Blue Ridge Funds Trust
P.O. Drawer 69
Rocky Mount, NC 27802-0069
Dear Shareholder,
As you are aware, 1998 was a very turbulent year in the stock market and the
Blue Ridge Total Return Fund. Unfortunately, I do not believe the world's
economic troubles are over, they have simply been postponed. As we learned in my
last letter, the market was placing an extraordinary premium on earnings
consistency and company size Let's revisit our example from 6/30/98 of Coca-Coke
versus Ingersoll-Rand.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Safe Haven
PerShare Coca-Cola
Data Est. Recession Years Increase
- --------------------- ------------- ------------ ---------------------- -------------- ------------ ------------- ------------
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 .36 227%
- --------------------- ------------- ------------ ---------------------- -------------- ------------ ------------- ------------
Dividends .60 .56 .28 .24 .20 .14 429%
- --------------------- ------------- ------------ ---------------------- -------------- ------------ ------------- ------------
Book Value 3.40 2.96 1.49 1.67 1.41 1.08 315%
- --------------------- ------------- ------------ ---------------------- -------------- ------------ ------------- ------------
Risky
PerShare Ingersoll-Rand
Data Est. Recession Years Increase
- --------------------- ------------- ------------ ---------------------- -------------- ------------ ------------- ------------
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%
- --------------------- ------------- ------------ ---------------------- -------------- ------------ ------------- ------------
</TABLE>
As we can see, the financial performance of the "safe" Coca-Cola has been
slightly better than the economically sensitive Ingersoll-Rand as measured by
the growth in earnings, dividends, and book value. As investors, however, we
established in June that we needed to answer the additional question of "how
much of a premium price are we willing to pay for this less than certain premium
performance?" The market at 6/30/98 was paying $85.50 for Coca-Cola and $44.07
for Ingersoll-Rand. You will recall we found the 100% premiums for safety too
high.
What has happened since 6/30/98?
In August, the market suddenly realized that there are no absolutes in business
or investing. When Russia defaulted on its debt, the stock market cracked and
fell 20%. The market fell because many of the world's largest players were
investing with the assumption that the U.S. and International Monetary Fund
(IMF) would guarantee Russia's debt. When the U.S. and IMF failed to intervene,
all markets where people had bought without regard to price fell sharply
including the U.S. stock market. The names most vulnerable to such a change in
perception fell most dramatically. Using our example of Coca-Cola (KO) v.
Ingersoll-Rand (IR), KO fell from the $85.50 on 6/30 to a low of $53.625 on
9/25/98 while IR fell $44.07 on 6/30/98 to $34.00 on 10/08/98. This represents a
spread closing of over $22 dollars [$88.50-$44.07 = $44.43 v. $53.625 - $34 =
$19.625]. Obviously, as investors, we would prefer this spread to close by IR
going up while KO stagnates, but that doesn't always happen.
<PAGE>
During August and September, the Federal Reserve felt pressure from the suddenly
collapsing prices to intervene in the U.S. stock and bond markets because they
are closer to home than Russia. The U.S. Federal Reserve and Alan Greenspan
thought the situation was so dire that they cut interest rates three times along
with every other central bank in the world. In total, there were over 60
worldwide interest rate cuts between August and December. As a result, investors
who had paid ridiculous prices based on long-term (10 years or more) values were
bailed out by the rate cuts. Following this Federal Reserve led bailout, the
markets quickly resumed their upward progress with the most speculative stocks
like Internet and technology names leading. The markets have now assumed that
the governments of the world are underwriting risk. Amazon.com, for example,
which has never earned any money has risen from the $70-80 range in August to a
stock split equivalent of over $500 by early January while stocks in mundane
business like Ingersoll-Rand have basically remained flat.
What is the Outcome of the Bailout?
Short-Run
Economics is the study of trade-offs. The Federal Reserve traded-off long term
instability for short-term stability. In the short-run (3 Years of less),
anything can happen. Following the 1987 stock market crash, for example, the
Japanese intervened in their market and the Nikkei then rose from around 17,000
(Yen) in 1987 to over 39,000(Yen) by late 1989.Today you can buy the Nikkei at
13,360(Yen). There was no real economic value there.
Long-Run
Unfortunately, the historical record does not offer a pretty blueprint for an
economy following a market bubble pop. Economic recession tends to follow a
sudden collapse in market prices, unless the bubble is confined to a small
sector of the economy, though the degree of the economic dip is unpredictable.
For example, the recession of the early 1980's followed the collapse of
commodity prices like oil from $40/barrel, gold $900/ounce, etc.. The collapse
of the real estate in the late 1980's led to the 1990 recession. The collapse of
the derivatives market led to the 1994 slowdown. The Japanese stock market
collapse led to that country's prolonged recession. We hope that the recent
speculation has been confined to the Internet stocks, but recent price action in
large names like GM and Gillette suddenly jumping $6 in minutes concerns us.
Conclusions
Value will be recognized, but we as investors, must maintain the appropriate
time frame. Obviously, the sooner that the value of our investments is
recognized the better off we are, but we cannot depend on the market to always
reward us immediately. Thus, we must only commit our capital after the long and
arduous study of both the risk and the potential return of an investment over
the appropriate time frame. For us at Blue Ridge Advisors, the appropriate time
frame depends on the industry and type of company, but in general, seven years
or more is appropriate for most businesses. Once again, thank you for trusting
us with your money and if you have any questions please do not hesitate to call
me at 888-858-8908.
Sincerely,
/s/ Allen R. Gillespie
Portfolio Manager
<PAGE>
BLUE RIDGE TOTAL RETURN FUND
Performance Update - $10,000 Investment
For the period from December 15, 1997 (Commencement of Operations)
to November 30, 1998
- ----------------------------------------------------------------------
Blue Ridge S&P 500
Total Return Total Return
Fund Index
- ----------------------------------------------------------------------
12/15/97 10,000 10,000
12/31/97 10,056 10,080
1/31/98 10,347 10,191
2/28/98 10,927 10,926
3/31/98 11,517 11,486
4/30/98 11,507 11,601
5/31/98 11,147 11,402
6/30/98 11,047 11,865
7/31/98 10,786 11,739
8/31/98 9,454 10,041
9/30/98 10,035 10,685
10/31/98 10,366 11,554
11/30/98 10,486 12,254
This graph depicts the performance of the Blue Ridge Total Return Fund versus
the S&P 500 Total Return Index. It is important to note that the Blue Ridge
Total Return Fund is a professionally managed mutual fund while the index is not
available for investment and is unmanaged. The comparison is shown for
illustrative purposes only.
Cumulative Total Return
- -------------------------
Since Commencement
of Operations
- -------------------------
4.86%
- -------------------------
The graph assumes an initial $10,000 investment at December 15, 1997. All
dividends and distributions are reinvested.
At November 30, 1998, the Blue Ridge Total Return Fund would have grown to
$10,486 - total investment return of 4.86% since December 15, 1997.
At November 30, 1998, a similar investment in the S&P 500 Total Return Index
would have grown to $12,254 - total investment return of 22.54%, since December
15, 1997.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
BLUE RIDGE TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS
November 30, 1998
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 81.10%
Building Materials - 1.09%
Centex Corporation ..................................................... 500 $ 17,844
--------
Chemicals - 1.80%
Morton International, Inc. ............................................. 1,000 29,438
--------
Commercial Services - 1.14%
Ogden Corporation ...................................................... 700 18,594
--------
Computers - 1.96%
(a) Apple Computer, Inc. ................................................... 1,000 31,937
--------
Computer Software & Services - 7.56%
(a) Computer Sciences Corporation .......................................... 1,000 57,125
First Data Corporation ................................................. 1,200 32,025
(a) Oracle Corporation ..................................................... 1,000 34,250
--------
123,400
--------
Diversified Operations - 3.19%
The Seagram Company Ltd. ............................................... 1,000 34,312
(a) Triarc Companies, Inc. ................................................. 1,100 17,737
--------
52,049
--------
Financial - Banks, Money Center - 6.15%
Citigroup Inc. ......................................................... 2,000 100,375
--------
Food - Wholesale - 5.16%
Richfood Holdings, Inc. ................................................ 3,100 57,350
SYSCO Corporation ...................................................... 1,000 26,938
--------
84,288
--------
Foreign Securities - 0.92% (b)
Pohang Iron & Steel Company Ltd. - ADR ................................. 1,000 15,000
--------
--------
Forest Products & Paper - 2.13%
(d) International Paper Company ............................................ 800 34,750
--------
Insurance - Life & Health - 5.21%
(d) Aetna Inc. ............................................................. 1,100 85,044
--------
Insurance - Multiline - 2.45%
Loews Corporation ...................................................... 400 40,000
--------
Machine - Construction & Mining - 1.43%
(d) Ingersoll-Rand Company ................................................. 500 23,406
--------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BLUE RIDGE TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS
November 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Medical - Biotechnology - 7.94%
Abbott Laboratories ........................................................... 1,000 $ 48,000
(a) Amgen Inc. .................................................................... 600 45,150
Pharmacia & Upjohn, Inc. ...................................................... 700 36,444
--------
129,594
--------
Medical Supplies - 4.83%
Biomet, Inc. .................................................................. 1,000 38,250
Johnson & Johnson ............................................................. 500 40,625
--------
78,875
--------
Metals - Diversified - 1.07%
ASARCO Incorporated ........................................................... 900 17,494
--------
Metals - Fabrication & Hardware - 1.63%
Alcan Aluminum Ltd. ........................................................... 1,000 26,625
--------
Oil & Gas - Equipment & Services - 2.24%
Baker Hughes Incorporated ..................................................... 2,000 36,500
--------
Oil & Gas - Exploration - 5.95%
Pennzoil Company .............................................................. 600 22,275
Texaco Inc. ................................................................... 1,300 74,832
--------
97,107
--------
Restaurants & Food Service - 1.10%
Wendy's International, Inc. ................................................... 900 18,000
--------
Shoes - Leather - 7.15%
Nike, Inc. .................................................................... 1,900 76,000
Wolverine World Wide, Inc. .................................................... 3,000 40,687
--------
116,687
--------
Transportation - Air - 0.99%
Southwest Airlines Co. ........................................................ 750 16,125
--------
Transportation - Miscellaneous - 2.55%
CSX Corporation ............................................................... 1,000 41,687
--------
Transportation - Rail - 4.38%
Union Pacific Corporation ..................................................... 500 24,312
(a) Wisconsin Central Transportation Corporation .................................. 2,600 47,125
--------
71,437
--------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BLUE RIDGE TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS
November 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Utilities - Water - 1.08%
(a) United States Filter Corporation ........................................... 800 $ 17,700
---------
Total Common Stocks (Cost $1,383,783) ...................................... 1,323,956
---------
INVESTMENT COMPANIES - 9.68%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ................................... 78,950 78,950
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Service Shares ............................. 78,950 78,950
---------
Total Investment Companies (Cost $157,900) ................................. 157,900
---------
Total Value of Investments (Cost $1,541,683 (c)) .................................. 90.78% $1,481,856
Other Assets Less Liabilities ..................................................... 9.22% 150,551
------ ----------
Net Assets .................................................................... 100.00% $1,632,407
====== ==========
(a) Non-income producing investment.
(b) Foreign securities represent securities issued in the United States markets by non-domestic companies.
(c) 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 $ 71,381
Unrealized depreciation (127,241)
------------
Net unrealized depreciation $ (55,860)
============
(d) At November 30, 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 $ 37
Ingersoll-Rand Company/December 1998/471/2 5 844
International Paper Company/January 1999/55 8 50
------------
Total Call Options (Premiums received $4,898) $ 931
============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
BLUE RIDGE TOTAL RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $1,541,683) ........................................................... $ 1,481,856
Cash .............................................................................................. 224,732
Income receivable ................................................................................. 2,622
-----------
Total assets ................................................................................. 1,709,210
-----------
LIABILITIES
Covered call options written, at value (premiums received $4,898) ................................. 931
Accrued expenses .................................................................................. 552
Payable for investment purchases .................................................................. 75,320
-----------
Total liabilities ............................................................................ 76,803
-----------
NET ASSETS
(applicable to 155,970 NL class shares outstanding; unlimited
shares of no par value beneficial interest authorized) .......................................... $ 1,632,407
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE PER NL CLASS SHARE
($1,632,407 / 155,970 shares) ..................................................................... $ 10.47
===========
NET ASSETS CONSIST OF
Paid-in capital ................................................................................... $ 1,690,810
Accumulated net realized loss on investments ...................................................... (2,543)
Net unrealized depreciation on investments ........................................................ (55,860)
-----------
$ 1,632,407
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
BLUE RIDGE TOTAL RETURN FUND
STATEMENT OF OPERATIONS
Period from December 1, 1997
(initial seed date) to
November 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest ....................................................................................... $ 193
Dividends ...................................................................................... 20,184
--------
Total income ............................................................................. 20,377
--------
Expenses
Management fees (note 2) ....................................................................... 19,968
--------
Less management fees waived (note 2) ..................................................... (820)
--------
Net expenses ............................................................................. 19,148
--------
Net investment income ............................................................... 1,229
--------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss from investment transactions ...................................................... (2,543)
Decrease in unrealized appreciation on investments .................................................. (55,860)
--------
Net realized and unrealized loss on investments ................................................ (58,403)
--------
Net decrease in net assets resulting from operations ..................................... $(57,174)
========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
BLUE RIDGE TOTAL RETURN FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the period from December 1, 1997
(initial seed date) to
November 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment income ........................................................................ $ 1,229
Net realized loss from investment transactions ............................................... (2,543)
Decrease in unrealized appreciation on investments ........................................... (55,860)
-----------
Net decrease in net assets resulting from operations .................................................... (57,174)
-----------
Distributions to shareholders from
Net investment income ................................................................................... (1,229)
-----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) .................................... 1,690,810
-----------
Total increase in net assets ............................................................................ 1,632,407
NET ASSETS
Beginning of period ..................................................................................... 0
-----------
End of period ........................................................................................... 1,632,407
===========
(a) A summary of capital share activity follows:
Share Value
------------ -----------
Shares sold ..................................................................................... 155,940 $1,690,441
Shares issued for reinvestment
of distributions ........................................................................... 107 1,229
------------ -----------
156,047 1,691,670
Shares redeemed ................................................................................. (77) (860)
------------ -----------
Net increase ............................................................................... 155,970 1,690,810
============ ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<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
November 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ...................................................................... $ 10.00
Income from investment operations (a)
Net investment income ......................................................................... 0.02
Net realized and unrealized loss on investments (c) ........................................... 0.47
-------------
Total from investment operations ........................................................ 0.49
-------------
Distributions to shareholders from
Net investment income ......................................................................... (0.02)
-------------
Net asset value, end of period ............................................................................ $ 10.47
=============
Total return .............................................................................................. 4.86%
=============
Ratios/supplemental data
Net assets, end of period .......................................................................... $ 1,632,407
=============
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ................................................. 1.65% (b)
After expense reimbursements and waived fees .................................................. 1.58% (b)
Ratio of net investment income to average net assets
Before expense reimbursements and waived fees ................................................. 0.03% (b)
After expense reimbursements and waived fees .................................................. 0.10% (b)
Portfolio turnover rate ............................................................................ 116.16%
(a) Includes undistributed net investment income of $0.00 per share and undistributed net realized gains and unrealized
gains of $0.00 per share, from November 1, 1997 (initial seed date) through November 15, 1997 (commencement of
operations).
(b) Annualized.
(c) The amount shown in this caption for a share outstanding does not correspond with the aggregate net realized and
unrealized gain (loss) on security transactions for the period ended November 30, 1998 due to the timing of sales and
repurchases of fund shares in relation to fluctuating market values of the investments of the fund. Net realized and
unrealized loss of investments includes gains of $0.82 per share due to market appreciation during the period and
losses of $0.35 due to market depreciation during the period.
See accompanying notes to financial statements
</TABLE>
<PAGE>
BLUE RIDGE TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 1998
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 was
initially seeded on December 1, 1997. The Fund had no net investment income, or
net realized and unrealized gains from the seed date through the commencement of
operations, or 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 - The Fund is considered a personal holding company as
defined under Section 542 of the Internal Revenue Code since 50% of the
value of the Fund's shares were owned directly or indirectly by five or
fewer individuals at certain times during the last half of the year. As a
personal holding company, the Fund is subject to federal income taxes on
undistributed personal holding company income at the maximum individual
income tax rate. No provision has been made for federal income taxes since
substantially all taxable income has been distributed to shareholders. 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 November 30.
<PAGE>
BLUE RIDGE TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 1998
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 estimates.
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 manager has voluntarily waived a portion of
its fee amounting to $820 ($0.01 per share) for the year ended November 30,
1998.
<PAGE>
BLUE RIDGE TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 1998
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.
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 November 30, 1998, portfolio securities valued at $143,200 were
segregated by the custodian in connection with covered call options
written by the Fund.
The Fund's activity in written options for the year ended November 30,
1998 was as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts Contracts Premium
Options outstanding at beginning of period 0 $ 0
Options sold 101 23,066
Options canceled in closing transactions 29 10,949
Options expired prior to exercise 56 7,219
--------- --------
Options outstanding at end of period 16 $ 4,898
========= ==========
</TABLE>
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $2,499,194 and $1,117,960 respectively, for the year ended
November 30, 1998.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Blue Ridge Funds Trust and Shareholders of the Blue
Ridge Total Return Fund:
We have audited the accompanying statement of assets and liabilities of the Blue
Ridge Total Return Fund (a portfolio of the Blue Ridge Funds Trust), including
the schedule of investments, as of November 30, 1998 and the related statement
of operations, changes in net assets, and financial highlights for the period
from December 15, 1997 (commencement of operations) to November 30, 1998. 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 audits.
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 the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of November 30,
1998, by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. 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, such financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Blue Ridge Total Return Fund as of November 30, 1998, the results of its
operations, the changes in its net assets and its financial highlights for the
period from December 15, 1997 to November 30, 1998 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
December 18, 1998
