 14,517,331 13,175,732 5,916,898 5,298,063
------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS....................................... 15,149,447 13,622,505 7,737,618 5,762,671
NET ASSETS:
Beginning of year............................................ 16,628,448 3,005,943 7,344,812 1,582,141
------------ ------------ ------------ ------------
End of year *................................................ $31,777,895 $16,628,448 $15,082,430 $7,344,812
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
* Including undistributed net investment income (distributions
in excess of net investment income) of:...................... $ -- $ -- $ -- $ 882
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
M FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
BRANDES INTERNATIONAL TURNER CORE
EQUITY FUND GROWTH FUND
------------------------------------------ ------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996(a) 1998 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................. 0.09 0.07 0.06 0.02 0.04 0.06
Net realized and unrealized gain
(loss) on investments............... 1.44 0.15 (0.12) 4.64 3.22 1.94
------------ ------ ------ ------------ ------ ------
Total from investment operations 1.53 0.22 (0.06) 4.66 3.26 2.00
------------ ------ ------ ------------ ------ ------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............ (0.06) (0.07) (0.06) (0.03) (0.04) (0.06)
In excess of net investment income.... -- (0.03) -- -- -- --
From net realized capital gains....... (0.53) -- -- (0.29) (1.22) (0.34)
In excess of net realized capital
gains............................... (0.06) -- -- -- (0.10) --
Tax return of capital................. -- (0.04) -- -- -- --
------------ ------ ------ ------------ ------ ------
Total distributions............... (0.65) (0.14) (0.06) (0.32) (1.36) (0.40)
------------ ------ ------ ------------ ------ ------
NET ASSET VALUE, END OF PERIOD............ $ 10.84 $ 9.96 $ 9.88 $ 17.84 $13.50 $11.60
------------ ------ ------ ------------ ------ ------
------------ ------ ------ ------------ ------ ------
TOTAL RETURN.............................. 15.37% 2.26% (0.63)* 34.56% 28.32% 19.99%*
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)..... $12,383 $6,034 $3,177 $13,880 $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 to average daily
net assets**........................ 1.00% 0.83% 0.67% 0.31% 0.34% 0.55%
Portfolio turnover rate............... 116% 74% 65% 242% 206% 258%
Without the reimbursement of expenses
by the adviser, the ratio of net
expenses and net investment loss to
average net assets would have been:
Expenses before interest
expense**+...................... 3.57% 4.93% 7.28% 3.42% 6.18% 8.43%
Net investment loss**+............ (1.27)% (2.80)% (5.31)% (2.41)% (5.14)% (7.18)%
</TABLE>
(a) Funds commenced operations on January 4, 1996
* Not annualized
** Annualized for periods less than one year
+ Prior year ratios have been restated to conform with current year reporting
practices.
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
M FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FRONTIER CAPITAL ENHANCED U.S.
APPRECIATION FUND EQUITY FUND
------------------------------------------ ------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996(a) 1998 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).......... (0.04) 0.00 0.00 0.11 0.08 0.12
Net realized and unrealized gain
(loss) on investments............... 0.29 2.76 3.03 3.45 3.78 2.25
------------ ------------ ------ ------------ ------ ------
Total from investment
operations...................... 0.25 2.76 3.03 3.56 3.86 2.37
------------ ------------ ------ ------------ ------ ------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............ -- -- -- (0.10) (0.09) (0.12)
In excess of net investment income.... -- -- -- (0.01) -- --
From net realized capital gains....... (0.08) (0.36) (0.51) (0.35) (0.53) (0.40)
In excess of net realized capital
gains............................... -- -- -- (0.12) -- --
Tax return of capital................. -- -- -- -- -- --
------------ ------------ ------ ------------ ------ ------
Total distributions............... (0.08) (0.36) (0.51) (0.58) (0.62) (0.52)
------------ ------------ ------ ------------ ------ ------
NET ASSET VALUE, END OF PERIOD............ $ 15.09 $ 14.92 $12.52 $ 18.07 $15.09 $11.85
------------ ------------ ------ ------------ ------ ------
------------ ------------ ------ ------------ ------ ------
TOTAL RETURN.............................. 1.68% 22.13% 30.31%* 23.69% 32.68% 23.67%*
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)..... $31,778 $16,628 $3,006 $15,082 $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**.......... (0.32)% (0.13)% (0.30)% 0.80% 1.17% 1.43%
Portfolio turnover rate............... 68% 61% 140% 50% 52% 79%
Without the reimbursement of expenses
by the adviser, the ratio of net
expenses and net investment loss to
average net assets would have been:
Expenses before interest
expense**+...................... 1.75% 2.86% 8.12% 2.34% 5.41% 12.32%
Net investment loss**+............ (0.92)% (1.84)% (7.27)% (0.74)% (3.44)% (10.09)%
</TABLE>
(a) Funds commenced operations on January 4, 1996
* Not annualized
** Annualized for periods less than one year
+ Prior year ratios have been restated to conform with current year reporting
practices.
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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: Brandes International Equity
Fund (formerly the Edinburgh Overseas Equity Fund), Turner Core Growth Fund,
Frontier Capital Appreciation Fund and Enhanced U.S. Equity Fund (singularly the
"Fund" or collectively the "Funds"), each of which is, in effect, a separate
mutual fund. Pursuant to a vote of the majority of the Directors of the Company,
on July 1, 1998 the name of the Edinburgh Overseas Equity Fund was changed 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. 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. In addition, at December 31, 1998, shares of the Company were offered 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.
Brandes International Equity Fund's investment objective is long-term capital
appreciation by investing principally in equity securities 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 total 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.
31
<PAGE>
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PORTFOLIO VALUATION
Equity securities and other similar investments traded on a recognized U.S. or
foreign securities exchange or the National Association of Securities Dealers
Automated Quotation System (NASDAQ) are valued at their last sale price on the
principal exchange on which they are traded or NASDAQ (if NASDAQ is the
principal market for such securities). If no sale occurs, equities traded on a
U.S. exchange or NASDAQ are valued at the mean between the closing bid and asked
price. Equities traded on a foreign exchange, for which no sale occurs, are
valued at the official bid price. Unlisted equity securities for which market
quotations are readily available are valued at the last sale price or, if no
sale occurs, at the mean between the last bid and asked price. Debt securities
and other fixed-income investments of the Funds will be valued at prices
supplied by independent pricing agents approved by the Board of Directors.
Short-term obligations maturing in sixty days or less are valued at amortized
cost. Amortized cost valuation involves initially valuing a security at its
cost, and thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the security. Securities 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.
32
<PAGE>
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY
Brandes International 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 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
Brandes International 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
33
<PAGE>
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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 Frontier Capital Appreciation Fund had a capital loss
carryforward of $993,816 expiring in 2006, as of December 31, 1998, which is
available to offset future capital gains. The Brandes International Equity Fund
and the Enhanced U.S. Equity Fund elected to defer to their fiscal years ending
December 31, 1999, $715 and $100,966, respectively, of losses recognized during
the period November 1, 1998 to December 31, 1998.
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
34
<PAGE>
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
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>
Brandes International 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 Brandes Investment Partners, L.P., 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 Brandes International Equity Fund, Turner Core
Growth Fund, Frontier Capital Appreciation Fund and Enhanced U.S. Equity Fund,
respectively. On July 1, 1998 Brandes Investment Partners, L.P. replaced
Edinburgh Fund Managers plc., as subadviser on the Brandes International Equity
Fund (formerly the Edinburgh Overseas Equity Fund). The advisory fee structure
of the Brandes International Equity Fund is the same as the previous fee
structure of the Edinburgh Overseas Equity Fund.
The Adviser has voluntarily undertaken to waive or otherwise reimburse the
Brandes International 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, 1999.
M Holdings Securities, Inc. acts as distributor (the "Distributor") for each of
the Funds. The Distributor is a wholly-owned subsidiary of M Financial Group. No
fees are due the Distributor for these services.
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
35
<PAGE>
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
an officer or employee of the Adviser and their affiliates, $10,000 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
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, for the year ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------- -------------
<S> <C> <C>
Brandes International Equity Fund.............................. $ 14,556,104 $ 9,455,065
Turner Core Growth Fund........................................ 22,649,729 15,217,169
Frontier Capital Appreciation Fund............................. 29,649,729 14,713,179
Enhanced U.S. Equity Fund...................................... 10,464,605 5,019,560
</TABLE>
At December 31, 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 TAX UNREALIZED UNREALIZED NET UNREALIZED
COST APPRECIATION DEPRECIATION APPRECIATION
------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Brandes International Equity
Fund........................... $ 11,282,031 $ 1,428,381 $ (817,656) $ 610,725
Turner Core Growth Fund.......... 11,561,709 2,190,189 (74,832) 2,115,357
Frontier Capital Appreciation
Fund........................... 28,008,170 5,439,122 (3,183,430) 2,255,692
Enhanced U.S. Equity Fund........ 12,198,786 3,093,009 (536,351) 2,556,658
</TABLE>
36
<PAGE>
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SHARES OF BENEFICIAL INTEREST
At December 31, 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>
BRANDES INTERNATIONAL
EQUITY FUND TURNER CORE GROWTH FUND
-------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold........................ 679,420 400,630 678,243 146,803
Shares repurchased................. (207,945) (126,803) (197,108) (68,463)
Distributions reinvested........... 64,801 10,362 13,758 31,971
------------ ------------ ------------ ------------
Net increase....................... 536,276 284,189 494,893 110,311
Fund shares:
Beginning of year................ 605,730 321,541 282,925 172,614
------------ ------------ ------------ ------------
End of year...................... 1,142,006 605,730 777,818 282,925
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FRONTIER CAPITAL
APPRECIATION FUND ENHANCED U.S. EQUITY FUND
-------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold........................ 1,491,323 1,325,768 430,789 369,645
Shares repurchased................. (507,585) (487,715) (108,830) (38,550)
Distributions reinvested........... 8,348 36,393 25,848 22,172
------------ ------------ ------------ ------------
Net increase....................... 992,086 874,446 347,807 353,267
Fund shares:
Beginning of year................ 1,114,444 239,998 486,792 133,525
------------ ------------ ------------ ------------
End of year...................... 2,106,530 1,114,444 834,599 486,792
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
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 and will be fully amortized January
4, 2001. 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
37
<PAGE>
M FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. ORGANIZATION COSTS (CONTINUED)
same proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
6. FINANCIAL INSTRUMENTS
Brandes International 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 December 31,
1998, the Brandes International Equity Fund had no open forward currency
exchange contracts.
7. CONCENTRATION
At December 31, 1998, a substantial portion of the Brandes International Equity
Fund's net assets consist of securities denominated in foreign currencies.
Changes in currency exchange rates will affect the value of and investment
income from such securities. Foreign securities are subject to greater price
volatility, more limited capitalization and liquidity, and higher rates of
inflation than securities of companies based in the United States.
8. BENEFICIAL INTEREST
At December 31, 1998, the ownership of each fund was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF OWNERSHIP
----------------------------------------------------------------------
JOHN HANCOCK
M LIFE VARIABLE LIFE PACIFIC LIFE NEW YORK LIFE
INSURANCE CO. INSURANCE CO. INSURANCE CO. INSURANCE CO.
--------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Brandes International Equity Fund.................... 19.0% 66.1% 14.9% --
Turner Core Growth Fund.............................. 14.9% 58.5% 26.5% 0.1%
Frontier Capital Appreciation Fund................... 5.1% 62.2% 32.4% 0.3%
Enhanced U.S. Equity Fund............................ 13.5% 16.3% 69.7% 0.5%
</TABLE>
38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of M Fund, Inc.
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of M Fund, Inc.,
comprising respectively the Brandes International Equity Fund (formerly the
Edinburgh Overseas Equity Fund), Turner Core Growth Fund, Frontier Capital
Appreciation Fund and Enhanced U.S. Equity Fund, (the "Funds"), at December 31,
1998, and the results of its operations, the changes in its net assets and the
financial highlights the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (herafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. We conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 1999
39
