Blue Ridge Advisors, Inc.
84 Villa Rd., B-37
Greenville, SC 29615
(864) 467-0072, (864) 483-0527
Dear Shareholder:
I am happy to announce that the Blue Ridge Total Return Fund has just completed
its second full calendar quarter of operation. We appreciate your business and
the confidence you have shown in us by joining us so early in our history. While
we are happy with our initial year-to-date results through June 30 of a 9.85%
return and 10.47% since our December 1997 inception, we are disappointed with
our second quarter performance, a decline of 4.1%. We are, however, extremely
excited about the companies we have recently been able to purchase at attractive
prices and the opportunity to buy more of our current holdings.
Market Overview
Performance Table thru 6/30
SP500 Large Cap 17.71%
SP400 Midcap 8.64%
SP600 Small Cap 6.12%
The second quarter once again brought concerns about Asia's economic slowdown,
El Nino, and the Year 2000 to the forefront of investor's minds. These combined
economic influences have caused a stealth bear market (declines of 25% or more)
in many stocks, though the major capitalization weighted averages have masked
these steep declines. In a capitalization weighted index larger companies like
Coke, Proctor and Gamble, GE, and Microsoft have a greater influence on
performance than smaller companies.
Our Observations
The uncertainty created by Asia, El Nino, and Y2K has created a situation in
which investors are acting in a scared to be in the market/ scared to be out of
the market fashion. Consequently investors have been wildly bidding up the stock
prices of any company whose sales appear "safe" from an economic slowdown and
are "liquid" or tradable. The demand for "safe" stocks has thus favored consumer
goods oriented companies and the demand for stock liquidity has favored large
companies. I feel an actual example of a "safe haven stock" and an economically
sensitive stock will best illustrate what we are experiencing in the portfolio
and the marketplace currently.
<PAGE>
Safe Haven
PerShare Coco-Cola Increase
Data Est. Recession Years
1998 1997 1992 1991 1990 1987 87-98
Sales 8.15 7.64 5.00 4.35 3.83 2.57 317%
Earnings 1.65 1.64 .72 .61 .51 .30 550%
Cash Flow 1.95 1.92 .84 .71 .60 .36 277%
Dividends .60 .56 .28 .24 .20 .14 429%
Book Value 3.40 2.96 1.49 1.67 1.41 1.08 315%
Economically Sensitive
PerShare Ingersoll-Rand Increase
Data Est. Recession Years
1998 1997 1992 1991 1990 1987 87-98
Sales 51.85 42.43 24.12 23.05 24.09 16.66 311%
Earnings 2.90 2.31 .95 .94 1.18 .66 439%
Cash Flow 4.60 3.54 1.68 1.63 1.81 1.09 305%
Dividends .62 .57 .47 .44 .42 .35 177%
Book Value 15.15 13.99 8.24 10.50 10.03 7.13 212%
One can see in the above data that the financial performance of the "safe"
Coca-Cola has indeed been better than that of the economically sensitive
Ingersoll-Rand as measured by the growth in earnings, dividends, and book value.
As investors, however, there is an additional question which we must answer:
Namely, how much of a premium price are we willing to pay for this less than
certain premium performance? Given the market prices of 6/30/98 of Coca-Cola at
$85.50 and Ingersoll-Rand $44.07 we find the current 100% premiums for safety
too high. We believe the above example is reflective of the broader market. As a
result, the portfolio has been, and likely will continue to be, overweighted
toward solid dividend paying, though more economically sensitive issues.
Successes & Failures
One failure for the second quarter came when we began moving more of the
portfolio too early into energy related issues like Texaco and Baker Hughes (oil
services). Oil related issues have been trading lower as the price of crude has
fallen as a result of the lower demand from Asia's economic slowdown and the
unseasonably warm El Nino weather in the U.S.. We believe, however, that this
setback is only temporary as Asia should eventually pull out of its economic
slump and the U.S. should continue to have cold winters.
Another area of weakness for the fund was specialty chemicals: Morton
International and BetzDearborn. Morton (yes, the salt people) was hurt by the
now infamous El Nino, as less salt was used in the Northeast to clear roads,
stairs, etc. during the winter. Specialty chemicals have also been impacted from
demand shortfalls in Asia. Betz suffered from currency translation and higher
expense as the company has been working to correct its Year 2000 problem.
<PAGE>
The fund benefited in the quarter from companies not exposed to El Nino or Asia.
For example, Duke Energy performed well as it benefited from the unseasonably
warm weather. Airlines were also a winner for the fund, as Southwest Airlines
has been the beneficiary of lower fuel cost.
In summary, we are extremely happy with the companies we own, the products we
make and sell, and the prices we paid. We do expect, however, the next 6-12
months to be a difficult time as Asia continues to work through its economic
slump and companies spend resources correcting the Y2K problem. We look forward
to keeping you abreast of our efforts here at Blue Ridge and should you have any
questions please do not hesitate to give us a call.
Sincerely,
Allen R. Gillespie
Portfolio Manager
** Information contained in this letter has been obtained from sources believed
to be reliable, though neither the completeness nor accuracy of the information
can be guaranteed.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BLUE RIDGE TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS
May 31, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 90.67%
Aerospace & Defense - 2.08%
The Boeing Company .......................................................... 600 $ 28,575
----------
Chemicals - 5.08%
BetzDearborn Inc. ........................................................... 800 39,400
Morton International Inc. ................................................... 1,000 30,437
----------
69,837
----------
Commercial Services - 1.45%
Ogden Corporation ........................................................... 700 19,994
----------
Computers - 7.89%
Hewlett-Packard Company ..................................................... 800 49,700
International Business Machines ............................................. 500 58,750
----------
108,450
----------
Computer Software & Services - 2.90%
First Data Corporation ...................................................... 1,200 39,900
----------
Diversified Operations - 5.15%
The Seagram Company Ltd. .................................................... 1,000 43,938
(a) Triarc Companies, Inc. ...................................................... 1,100 26,813
----------
70,751
----------
Electronics - Semiconductor - 2.70%
Motorola, Inc. .............................................................. 700 37,056
----------
Financial - Banks, Commercial - 2.33%
Wachovia Corporation ........................................................ 400 32,025
----------
Financial - Banks, Money Center - 4.62%
First Union Corporation ..................................................... 700 38,719
J.P. Morgan & Company Incorporated .......................................... 200 24,837
----------
63,556
----------
Food - Wholesale - 3.65%
Richfood Holdings, Inc. ..................................................... 1,100 26,881
SYSCO Corporation ........................................................... 1,000 23,312
----------
50,193
----------
Forest Products & Paper - 2.68%
International Paper Company ................................................. 800 36,800
----------
(Continued)
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BLUE RIDGE TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS
May 31, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Household Products & Housewares - 2.67%
Sunbeam Corporation ......................................................... 1,600 $ 36,700
----------
Imaging - 2.60%
Eastman Kodak Company ....................................................... 500 35,687
----------
Insurance - Life & Health - 3.41%
Aetna Inc. .................................................................. 600 46,912
----------
Insurance - Multi-line - 2.64%
Loews Corporation ........................................................... 400 36,300
----------
Machine - Construction & Mining - 1.64%
Ingersoll-Rand Company ...................................................... 500 22,531
----------
Medical - Biotechnology - 7.59%
Abbott Laboratories ......................................................... 500 37,094
(a) Amgen, Inc. ................................................................. 600 36,300
Pharmacia & Upjohn, Inc. .................................................... 700 30,931
----------
104,325
----------
Medical Supplies - 3.52%
Johnson & Johnson ........................................................... 700 48,344
----------
Metals - Diversified - 1.49%
ASARCO Incorporated ......................................................... 900 20,419
----------
Oil & Gas - Equipment & Services - 2.62%
Baker Hughes, Incorporated .................................................. 1,000 36,000
----------
Oil & Gas - Exploration - 5.46%
Pennzoil Company ............................................................ 600 34,687
Texaco Inc. ................................................................. 700 40,425
----------
75,112
----------
Restaurants & Food Service - 1.62%
Wendy's International, Inc. ................................................. 900 22,219
----------
Shoes - Leather - 3.01%
Nike, Inc. .................................................................. 900 41,400
----------
(Continued)
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BLUE RIDGE TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS
May 31, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Transportation - Miscellaneous - 1.04%
CSX Corporation ............................................................. 300 $ 14,288
----------
Transportation - Rail - 2.78%
Union Pacific Corporation ................................................... 500 24,187
(a) Wisconsin Central Transportation Corporation ................................ 600 14,063
----------
38,250
----------
Utilities - Electric - 2.10%
Duke Energy Corporation ..................................................... 500 28,813
----------
Utilities - Gas - 2.47%
Consolidated Natural Gas Company ............................................ 600 33,938
----------
Utilities - Telecommunications - 1.70%
GTE Corporation ............................................................. 400 23,325
----------
Utilities - Water - 1.78%
(a) US Filter Corporation ....................................................... 800 24,400
----------
Total Common Stocks (Cost $1,192,853) ............................................... 1,246,100
----------
INVESTMENT COMPANIES - 6.21%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares .................................... 66,435 66,435
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Service Shares .............................. 18,956 18,956
----------
Total Investment Companies (Cost $132,870) .................................. 85,391
----------
Total Value of Investments (Cost $1,325,723) ........................................................ 96.88% $1,331,491
Other Assets Less Liabilities ....................................................................... 3.12% 42,887
------ ----------
Net Assets .................................................................................. 100.00% $1,374,378
====== ==========
(Continued)
</TABLE>
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BLUE RIDGE TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS
May 31, 1998
(Unaudited)
(a) Non-income producing investment.
(b) Aggregate cost for financial reporting and federal income tax purposes is the same. Unrealized appreciation
(depreciation) of investments for financial reporting and federal income tax purposes is as follows:
Unrealized appreciation .............................................................. $ 57,923
Unrealized depreciation .............................................................. (48,545)
--------
Net unrealized appreciation .................................................. $ 9,378
========
At May 31, 1998, the Fund's open options contracts which are accounted for as a liability on the Statement of assets and
liabilities were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Market
Underlying security/expiration date/exercise price contracts written Value
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Inc./January 1999/100 ........................................ 3 $ 412
The Boeing Company/July 1998/50 .................................... 6 600
First Data Corporation/July 1998/35 ................................ 12 975
Ingersoll-Rand Company/December 1998/471/2 ......................... 5 1,688
International Business Machines/July 1998/115 ...................... 5 3,625
International Paper Company/January 1999/55 ........................ 8 1,250
J.P. Morgan & Company Incorporated/January 1999/140 ................ 2 1,275
Motorola, Inc./October 1998/55 ..................................... 7 2,712
Pennzoil Company/July 1998/60 ...................................... 6 1,050
Richfood Holdings, Inc./July 1998/25 ............................... 11 825
Texaco Inc./October 1998/70 ........................................ 4 200
Wachovia Corporation/July 1998/90 .................................. 4 150
Wisconsin Central Transportation/July 1998/30 ...................... 6 38
--------
Total Call Options (Cost $18,410) .................................. $ 14,800
========
See accompanying notes to financial statements
</TABLE>
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<S> <C> <C> <C> <C> <C> <C>
BLUE RIDGE TOTAL RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1998
(Unaudited)
ASSETS
Investments, at value (cost $1,325,723) ............................................................. $1,331,491
Cash ................................................................................................ 54,422
Income receivable ................................................................................... 3,265
----------
Total assets ................................................................................... 1,389,178
----------
LIABILITIES
Covered call options written, at value (premiums received $ 18,410) ................................. 14,800
----------
NET ASSETS
(applicable to 123,451 NL class shares outstanding; unlimited
shares of no par value beneficial interest authorized) .............................................. $1,374,378
==========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE PER NL CLASS SHARE
($1,374,378 / 123,451 shares) ....................................................................... $11.13
==========
NET ASSETS CONSIST OF
Paid-in capital ..................................................................................... $1,329,568
Undistributed net investment income ................................................................. 1,816
Undistributed net realized gain on investments ...................................................... 33,616
Net unrealized appreciation on investments .......................................................... 9,378
----------
$1,374,378
==========
See accompanying notes to financial statements
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BLUE RIDGE TOTAL RETURN FUND
STATEMENT OF OPERATIONS
Period from December 15, 1997
(Commencement of operations) to
May 31, 1998
(Unaudited)
INVESTMENT INCOME
Income
Interest ....................................................................................... $ 2,249
Dividends ...................................................................................... 5,927
--------
Total income .............................................................................. 8,176
--------
Expenses
Investment advisory fees (note 2) .............................................................. 6,435
--------
Less investment advisory fees waived (note 2) ............................................. (1,304)
--------
Net expenses .............................................................................. 5,131
--------
Net investment income ............................................................... 3,045
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions ...................................................... 33,616
Increase in unrealized appreciation on investments .................................................. 9,378
--------
Net realized and unrealized gain on investments ................................................ 42,994
--------
Net increase in net assets resulting from operations ...................................... $ 46,039
========
See accompanying notes to financial statements
</TABLE>
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<S> <C> <C> <C> <C> <C> <C>
BLUE RIDGE TOTAL RETURN FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the period from December 15, 1997
(commencement of operations) to
May 31, 1998
(Unaudited)
INCREASE IN NET ASSETS
Operations
Net investment income ............................................................................ $ 3,045
Net realized gain from investment transactions ................................................... 33,616
Increase in unrealized appreciation on investments ............................................... 9,378
----------
Net increase in net assets resulting from operations ........................................ 46,039
----------
Distributions to shareholders from
Net investment income ............................................................................ (1,229)
----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ............................. 1,329,568
----------
Total increase in net assets ........................................................... 1,374,378
NET ASSETS
Beginning of period .................................................................................. 0
----------
End of period (including undistributed net investment income ......................................... $1,374,378
of $1,816 at May 31, 1998) ==========
(a) A summary of capital share activity follows:
-----------------------------------
Shares Value
-----------------------------------
Shares sold ................................................................................ 123,343 $1,328,339
Shares issued for reinvestment
of distributions ...................................................................... 108 1,229
------- ----------
Net increase .......................................................................... 123,451 $1,329,568
======= ==========
See accompanying notes to financial statements
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BLUE RIDGE TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
For the period from December 15, 1997
(commencement of operations) to
May 31, 1998
(Unaudited)
Net asset value, beginning of period .............................................................. $ 10.00
Income from investment operations
Net investment income .................................................................. 0.03
Net realized and unrealized gain on investments ........................................ 1.12
-----------
Total from investment operations ................................................... 1.15
-----------
Distributions to shareholders from
Net investment income .................................................................. (0.02)
-----------
Net asset value, end of period .................................................................... $ 11.13
===========
Total return ...................................................................................... 11.47%
===========
Ratios/supplemental data
Net assets, end of period ................................................................... $ 1,374,378
===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees .......................................... 1.65% (a)
After expense reimbursements and waived fees ........................................... 1.31% (a)
Ratio of net investment income to average net assets
Before expense reimbursements and waived fees .......................................... 0.44% (a)
After expense reimbursements and waived fees ........................................... 0.79% (a)
Portfolio turnover rate ..................................................................... 4.87%
Average brokerage commission per share (b) .................................................. $ 0.0886
(a) Annualized.
(b) Represents total commissions paid on portfolio securities divided by total portfolio shares purchased or sold on which
commissions were charged.
See accompanying notes to financial statements
</TABLE>
<PAGE>
BLUE RIDGE TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 1998
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Blue Ridge Total Return Fund (the "Fund") is a diversified
series of shares of beneficial interest of the Blue Ridge Funds
Trust (the "Trust"). The Trust, an open-ended investment company,
was organized on September 30, 1997 as a Delaware Business Trust
and is registered under the Investment Company Act of 1940, as
amended. The investment objective of the Fund is to seek total
return from a combination of capital appreciation and current
income. The Fund began operations on December 15, 1997. The
following is a summary of significant accounting policies followed
by the Fund.
A. Security Valuation - The Fund's investments in securities
are carried at value. Securities listed on an exchange or
quoted on a national market system are valued at the last
sales price as of 4:00 p.m. New York time on the day of
valuation. Other securities traded in the over-the-counter
market and listed securities for which no sale was reported
on that date are valued at the most recent bid price.
Securities for which market quotations are not readily
available, if any, are valued by using an independent
pricing service or by following procedures approved by the
Board of Trustees. Short-term investments are valued at cost
which approximates value.
B. Federal Income Taxes - It is the policy of the Fund to
comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and to make
sufficient distributions of taxable income to relieve it
from all federal income taxes.
Net investment income (loss) and net realized gains (losses)
may differ for financial statement and income tax purposes
primarily because of losses incurred subsequent to October
31, which are deferred for income tax purposes. The
character of distributions made during the year from net
investment income or net realized gains may differ from
their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ
from the year that the income or realized gains were
recorded by the Fund.
C. Investment Transactions - Investment transactions are
recorded on the trade date. Realized gains and losses are
determined using the specific identification cost method.
Interest income is recorded daily on the accrual basis.
Dividend income is recorded on the ex-dividend date.
D. Distributions to Shareholders - The Fund generally declares
dividends quarterly, payable in March, June, September and
December, on a date selected by the Trust's Trustees. In
addition, distributions may be made annually in December out
of net realized gains through October 31 of that year.
Distributions to shareholders are recorded on the
ex-dividend date. The Fund may make a supplemental
distribution subsequent to the end of its fiscal year ending
May 31.
E. 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 amount of assets, liabilities, expenses and
revenues reported in the financial statements. Actual
results could differ from those estimated.
(Continued)
<PAGE>
BLUE RIDGE TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 1998
(Unaudited)
F. Options Transactions - The Fund may write put and call
options only if such options are considered to be covered. A
written call option is considered to be covered when the
writer of the call option owns throughout the option period
the security on which the option is written. A written put
option is considered covered when the writer of the put has
deposited and maintained in a segregated account throughout
the option period sufficient cash or other liquid assets in
an amount equal to or greater than the exercise price of the
put option. The Fund may purchase put options and purchase
call options only to close open positions.
When the Fund writes a covered call or put option, an amount
equal to the premium received is included in the statement
of assets and liabilities as a liability. The amount of the
liability is subsequently marked-to-market to reflect the
current market value of the option. If an option expires on
its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized. If
a written call option is exercised, a gain or loss is
realized for the sale of the underlying security and the
proceeds from the sales are increased by the premium
originally received. If a written put option is exercised,
the cost of the security acquired is decreased by the
premium originally received. As writer of an option, the
Fund has no control over whether the underlying securities
are subsequently sold (call) or purchased (put) and, as a
result, bears the market risk of an unfavorable change in
the price of the security underlying the written option.
When the Fund purchases a call or put option, an amount
equal to the premium paid is included in the Fund's
statement of assets and liabilities as an investment, and is
subsequently marked-to-market to reflect the current market
value of the option. If an option expires on the stipulated
expiration date or if the Fund enters into a closing sale
transaction, a gain or loss is realized. If the Fund
exercises a call the cost of the security acquired is
increased by the premium paid for the call. If a Fund
exercises a put option, a gain or loss is realized from the
sale of the underlying security, and the proceeds from such
sale are decreased by the premium originally paid. Written
and purchased options are non-income producing securities.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Blue Ridge Advisors,
Inc. (the "Manager") provides the Fund with a continuous program
of supervision of the Fund's assets, including the composition of
its portfolio, and furnishes advice and recommendations with
respect to investments, investment policies and the purchase and
sale of securities. As compensation for its services, the Manager
receives a fee at the annual rate of 1.65% of the first $20
million of the average daily net assets of the Fund and 1.20% of
average daily net assets over $20 million. The Manager currently
intends to voluntarily waive a portion of its fee to limit total
Fund operating expenses to 1.65% of the average daily net assets
of the Fund. There can be no assurance that the foregoing
voluntary fee waiver will continue.
The Fund's administrator, The Nottingham Company (the
"Administrator"), provides administrative services to and is
generally responsible for the overall management and day-to-day
operations of the Fund pursuant to an accounting and
administrative agreement with the Trust. The Administrator is
compensated by the Manager and not directly by the Fund.
(Continued)
<PAGE>
BLUE RIDGE TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 1998
(Unaudited)
North Carolina Shareholder Services, LLC (the "Transfer Agent")
serves as the Fund's transfer, dividend paying, and shareholder
servicing agent. The Transfer Agent, subject to the authority of
the Board of Trustees, provides transfer agency services pursuant
to an agreement with the Administrator, which has been approved by
the Trust. The Transfer Agent maintains the records of each
shareholder's account, answers shareholder inquiries concerning
accounts, processes purchases and redemptions of the Fund shares,
acts as dividend and distribution disbursing agent, and performs
other shareholder servicing functions. The Transfer Agent is
compensated for its services by the Manager and not directly by
the Fund.
Capital Investment Group, Inc. (the "Distributor"), an affiliate
of the Advisor, serves as the Fund's principal underwriter and
distributor. The Distributor may sell Fund shares to or through
qualified securities dealers or others. With respect to the Class
NL shares, the Distributor receives no compensation from the
Fund.Certain Trustees and officers of the Trust are also officers
of the Manager, the Distributor or the Administrator.
NOTE 3 - COVERED CALL OPTIONS
As of May 31, 1998, portfolio securities valued at $443,442 were
segregated by the custodian in connection with covered call options
written by the Fund.
The Fund's activity in written options for the period ended May 31,
1998 was as follows:
Number of Contracts
Contracts Premium
--------- ---------
Options outstanding at beginning of period 0 $ 0
Options sold 101 23,066
Options canceled in closing transactions 15 3,242
Options expired prior to exercise 7 1,414
--- -------
Options outstanding at end of period 79 $18,410
=== =======
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $2,676,113 and $3,755,245, respectively,
for the period ended May 31, 1998.
