BURRIDGE
CAPITAL
DEVELOPMENT
FUND
JUNE 30, 1997 ANNUAL REPORT
(LOGO)
BURRIDGE FUNDS
<PAGE>
TABLE OF CONTENTS
Page
SHAREHOLDER LETTER 1
MID CAPITALIZATION INVESTING 2
AFTER TAX INVESTING 3
BURRIDGE CAPITAL DEVELOPMENT FUND
Performance 4
Sector Allocation 4
Top Ten Holdings 5
Portfolio Characteristics 5
SCHEDULE OF INVESTMENTS 6
STATEMENT OF ASSETS AND LIABILITIES 7
STATEMENT OF OPERATIONS 8
STATEMENT OF CHANGES IN NET ASSETS 9
FINANCIAL HIGHLIGHTS 10
NOTES TO FINANCIAL STATEMENTS 11, 12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 13
<PAGE>
DEAR SHAREHOLDER, August, 1997
Since inception of the BURRIDGE CAPITAL DEVELOPMENT FUND on December 27, 1996,
the net asset value has grown 6.9% as compared to a total return of 11.1% for
the Russell Midcap Index.
The underperformance over the first six months and three days of the Fund's
existence reflects, among other things: 1) the fact that mid and small
capitalization issues, which represent 71% of the Fund, have lagged the general
market; 2) Mercury Finance, one of our initial investments, was involved in a
fraud which resulted in earnings being substantially overstated and caused an
85% decline in the price of the stock; and 3) sharply reduced earnings
expectations for two other issues, Boston Chicken and Informix. As long-term
investors, we have been patient with the disappointing results of the latter two
companies in the belief that they both have the potential for correcting the
problems that have developed in the last several months.
We have also had our share of winners in this market with the prices of Elan,
Dollar General, Novellus Systems and Franklin Resources up 39.1%, 43.9%, 44.7%
and 61.8%, respectively, from our initial purchase price. In terms of overall
diversification, we continue to emphasize technology and related companies,
consumer discretionary and financial services companies. These three sectors
represent 60.6% of the total assets on June 30, 1997.
While the Fund is off to a slow start, we are more convinced than ever that mid
cap issues can provide superior returns over the next several years. By keeping
tax liabilities to a minimum, we also expect most of this growth to be preserved
in net asset values.
We are especially encouraged by our results in May and June. Not only is the
performance better than our benchmarks, but we are experiencing days when we
substantially outperform the market during strong rallies, and, equally
important, we are also experiencing some days when we substantially outperform
when the market is especially weak. This is the reverse of what our experience
had been earlier in the year. Hopefully this is just the first sign of a major
shift in investor preferences for mid cap stocks which, based on past history,
might last for several years.
Sincerely,
/s/ Richard M. Burridge /s/ Kenneth M. Arenberg
Richard M. Burridge, CFA Kenneth M. Arenberg
Chairman President
Past performance is no guarantee of future results. The principal value and
return on your investment will fluctuate and on redemption may be worth more or
less than your original cost.
References to individual securities are the views of the Advisor at the date of
this report and may change. References are not a recommendation to buy or sell a
security.
<PAGE>
MID CAPITALIZATION INVESTING
- -------------------------------------------------------------------------------
Historically, mid cap stocks, as defined by the Russell Midcap Index, have
outperformed large cap stocks, as defined by the Russell Top 200 Index, and
small cap stocks, as defined by the Russell 2000 Index. The accompanying chart
shows that the Russell Midcap Index has outperformed the Russell Top 200 Index
by an average of 0.8% per year, and the Russell 2000 Index by an average of 1.7%
per year from January 1, 1979 through June 30, 1997. The Burridge Group LLC,
Advisor to the Fund, believes mid cap stocks offer the potential for greater
capital appreciation versus both large cap stocks and small cap stocks over long
time periods, and therefore has committed most of the Fund's investment in this
capitalization range.
In particular, the Fund's Advisor believes mid cap stocks are well positioned to
outperform large cap stocks over the next few years due to favorable
fundamentals and an analysis of historical leadership cycles. As of June 30,
1997, stocks in the Russell Midcap Index were trading at an average
price/earnings ratio of 17.5 times versus 19.1 times for stocks in the Russell
Top 200 Index, yet were projected to grow their earnings at a long term rate of
14.7% versus 13.6% for the large cap index. Stocks trading at lower
price/earnings ratios with higher potential growth rates offer higher capital
appreciation potential.
As the charts below indicate, leadership (in terms of annualized rates of
return) alternates between large cap, mid cap and small cap stocks through
various cycles. Typically, these cycles last 3-5 years and usually change when
stocks in the asset classes become significantly over or under valued. Given the
underperformance of mid cap stocks for almost 4 years, as well as the valuations
mentioned above, the Fund's Advisor is optimistic regarding their relative
performance over the next few years.
Annualized Returns
January 1, 1979* through June 30, 1997
Russell Top 200 16.6%
Russell Midcap 17.4%
Russell 2000 15.7%
1/79*-6/83 7/83-9/90 10/90-9/93 10/93-6/97
Russell Top 200 17.2% 13.0% 16.8% 23.0%
Russell Midcap 25.7% 9.0% 27.4% 16.8%
Russell 2000 32.4% 2.4% 28.2% 14.8%
Source: Frank Russell Company
*Inception date of indices
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AFTER TAX INVESTING
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The BURRIDGE CAPITAL DEVELOPMENT FUND invests for long-term capital appreciation
and is managed in a tax-sensitive manner. The Adviser attempts to maximize long-
term capital gains and unrealized capital gains, and minimize short-term capital
gains and ordinary income, as components of the Fund's investment returns. The
Fund purchases mid capitalization, growth-oriented common stocks believed to
have superior earnings growth potential. It is a no-load fund; there are no
sales or redemption charges, and no "12b-1" fees.
Significant differences in after-tax portfolio values occur among different
portfolio turnover rates. The best strategy for after-tax wealth creation
involves investing in a portfolio of high quality companies and keeping
portfolio turnover relatively low.
AFTER-TAX GROWTH OF A DOLLAR
10 Year Holding Period*
Growth Equity Style**
Annualized Annualized
Pre Tax Return After Tax Return
-------------- ----------------
10% Turnover 15% 12%
50% Turnover 15% 10%
100% Turnover 15% 9%
2 Years 4 Years 6 Years 8 Years 10 Years
10% Turnover 124,456 154,894 192,775 239,921 $298,597
50% Turnover 121,374 147,317 178,805 217,024 $263,411
100% Turnover 118,984 141,573 168,450 200,429 $238,480
*Assumes total liquidation of portfolio after 10 years.
**Growth Style Return of 15% assumes 14% capital appreciation and
1% dividend yield
This is a hypothetical representation and is not intended to predict the
performance of the Burridge Capital Development Fund and does not included any
fees or costs. It is used to demonstrate the difference that turnover rates can
have on after-tax portfolio returns.
<PAGE>
PERFORMANCE Burridge Capital Development Fund vs. Russell Midcap Index
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Dec 27 1996* Dec 31 1997 Mar 31 1997 Jun 30 1997
Burridge Capital
Development Fund 10,000 9,880 9,580 $10,690
Russell Midcap Index 10,000 9,783 9,703 $11,110
For the period ending Cumulative %
June 30, 1997 Since Inception
- ------------------------------------------------
Burridge Capital
Development Fund 6.90%
Source: Frank Russell Company
*Inception of Fund
This chart assumes an initial investment of $10,000 made on December 27, 1996
(inception). Returns shown include the reinvestment of all dividends. Past
performance is not predicative of future performance. Investment return and
principal value will fluctuate, so that shares, when redeemed, may be worth more
or less than the original cost. One cannot invest in an index.
SECTOR ALLOCATION June 30, 1997
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BURRIDGE CAPITAL DEVELOPMENT FUND ASSET ALLOCATION
BURRIDGE CAPITAL
SECTOR DEVELOPMENT FUND
- ------------------------------------------------
Technology 20.8%
Health Care 9.0%
Consumer Discretionary 23.1%
Consumer Staples 0.0%
Producer Durables 14.0%
Transportation 8.5%
Financial Services 16.7%
Cash 7.9%
Sector allocation of Burridge Capital Development Fund is subject to change
<PAGE>
TOP TEN HOLDINGS June 30, 1997
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MARKET PERCENTAGE
COMPANY SECTOR VALUE OF FUND
------- ------ ------ ----------
Elan Corp. PLC Health Care $ 18,553 5.6%
Molex Inc.-Class A Producer Durables $ 18,309 5.5%
Solectron Corp. Producer Durables $ 18,216 5.5%
Dollar General Corporation Producer Durables $ 16,875 5.1%
Franklin Resources Inc. Financial Services $ 16,689 5.0%
Nokia Corp. Technology $ 16,225 4.9%
Manpower Inc. Consumer Discretionary $ 16,020 4.8%
Magna International Inc. Transportation $ 15,649 4.7%
MBNA Corporation Financial Services $ 15,016 4.5%
Southwest Airlines Co. Transportation $ 15,008 4.5%
-------- -----
$166,560 50.1%
PORTFOLIO CHARACTERISTICS June 30, 1997
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BURRIDGE CAPITAL
DEVELOPMENT FUND
----------------
Projected Long-Term Earnings Growth Rate* 20.3%
Price/Earnings Ratio 18.8%
Past 5 Year Average Earnings Growth 34.6%
Dividend Yield 0.4%
Return on Equity - Past 5 Year Average 22.9%
Market Cap
(dollar-weighted average per company
included in portfolio) $5.8 bil
Source: Frank Russell Company (as of June 30, 1997)
*5 year average
<PAGE>
SCHEDULE OF INVESTMENTS June 30, 1997
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SHARES MARKET VALUE
COMMON STOCKS 92.1%
CONSUMER DISCRETIONARY 23.1%
360 Boston Chicken, Inc.* $ 5,040
380 Circus Circus Enterprises* 9,357
450 Dollar General Corporation 16,875
360 Manpower Inc. 16,020
170 Nike, Inc. - Class B 9,924
370 Pep Boys - Manny, Moe & Jack 12,603
350 Starbucks Corporation* 13,628
-----------
83,447
-----------
FINANCIAL SERVICES 16.7%
450 Equitable Companies, Inc. 14,963
230 Franklin Resources, Inc. 16,689
380 Green Tree Financial Corp. 13,538
410 MBNA Corporation 15,016
-----------
60,206
-----------
HEALTH CARE 9.0%
410 Elan Corp. PLC - ADR* 18,552
260 Shared Medical Systems 14,040
-----------
32,592
-----------
PRODUCER DURABLES 14.0%
525 Molex, Inc. - Class A 18,309
160 Novellus Systems, Inc.* 13,840
260 Solectron Corp.* 18,216
-----------
50,365
-----------
TECHNOLOGY 20.8%
375 Andrew Corp.* 10,547
340 EMC Corp.* 13,260
790 Informix Corp.* 7,110
220 Nokia Corp. Class A - ADR* 16,225
405 Symbol Technologies, Inc.* 13,618
170 Texas Instruments, Inc. 14,291
-----------
75,051
-----------
SHARES MARKET VALUE
TRANSPORTATION 8.5%
260 Magna International, Inc. $ 15,649
580 Southwest Airlines Co. 15,008
-----------
30,657
-----------
Total Common Stocks (Cost $318,060) 332,318
-----------
PRINCIPAL MARKET VALUE
SHORT-TERM INVESTMENTS 14.2%
VARIABLE RATE DEMAND NOTES 14.2%
$16,000 American Family, 5.26%,
due upon demand $ 16,000
18,003 Johnson Controls, 5.28%,
due upon demand 18,003
6,242 Pitney Bowes, 5.26%, due upon demand 6,242
10,866 Wisconsin Electric, 5.30%,
due upon demand 10,866
-----------
Total Short-Term Investments
(Cost $51,111) 51,111
-----------
TOTAL INVESTMENTS 106.3%
(COST $369,171) 383,429
-----------
LIABILITIES, LESS OTHER ASSETS (6.3)% (22,643)
-----------
TOTAL NET ASSETS 100.0% $360,786
===========
*non-income producing
The accompanying notes to financial statements are
an integral part of this schedule.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES June 30, 1997
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ASSETS
Investments, at market value (cost: $369,171) $383,429
Prepaid expenses 14,258
Receivables 501
Deferred organization costs 65,622
----------
Total assets 463,810
----------
LIABILITIES
Payable to Adviser 79,938
Accrued expenses and liabilities 23,086
----------
Total liabilities 103,024
----------
NET ASSETS $360,786
==========
NET ASSETS CONSIST OF:
Shares of beneficial interest
(no par value, unlimited amount of shares authorized,
33,764 shares issued and outstanding, and paid-in capital) $344,130
Accumulated undistributed net investment income 5,818
Accumulated undistributed net realized (loss) (3,420)
Net unrealized appreciation on investments 14,258
----------
Total net assets $360,786
==========
Net asset value per share $10.69
======
The accompanying notes to financial statements are
an integral part of this statement.
<PAGE>
STATEMENT OF OPERATIONS
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DEC. 27, 1996<F1>
THROUGH
JUNE 30, 1997
INCOME
Dividend $ 807
Interest 1,135
-------
1,942
-------
EXPENSES
Investment advisory fee 1,330
Administration Fees 12,994
Registration fees 11,700
Shareholder servicing fees 10,370
Legal and audit fees 14,292
Printing expense 1,529
Accounting fee 10,548
Custodian fees 2,853
Amortization of deferred costs 7,314
Trustees' fees and expenses 3,567
Other operating expenses 3,145
-------
Total expenses before waiver 79,642
Less: reimbursement from adviser (77,648)
-------
Net expenses 1,994
-------
Net investment income (loss) (52)
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized (loss) on investments (3,420)
Net change in unrealized appreciation on investments 14,258
-------
Net gain on investments 10,838
-------
NET INCREASE IN ASSETS RESULTING FROM OPERATIONS $10,786
=======
<F1> Commencement of operations.
The accompanying notes to financial statements are
an integral part of this statement.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
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DEC. 27, 1996<F1>
THROUGH
JUNE 30, 1997
OPERATIONS:
Net investment income (loss) $ (52)
Net realized (loss) on investments (3,420)
Net change in unrealized appreciation on investments 14,258
-------
Net increase in net assets resulting from operations 10,786
-------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income -
Distributions from net realized capital gains -
-------
Total distributions -
-------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (33,764 shares) 350,000
Increase in shares issued in reinvested distributions -
Cost of shares redeemed -
-------
Net increase in assets derived from capital
share transactions 350,000
-------
Net increase in net assets 360,786
-------
NET ASSETS:
Beginning of period -
-------
End of period (including accumulated net
investment income of $5,818) $360,786
=======
<F1> Commencement of operations.
The accompanying notes to financial statements are
an integral part of this statement.
<PAGE>
FINANCIAL HIGHLIGHTS
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Selected per-share data (for a share outstanding
throughout the period), ratios and supplemental data:
DEC. 27, 1996<F1>
THROUGH
JUNE 30, 1997
Net asset value at beginning of period $10.00
Income from investment operations:
Net investment income 0.17
Net realized and unrealized gain on securities 0.52
------
Total from investment operations 0.69
------
Less distributions:
Dividends from net investment income 0.00
Distributions from realized gains on securities 0.00
------
Total distributions 0.00
------
Net asset value at end of period $10.69
======
Total return 6.90%<F2>
Ratios and Supplemental data:
Net assets at end of period $360,786
Ratio of net expenses to average net assets 1.50%<F3>
Net investment income to average net assets (0.04)%<F3>
Portfolio turnover rate 0.27%<F2>
Average commission rate per share $0.0400
<F1> Commencement of operations.
<F2> Not annualized.
<F3> Annualized. Without expenses reimbursements of $77,648 for the period
December 27, 1996 through June 30, 1997, the annualized ratio of expenses
to average net assets would have been 59.90% and the annualized ratio of
net investment income to average net assets would have been (58.44)%.
The accompanying notes to financial statements are
an integral part of this statement.
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
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1) ORGANIZATION
Burridge Funds (the "Trust") was created on August 30, 1996 as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts. Burridge
Capital Development Fund (the "Fund") is the sole series issued by the Trust,
which is an open-end management investment company registered under the
Investment Company Act of 1940 (the "Act"), as amended. The Fund issued and
sold 10,000 shares of beneficial interest at $10 per share on November 18, 1996.
The Fund commenced operations on December 27, 1996. The objective of the Fund is
long-term capital appreciation.
The costs incurred in connection with the organization, initial registration and
public offering of shares, aggregating $72,937, were advanced to the Fund and
are payable to the Adviser. These costs are being amortized over the period of
benefit, but not to exceed sixty months from the Fund's commencement of
operations. The Fund's initial shareholders have agreed that if any of the
initial shares are redeemed during the first sixty months of the Fund's
operations by any holder thereof, the proceeds of the redemption will be reduced
by the pro rata share of the unamortized organization expenses as of the date of
the redemption. The pro rata share by which the redemption proceeds shall
redeemed shall be derived by dividing the number of original shares redeemed by
the total number of original shares outstanding at the time of redemption.
2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A) INVESTMENT VALUATION - Securities which are traded on a securities exchange
(including options on indexes so traded) or securities listed on the Nasdaq
National Market are valued at the last sale price on the exchange or market
where primarily traded or listed or, if there is no recent sale price
available, at the mean between the most recent bid and asked prices.
Securities not so traded or listed are valued at the mean between the most
recent bid and asked prices if market quotations are available. Money market
instruments maturing in 60 days or less are normally valued at amortized
cost. Securities or other assets for which market quotations are not readily
available will be valued at a fair value as determined in good faith by the
Trust's Board of Trustees.
B) FEDERAL INCOME TAXES - No provision for federal income taxes or excise taxes
has been made since the Fund intends to elect to be taxed as a "regulated
investment company" and intends to distribute substantially all taxable
income to its shareholders and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies.
C) DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income and
distributions of net realized capital gains, if any, are declared and paid
at least annually.
D) USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
E) OTHER - Investment and shareholder transactions are recorded on a trade date
basis. The Fund determines the gain or loss realized from the investment
transactions by comparing the original cost of the security lot sold with
the net sales proceeds. Dividend income is recognized on the ex-dividend
date and interest income is recognized on an accrual basis. Generally
accepted accounting principles require that permanent differences between
financial and tax reporting be reclassified to capital stock.
3) CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
DECEMBER 27, 1996
TO JUNE 30, 1997
---------------------
AMOUNT SHARES
---------------------
Shares sold $350,000 33,764
Shares issued to owners in
reinvestment of dividends - -
Shares redeemed - -
-------- ------
Net increase $350,000 33,764
======== ======
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS Continued
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4) INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the period December 27, 1996 through June 30,
1997, were as follows:
PURCHASES SALES
--------- -----
U.S. Government - -
Other $322,107 $627
At June 30, 1997, gross unrealized appreciation and depreciation of investments
for federal income tax purposes was as follows:
Appreciation $39,150
(Depreciation) (24,892)
-------
Net unrealized appreciation
on investments $14,258
=======
At June 30, 1997, the cost of investments for federal income tax purposes was
$369,171.
5) INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has entered into an investment advisory agreement with The Burridge
Group LLC (the "Adviser"). Pursuant to its Advisory Agreement with the Fund,
the Adviser is entitled to receive a fee, calculated daily and payable monthly,
at the annual rate of 1.00% on the first $500 million of average daily net
assets, 0.85% on the next $500 million of average daily net assets, and 0.75% on
the average daily net assets over $1 billion. The Adviser has voluntarily
undertaken to limit the Fund's expenses (including the advisory fee but
excluding extraordinary costs or expenses not incurred in the ordinary course of
the Fund's operations) to 1.50% of the Fund's average daily net assets. For the
period ended June 30, 1997, the Adviser reimbursed $77,648 in expenses.
Firstar Trust Company, a subsidiary of Firstar Corporation, a publicly held bank
holding company, serves as custodian, transfer agent, administrator and
accounting services agent for the Fund.
6) RELATED PARTIES
Officers and Trustees of the Trust held 33,764 or 100.0% of the outstanding
shares of the Fund as of June 30, 1997.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF BURRIDGE FUNDS:
We have audited the accompanying statement of assets and liabilities of The
Burridge Funds (a Massachusetts business trust, comprising the Burridge Capital
Development Fund), including the schedule of investments, as of June 30, 1997,
and the related statements of operations, changes in net assets, and the
financial highlights for the period indicated thereon. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of June 30, 1997, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Burridge Capital Development Fund as of June 30, 1997, the results of its
operations, the changes in its net assets, and its financial highlights for the
period indicated thereon, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 1, 1997
<PAGE>
SHAREHOLDER SERVICES:
Burridge Funds
c/o Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201
(888) BURRIDGE
(1-888-287-7434)
INVESTMENT ADVISER:
The Burridge Group LLC
Chicago, IL
DISTRIBUTOR:
Funds Distributor Inc.
Boston, MA
CUSTODIAN, ADMINISTRATOR
AND TRANSFER AGENT:
Firstar Trust Company
Milwaukee, WI
INDEPENDENT AUDITORS:
Arthur Andersen LLP
Chicago, IL
LEGAL COUNSEL:
Bell, Boyd & Lloyd
Chicago, IL
This report is submitted for the information of the shareholders of the Fund. It
is not authorized for distribution to prospective investors unless preceded or
accompanied by an effective prospectus.
<PAGE>
