ANNUAL REPORT
June 30, 1996
EASTCLIFF FUNDS
EASTCLIFF GROWTH FUND
EASTCLIFF TOTAL RETURN FUND
NO-LOAD MUTUAL FUNDS
EASTCLIFF
GROWTH FUND
Dear Shareholder: August 2, 1996
In an effort to keep you informed, we want to update you on the Eastcliff
Growth Fund's progress since its inception on July 1, 1995. As of June 30, 1996
the Fund had grown in size to $46 million. To summarize for new shareholders,
the Fund's investment objective is to produce long-term growth of capital. It
does so by holding a portfolio of equities that have the prospect of strong
future earnings growth and are attractively valued relative to other investment
opportunities.
From inception to June 30, 1996 the Fund has appreciated 25.6%. On June 30,
1996 the Net Asset Value of the Eastcliff Growth Fund was $12.56. The Fund
strives to be fully invested in equities, and at June 30, 1996 the Fund had
98.8% of its assets invested in common stocks. The sectors of emphasis continue
to include:
HEALTHCARE TECHNOLOGY
----------------- -----------------
Biotechnology Networking
Drugs Semiconductors
Medical Services Software/Services
Medical Products
SPECIALTY RETAILING TELECOMMUNICATIONS
------------------- ------------------
Apparel Cellular
Restaurants Equipment
Retail Long Distance
Paging
After slow economic growth in the fourth quarter of 1995, real growth has
accelerated in both the first and second quarters of 1996 sparking inflation and
interest rate uncertainties. We believe these uncertainties have been somewhat
overemphasized. Looking forward, we expect moderating but adequate economic
growth to be sustained by balanced consumer and business spending. Although
inflation and interest rate uncertainties can create short-term price weakness
in stocks, we view this as an opportunity to add to the Fund's strongest growing
companies. We remain positive on the stock market's prospects in 1996 and
continue to invest the Fund accordingly.
We appreciate all of your support and interest since the Fund was opened and
look forward to providing each of our shareholders with favorable investment
returns over the long term.
Respectfully submitted,
/s/ Clark J. Winslow
Clark J. Winslow
Portfolio Manager
EASTCLIFF GROWTH FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
June 30, 1996
At June 30, 1996 the equity markets and investors were grappling with the
transition taking place in the U.S. economy. This transition was the change from
four years of historically rapid earnings growth to an environment of more
normal profit growth. The rapid earnings growth over the past twelve months has
been the principle factor behind the strong positive returns in the equity
market. Profit growth in the second half of 1996 and 1997 will depend primarily
on hard-fought volume gains with very few cost-saving and pricing power
strategies available to the average company. Additional issues complicating the
transition are the fear of economic overheating and increased volatility in
long-term interest rates. These profit and interest rate uncertainties will
likely cause further volatility in the stock market until early autumn. By then
we expect fundamentals will lead to a more favorable viewpoint and a resumption
of the uptrend.
The Eastcliff Growth Fund's objective is to produce long-term growth in
capital. It does so by investing in companies with strong future earnings growth
prospects at reasonable valuations. Given the Fund's investment objective and
the equity market's focus on earnings growth, we maintained a 95% weighting in
stocks during the fiscal year ended June 30, 1996. The Fund was well served by
its sectors of emphasis, healthcare, technology, specialty retailing and
telecommunications.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
EASTCLIFF GROWTH FUND AND STANDARD &POOR'S 500 STOCK INDEX
Average Annual Total Return Since inception 7/1/95 25.6%
date Eastcliff Growth Fund Standard & Poor's 500 Stock Index
7/1/95*<F1> 10,000 10,000
9/30/95 10,990 10,804
12/31/95 10,860 11,453
3/31/96 11,680 12,068
6/30/96 12,560 12,603
*<F1>inception date
Past performance is not predictive of future performance.
EASTCLIFF GROWTH FUND
STATEMENT OF NET ASSETS
JUNE 30, 1996
QUOTED
MARKET
SHARES COST VALUE
------ ------ -----
LONG-TERM INVESTMENTS -- 98.8% (A)<F3>
COMMON STOCKS -- 98.8% (A)<F3>
APPAREL -- 1.8%
15,900 Tommy Hilfiger Corp.*<F2> $454,262 $852,637
BEVERAGES -- 1.9%
17,800 The Coca-Cola Company 569,423 869,975
BIOTECHNOLOGY -- 3.8%
18,700 Amgen Inc.*<F2> 851,838 1,009,800
14,500 Genzyme Corp.*<F2> 691,498 728,625
---------- ---------
1,543,336 1,738,425
BUSINESS SERVICES -- 8.6%
18,500 Ceridian Corp.*<F2> 743,527 934,250
15,585 First Data Corp. 859,118 1,240,956
28,900 MBNA Corp. 692,826 823,650
14,250 Paychex, Inc. 343,184 685,781
8,300 Sterling Commerce Inc.*<F2> 247,298 308,137
---------- ---------
2,885,953 3,992,774
CELLULAR -- 5.2%
35,800 360. Communications
Company*<F2> 881,199 859,200
38,200 AirTouch Communications*<F2> 1,138,112 1,079,150
23,300 Palmer Wireless, Inc.*<F2> 466,691 466,000
---------- ---------
2,486,002 2,404,350
DRUGS -- 2.5%
16,000 Pfizer Inc. 720,210 1,142,000
EQUIPMENT-- 5.3%
14,000 CIDCO, Inc.*<F2> 436,855 493,500
14,000 General Instrument Corp.*<F2> 500,372 404,250
14,900 Glenayre
Technologies, Inc.*<F2> 476,800 745,000
13,100 Motorola, Inc. 849,473 823,663
---------- ---------
2,263,500 2,466,413
INSURANCE -- 1.6%
13,300 MGIC Investment Corp. 761,285 746,462
LONG DISTANCE -- 2.5%
37,400 LCI International, Inc.*<F2> 652,393 1,173,425
MEDICAL SERVICES -- 6.3%
23,200 Oxford Health Plans, Inc.*<F2> 559,584 954,100
27,300 United HealthCare Corp. 1,191,749 1,378,650
18,500 Vencor Inc.*<F2> 585,982 564,250
---------- ---------
2,337,315 2,897,000
MEDICAL PRODUCTS -- 3.6%
21,300 IDEXX Laboratories, Inc.*<F2> 637,687 836,025
25,000 St. Jude Medical, Inc.*<F2> 890,076 837,500
---------- ---------
1,527,763 1,673,525
NETWORKING -- 5.8%
34,200 Cisco Systems Inc.*<F2> 898,788 1,936,575
20,500 FORE Systems, Inc.*<F2> 473,631 740,563
---------- ---------
1,372,419 2,677,138
PAGING -- 4.3%
41,100 Arch Communications
Group, Inc.*<F2> 823,698 765,488
49,900 Paging Network, Inc.*<F2> 963,887 1,197,600
---------- ---------
1,787,585 1,963,088
POLLUTION CONTROL -- 2.0%
30,500 USA Waste Services, Inc.*<F2> 685,034 903,563
RESTAURANTS/LODGING -- 2.9%
24,300 Outback Steakhouse, Inc.*<F2> 741,814 837,961
10,550 Papa John's
International, Inc.*<F2> 250,844 514,313
---------- ---------
992,658 1,352,274
RETAIL -- 18.2%
25,200 Consolidated Stores Corp.*<F2> 515,573 926,100
52,250 Dollar General Corp. 1,068,693 1,528,312
32,600 The Home Depot, Inc. 1,378,582 1,760,400
28,600 Intimate Brands, Inc. 503,163 654,225
24,200 Kohl's Corp.*<F2> 591,092 886,325
27,500 Lowe's Companies, Inc. 901,443 993,438
35,600 Office Depot, Inc.*<F2> 835,418 725,350
19,300 PETsMART, Inc.*<F2> 554,137 921,575
---------- ---------
6,348,101 8,395,725
SEMICONDUCTORS -- 1.7%
10,900 Intel Corp. 669,163 800,474
SOFTWARE/SERVICES -- 20.8%
27,900 Computer Associates
International, Inc. 1,304,332 1,987,875
37,700 Informix Corp.*<F2> 938,460 848,250
12,900 Microsoft Corp.*<F2> 1,143,904 1,549,612
41,400 Oracle Corp.*<F2> 1,071,512 1,632,733
34,600 Parametric
Technology Corp.*<F2> 889,646 1,500,775
7,800 PeopleSoft, Inc.*<F2> 208,806 555,750
18,500 Sybase, Inc.*<F2> 545,551 437,063
27,300 Synopsys, Inc.*<F2> 822,083 1,085,175
---------- ---------
6,924,294 9,597,233
---------- ---------
Total common stocks 34,980,696 45,646,481
---------- ---------
Total long-term
investments 34,980,696 45,646,481
SHORT-TERM INVESTMENTS -- 0.7% (A)<F3>
VARIABLE RATE DEMAND NOTES
$325,248 Wisconsin Electric
Power Company $325,248 $325,248
---------- ---------
Total short-term
investments 325,248 325,248
---------- ---------
Total investments $35,305,944 45,971,729
----------
----------
Cash and receivables,
less liabilities --
0.5% (A)<F3> 220,833
----------
Net Assets $46,192,562
----------
----------
Net Asset Value Per Share
($0.01 par value, 300,000,000
shares authorized), offering
and redemption price
($46,192,562 / 3,679,120
shares outstanding) $12.56
------
------
*<F2>Non-income producing security.
(a)<F3>Percentages for the various classifications relate to net assets.
STATEMENT OF OPERATIONS
For the Period from July 1, 1995 (commencement of operations) to June 30, 1996
INCOME:
Dividends $110,728
Interest 89,713
----------
Total income 200,441
----------
EXPENSES:
Management fees 387,603
Administrative services 68,201
Professional fees 19,562
Registration fees 18,929
Custodian fees 15,212
Transfer agent fees 10,082
Amortization of organizational expenses 6,301
Printing and postage expense 1,490
Other expenses 6,304
----------
Total expenses before reimbursement 533,684
Less expenses assumed by adviser (32,793)
----------
Net expenses 500,891
----------
NET INVESTMENT LOSS (300,450)
----------
NET REALIZED LOSS ON INVESTMENTS (1,552,031)
NET INCREASE IN UNREALIZED APPRECIATION
ON INVESTMENTS 10,665,785
----------
NET GAIN ON INVESTMENTS 9,113,754
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,813,304
----------
----------
The accompanying notes to financial statements are an integral part of these
statements.
EASTCLIFF GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period from July 1, 1995 (commencement of operations) to June 30, 1996
OPERATIONS:
Net investment loss $(300,450)
Net realized loss on investments (1,552,031)
Net increase in unrealized appreciation on investments 10,665,785
----------
Net increase in net assets resulting from operations 8,813,304
----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (4,145,838 shares) 42,770,095
Cost of shares redeemed (466,718 shares) (5,390,837)
----------
Net increase in net assets derived from Fund share activities 37,379,258
----------
TOTAL INCREASE 46,192,562
NET ASSETS AT THE BEGINNING OF THE PERIOD --
----------
NET ASSETS AT THE END OF THE PERIOD $46,192,562
----------
----------
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout the period)
For the Period
from July 1,
1995+<F4>to
June 30,
1996
-------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment loss (0.08)
Net realized and unrealized gains on investments 2.64
------
Total from investment operations 2.56
Less distributions:
Dividend from net investment income --
Distribution from net realized gains --
------
Total from distributions --
------
Net asset value, end of period $12.56
------
------
TOTAL INVESTMENT RETURN 25.6%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 46,193
Ratio of expenses (after reimbursement) to average net assets (a)<F5> 1.3%
Ratio of net investment loss to average net assets (b)<F6> (0.8%)
Portfolio turnover rate 40.3%
+<F4>Commencement of operations.
(a)<F5>Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratio would have
been 1.4%.
(b)<F6>If the Fund had paid all of its expenses, the ratio would have
been (0.9%).
The accompanying notes to financial statements are an integral part of these
statements.
EASTCLIFF TOTAL
RETURN FUND
Dear Shareholder: August 2, 1996
We appreciate this annual opportunity to communicate the results of your Fund
to you. The final weeks of our fiscal year were very difficult for all
investors. Selected second calendar quarter earnings were mixed, despite what
most economists would indicate was a strong business quarter as measured by the
gross domestic product index.
The average annual compounded rate of return of the Fund was 25.4% for the
one year period ended June 30, 1996, 12.8% for the five year period ended June
30, 1996, and 12.7% for the period from December 30, 1986 (the effective date of
the Fund's registration statement) through June 30, 1996. The Board of Directors
has declared a dividend of $0.02786 from net investment income, a distribution
of $0.73968 from net short-term realized capital gains which will be treated as
ordinary income and a distribution of $0.19723 from net long-term realized
capital gains. We are pleased to report that your shares have appreciated to
$14.62 per share as of June 30. As of that date, the equity asset allocation was
80.9% of total assets, as compared with a year earlier allocation of 80.4%.
Overall asset growth for the year was 12.6%.
We continue to believe that our domestic economy is on a good, but not overly
strong, path. Investment selection is critical to success. The long bull market
in equities is being regularly questioned as to its sustainability. We remain
cautious and protective of your assets, always seeking outstanding companies,
normally listed on the NYSE, which have above average growth of earnings,
excellent management, and good product acceptance.
We appreciate your support as shareholders, and commit to strive for good
investment returns.
Respectfully submitted,
/s/ Thomas M. Keresey /s/ Patrice J. Neverett
Thomas M. Keresey Patrice J. Neverett
Portfolio Manager Portfolio Manager
EASTCLIFF TOTAL RETURN FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
JUNE 30, 1996
The Fund's investment objective is to realize a combination of capital
appreciation and income which will result in the highest total return, while
assuming reasonable risk. During the fiscal year ended June 30, 1996 the Fund
invested in leading sector companies that have demonstrated a seasoned ability
to lead through product innovation, excellent long term management, and end
products or services with broad customer acceptance. Over the past year, the
Fund's emphasis has been on consumer non-durable companies and selected
industrial leaders. Earnings, as well as general business, have been above
average, and with only few exceptions, the portfolio is broadly populated with
U.S. companies that are having significant international business success. Among
these companies are healthcare and pharmaceutical companies that have always
been among the leaders internationally, and although a strong dollar can
adversely impact short term earnings for such companies, their performance over
time has been considerably above average.
One should not expect the continuance of our most successful last twelve
months of Fund asset appreciation to continue unabated, but we can assure our
shareholders that continued strong corporate earnings and above average results
will be where we shall seek portfolio investments. Should the equity markets
falter ahead, as some have predicted, your Fund has the flexibility to increase
bond and reserve cash holdings should bond interest rates effectively compete
with equity expectations.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
EASTCLIFF TOTAL RETURN FUND, STANDARD & POOR'S 500 STOCK INDEX,
NASDAQ COMPOSITE INDEX AND LEHMAN INTERMEDIATE CORPORATE BOND INDEX
Average Annual Total Return
1-Year 25.4%
5-Year 12.8%
since inception 12/30/86 12.7%
date Eastcliff Standard & Poor's Nasdaq Composite Lehman Intermediate
Total Return Fund 500 Stock Index Index Corporate Bond Index
12/30/86*<F7>10,000 10,000 10,000 10,000
9/30/87 13,940 13,600 12,740 9,910
9/30/88 13,522 11,886 11,109 10,990
9/30/89 15,793 15,773 13,542 12,056
9/30/90 13,661 14,306 9,859 13,069
9/30/91 17,582 18,799 15,074 14,886
9/30/92 19,903 20,885 16,702 16,776
9/30/93 22,570 23,600 21,863 18,152
9/30/94 23,071 24,450 21,900 17,843
6/30/95 24,840 29,389 26,748 19,538
6/30/96 31,162 37,060 33,970 20,574
*<F7>inception date
Past performance is not predictive of future performance.
EASTCLIFF TOTAL RETURN FUND
STATEMENT OF NET ASSETS
JUNE 30, 1996
QUOTED
PRINCIPAL AMOUNT OR MARKET
SHARES COST VALUE
------ ------- -----
LONG-TERM INVESTMENTS -- 96.0% (A)<F10>
COMMON STOCKS -- 80.9% (A)<F10>
AEROSPACE -- 4.3%
4,500 General Motors
Corp. Class H $248,332 $270,563
10,000 McDonnell Douglas Corp. 362,800 485,000
---------- ---------
611,132 755,563
BANKS/SAVINGS & LOANS -- 4.9%
9,000 Barnett Banks, Inc. 459,830 549,000
4,000 Citicorp 162,490 330,500
---------- ---------
622,320 879,500
CHEMICAL/SPECIALTY MATERIALS -- 1.4%
4,000 Eastman Chemical Co. Inc. 233,740 243,500
COMPUTERS -- 8.7%
9,000 Cisco Systems Inc.*<F8> 418,500 509,625
4,000 Compaq Computer Corp.*<F8> 193,240 197,000
3,000 Electronic Data
Systems Corporation 166,305 161,250
3,000 International Business
Machines Corp. 234,555 297,000
5,000 Safeguard Scientifics, Inc.*<F8> 207,062 390,000
---------- ---------
1,219,662 1,554,875
CONSUMER NON-DURABLES -- 5.0%
7,000 Gillette Company 336,045 436,625
5,000 Procter & Gamble Co. 337,027 453,125
---------- ---------
673,072 889,750
ELECTRONICS -- 3.3%
4,500 General Electric Co. (U.S.) 241,833 389,250
2,800 Intel Corp. 199,850 205,626
---------- ---------
441,683 594,876
ENERGY/ENERGY SERVICES -- 5.1%
9,000 Halliburton Co. 326,221 499,500
6,000 PanEnergy Corp. 146,610 197,250
10,000 USX-Marathon Group 200,600 201,250
---------- ---------
673,431 898,000
FOOD & BEVERAGES -- 4.3%
10,000 The Coca-Cola Company 351,275 488,750
8,000 PepsiCo, Inc. 178,740 283,000
---------- ---------
530,015 771,750
HEALTH INDUSTRIES -- 9.6%
5,500 Becton, Dickinson & Co. $298,785 $441,375
6,000 Columbia/HCA
Healthcare Corp. 318,510 320,250
7,000 HEALTHSOUTH Corp.*<F8> 256,795 252,000
3,000 Medtronic, Inc. 146,805 168,000
24,000 Physician Reliance
Network, Inc.*<F8> 316,000 534,000
---------- ---------
1,336,895 1,715,625
INDUSTRIAL SERVICES -- 1.2%
3,000 Corrections Corp.
of America*<F8> 122,460 210,000
INSURANCE -- 2.2%
4,000 American International
Group, Inc. 273,556 394,500
LEISURE/RESTAURANTS -- 8.8%
8,000 Walt Disney Co. 454,873 503,000
4,000 ITT Corporation*<F8> 172,188 265,000
6,000 Marriott International Inc. 300,360 322,500
10,000 McDonald's Corp. 335,073 467,500
---------- ---------
1,262,494 1,558,000
MACHINERY/TOOLS -- 1.8%
7,500 Thermo Electron Corp. 204,675 312,188
MISCELLANEOUS TECHNOLOGY MANUFACTURING -- 1.2%
6,000 Plantronics, Inc.*<F8> 217,980 220,500
PHARMACEUTICALS -- 13.3%
4,500 Bristol-Myers Squibb Co. 292,083 405,000
16,000 Johnson & Johnson 544,730 792,000
3,000 Matrix
Pharmaceuticals, Inc.*<F8> 69,300 54,000
5,000 Merck & Co., Inc. 217,590 323,125
11,000 Pfizer Inc. 554,480 785,125
---------- ---------
1,678,183 2,359,250
RETAIL TRADE -- 3.4%
5,000 Sears, Roebuck and Co. 207,488 243,125
5,000 Tiffany & Co. 257,800 365,000
---------- ---------
465,288 608,125
SOFTWARE/SERVICE -- 2.4%
1,668 Integrated Systems
Consulting Group, Inc.*<F8> 8,340 32,526
1,600 Microsoft Corp.*<F8> 189,896 192,200
5,000 Oracle Corp.*<F8> 171,875 197,190
---------- ---------
370,111 421,916
---------- ---------
Total common stocks 10,936,697 14,387,918
FEDERAL AGENCIES -- 15.1% (A)<F10>
$100,000 Federal National
Mortgage Association,
7.00%, due 04/16/01 100,000 99,906
500,000 Federal National
Mortgage Association,
7.00%, due 04/24/01 500,000 497,656
500,000 Federal Home Loan
Mortgage Corp.,
7.125%, due 06/25/01 499,252 504,063
500,000 Federal Home Loan Banks,
7.405%, due 07/02/01**<F9> 500,000 501,406
500,000 Federal Home Loan
Mortgage Corp.,
7.44%, due 04/07/06 500,000 491,309
300,000 Federal Home Loan
Mortgage Corp.,
7.775%, due 04/17/06 300,000 297,154
300,000 Federal Home Loan
Mortgage Corp.,
8.00%, due 05/15/06 300,000 299,282
---------- ---------
Total federal agencies 2,699,252 2,690,776
---------- ---------
Total long-term
investments 13,635,949 17,078,694
SHORT-TERM INVESTMENTS -- 6.6% (A)<F10>
VARIABLE RATE DEMAND NOTES
$306,286 Johnson Controls, Inc. $306,286 $306,286
875,000 Wisconsin Electric
Power Company 875,000 875,000
---------- ---------
Total short-term
investments 1,181,286 1,181,286
---------- ---------
Total investments $14,817,235 18,259,980
----------
----------
Liabilities, less cash and
receivables --
(2.6%) (A)<F10> (460,581)
----------
Net Assets $17,799,399
----------
----------
Net Asset Value Per Share
($0.01 par value, 300,000,000
shares authorized), offering
and redemption price
($17,799,399 / 1,217,338
shares outstanding) $14.62
-------
-------
*<F8>Non-income producing security.
**<F9>When-issued Security.
(a)<F10>Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
EASTCLIFF TOTAL RETURN FUND
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1996
INCOME:
Dividends $235,009
Interest 96,749
---------
Total income 331,758
---------
EXPENSES:
Management fees 167,936
Administrative services 33,575
Transfer agent fees 21,748
Professional fees 21,356
Custodian fees 6,932
Printing and postage expense 6,035
Registration fees 4,990
Other expenses 3,456
---------
Total expenses before reimbursement 266,028
Less expenses assumed by adviser (47,789)
---------
Net expenses 218,239
---------
NET INVESTMENT INCOME 113,519
---------
NET REALIZED GAIN ON INVESTMENTS 1,265,449
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 2,394,305
---------
NET GAIN ON INVESTMENTS 3,659,754
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,773,273
---------
---------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended June 30, 1996 and For the Period from October 1, 1994 to June
30, 1995
1996 1995
------ ------
OPERATIONS:
Net investment income $113,519 $135,223
Net realized gain on investments 1,265,449 66,432
Net increase in unrealized appreciation
on investments 2,394,305 809,144
---------- ----------
Net increase in net assets resulting
from operations 3,773,273 1,010,799
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.16617 and $0.1383 per share, respectively) (207,699) (24,328)
Distributions from net realized gains
($0.16455 and $0.6705 per share, respectively) (204,567) (132,451)
---------- ----------
Total distributions (412,266)*<F11>(156,779)**<F12>
---------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (285,109 and
1,442,307 shares, respectively) 3,666,446 16,224,477
Net asset value of shares issued in distributions
(16,739 and 13,580 shares, respectively) 213,524 151,478
Cost of shares redeemed (405,622 and
342,742 shares, respectively) (5,247,179) (3,902,600)
---------- ----------
Net (decrease) increase in net assets
derived from Fund share activities (1,367,209) 12,473,355
---------- ----------
TOTAL INCREASE 1,993,798 13,327,375
NET ASSETS AT THE BEGINNING OF THE PERIOD 15,805,601 2,478,226
---------- ----------
NET ASSETS AT THE END OF THE PERIOD
(including undistributed net investment
income of $33,702 and $132,380, respectively) $17,799,399 $15,805,601
---------- ----------
---------- ----------
*<F11>Total distributions include $324,352 of ordinary income, of which 27% is
eligible for the corporate dividends received deduction.
**<F12>Total distributions include $57,390 of ordinary income, of which 30% is
eligible for the corporate dividends received deduction.
The accompanying notes to financial statements are an integral part of these
statements.
EASTCLIFF TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
<CAPTION>
For the
Period
For the from
Year October 1,
Ended 1994 to
June 30, June 30, Years Ended September 30,
------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987+<F13>
--------- --------- ----- ----- ----- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $11.96 $11.92 $12.38 $11.96 $11.56 $9.47 $11.40 $9.88 $13.94 $10.00
Income from
investment operations:
Net investment income 0.09 0.14 0.15 0.19 0.13 0.28 0.33 0.24 0.06 --
Net realized and unrealized
gains (losses) on
investments 2.90 0.71 0.12 1.28 1.27 2.30 (1.82) 1.40 (1.17) 3.94
------- ------ ------ ------ ------ ------------- ------ ------ ------
Total from investment
operations 2.99 0.85 0.27 1.47 1.40 2.58 (1.49) 1.64 (1.11) 3.94
Less distributions:
Dividends from net
investment income (0.17) (0.14) (0.18) (0.15) (0.23) (0.36) (0.26) (0.11) -- --
Distributions from net
realized gains (0.16) (0.67) (0.55) (0.90) (0.77) (0.13) (0.18) (0.01) (2.95) --
------- ------ ------ ------ ------ ------------- ------ ------ ------
Total from distributions (0.33) (0.81) (0.73) (1.05) (1.00) (0.49) (0.44) (0.12) (2.95) --
------- ------ ------ ------ ------ ------------- ------ ------ ------
Net asset value, end of period $14.62 $11.96 $11.92 $12.38 $11.96 $11.56$ 9.47 $11.40$ 9.88 $13.94
------- ------ ------ ------ ------ ------------- ------ ------ ------
------- ------ ------ ------ ------ ------------- ------ ------ ------
TOTAL INVESTMENT RETURN (d)<F17> 25.4% 10.4%(a)<F14>2.2% 13.4% 13.2% 28.7%(13.5%) 16.8% (3.0%)55.7%(a)<F14>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (in 000's $) 17,799 15,806 2,478 2,683 2,631 2,225 2,055 2,728 1,041 220
Ratio of expenses
(after reimbursement)
to average net assets(b)<F15> 1.3% 1.5%(a)<F14>2.0% 2.0% 2.7% 2.0% 2.4% 3.0% 2.8% 3.0%(a)<F14>
Ratio of net investment
income (loss) to average
net assets(c)<F16> 0.7% 2.5%(a)<F14>1.3% 1.5% 1.2% 2.4% 2.8% 2.8% 1.7%(0.1%)(a)<F14>
Portfolio turnover rate 95.1% 89.4% 13.2% 28.0% 34.9% 38.0% 62.7% 27.2% 51.9% 169.7%
+<F13>For the period from December 23, 1986 (commencement of operations) to
September 30, 1987.
(a)<F14>Annualized.
(b)<F15>Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios would have
been, for the year ended June 30, 1996, for the period from October 1, 1994 to
June 30, 1995 and for the years ending September 30, 1994, 1993, 1992, 1991,
1990, 1989 and 1988 and for the period ending September 30, 1987, as follows:
1.6%, 2.6%(a), 3.0%, 2.8%, 3.3%, 3.2%, 3.1%, 4.4%, 11.8% and 12.1%(a),
respectively.
(c)<F16>If the Fund had paid all of its expenses, the ratios would
have been, for the year ended June 30, 1996, for the period from October 1, 1994
to June 30,1995 and for the years ending September 30, 1994, 1993, 1992, 1991,
1990, 1989 and 1988 and for the period ending September 30, 1987, as follows:
0.4%, 1.4%(a), 0.2%, 0.8%, 0.6%, 1.3%, 2.1%, 1.4%, (7.4%) and (9.8%)(a),
respectively.
(d)<F17>Effective December 31, 1994, the Fund changed investment advisers from
Fiduciary Management, Inc. to Resource Capital Advisers, Inc.
The accompanying notes to financial statements are an integral part of this
statement.
</TABLE>
EASTCLIFF FUNDS
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
The following is a summary of significant accounting policies of the
Eastcliff Funds, Inc. (the "Company"), which is registered as an open-end
management investment company under the Investment Company Act of 1940. This
Company consists of a series of two funds: the Eastcliff Growth Fund (the
"Growth Fund') and the Eastcliff Total Return Fund (the "Total Return Fund")
(collectively the "Funds"). The assets and liabilities of each Fund are
segregated and shareholder's interest is limited to the Fund in which the
shareholder owns shares. The Company was incorporated under the laws of
Wisconsin on May 23, 1986.
(a) Each security, excluding short-term investments, is valued at the last sale
price reported by the principal security exchange on which the issue is traded,
or if no sale is reported, the latest bid price. Securities which are traded
over-the-counter are valued at the latest bid price. Securities for which
quotations are not readily available are valued at fair value as determined by
the investment adviser under the supervision of the Board of Directors. Short-
term investments are valued at amortized cost which approximates quoted market
value. Investment transactions are recorded no later than the first business day
after the trade date. The cost amount of securities for Federal income tax
purposes aggregates $35,398,288 and $14,823,475 for the Growth Fund and Total
Return Fund, respectively. The differences between cost amounts for book
purposes and tax purposes is due to deferred wash losses.
(b) The Funds may purchase securities on a when-issued or delayed delivery
basis. Although the payment and interest terms of these securities are
established at the time the purchaser enters into the agreement, these
securities may be delivered and paid for at a future date, generally within 45
days. The Fund records purchases of when-issued securities and reflects the
values of such securities in determining net asset value in the same manner as
other portfolio securities.
(c) Net realized gains and losses on common stock are computed on the basis of
the cost of specific certificates.
(d) Provision has not been made for Federal income taxes since the Growth Fund
will elect and the Total Return Fund has elected to be taxed as "regulated
investment companies" and intend to distribute substantially all income to
shareholders and otherwise comply with the provisions of the Internal Revenue
Code applicable to regulated investment companies. The Growth Fund has $166,241
of net capital losses which expire June 30, 2004 and $1,293,446 of post-October
losses, both of which may be used to offset capital gains in future years to the
extent provided by tax regulations.
(e) Dividend income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis.
(f) The Funds have investments in short-term variable rate demand notes, which
are unsecured instruments. The Funds may be susceptible to credit risk with
respect to these notes to the extent the issuer defaults on its payment
obligation. The Funds' policy is to monitor the creditworthiness of the issuer
and does not anticipate nonperformance by these counterparties.
(g) Generally accepted accounting principles require that permanent financial
reporting and tax differences for overdistributed net investment income be
reclassified to capital stock.
(h) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES --
The Funds have entered into management agreements with Resource Capital
Advisers, Inc. ("RCA"), with whom certain officers and directors of the Funds
are affiliated, to serve as investment adviser and manager. Under the terms of
the agreements, the Funds pay RCA a monthly fee at the annual rate of 1% of
such Funds daily net assets. For the year ended June 30, 1996, RCA voluntarily
waived $15,451 and $38,729 of the management fees due from the Growth Fund and
Total Return Fund, respectively.
RCA reimburses the Funds for annual expenses in excess of the lowest expense
limitation imposed by states. In addition to the reimbursement required under
the management agreements, RCA has voluntarily reimbursed the Funds for
expenses over 1.3% of the daily net assets of the Funds. These reimbursements
amounted to $17,342 and $9,060 in 1996 for the Growth Fund and Total Return
Fund, respectively. These voluntary reimbursements may be modified or
discontinued at any time by RCA.
The Funds have administrative agreements with Fiduciary Management, Inc.
("FMI"), with whom certain officers and directors of the Funds are affiliated,
to supervise all aspects of the Funds' operations except those performed by
RCA. Under the terms of the agreements, the Funds will each pay FMI a monthly
administrative fee at the annual rate of 0.2% on the first $30,000,000 of the
daily net assets of such Fund and 0.1% on the daily net assets of such Fund
over $30,000,000.
The Funds have entered into Distribution Plans (the "Plans"), pursuant to
Rule 12b-1 under the Investment Company Act of 1940 with RCA. The Plans
provide that the Funds may incur certain costs which may not exceed the lesser
of a monthly amount equal to 1% of the Funds' daily net assets or the actual
distribution costs incurred by RCA during the year. Amounts payable under the
Plans are paid monthly to RCA for any activities or expenses primarily
intended to result in the sale of shares of such Fund. For the year ended June
30, 1996, no such expenses were incurred.
(3) DISTRIBUTION TO SHAREHOLDERS --
Net investment income and net realized gains are distributed to shareholders.
On July 29, 1996, the Total Return Fund distributed a dividend from net
investment income of $33,702 ($0.02786 per share). In addition, the Total
Return Fund distributed $894,929 from net short-term realized gains ($0.73968
per share) and $238,614 ($0.19723 per share) from net long-term realized
gains. The distributions were paid on July 30, 1996, to shareholders of record
on July 26, 1996. The percentage of the ordinary income distribution which is
eligible for the corporate dividends received deduction is 19%.
(4) DEFERRED EXPENSES --
Organizational expenses for the Growth Fund were deferred and are being
amortized on a straight-line basis over a period of five years beginning with
the date of sales of shares to the public. These expenses were advanced by RCA
who will be reimbursed by the Growth Fund over a period of five years. The
proceeds of any redemption of the initial shares by the original shareholder
will be reduced by a pro-rata portion of any then unamortized deferred
expenses in the same proportion as the number of initial shares being redeemed
bears to the number of initial shares outstanding at the time of such
redemption. The unamortized organizational expenses at June 30, 1996 were
$25,204.
(5) INVESTMENT TRANSACTIONS --
For the year ended June 30, 1996, purchases and proceeds of sales of
investment securities of the Growth Fund (excluding short-term securities)
were $52,181,421 and $15,649,735, respectively, and $24,676,783 and
$21,424,075, respectively for short-term U.S. Government Securities; purchases
and proceeds of sales of investment securities of the Total Return Fund
(excluding short-term securities) were $15,537,192 and $16,733,753,
respectively, and $0 and $1,065,113, respectively for short-term U.S.
Government Securities.
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of June 30, 1996, liabilities of the Funds included the following:
EASTCLIFF EASTCLIFF TOTAL
GROWTH FUND RETURN FUND
------------ -----------
Payable to brokers for investments purchased $132,384 $500,000
Payable to RCA for management fees and
deferred expenses 63,432 14,607
Other liabilities 16,810 6,172
(7) SOURCES OF NET ASSETS --
As of June 30, 1996, the sources of net assets were as follows:
Fund shares issued and outstanding $37,078,808 $13,195,648
Net unrealized appreciation on investments 10,665,785 3,442,745
Undistributed net realized (losses)
gains on investments (1,552,031) 1,127,304
Undistributed net investment income -- 33,702
---------- ----------
$46,192,562 $17,799,399
---------- ----------
---------- ----------
Aggregate net unrealized appreciation as of June 30, 1996, consisted of the
following:
Aggregate gross unrealized appreciation $11,466,309 $3,482,650
Aggregate gross unrealized depreciation (800,524) (39,905)
---------- ----------
Net unrealized appreciation $10,665,785 $3,442,745
---------- ----------
---------- ----------
REPORT OF INDEPENDENT ACCOUNTANTS
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, MN55402
Telephone 612 332 7000
(PRICE WATERHOUSE LOGO)
July 26, 1996
To the Shareholders and Board of Directors
of Eastcliff Funds, Inc.
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Eastcliff Growth Fund and Eastcliff Total Return Fund (constituting Eastcliff
Funds, Inc., hereafter referred to as the "Funds") at June 30, 1996, the results
of each of their operations for the year then ended, the changes in each of
their net assets for the period from July 1, 1995 (commencement of operations)
to June 30, 1996 for the Eastcliff Growth Fund and for the year ended June 30,
1996 and for the period October 1, 1994 to June 30, 1995 for the Eastcliff Total
Return Fund, and the financial highlights for the period from July 1, 1995
(commencement of operations) to June 30, 1996 for the Eastcliff Growth Fund and
for the year ended June 30, 1996 and for the period October 1, 1994 to June 30,
1995 and for each of the seven years in the period ending September 30, 1994 and
for the period December 23, 1986 (commencement of operations) to September 30,
1987 for the Eastcliff Total Return Fund, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1996 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
EASTCLIFF FUNDS
900 Second Avenue South
Suite 300
Minneapolis, Minnesota 55402
612-336-1444
INVESTMENT ADVISER
RESOURCE CAPITAL ADVISERS, INC.
900 Second Avenue South
300 International Centre
Minneapolis, Minnesota 55402
PORTFOLIO MANAGERS
EASTCLIFF GROWTH FUND
WINSLOW CAPITAL MANAGEMENT, INC.
EEASTCLIFF TOTAL RETURN FUND
PALM BEACH INVESTMENT ADVISERS, INC.
ADMINISTRATOR
FIDUCIARY MANAGEMENT, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
CUSTODIAN, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
FIRSTAR TRUST COMPANY
615 East Michigan Street
Milwaukee, Wisconsin 53202
1-800-338-1579
or
414-765-4124
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
FOLEY & LARDNER
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
