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April 28, 1998
DEAR SHAREHOLDERS:
We are pleased to present to you the First Quarter Report of the Burnham Fund
for 1998.
BURNHAM FUND FIRST QUARTER DATA
On March 31, 1998 The Burnham Fund's net asset value per share for Class A, B
and C shares was $31.54, $32.35, and $31.57, which represent increases for the
quarter of 11.5%, 11.3% and 11.3%, respectively. On March 30, 1998 The Burnham
Fund declared its first quarter dividend, payable to shareholders of record on
March 31, 1998 and paid on April 8, 1998. For the first quarter, The Burnham
Fund Class A, B and C shares paid $0.08, $0.02 and $0.02, respectively in
taxable dividends per share. This dividend was comprised entirely of ordinary
income.
FIRST QUARTER MARKET REVIEW
The equity markets continued their upward trend during the first quarter of
1998. Some analysts were somewhat concerned that the markets would become
volatile in the first quarter, perhaps even decline, after the dramatic
increases in 1997 for the broad averages. The poor returns posted in January by
the broad averages reflected many of these concerns; the Asian crisis continued
to deepen, the President's legal problems widened, and the Iraqi/UN diplomacy
remained at an impasse. Despite all this, new money flowing into mutual funds
continued at a record pace during this period. Following Federal Reserve
Chairman Alan Greenspan's commentary that the economy was healthy, and interest
rates would likely remain stable, the markets resumed an upward trend. In
February and March, the DJIA broke through 8500 and beyond, following rekindled
optimism derived from positive economic and consumer confidence reports, and an
unprecedented flurry of corporate merger, acquisition and reorganization events.
The Burnham Fund made strategic changes to the portfolio during the quarter. WE
REDUCED OUR POSITION IN ENERGY--OIL AND GAS from 12% of net assets at year end
to 9.7% at the end of the first quarter. Positions reduced include Exxon, Royal
Dutch, Texaco and Amoco. In the fourth quarter of 1997 and first quarter of
1998, crude oil prices declined sharply. Inventories swelled because of weaker
demand in Asia, the extremely mild winter in the high energy using Northeast
United States, and increased production in the Middle East. We still maintain an
overweighted position in this sector as we believe oil prices will increase over
the long term. At present, natural gas prices are comparatively strong, and the
major petroleum companies have reported first quarter earnings per share that
were better than had been expected. We should see better earnings in the
quarters to come. The financial health of these companies and robust dividend
payments fit in a growth and income portfolio. We also REDUCED OUR POSITION IN
THE REAL ESTATE INVESTMENT TRUST sector by 2% from year end. This area was
lucrative for us in past years; however, we believe that the total return
potential for this group has dropped as the share prices increased, and
therefore yields have decreased. We sold our position in National Golf, and
reduced our position in Golf Trust of America, and Chateau Communities Inc.
We redeployed these funds into sectors, and to individual equities which we
believe will provide more potential for capital appreciation from earnings
growth or reorganization. In a contrarian move befitting our value orientation,
we added to our Banking position because we believed the market over-reacted to
the Asian crisis. We think that well managed banks will seek out opportunities
and continue to grow and consolidate. We added to the portfolio CHASE MANHATTAN
BANK CORP., FLEET FINANCIAL GROUP, AND WEBSTER FINANCIAL GROUP. In Financial
Services we added CHARLES SCHWAB, FRANKLIN RESOURCES AND ASSOCIATES FIRST
CAPITAL CORP., the consumer credit division of FORD, which was recently
distributed to shareholders. Outside of these two major sector increases, among
the new positions to the Fund are DOW JONES & CO., ECI TELECOM, LTD., ERICCSON
(LM) TELEFON ADRS, TIFFANY INC., AND ESTEE LAUDER INC.
Outlook
Since the end of the quarter, several equities have had significant increases in
price. Our largest holding, TRAVELERS, has announced a merger with CITICORP,
another long term holding. We are very excited about the prospects of this
merger, and we believe that both stocks still have appreciation potential. Our
Pharmaceutical investments have also increased dramatically in value. Pfizer's
earnings growth rate has been revised upward in light of the immense market
potential for its new drug, Viagra. Warner Lambert recently announced its
earnings will far surpass the expectations of investment analysts due to new
product flow at its Parke Davis division and the success of two drugs, Lipitor
and Rezulin. Innovative new products and an increasing population of aging baby
boomers are expanding the market for health related products and fueling
earnings growth in this very important sector for the Fund.
The investment environment year to date has validated of many of our investment
theories we have discussed in these letters for
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the last three years. We have stated that this long-lived bull market has been
fueled by many converging events:
A technology and communications revolution that tends to smooth out the
business cycle, improve corporate management and planning, and expand
profit margins and bottom line earnings
Continued low inflation and stable interest rates at reasonable levels
Near elimination of the federal deficit
The government's encouraging individual investing through lowering capital
gains taxes and liberalizing retirement programs
Record breaking inflows of tax deferred and discretionary investment into
mutual funds from systematic investment programs and other retirement
vehicles
Increased level of corporate merger and acquisition activity as managements
seek new distribution avenues both in the United States and abroad
A shrinking supply of common stock from accelerating corporate stock
buyback activity (which exceeds the market value of new stock coming to
market from IPOs)
As of the end of the first quarter, the S & P 500 index stood at 22x 1998
earnings estimates, 7.6x book value, and had a dividend yield of 1.3%. By
historical measures, these are high valuations. We think that given the factors
stated above, a premium market valuation is warranted. Corrections are
inevitable, and we expect them from time to time, especially after significant
rallies. We note that investors are merciless to companies with negative
earnings surprises, and therefore, stock selection and holding to an investment
discipline is essential. We continue to favor companies with earnings growth
potential of at least 15% to 20% per year for five years, product leadership,
innovative management with a shareholder-value orientation, superior financial
underpinnings, and a healthy dividend history (when pertinent). We also search
for companies whose stock is undervalued relative to its past, or those which
may benefit from restructuring actions. We also favor companies with relatively
little exposure to Asia, or where the exposure is well understood. The crisis
atmosphere is abating, but the earnings impact is far from over, particularly in
certain technology sectors. We are also monitoring Year 2000 issues as they
affect our investments, and to the extent to which companies in the Fund are on
track with compliance. We would also be concerned if economic conditions changed
so that we might anticipate an upward change in the direction of interest rates.
During the past year, Portfolio Manager Jon Burnham has appeared as a regular
guest on CNBC, CNN/FN and Bloomberg Radio and Cable Television. He generally
appears on Bloomberg every other Monday at various times throughout the day. His
other appearances are scheduled erratically. Please feel free to call
1-800-874-FUND for his schedule, so you may hear his latest investment thoughts
and ideas.
We appreciate your confidence in The Burnham Fund.
Very truly yours,
/s/ I. W. Burnam, II /s/ Jon M. Burnham
I. W. Burnham, II Jon M. Burnham,
Chairman President &
Portfolio Manager
The performance data quoted represents past performance and is not indicative of
future performance. The investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Average total return for Class A shares, assuming
the reinvestment of dividends and excluding the maximum sales charge for the
one, five and ten year periods ended March 31, 1998 were 37.75%, 16.16% and
13.56%, respectively. Such performance assuming the imposition of the Class A
shares' maximum 5% sales charge for the same periods would have been 30.88%,
14.98% and 12.98%, respectively. For Class B and C shares, average total return
for the one year period ended March 31, 1998 and life of class total return for
the period October 18, 1993 (inception date) to March 31, 1998, were 36.49% and
15.83% and 36.50% and 15.84%, respectively. Class B shares bear a maximum
contingent deferred sales charge at a rate of 5% if they are redeemed within the
first six years of purchase. Such performance assuming the imposition of the
maximum contingent deferred sales charge of 5% for the one year period ended
March 31, 1998 and life of class were 32.49% and 15.43%, respectively. Class C
shares bear a maximum contingent deferred sales charge at a rate of 1% if they
are redeemed within the first year of purchase.
2
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INVESTMENT PERSPECTIVE
EQUITY PORTFOLIO DISTRIBUTION
EQUITY PORTFOLIO DISTRIBUTION
by Industry Classification
March 31, 1998
<TABLE>
<CAPTION>
% Total
Equity Portfolio
----------------
<S> <C>
Insurance & Financial Services.............. 14.75%
Energy - Oil & Gas.......................... 10.70%
Banking..................................... 8.62%
Computer Products & Software................ 8.16%
Pharmaceuticals............................. 7.79%
Real Estate Investment Trusts............... 7.66%
Oil Drilling................................ 4.59%
Telecommunication Equipment................. 4.57%
Telecommunication Network Services.......... 4.49%
Automotive.................................. 4.47%
Consumer Products........................... 3.24%
Other....................................... 20.96%
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TOTAL EQUITIES.............................. 100.00%
=======
</TABLE>
TOTAL PORTFOLIO DISTRIBUTION BY ASSET CLASS
March 31, 1998
[PIE CHART]
<TABLE>
<S> <C>
Cash & Cash Equivalents..................... 5%
Convertible Preferred Securities............ 2%
Corporate & Convertible Bonds............... 2%
Common Stocks............................... 91%
</TABLE>
TOP 25% PORTFOLIO HOLDINGS
(excluding short-term investments)
March 31, 1998
<TABLE>
<CAPTION>
Number of % of
Shares Value Net Assets
------ ----- ----------
<S> <C> <C> <C>
Travelers Group Inc........................ 120,000 $7,200,000 4.75%
The Bank of New York Co., Inc. ............ 100,000 $6,281,250 4.14%
Pfizer Inc. ............................... 50,000 $4,984,375 3.29%
Exxon Corporation.......................... 90,000 $4,733,750 3.12%
Diamond Offshore Drilling Inc. ............ 100,000 $4,537,500 2.99%
Lucent Technologies Inc. .................. 35,000 $4,475,625 2.95%
Allstate Corp. ............................ 45,000 $4,137,187 2.73%
American Express Co. ...................... 45,000 $4,131,562 2.73%
---------- ------
TOP 25% PORTFOLIO HOLDINGS $40,481,249 26.70%
=========== ======
</TABLE>
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CUMULATIVE RETURN
OF A HYPOTHETICAL $10,000 INVESTMENT*
FROM INCEPTION (JUNE 16, 1975)
THROUGH MARCH 31, 1998
THE BURNHAM FUND - CLASS A
Value of hypothetical investment
on March 31, 1998: $200,621
LIFE OF FUND
CUMULATIVE PERCENT RETURN:
1,906.21%
ANNUAL COMPOUND RATE OF RETURN:
14.04%
<TABLE>
<S> <C>
1975..................... $ 9,792
1976..................... 12,130
1977..................... 11,656
1978..................... 13,167
1979..................... 16,265
1980..................... 21,777
1981.................... 21,220
1982.................... 25,928
1983.................... 29,067
1984.................... 31,166
1985.................... 41,191
1986.................... 50,170
1987.................... 53,524
1988.................... 59,883
1989.................... 73,520
1990.................... 72,217
1991.................... 85,195
1992.................... 91,758
1993.................... 100,355
1994.................... 98,564
1995.................... 122,663
1996.................... 144,252
1997.................... 179,941
1998.................... 200,621
</TABLE>
$10,000 investment on June 16, 1975
(inception date).
* All performance analyses shown herein represent past performance and are not
indicative of future performance. All dividends and distributions from income
and capital gains have been continually reinvested. Performance does not
include the imposition of the maximum 5% sales charge. Performance for other
classes of the Fund will be greater or less than the data shown in the graph
and tables based on differences in sales charges and fees paid by shareholders
investment in the different classes of the Fund.
AVERAGE ANNUAL TOTAL RETURN
Period ended March 31, 1998
<TABLE>
<S> <C>
One Year.............. 37.75%
Three Years........... 24.50%
Five Years............ 16.16%
Ten Years............. 13.56%
Fifteen Years......... 14.15%
Twenty Years.......... 15.41%
</TABLE>
3
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STATEMENT OF NET ASSETS
March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Number of
Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks 91.03%
AEROSPACE 2.04%
General Motors Corp., Class H................. 30,000 $ 1,357,500
Gulfstream Aerospace Corp. ................... 40,000 1,735,000
------------
3,092,500
------------
AUTOMOTIVE 4.07%
Chrysler Corp. ............................... 50,000 2,078,125
Ford Motor Company............................ 50,000 3,240,625
Tenneco, Inc. ................................ 20,000 853,750
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6,172,500
------------
BANKING 7.84%
The Bank of New York Co., Inc. ............... 100,000 6,281,250
Chase Manhattan Bank.......................... 10,000 1,348,750
Citicorp...................................... 15,000 2,130,000
Fleet Financial Group Inc. ................... 25,000 2,126,563
------------
11,886,563
------------
BUSINESS PUBLISHING 0.70%
Dow Jones & Co., Inc. ........................ 20,000 1,058,750
------------
CHEMICALS 1.20%
Monsanto Co. ................................. 35,000 1,820,000
------------
COMPUTER PRODUCTS &
SOFTWARE 7.43%
Cisco Systems Inc. ........................... 15,000(b) 1,026,094
Hewlett Packard Co. .......................... 20,000 1,267,500
International Business Machines
Corp. ....................................... 25,000 2,596,875
Microsoft Corp. .............................. 40,000(b) 3,578,750
Phoenix Technologies Ltd. .................... 65,000(b) 777,969
Siebel Systems Inc. .......................... 70,000(b) 2,014,687
------------
11,261,875
------------
CONGLOMERATES 1.02%
Textron Inc. ................................. 20,000 1,540,000
------------
CONSUMER PRODUCTS 2.95%
General Electric Co. ......................... 40,000 3,447,500
Blythe Industries Inc. ....................... 30,000 1,023,750
------------
4,471,250
------------
ENERGY--OIL & GAS 9.74%
Amoco Corp. .................................. 20,000 1,727,500
British Petroleum PLC ADS..................... 20,000 1,721,250
Exxon Corporation............................. 70,000 4,733,750
Mobil Corporation............................. 40,000 3,065,000
Royal Dutch Petroleum Co. ADR................. 30,000 1,704,375
Texaco Inc. .................................. 30,000 1,807,500
------------
14,759,375
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</TABLE>
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<TABLE>
<CAPTION>
Number of
Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ENGINEERING/INDUSTRIAL
PRODUCTION 1.40%
Thermo Electron Corp. ........................ 50,000 $ 2,018,750
Thermolyte Corp. ............................. 10,000bc 100,000
------------
2,118,750
------------
FINANCIAL SERVICES 10.70%
American Express Co. ......................... 45,000 4,131,562
Associates First Capital Corp. ............... 15,000 1,185,000
The Charles Schwab Corporation................ 35,000 1,330,000
Franklin Resources Group...................... 25,000 1,325,000
Travelers Group Inc. ......................... 120,000 7,200,000
Webster Financial Corporation................. 15,000 1,038,750
------------
16,210,312
------------
HEALTHCARE FACILITIES 1.49%
Rehabcare Group Inc. ......................... 85,000 2,263,125
------------
HOTELS & GAMING 0.48%
Mirage Resorts, Inc. ......................... 30,000(b) 729,375
------------
INSURANCE COMPANIES 2.73%
Allstate Corp. ............................... 45,000 4,137,187
------------
MEDIA BROADCASTING 0.90%
CBS Corporation............................... 40,000 1,357,500
------------
MEDICAL SUPPLIES 2.56%
Baxter International Inc. .................... 25,000 1,378,125
Johnson & Johnson............................. 20,000 1,466,250
Medtronic Inc. ............................... 20,000 1,037,500
------------
3,881,875
------------
OIL DRILLING 4.18%
Diamond Offshore Drilling Inc. ............... 100,000 4,537,500
Transocean Offshore Inc. ..................... 35,000 1,800,313
------------
6,337,813
------------
PERSONAL CARE PRODUCTS 2.24%
Estee Lauder Inc. ............................ 15,000 1,018,125
Gillette Co. ................................. 20,000 2,373,750
------------
3,391,875
------------
PASTA PRODUCER 1.67%
American Italian Pasta Co. ................... 70,000(b) 2,528,750
------------
PHARMACEUTICALS 7.09%
Merck & Co. .................................. 25,000 3,209,375
Pfizer Inc. .................................. 50,000 4,984,375
Warner Lambert Inc. .......................... 20,000 2,554,687
------------
10,748,437
------------
</TABLE>
4
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STATEMENT OF NET ASSETS
March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
NUMBER OF SHARES
OR PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REAL ESTATE INVESTMENT TRUSTS 6.97%
Chateau Communities Inc. ..................... 50,000 $ 1,487,500
Developers Diversified Realty Corp. .......... 30,000 1,226,250
Franchise Finance Corp. ...................... 80,000 2,225,000
Golf Trust of America......................... 55,000 1,725,625
Meditrust SBI................................. 84,000 2,593,500
Vornado Realty Trust.......................... 30,000 1,306,875
------------
10,564,750
------------
RETAIL 0.80%
Tiffany & Co. ................................ 25,000 1,217,188
------------
SEMICONDUCTORS 2.58%
Intel Corp. .................................. 50,000 3,901,562
------------
TELECOMMUNICATION EQUIPMENT 4.16%
ECI Telecom Ltd. ............................. 60,000 1,833,750
Lucent Technologies Inc. ..................... 35,000 4,475,625
------------
6,309,375
------------
TELECOMMUNICATIONS NETWORK
AND SERVICES 4.09%
Ericcson (L.M.) Telefon `B' ADS............... 25,000 1,188,281
GTE Corp. .................................... 40,000 2,395,000
SBC Communications Inc. ...................... 60,000 2,617,500
------------
6,200,781
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Total Common Stocks.......................... 137,961,468
------------
CONVERTIBLE PREFERRED
SECURITIES 2.52%
PASSENGER CRUISE LINES 1.46%
Royal Caribbean Cruises,
conv. Preferred Cl. `A'..................... 20,000 2,210,000
------------
UTILITIES 1.06%
AES Trust I, conv. Preferred
Series `A'.................................. 6,000 479,250
AES Trust II, $2.75 conv.
Preferred Series `B' TECONS................. 20,000(d) 1,128,750
------------
1,608,000
------------
Total Convertible Preferred
Securities.................................. 3,818,000
------------
CORPORATE BONDS 1.85%
DATA PROCESSING 0.32%
Data General Corp., 6% sub.
deb. 5/15/04............................... $ 500,000 488,750
------------
FINANCIAL SERVICES 0.66%
Ford Motor Credit Corp.,
9 1/4% notes 6/15/98........................ 1,000,000 1,006,427
------------
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</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
HOTELS 0.87%
Marriott Corp., 93/8%
Deb. 6/15/07.............................. $1,265,000 $ 1,313,450
------------
Total Corporate Bonds...................... 2,808,627
------------
COMMERCIAL PAPER 4.82%
American Express Credit
Corp., 5 3/4% 04/01/98.................... 3,452,000 3,452,000
Ford Motor Credit Corp.,
5.76% 04/01/98............................ 3,300,000 3,300,000
General Electric Capital Corp.,
5 1/2% 04/01/98........................... 550,000 550,000
------------
Total Commercial Paper..................... 7,302,000
------------
TOTAL INVESTMENTS 100.22% 151,890,095
CASH AND OTHER ASSETS,
LESS LIABILITIES (0.22)% (328,198)
--------- ------------
NET ASSETS 100.00% $151,561,897
========= ============
</TABLE>
CLASS A SHARES
(Equivalent to $31.54 per share based on 4,735,817 shares of Capital Stock
outstanding.)
CLASS B SHARES
(Equivalent to $32.35 per share based on 63,631 shares of Capital Stock
outstanding.)
CLASS C SHARES
(Equivalent to $31.57 per share based on 4,981 shares of Capital Stock
outstanding.)
(a) Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the primary exchange on which they
are traded on the last business day of the period. Securities traded in the
over-the-counter market (including securities listed on exchanges whose primary
market is believed to be over-the-counter) and listed securities for which no
sale was reported on that date are valued at the mean between the last reported
bid and asked prices. Short-term money market instruments which have a maturity
of more than 60 days are valued at prices based on market quotations for
securities of similar type, yield and maturity. Short-term money market
instruments which have a maturity of 60 days or less are valued at amortized
cost which approximates value.
(b) Non-income producing security.
(c) A unit consists of one share of common stock of Thermolyte Corp. and one
redemption right.
(d) "TECONS" are term convertible securities with a liquidation amount of $50
per security and are convertible into the common stock of the AES Corporation.
5
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OFFICERS OF THE FUND
I.W. Burnham, II Chairman
Jon M. Burnham, President
and Chief Executive Officer
Michael E. Barna, Executive Vice President
Chief Financial Officer, Treasurer and Secretary
Debra B. Hyman, Executive Vice President
Ronald M. Geffen, Vice President
Frank A. Passantino, Vice President and
Assistant Secretary
Louis S. Rosenthal, Vice President
INVESTMENT ADVISER
Burnham Asset Management Corporation
1325 Avenue of the Americas
New York, New York 10019
DISTRIBUTOR
Burnham Securities Incorporated
1325 Avenue of the Americas
New York, New York 10019
Telephone: 1 (800) 874-FUND
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom L.L.P.
919 Third Avenue
New York, New York 10022
SERVICING AGENT
Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
http://www.burnhamfunds.com
This report has been prepared for the information of shareholders of The Burnham
Fund Inc. and is not authorized for distribution to prospective investors unless
preceded or accompanied by an effective prospectus that includes information
regarding the Fund's objectives, policies, management, records and other
information.
Quarterly Report
MARCH 31, 1998
Continuity Knowledge
BURNHAM
FUND
Growth Income
BURNHAM Securities Inc.
Principal Distributor
