SEMIANNUAL REPORT
December 31, 1995
EASTCLIFF FUNDS
EASTCLIFF TOTAL RETURN FUND
EASTCLIFF GROWTH FUND
NO-LOAD MUTUAL FUNDS
EASTCLIFF TOTAL
RETURN FUND
Dear Shareholder: February 23, 1996
We are pleased to report to you the progress that your Fund has made since
our previous report of July 31, 1995. The last six months have seen the modest
further reduction in short and long term interest rates, and the equity markets
breaking again into new higher levels. This extraordinary asset appreciation, in
spite of what many observers would suggest is within a slowing economy,
indicates a growing investor desire to commit liquid assets to the equity
markets, particularly with the increased use of mutual funds.
At the December 31st year end and the Fund's fiscal six months, the average
annual compounded rate of return was 13.60% for the six months, and 23.19% for
the entire year. In the fiscal year starting July 1, 1995, your Board of
Directors declared dividends of $0.16617 from ordinary income and $0.16455 from
net capital gains. We are pleased to report that your shares appreciated to
$13.24 per share, and ended 1995 almost fully invested in high quality equities.
We have emphasized growth companies that have excellent proven managements,
accepted product leadership in their fields, or have developed a unique business
position in an industry that may have intense competition. Our continual search
for successful enterprises has been greatly responsible for our continued asset
growth.
We pledge to continue to manage your investment in the Eastcliff Total Return
Fund with prudence and attention to achieving above average 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
STATEMENT OF NET ASSETS
December 31, 1995 (Unaudited)
Quoted
Market
Shares or Principal Amount Cost Value
-------------------------- ------- -------
COMMON STOCKS - 99.1% (a)<F2>
AEROSPACE - 5.7%
6,000 Boeing Co. $384,735 $470,250
5,000 McDonnell Douglas Corp. 362,800 460,000
------- -------
747,535 930,250
BANKS/SAVINGS & LOANS - 5.8%
3,000 Bank of New York Co., Inc. 121,180 146,250
9,000 Barnett Banks, Inc. 459,830 531,000
4,000 Citicorp 162,490 269,000
------- -------
743,500 946,250
CHEMICAL/SPECIALTY MATERIALS - 3.6%
4,000 Eastman Chemical Co. Inc. 233,740 250,500
9,000 Union Carbide Corp. 333,602 337,500
------- -------
567,342 588,000
COMPUTERS - 5.0%
3,000 International Business
Machines Corp. 234,555 275,250
11,000 Safeguard Scientifics, Inc.*<F1> 479,922 544,500
------- -------
714,477 819,750
CONSUMER NON-DURABLES - 4.8%
7,000 Gillette Company 336,045 364,875
5,000 Procter & Gamble Co. 337,028 415,000
------- -------
673,073 779,875
CONSUMER SERVICES - 3.5%
16,500 CUC International Inc.*<F1> 413,865 563,062
Electronics - 7.7%
4,500 Emerson Electric Co. 300,355 367,875
4,500 General Electric Co. (U.S.) 241,832 324,000
10,000 Intel Corp. 567,680 567,500
--------- ---------
1,109,867 1,259,375
ENERGY/ENERGY SERVICES - 6.6%
9,000 Halliburton Co. 341,915 455,625
6,000 Panhandle Eastern Corp. 146,610 167,250
8,000 Triton Energy Corp. 330,480 459,000
-------- ---------
819,005 1,081,875
FOOD & BEVERAGES - 5.0%
5,000 The Coca-Cola Company 351,275 371,250
8,000 PepsiCo, Inc. 361,480 447,000
------- -------
712,755 818,250
HEALTH INDUSTRIES - 9.6%
5,500 Becton, Dickinson & Co. 298,785 412,500
12,000 Medtronic, Inc. 657,970 670,500
12,000 Physician Reliance
Network, Inc.*<F1> 316,000 477,000
--------- ---------
1,272,755 1,560,000
INSURANCE - 4.2%
5,250 American International
Group, Inc. 364,335 485,625
4,000 ITT Hartford Group, Inc.*<F1> 171,294 193,500
------- -------
535,629 679,125
LEISURE/RESTAURANTS - 8.1%
3,000 Capital Cities/ABC, Inc. 350,868 370,125
5,000 Walt Disney Co. 268,873 295,000
4,000 ITT Corporation*<F1> 172,188 212,000
10,000 McDonald's Corp. 335,073 451,250
--------- ---------
1,127,002 1,328,375
MACHINERY/TOOLS - 1.6%
5,000 Thermo Electron Corp.*<F1> 204,675 260,000
MEDIA/COMMUNICATION - 0.8%
7,000 L.M. Ericsson
Telephone Co. ADR 160,125 136,500
MISCELLANEOUS-CONSUMER MANUFACTURING - 2.1%
5,000 Eastman Kodak Co. 324,050 335,000
MISCELLANEOUS-FINANCE - 4.4%
4,000 American Express Co. 140,655 165,500
4,000 Donaldson, Lufkin &
Jenrette, Inc. 120,320 125,000
3,500 Federal National
Mortgage Association 362,335 434,438
------- -------
623,310 724,938
MISCELLANEOUS-TECHNOLOGY MANUFACTURING - 0.6%
4,000 ITT Industries, Inc.*<F1> 79,609 96,000
PHARMACEUTICALS - 15.4%
4,000 Abbott Laboratories 136,490 167,000
4,500 Bristol-Myers Squibb Co. 292,083 386,437
25,000 Global Pharmaceutical
Corporation*<F1> 212,500 250,000
8,000 Johnson & Johnson 544,730 685,000
7,000 Merck & Co., Inc. 305,085 460,250
9,000 Pfizer Inc. 419,360 567,000
--------- ---------
1,910,248 2,515,687
RETAIL TRADE - 1.5%
5,000 Tiffany & Co. 257,800 251,875
UTILITIES - 3.1%
7,000 BellSouth Corp. 256,217 304,500
3,000 Bell Atlantic Corp. 157,680 200,625
---------- ----------
413,897 505,125
---------- ----------
Total common stocks 13,410,519 16,179,312
VARIABLE RATE DEMAND NOTES - 0.9% (a)<F2>
$149,782 Southwestern Bell
Telephone Co. 149,782 149,782
--------- ---------
Total variable rate
demand notes 149,782 149,782
---------- ----------
Total investments $13,560,301 16,329,094
----------
----------
Liabilities, less cash and
receivables -
(0.0%) (a)<F2> (707)
----------
Net Assets $16,328,387
----------
----------
Net Asset Value Per Share
($0.01 par value 300,000,000
shares authorized), offering
and redemption price
($16,328,387 / 1,232,948
shares outstanding) $13.24
----------
----------
*<F1>Non-income producing security.
(a)<F2>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 Six Month Period Ending December 31, 1995 (Unaudited)
INCOME:
Dividends $128,886
Interest 56,589
-------
Total income 185,475
EXPENSES:
Management fees 55,671
Administrative services 16,321
Transfer agent fees 10,500
Professional fees 8,825
Printing and postage expense 4,743
Custodian fees 4,069
Registration fees 3,399
Other expenses 2,558
-------
Total expenses 106,086
NET INVESTMENT INCOME 79,389
-------
NET REALIZED GAIN ON INVESTMENTS 253,486
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 1,720,353
---------
NET GAIN ON INVESTMENTS 1,973,839
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,053,228
---------
---------
STATEMENTS OF CHANGES INNET ASSETS
For the Six Month Period Ending December 31, 1995 (Unaudited) and For the Period
from October 1, 1994 to June 30, 1995
December 31, June 30,
1995 1995
--------- --------
OPERATIONS:
Net investment income $79,389 $135,223
Net realized gain on investments 253,486 66,432
Net increase in unrealized
appreciation on investments 1,720,353 809,144
--------- ---------
Net increase in net assets
resulting from operations 2,053,228 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) (156,779)*<F3>
--------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (187,120
and 1,442,307 shares, respectively) 2,307,223 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 (292,023 and
342,742 shares, respectively) (3,638,923) (3,902,600)
---------- ----------
Net (decrease) increase in net
assets derived from Fund share activities (1,118,176) 12,473,355
---------- ----------
TOTAL INCREASE 522,786 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 $4,070 and
$132,380, respectively) $16,328,387 $15,805,601
---------- ----------
---------- ----------
*<F3>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>
(UNAUDITED) FOR THE
FOR THE SIX PERIOD
MONTH FROM
PERIOD OCTOBER 1,
ENDED 1994 TO
DECEMBER 31, JUNE 30, YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1995 1995 1994 1993 1992 1991 1990 1989 1988 1987+<F4>
----- ----- ----- ----- ----- ----- ------ ----- ----- -----
<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 0.07 0.14 0.15 0.19 0.13 0.28 0.33 0.24 0.06 -
Net realized and unrealized
gains (losses) on
investments (b)<F6> 1.54 0.71 0.12 1.28 1.27 2.30 (1.82) 1.40 (1.17) 3.94
----- ----- ----- ----- ----- ----- ------ ----- ----- -----
Total from investment
operations 1.61 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 $13.24 $11.96 $11.92 $12.38 $11.96 $11.56 $ 9.47 $11.40 $ 9.88 $13.94
------ ------ ------ ------ ----- ----- ------ ----- ----- -----
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN (e)<F9> 28.9%(a)<F5>10.4%(a)<F5>2.2% 13.4% 13.2% 28.7% (13.5%) 16.8% (3.0%)55.7%(a)<F5>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in 000's) 16,328 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(c)<F7> 1.3%(a)<F5> 1.5%(a)<F5> 2.0% 2.0% 2.7% 2.0% 2.4% 3.0% 2.8% 3.0%(a)<F5>
Ratio of net investment
income (loss) to average
net assets(d)<F8> 1.0%(a)<F5> 2.5%(a)<F5> 1.3% 1.5% 1.2% 2.4% 2.8% 2.8% 1.7%(0.1%)(a)<F5>
Portfolio turnover rate 52.8% 89.4% 13.2% 28.0% 34.9% 38.0% 62.7% 27.2% 51.9% 169.7%
+<F4>For the period from December 23, 1986 (commencement of operations) to
September 30, 1987.
(a)<F5>Annualized.
(b)<F6>On a per share basis this amount may not agree with the net realized and
unrealized gains (losses) experienced on the portfolio securities for the
period because of the timing of sales and repurchases of the Fund's shares in
relation to fluctuating market values of the portfolio.
(c)<F7>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
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: 2.6%(a), 3.0%, 2.8%, 3.3%, 3.2%, 3.1%, 4.4%,
11.8% and 12.1%(a), respectively.
(d)<F8>If the Fund had paid all of its expenses, the ratios would have been, 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: 1.4%(a), 0.2%, 0.8%, 0.6%, 1.3%, 2.1%,
1.4%, (7.4%) and (9.8%)(a), respectively.
(e)<F9>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
GROWTH FUND
Dear Shareholder: February 23, 1996
Since its inception on July 1, 1995, the Eastcliff Growth Fund has grown in
size to over $37 million as of December 31, 1995. The Fund's investment
objective is to hold 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 December 31, 1995, the Fund appreciated 8.6%. At the close
of the year, the Net Asset Value of the Eastcliff Growth Fund was $10.86. The
Fund will strive to maintain a near fully invested strategy in equities. As of
December 31, 1995, the Fund had 99.2% of its assets invested in common stocks.
The sectors of emphasis are:
CONSUMER CYCLICALS CONSUMER STAPLES
------------------ ----------------
Apparel Beverages
Restaurants/Lodging
Retail
HEALTHCARE INTEREST SENSITIVE TECHNOLOGY
---------- ------------------ ----------
Biotechnology Business & Hardware/Peripherals
Drugs Financial Services Instruments
Medical Products Semiconductors
Medical Services Software/Services
Telecommunications
We continue to maintain our long held view that inflation will remain subdued
for 1996. Consumer spending will likely be sluggish while business spending and
investment will increase but at a slower pace than 1995. The growth in
government outlays will continue but at a moderate pace. On balance, 1996 should
see moderate economic growth, although somewhat below the long term trend
capability. We remain constructive on the stock market's prospects in 1996 and
continue to invest the Fund accordingly.
We appreciate all of your support and interest in 1995 and look forward to
servicing your investment needs in 1996.
Respectfully submitted,
/s/ Clark J. Winslow
Clark J. Winslow
Portfolio Manager
Eastcliff Growth Fund
STATEMENT OF NET ASSETS
December 31, 1995 (Unaudited)
Quoted
Market
Shares or Principal Amount Cost Value
-------------------------- ------- -------
COMMON STOCKS - 99.2% (a)<F11>
APPAREL - 2.3%
20,100 Tommy Hilfiger Corp.*<F10> $578,145 $851,737
BEVERAGES - 2.2%
11,000 The Coca-Cola Company 708,245 816,750
BIOTECHNOLOGY - 4.2%
12,400 Amgen Inc.*<F10> 510,512 736,250
13,200 Genzyme Corp.*<F10> 630,586 823,350
--------- ---------
1,141,098 1,559,600
BUSINESS &FINANCIAL SERVICES - 6.5%
15,585 First Data Corp. 859,118 1,042,247
20,000 MBNA Corp. 686,980 737,500
12,600 Paychex, Inc. 459,634 628,425
--------- ---------
2,005,732 2,408,172
DRUGS - 3.1%
18,200 Pfizer Inc. 826,240 1,146,600
HARDWARE/PERIPHERALS - 2.1%
28,100 Silicon Graphics, Inc.*<F10> 1,147,431 772,750
INSTRUMENTS - 1.1%
15,300 KLA Instruments Corp.*<F10> 497,217 398,764
MEDICAL PRODUCTS - 5.3%
20,200 IDEXX Laboratories, Inc.*<F10> 524,030 949,400
24,000 St. Jude Medical, Inc.*<F10> 850,137 1,032,000
--------- ---------
1,374,167 1,981,400
MEDICAL SERVICES - 8.3%
16,800 Oxford Health Plans, Inc.*<F10> 892,705 1,241,100
23,500 United HealthCare Corp. 958,382 1,539,250
8,900 Vencor Inc.*<F10> 268,510 289,250
--------- ---------
2,119,597 3,069,600
RESTAURANTS/LODGING - 2.8%
17,500 Outback Steakhouse, Inc.*<F10> 519,137 627,812
10,100 Papa John's
International, Inc.*<F10> 364,254 415,999
------- ---------
883,391 1,043,811
RETAIL - 16.3%
43,900 Dollar General Corp. 1,194,189 910,925
16,300 Gymboree Corp.*<F10> 484,821 336,188
28,800 The Home Depot, Inc. 1,203,041 1,378,800
28,600 Intimate Brands, Inc. 503,163 429,000
13,100 Kohl's Corp.*<F10> 641,847 687,750
23,400 Lowe's Companies, Inc. 773,031 783,900
47,100 Office Depot, Inc.*<F10> 1,250,199 930,225
19,500 PETsMART, Inc.*<F10> 560,020 604,500
--------- ---------
6,610,311 6,061,288
SEMICONDUCTORS - 3.7%
16,200 Intel Corp. 1,036,550 919,350
11,700 Micron Technology, Inc. 765,062 463,613
--------- ---------
1,801,612 1,382,963
SOFTWARE/SERVICES - 24.6%
20,100 Bay Networks, Inc.*<F10> 587,687 826,613
22,600 Cisco Systems Inc.*<F10> 1,207,076 1,686,525
26,350 Computer Associates
International, Inc. 1,194,936 1,498,656
26,700 Informix Corp.*<F10> 739,085 801,000
10,200 Microsoft Corp.*<F10> 916,524 895,050
30,400 Oracle Corp.*<F10> 1,184,100 1,288,200
13,950 Parametric
Technology Corp.*<F10> 681,396 927,675
7,800 PeopleSoft, Inc.*<F10> 208,806 335,400
22,600 Synopsys, Inc.*<F10> 691,815 858,800
--------- ---------
7,411,425 9,117,919
TELECOMMUNICATIONS - 16.7%
31,500 AirTouch
Communications*<F10> 945,855 889,875
16,900 Allen Group Inc. 397,048 378,137
10,600 CIDCO, Inc.*<F10> 331,455 270,300
8,300 FORE Systems, Inc.*<F10> 305,642 493,850
27,100 General Instrument Corp.*<F10> 1,024,084 633,463
32,200 LCI International, Inc.*<F10> 513,125 660,100
19,400 Motorola, Inc. 1,346,584 1,105,800
22,800 Nokia Corp. ''A'' ADR 1,397,713 886,350
37,000 Paging Network, Inc.*<F10> 660,737 901,875
---------- ----------
6,922,243 6,219,750
---------- ----------
Total common stocks 34,026,854 36,831,104
VARIABLE RATE DEMAND NOTES - 0.9% (a)<F11>
$262,512 American Family
Financial Services $262,512 $262,512
80,000 Wisconsin Electric
Power Company 80,000 80,000
---------- ----------
Total variable rate
demand notes 342,512 342,512
---------- ----------
Total investments $34,369,366 37,173,616
----------
----------
Liabilities, less cash and
receivables -
(0.1%) (a)<F11> $(57,284)
----------
Net Assets $37,116,332
----------
----------
Net Asset Value Per Share
($0.01 par value 300,000,000
shares authorized), offering
and redemption price
($37,116,332 / 3,416,525
shares outstanding) $10.86
----------
----------
*<F10>Non-income producing security.
(a)<F11>Percentages for the various classifications relate to net assets.
STATEMENT OF OPERATIONS
For the Period from July 1, 1995 (commencement of operations) to December 31,
1995
INCOME:
Dividends $44,253
Interest 53,573
-------
Total income 97,826
-------
EXPENSES:
Management fees 154,465
Administrative services 31,515
Custodian fees 9,170
Professional fees 6,705
Transfer agent fees 5,000
Registration fees 3,817
Amortization of organizational expenses 3,150
Insurance expense 2,777
Printing and postage expense 668
Other expenses 659
--------
Total expenses 217,926
NET INVESTMENT LOSS (120,100)
--------
NET REALIZED LOSS ON INVESTMENTS (214,755)
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 2,804,250
---------
NET GAIN ON INVESTMENTS 2,589,495
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,469,395
---------
---------
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 July 1, 1995 (commencement of operations) to December 31, 1995
(Unaudited)
OPERATIONS:
Net investment loss $(120,100)
Net realized loss on investments (214,755)
Net increase in unrealized appreciation on investments 2,804,250
---------
Net increase in net assets resulting from operations 2,469,395
---------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (3,573,960 shares) 36,333,297
Cost of shares redeemed (157,435 shares) (1,686,360)
----------
Net increase in net assets derived from Fund share activities 34,646,937
----------
TOTAL INCREASE 37,116,332
NET ASSETS AT THE BEGINNING OF THE PERIOD -
----------
NET ASSETS AT THE END OF THE PERIOD $37,116,332
----------
----------
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout the period)
For the Period
from July 1,
1995+<F12>to
December 31,
1995
------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment loss (0.04)
Net realized and unrealized
gains on investments 0.90
------
Total from investment operations 0.86
Less distributions:
Dividend from net investment income -
Distribution from net realized gains -
-----
Total from distributions -
-----
Net asset value, end of period $10.86
------
------
TOTAL INVESTMENT RETURN 17.8%(a)<F13>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) 37,116
Ratio of expenses to average net assets 1.3%(a)<F13>
Ratio of net investment loss to average net assets (0.7%)(a)<F13>
Portfolio turnover rate 13.8%
+<F12>Commencement of operations.
(a)<F13>Annualized.
The accompanying notes to financial statements are an integral part of these
statements.
Eastcliff Funds
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 (Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
The following is a summary of significant accounting policies of the
Eastcliff Funds (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: Eastcliff Total Return Fund
(formerly Fiduciary Total Return Fund, Inc.) (the ''Total Return Fund'') and
the Eastcliff Growth Fund (the ''Growth 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. Cost amounts, as
reported on the statements of net assets, are the same for Federal income
tax purposes.
(b) Net realized gains and losses on common stock are computed on the basis of
the cost of specific certificates.
(c) Provision has not been made for Federal income taxes since the Total Return
Fund has elected and the Growth Fund will elect 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.
(d) Dividend income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis.
(e) 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.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES -
Effective December 31, 1994, the Total Return Fund and effective July 1, 1995
(commencement of operations), the Growth Fund 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. Prior to
December 31,1994, the Total Return Fund had a substantially identical
investment advisory agreement with Fiduciary Management, Inc. (''FMI'').
The Funds have administrative agreements with 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.
Effective December 31, 1994, the Total Return Fund and effective July 1, 1995
(commencement of operations), the Growth Fund 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.
However, for the period ended December 31, 1995, no such expenses were
incurred. Prior to December 31, 1994, the Total Return Fund had a
substantially identical Plan with FMI.
In conjunction with the name change of the Total Return Fund and the new
management agreement effective December 31, 1994, the Total Return Fund
changed its fiscal year end from September 30 to June 30.
(3) DISTRIBUTION TO SHAREHOLDERS -
Net investment income and net realized gains are distributed to shareholders.
On December 28, 1995, the Total Return Fund distributed a dividend from net
investment income of $79,561 ($0.065 per share). In addition, the Total Return
Fund distributed $116,270 from net short-term realized gains ($0.095 per
share). The distributions were paid on December 29, 1995, to shareholders of
record on December 27, 1995.
(4) DEFERRED EXPENSES -
Organizational expenses for the Growth Fund were deferred and are being
amortized on a straight-line basis over a period of not more than 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 not
more than five years. The unamortized organizational expenses at December 31,
1995 were $28,355.
(5) INVESTMENT TRANSACTIONS -
For the period ended December 31, 1995, purchases and proceeds of sales of
investment securities of the Total Return Fund (excluding short-term
securities) were $8,288,292 and $8,698,317, 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 Growth Fund (excluding
short-term securities) were $38,895,282 and $4,765,111, respectively, and $0
and $548,995, respectively for short-term U.S. Government Securities.
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES -
As of December 31, 1995, liabilities of the Funds included the following:
Eastcliff Total Eastcliff
Return Fund Growth Fund
--------------- -----------
Payable to Adviser for management fees
and deferred expenses $9,999 $83,385
Other liabilities 13,150 14,163
(7) SOURCES OF NET ASSETS -
As of December 31, 1995, the sources of net assets were as follows:
Fund shares issued and outstanding $13,444,681 $34,646,937
Net unrealized appreciation on investments 2,768,793 2,804,250
Undistributed net realized gains
(losses) on investments 110,843 (214,755)
Undistributed net investment income (loss) 4,070 (120,100)
---------- ----------
$16,328,387 $37,116,332
---------- ----------
---------- ----------
Aggregate net unrealized appreciation as of December 31, 1995, consisted of
the following:
Aggregate gross unrealized appreciation $2,866,953 $5,831,461
Aggregate gross unrealized depreciation (98,160) (3,027,211)
--------- ----------
Net unrealized appreciation $2,768,793 $2,804,250
---------- ----------
---------- ----------
(8) MATTERS SUBMITTED TO A SHAREHOLDER VOTE -
During fiscal 1995, special shareholders meetings were held and the following
matters were approved by at least 85% of the voting shares.
December 12, 1994: (a) Election of Directors, (b) New investment advisory
agreement with RCA, (c) Restated certain sections of the Articles of
Incorporation, (d) Amendment to By-laws, and (e) Amendment to investment
policies.
June 29, 1995: (a) Amended investment advisory agreement with RCA, and (b)
New Sub-advisory agreement between RCA and Palm Beach Investment Advisers,
Inc.
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.
EASTCLIFF 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
