SEMIANNUAL REPORT
DECEMBER 31, 1996
(EASTCLIFF LOGO)
EASTCLIFF FUNDS
EASTCLIFF GROWTH FUND
EASTCLIFF TOTAL RETURN FUND
EASTCLIFF REGIONAL SMALL
CAPITALIZATION VALUE FUND
NO-LOAD MUTUAL FUNDS
EASTCLIFF
GROWTH FUND
February 13, 1997
Dear Shareholder:
In an effort to keep you informed, we want to update you on the Eastcliff
Growth Fund's progress for the twelve months ending December 31, 1996. By year
end the total assets of the Fund were $45 million. To summarize for new
shareholders, the Fund's investment objective is to produce capital
appreciation. The Fund holds a portfolio of equities that we believe have the
prospect of strong future earnings growth and are attractively valued relative
to other investment opportunities.
For the year ending December 31, 1996, the Fund's total return was 16.9%, and
from inception (July 1, 1995) through December 31, 1996, its average annual
compounded rate of return was 17.2%. On December 31, 1996, the Net Asset Value
of the Eastcliff Growth Fund was $12.69. The Fund strives to be fully invested
in equities, and at the end of the fourth quarter the Fund had 98% of its assets
invested in common stocks. The industries of emphasis continue to include
technology (software/services), retail, and business services.
The stock market in 1996 was a fascinating study in contrasts and disparity.
In retrospect, the 1996 market had three distinct phases. There was a strong
rally for the first five months which proved to be very broad. Then a sharp
correction in July eliminated much of the earlier increase in price/earnings
ratios. The third phase was a rally which set record highs on most indices, but
was dramatically narrow in breadth, with the very largest S&P 500 stocks
considerably out performing all others. The Fund may own some of the very
largest S&P 500 stocks, but typically owns somewhat smaller companies that have
the ability to achieve faster, long-term earnings growth. In our view,
the dramatic strength in the very largest companies has created a major
disparity in relative valuation. This valuation disparity should benefit the
Fund and its portfolio over the long-term as many of its holdings realize their
potential. We remain optimistic on the stock market's prospects in 1997 and
continue to invest the Fund accordingly.
The NASDAQ Symbol for the Fund is EASGX.
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
Past performance cannot guarantee future results. Prices will fluctuate and
redemption value may be more or less than original investment. This Fund is not
insured by the FDIC and is not a deposit or other obligation of or guaranteed by
Resource Trust Company or any of its affiliates.
EASTCLIFF GROWTH FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1996 (UNAUDITED)
QUOTED
MARKET
SHARES OR PRINCIPAL AMOUNT COST VALUE
- ------------------------- ---- ------
COMMON STOCKS -- 98.1% (A)<F2>
APPAREL -- 3.3%
11,100 NIKE, Inc. Cl B $601,021 $663,225
17,200 Tommy Hilfiger Corp.*<F1> 516,130 825,600
---------- ----------
1,117,151 1,488,825
BIOTECHNOLOGY -- 3.8%
18,700 Amgen Inc.*<F1> 851,838 1,016,812
32,300 Genzyme Corp.*<F1> 768,979 702,525
---------- ----------
1,620,817 1,719,337
BUSINESS SERVICES -- 11.3%
23,300 Ceridian Corp.*<F1> 946,765 943,650
28,770 First Data Corp. 789,885 1,050,105
26,500 MBNA Corp. 622,801 1,099,750
10,150 Paychex, Inc. 244,114 522,096
23,300 PMT Services, Inc.*<F1> 458,717 407,750
32,000 Sterling Commerce Inc.*<F1> 963,575 1,128,000
---------- ----------
4,025,857 5,151,351
CELLULAR -- 3.6%
30,100 360o Communications
Company*<F1> 739,860 696,062
27,200 AirTouch Communications*<F1> 803,567 686,800
23,300 Palmer Wireless, Inc.*<F1> 466,691 244,650
---------- ----------
2,010,118 1,627,512
COSMETICS/HEALTHCARE PRODUCTS -- 1.4%
24,000 Rexall Sundown, Inc.*<F1> 651,308 652,512
DRUGS -- 2.6%
14,100 Pfizer Inc. 633,390 1,168,537
EQUIPMENT -- 1.8%
38,500 Glenayre
Technologies, Inc.*<F1> 1,233,580 830,175
INSURANCE -- 2.2%
13,300 MGIC Investment Corp. 761,284 1,010,800
LONG DISTANCE -- 1.9%
39,500 LCI International, Inc.*<F1> 718,766 849,250
MEDICAL SERVICES -- 5.7%
27,600 Omnicare, Inc. 663,317 886,650
18,900 Oxford Health Plans, Inc.*<F1> 455,137 1,106,841
18,500 Vencor Inc.*<F1> 585,982 585,062
---------- ----------
1,704,436 2,578,553
MEDICAL PRODUCTS -- 5.0%
28,800 IDEXX Laboratories, Inc.*<F1> 881,329 1,036,800
13,100 St. Jude Medical, Inc.*<F1> 443,592 558,388
15,500 STERIS Corp.*<F1> 424,312 674,250
---------- ----------
1,749,233 2,269,438
NETWORKING -- 5.9%
29,300 Cisco Systems Inc.*<F1> 782,728 1,864,212
24,700 FORE Systems, Inc.*<F1> 598,460 812,013
---------- ----------
1,381,188 2,676,225
PAGING -- 2.5%
74,400 Paging Network, Inc.*<F1> 1,400,841 1,134,600
POLLUTION CONTROL -- 2.1%
30,500 USA Waste Services, Inc.*<F1> 685,033 972,188
RESTAURANTS/LODGING -- 3.2%
34,900 Outback Steakhouse, Inc.*<F1> 1,017,243 933,575
15,825 Papa John's
International, Inc.*<F1> 250,844 534,094
---------- ----------
1,268,087 1,467,669
RETAIL -- 21.1%
38,000 Autozone, Inc.*<F1> 1,054,218 1,045,000
19,300 Barnes & Noble Inc.*<F1> 631,694 521,100
33,375 Consolidated Stores Corp.*<F1> 561,226 1,076,344
46,900 Dollar General Corp. 944,402 1,500,800
28,900 The Home Depot, Inc. 1,218,998 1,448,612
31,000 Intimate Brands, Inc. 551,075 527,000
28,100 Kohl's Corp.*<F1> 714,028 1,102,925
27,900 Lowe's Companies, Inc. 928,145 990,450
28,900 PETsMART, Inc.*<F1> 411,474 632,188
42,300 Staples, Inc.*<F1> 848,395 764,065
---------- ----------
7,863,655 9,608,484
SEMICONDUCTORS -- 3.3%
11,400 Intel Corp. 705,787 1,492,693
SOFTWARE/SERVICES -- 17.4%
29,850 Computer Associates
International, Inc. 893,642 1,485,037
19,900 Microsoft Corp.*<F1> 874,592 1,644,238
35,500 Oracle Corp.*<F1> 917,021 1,482,125
27,400 Parametric
Technology Corp.*<F1> 668,145 1,407,675
17,400 PeopleSoft, Inc.*<F1> 260,867 834,121
22,600 Synopsys, Inc.*<F1> 676,948 1,045,250
---------- ----------
4,291,215 7,898,446
---------- ----------
Total common stocks. 33,821,746 44,596,595
SHORT-TERM INVESTMENTS -- 2.0% (A)<F2>
VARIABLE RATE DEMAND NOTES
$875,000 Johnson Controls, Inc. $875,000 $875,000
21,024 Wisconsin Electric
Power Company 21,024 21,024
---------- ----------
Total short-term
investments 896,024 896,024
---------- ----------
Total investments $34,717,770 45,492,619
===========
Liabilities, less cash and
receivables (0.1%) (A)<F2> (40,565)
-----------
Net Assets $45,452,054
===========
Net Asset Value Per Share
($0.01 par value 300,000,000
shares authorized), offering
and redemption price
($45,452,054 / 3,580,932
shares outstanding) $12.69
======
* <F1>Non-income producing security.
(a)<F2>Percentages for the various classifications relate to net assets.
STATEMENT OF OPERATIONS
For the Six Month Period Ending December 31, 1996 (Unaudited)
INCOME:
Dividends $45,807
Interest 32,176
---------
Total income 77,983
---------
EXPENSES:
Management fees 232,299
Administrative services 38,353
Professional fees 13,933
Transfer agent fees 9,043
Custodian fees 6,557
Amortization of organizational expenses 3,150
Printing and postage expense 2,636
Registration fees 1,310
Other expenses 3,720
---------
Total expenses before reimbursement 311,001
Less expenses assumed by adviser (17,119)
---------
Net expenses 293,882
---------
NET INVESTMENT LOSS (215,899)
---------
NET REALIZED GAIN ON INVESTMENTS 701,043
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 109,064
---------
NET GAIN ON INVESTMENTS 810,107
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $594,208
========
The accompanying notes to financial statements are an integral part of these
statements.
EASTCLIFF GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Month Period Ending December 31, 1996 (Unaudited) and For the Period
from July 1, 1995 (commencement of operations) to June 30, 1996
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
OPERATIONS:
Net investment loss $(215,899) $(300,450)
Net realized gain (loss) on investments 701,043 (1,552,031)
Net increase in unrealized appreciation
on investments 109,064 10,665,785
---------- ----------
Net increase in net assets resulting
from operations 594,208 8,813,304
---------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (266,826 and
4,145,838 shares, respectively) 3,335,741 42,770,095
Cost of shares redeemed (365,014 and
466,718 shares, respectively) (4,670,457) (5,390,837)
---------- ----------
Net (decrease) increase in net assets
derived from Fund share activities (1,334,716) 37,379,258
---------- ----------
TOTAL (DECREASE) INCREASE (740,508) 46,192,562
NET ASSETS AT THE BEGINNING OF THE PERIOD 46,192,562 --
---------- ----------
NET ASSETS AT THE END OF THE PERIOD $45,452,054 $46,192,562
=========== ===========
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
(UNAUDITED) FOR THE
FOR THE PERIOD FROM
SIX MONTH JULY 1,
PERIOD ENDING 1995+<F3>TO
DECEMBER 31, 1996 JUNE 30, 1996
----------------- -------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $12.56 $10.00
Income from investment operations:
Net investment loss (0.07) (0.08)
Net realized and unrealized gains on investments 0.20 2.64
------ ------
Total from investment operations 0.13 2.56
Less distributions:
Dividend from net investment income -- --
Distribution from net realized gains -- --
------ ------
Total from distributions -- --
------ ------
Net asset value, end of period $12.69 $12.56
====== ======
TOTAL INVESTMENT RETURN 1.0%**<F5> 25.6%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 45,452 46,193
Ratio of expenses (after reimbursement)
to average net assets (a)<F6> 1.3%*<F4> 1.3%
Ratio of net investment loss to
average net assets (b)<F7> (0.9%)*<F4> (0.8%)
Portfolio turnover rate 23.2% 40.3%
Average commission rate paid (c)<F8> $0.0600 --
+<F3>Commencement of operations.
*<F4>Annualized.
**<F5>Not annualized.
(a)<F6>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%* for
the period ending December 31, 1996, and 1.4% for the year ended June 30, 1996.
(b)<F7>If the Fund had paid all of its expenses, the ratio would have been
(1.0%)* for the period ending December 31, 1996, and (0.9%) for the year ended
June 30, 1996.
(c)<F8>Disclosure required for fiscal years beginning after September 1, 1995.
The accompanying notes to financial statements are an integral part of these
statements.
EASTCLIFF TOTAL
RETURN FUND
February 13, 1997
Dear Shareholder:
We appreciate this opportunity to communicate the results of your Fund to
you. The final weeks of this past year were very volatile. The economic outlook
as we approach 1997 appears positive. Inflation is not a problem and U.S.
corporations are efficient. Productivity has increased while the work force has
been downsized.
At year end, the Net Asset Value was $14.36 per share, and the total assets
of the Fund exceeded $18 million. For the year ending December 31, 1996, the
Fund's total return was 20.5%, the average annual compounded rate of return for
the 5 years ended December 31, 1996, was 12.3%, and for the 10 years ended
December 31, 1996, was 13.0%. As of December 27, 1996, the Board of Directors
declared a dividend of $0.0907 from net investment income, a distribution of
$0.1329 from net short-term realized capital gains which will be treated as
ordinary income and a distribution of $0.2697 from net long-term realized
capital gains. The distributions were paid on December 30, 1996, to shareholders
of record on December 26, 1996. Total distributions paid in 1996 were $1.45807
per share.
We are approaching 1997 optimistically. The Fund's asset allocation at year
end was approximately 20% fixed income instruments, 75% common stocks and 5% in
cash or cash equivalents. This reflects a more cautious approach to the market
and a defensive posture.
To meet the Fund's investment objective of a combination of capital
appreciation and income, we will continue to emphasize premiere companies in
leading economic sectors.
The NASDAQ Symbol for the Fund is EATRX.
We appreciate your confidence as shareholders and will continue to strive for
exceptional investment results.
Respectfully submitted,
/s/ Thomas M. Keresey /s/ Patrice J. Neverett
Thomas M. Keresey Patrice J. Neverett
Portfolio Manager Portfolio Manager
Past performance cannot guarantee future results. Prices will fluctuate and
redemption value may be more or less than original investment. This Fund is not
insured by the FDIC and is not a deposit or other obligation of or guaranteed by
Resource Trust Company or any of its affiliates.
EASTCLIFF TOTAL RETURN FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1996 (UNAUDITED)
QUOTED
MARKET
SHARES OR PRINCIPAL AMOUNT COST VALUE
- ----------- ------------- ----- -------
LONG-TERM INVESTMENTS -- 94.8% (A)<F10>
COMMON STOCKS -- 74.9% (A)<F10>
BANKS/SAVINGS & LOANS -- 8.0%
18,000 Barnett Banks, Inc. $459,830 $740,250
4,000 Citicorp 162,490 412,000
5,200 Fifth Third Bancorp. 279,782 326,628
---------- ---------
902,102 1,478,878
COMPUTERS -- 7.1%
9,000 Cisco Systems Inc.*<F9> 418,500 572,625
5,000 Compaq Computer Corp.*<F9> 234,925 371,250
2,500 International Business
Machines Corp. 199,462 377,500
---------- ---------
852,887 1,321,375
CONSUMER NON-DURABLES -- 6.5%
2,000 Clorox Co. 179,620 200,750
2,500 Colgate-Palmolive Co. 202,700 230,625
7,000 Gillette Company 336,045 544,250
9,000 Sunbeam Corporation 179,415 231,750
---------- ---------
897,780 1,207,375
ELECTRONICS -- 5.1%
4,500 General Electric Co. (U.S.) 241,832 444,938
3,800 Intel Corp. 269,035 497,564
---------- ---------
510,867 942,502
ENERGY/ENERGY SERVICES -- 8.1%
3,000 Chevron Corp. 179,180 195,000
9,000 Halliburton Co. 326,221 542,250
7,000 PanEnergy Corp. 178,920 315,000
3,000 Texaco Inc. 262,805 294,375
7,000 USX-Marathon Group 140,420 167,125
---------- ---------
1,087,546 1,513,750
FOOD & BEVERAGES -- 2.8%
10,000 The Coca-Cola Company 351,275 526,250
HEALTH INDUSTRIES -- 2.6%
11,000 Becton, Dickinson & Co. 298,785 477,125
INSURANCE -- 2.3%
4,000 American International
Group, Inc. 273,555 433,000
Leisure/Restaurants -- 2.4%
6,000 Marriott International Inc. 300,360 331,500
2,500 McDonald's Corp. 72,963 113,125
---------- ---------
373,323 444,625
MISCELLANEOUS-CONSUMER MANUFACTURING -- 1.3%
3,000 Eastman Kodak Co. 212,680 240,750
MISCELLANEOUS-TECHNOLOGY MANUFACTURING -- 2.4%
10,000 Plantronics, Inc.*<F9> 373,000 450,000
PHARMACEUTICALS -- 20.0%
10,000 American Home
Products Corp. 618,840 586,250
5,500 Bristol-Myers Squibb Co. 379,893 598,125
16,000 Johnson & Johnson 544,730 796,000
6,000 Eli Lilly & Co. 449,610 438,000
5,000 Merck & Co., Inc. 217,590 396,250
11,000 Pfizer Inc. 554,480 911,625
---------- ---------
2,765,143 3,726,250
RETAIL TRADE -- 2.4%
12,000 Tiffany & Co. 324,735 439,500
SOFTWARE/SERVICE -- 3.9%
5,200 Microsoft Corp.*<F9> 302,226 429,650
7,000 Oracle Corp.*<F9> 252,245 292,250
---------- ---------
554,471 721,900
---------- ---------
Total common stock 9,778,149 13,923,280
FEDERAL AGENCIES -- 19.9% (A)<F10>
$100,000 Federal National
Mortgage Association,
7.00%, due 04/16/01 100,000 100,646
500,000 Federal National
Mortgage Association,
7.00%, due 04/24/01 500,000 500,331
300,000 Federal Home Loan
Mortgage Corp.,
7.125%, due 06/25/01 299,597 304,508
500,000 Federal Home Loan Banks,
7.405%, due 07/02/01 500,000 502,733
200,000 Federal National
Mortgage Association,
7.30%, due 10/28/02 200,000 200,422
500,000 Federal Home Loan Banks,
7.27%, due 04/15/03 500,000 498,348
500,000 Federal National
Mortgage Association,
7.55%, due 06/10/04 500,000 506,887
500,000 Federal Home Loan
Mortgage Corp.,
7.44%, due 04/07/06 500,000 496,786
300,000 Federal Home Loan
Mortgage Corp.,
7.775%, due 04/17/06 300,000 299,245
300,000 Federal Home Loan
Mortgage Corp.,
8.00%, due 05/15/06 300,000 300,725
---------- ---------
Total federal agencies 3,699,597 3,710,631
---------- ---------
Total long-term
investments 13,477,746 17,633,911
SHORT-TERM INVESTMENTS -- 5.5% (A)<F10>
VARIABLE RATE DEMAND NOTES
867,239 Johnson Controls, Inc. 867,239 867,239
156,000 Wisconsin Electric
Power Company 156,000 156,000
---------- ---------
Total short-term
investments 1,023,239 1,023,239
---------- ---------
Total investments $14,500,985 18,657,150
==========
Liabilities, less cash and
receivables (0.3%) (A)<F10> (60,656)
----------
Net Assets $18,596,494
==========
Net Asset Value Per Share
($0.01 par value 300,000,000
shares authorized), offering
and redemption price
($18,596,494 / 1,295,187
shares outstanding) $14.36
======
*<F9>Non-income producing 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 Six Month Period Ending December 31, 1996 (Unaudited)
INCOME:
Dividends $94,328
Interest 139,647
---------
Total income 233,975
---------
EXPENSES:
Management fees 90,990
Administrative services 18,198
Professional fees 13,347
Transfer agent fees 6,644
Custodian fees 2,744
Printing and postage expense 2,738
Registration fees 2,075
Other expenses 2,304
---------
Total expenses before reimbursement 139,040
Less expenses assumed by adviser (20,753)
---------
Net expenses 118,287
---------
NET INVESTMENT INCOME 115,688
---------
NET REALIZED GAIN ON INVESTMENTS 741,479
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 713,419
---------
NET GAIN ON INVESTMENTS 1,454,898
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,570,586
=========
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Month Period Ending December 31, 1996 (Unaudited) and For the Year
Ended June 30, 1996
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
OPERATIONS:
Net investment income $115,688 $113,519
Net realized gain on investments 741,479 1,265,449
Net increase in unrealized appreciation
on investments 713,419 2,394,305
----------- ----------
Net increase in net assets resulting
from operations 1,570,586 3,773,273
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.11856 and $0.16617 per share, respectively) (147,615) (207,699)
Distributions from net realized gains
($1.33951 and $0.16455 per share,
respectively) (1,639,171) (204,567)
----------- ----------
Total distributions (1,786,786) (412,266)*
<F11>
----------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (66,809 and
285,109 shares, respectively) 961,913 3,666,446
Net asset value of shares issued in
distributions (122,270 and 16,739
shares, respectively) 1,640,933 213,524
Cost of shares redeemed (111,230 and
405,622 shares, respectively) (1,589,551) (5,247,179)
----------- ----------
Net increase (decrease) in net assets
derived from Fund share activities 1,013,295 (1,367,209)
----------- ----------
TOTAL INCREASE 797,095 1,993,798
NET ASSETS AT THE BEGINNING OF THE PERIOD 17,799,399 15,805,601
----------- ----------
NET ASSETS AT THE END OF THE PERIOD
(including undistributed net investment income
of $1,775 and $33,702, respectively) $18,596,494 $17,799,399
=========== ===========
*<F11>Total distributions include $324,352 of ordinary income, of which 27% 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 FOR THE FROM
PERIOD YEAR OCTOBER 1,
ENDED ENDED 1994 TO
DEC. 31, JUNE 30, JUNE 30, YEARS ENDED SEPTEMBER 30,
---------------------------------------------------
1996 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987+<F12>
---------- ------- ------ ------ ----- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $14.62 $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 0.09 0.14 0.15 0.19 0.13 0.28 0.33 0.24 0.06 --
Net realized and
unrealized gains (losses)
on investments 1.11 2.90 0.71 0.12 1.28 1.27 2.30 (1.82) 1.40 (1.17) 3.94
------ ------ ------ ----- ------ ----- ------ ------ ------ ------ ------
Total from investment
operations 1.20 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 (0.12) (0.17) (0.14) (0.18) (0.15) (0.23) (0.36) (0.26) (0.11) -- --
Distributions from net
realized gains (1.34) (0.16) (0.67) (0.55) (0.90) (0.77) (0.13) (0.18) (0.01) (2.95) --
------- ------ ------ ----- ------ ----- ------ ------ ------ ------ ------
Total from distributions (1.46) (0.33) (0.81) (0.73) (1.05) (1.00) (0.49) (0.44) (0.12) (2.95) --
------ ------ ------ ----- ------ ----- ------ ------ ------ ------ ------
Net asset value, end of period $14.36 $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> 9.1%* 25.4% 10.4%(a) 2.2% 13.4% 13.2% 28.7%(13.5%) 16.8% (3.0%) 55.7%(a)
<F13> <F14> <F14>
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(in 000's $) 18,596 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%(a) 1.3% 1.5%(a) 2.0% 2.0% 2.7% 2.0% 2.4% 3.0% 2.8% 3.0%(a)
Ratio of net investment <F14> <F14> <F14>
income (loss) to average
net assets(c)<F16> 1.3%(a) 0.7% 2.5%(a) 1.3% 1.5% 1.2% 2.4% 2.8% 2.8% 1.7% (0.1%)(a)
<F14> <F14> <F14>
Portfolio turnover rate 30.3% 95.1% 89.4% 13.2% 28.0% 34.9% 38.0% 62.7% 27.2% 51.9% 169.7%
Average commission rate paid(e) $0.0624 -- -- -- -- -- -- -- -- -- --
<F18>
+<F12>For the period from December 23, 1986 (commencement of operations) to
September 30, 1987.
*<F13>Not annualized.
(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 period ending December 31, 1996, 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: 1.5%(a), 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 period ending December 31, 1996, 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: 1.0%(a), 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.
(e)<F18>Disclosure required for fiscal years beginning after September 1, 1995.
The accompanying notes to financial statements are an integral part of this
statement.
</TABLE>
EASTCLIFF
VALUE FUND
February 13, 1997
Dear Shareholder:
We are off to a good start but recognize that it is a long journey. The
portfolio that we constructed upon beginning the Fund on September 16, 1996, has
performed well through year-end, a positive 9.1% versus 6.5% for the Russell
2000. At year-end, the Fund's assets were over $17 million and the net asset
value had appreciated to $10.89.
At present, we have forty-six companies represented in the portfolio. As
managers of a capital appreciation fund, we believe in investing a relatively
high portion of the portfolio in a limited number of companies. We follow a
bottom-up strategy to investing that pays nominal attention to forecasting the
economy or moves in interest rates. Instead, we focus on investing in the best
companies we can find with strong managements and that are undervalued by the
market.
Some of the investments that contributed to the performance in the fourth
quarter of 1996, all with returns in excess of 30%, are SPX Corp., a Michigan
based auto parts company undergoing restructuring and applying EVA (Economic
Value Added) analysis across the entire corporation with returns that are
exceeding our expectations; Ballantyne, a dominant motion picture projection
equipment manufacturer located in Nebraska - when you go to a multi-screen
theater, think of this company, as they supply 65% of the U.S. industry;
Rehabilicare, a Minnesota based company with an inexpensive treatment for Carpal
Tunnel Syndrome, is responding to news that large companies are being forced by
the courts to deal with Carpal Tunnel Syndrome; LodgeNet, a South Dakota
headquartered company that is expanding its hotel room on-demand movie
distribution network into the residential market through a joint venture with
TCI Satellite Entertainment. We continue to believe that excellent companies at
attractive valuations can be found across a broad spectrum of American industry.
The NASDAQ Symbol for the Fund is EARSX.
As of December 27, 1996, the Board of Directors declared a dividend of
$0.0175 from net investment income. This distribution was paid on December 30,
1996, to shareholders of record on December 26, 1996.
Without your support we would not be where we are today. Our challenge is to
repay your trust. We think it is important to note that a significant amount of
our net worth is also invested in the Eastcliff Regional Small Capitalization
Value Fund. We treat your investments as if they were our own, and we look
forward to a very successful partnership.
Sincerely,
/s/ Richard W. Jensen /s/ Elizabeth M. Lilly /s/ Richard J. Rinkoff
Richard W. Jensen Elizabeth M. Lilly Richard J. Rinkoff
Past performance cannot guarantee future results. Prices will fluctuate and
redemption value may be more or less than original investment. This Fund is not
insured by the FDIC and is not a deposit or other obligation of or guaranteed by
Resource Trust Company or any of its affiliates.
EASTCLIFF REGIONAL SMALL CAPITALIZATION VALUE FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1996 (UNAUDITED)
QUOTED
MARKET
SHARES OR PRINCIPAL AMOUNT COST VALUE
- ----------- ------------- ----- -------
COMMON STOCKS -- 87.9% (A)<F20>
BASIC MATERIALS -- 1.0%
18,200 Dynamic Materials Corp.*<F19> $143,475 $170,625
CAPITAL GOODS -- 23.6%
6,100 Alliant Techsystems Inc.*<F19> 344,946 335,500
34,400 Deflecta-Shield Corp.*<F19> 291,263 296,700
12,700 Donaldson Company, Inc. 361,264 425,450
33,700 Giddings & Lewis, Inc. 403,135 433,888
6,700 Graco Inc. 172,619 164,150
8,600 IDEX Corp. 319,564 342,925
26,500 National Computer
Systems, Inc. 567,925 675,750
5,900 Pentair, Inc. 159,951 190,275
14,100 Premark International, Inc. 299,303 313,725
39,600 TSI Inc. 380,038 455,400
12,800 Valmont Industries, Inc. 456,588 528,000
---------- ----------
3,756,596 4,161,763
CONSUMER CYCLICALS -- 16.9%
15,400 ERO, Inc.*<F19> 130,114 134,750
30,000 Federal-Mogul Corp. 669,026 660,000
13,400 Fingerhut Companies, Inc. 177,388 164,150
19,800 Funco, Inc.*<F19> 171,039 165,825
24,400 Grand Casinos, Inc.*<F19> 338,866 329,400
21,800 Sport-Haley, Inc.*<F19> 306,850 273,873
15,100 SPX Corp. 446,369 585,125
15,700 Stanhome Inc. 427,628 416,050
8,100 Tower Automotive, Inc.*<F19> 222,675 253,125
---------- ----------
2,889,955 2,982,298
CONSUMER STAPLES -- 12.7%
20,400 Ballantyne of Omaha, Inc.*<F19> 320,712 405,450
17,500 Department 56, Inc.*<F19> 408,940 433,125
31,500 International
Multifoods Corp. 517,643 570,938
20,900 LodgeNet
Entertainment Corp.*<F19> 298,567 370,975
11,100 Merrill Corp. 238,606 255,300
15,800 VICORP Restaurants, Inc.*<F19> 232,463 209,350
---------- ----------
2,016,931 2,245,138
FINANCIAL -- 12.1%
22,600 Amerin Corp.*<F19> 480,287 581,950
18,200 Community First
Bankshares, Inc. 456,725 500,500
13,200 Horace Mann
Educators Corp. 475,543 532,950
11,800 TCF Financial Corp. 465,889 513,300
---------- ----------
1,878,444 2,128,700
HEALTHCARE -- 9.5%
15,700 Applied Biometrics, Inc.*<F19> 206,842 204,100
25,500 Empi, Inc.*<F19> 418,033 497,250
10,700 Lifecore Biomedical, Inc.*<F19> 182,700 192,600
24,300 Orphan Medical, Inc.*<F19> 221,648 236,925
52,400 Rehabilicare Inc.*<F19> 162,081 222,700
4,400 Rochester Medical Corp.*<F19> 77,807 84,150
14,800 Urologix Inc.*<F19> 224,637 240,500
---------- ----------
1,493,748 1,678,225
TECHNOLOGY -- 12.1%
20,600 Aetrium Inc.*<F19> 230,100 272,950
19,700 Bolder
Technologies Corp.*<F19> 273,775 323,829
7,900 Ciprico Inc.*<F19> 119,460 115,537
29,700 Communications
Systems, Inc. 410,037 445,500
29,500 Control Data
Systems, Inc.*<F19> 669,572 649,000
11,200 Imation Corp.*<F19> 302,246 315,000
---------- ----------
2,005,190 2,121,816
---------- ----------
Total common stocks 14,184,339 15,488,565
SHORT-TERM INVESTMENTS -- 12.4% (A)<F20>
VARIABLE RATE DEMAND NOTES
$776,000 American Family
Financial Services 776,000 776,000
776,000 Johnson Controls, Inc. 776,000 776,000
568,117 Pitney Bowes Credit Corp. 568,117 568,117
61,000 Wisconsin Electric
Power Company 61,000 61,000
---------- ----------
Total short-term
investments 2,181,117 2,181,117
---------- ----------
Total investments $16,365,456 17,669,682
==========
Liabilities, less cash and
receivables (0.3%) (A)<F20> (44,027)
-----------
Net Assets $17,625,655
===========
Net Asset Value Per Share
($0.01 par value 300,000,000
shares authorized), offering
and redemption price
($17,625,655 / 1,618,801
shares outstanding) $10.89
======
*<F19>Non-income producing security.
(a)<F20>Percentages for the various classifications relate to net assets.
STATEMENT OF OPERATIONS
For the Period from September 16, 1996 (commencement of operations)
to December 31, 1996 (Unaudited)
INCOME:
Dividends $35,400
Interest 31,038
----------
Total income 66,438
----------
EXPENSES:
Management fees 30,269
Custodian fees 8,035
Administrative services 6,055
Professional fees 5,095
Transfer agent fees 4,092
Registration fees 1,961
Other expenses 783
----------
Total expenses before reimbursement 56,290
Less expenses assumed by adviser (16,940)
----------
Net expenses 39,350
----------
NET INVESTMENT INCOME 27,088
----------
NET REALIZED LOSS ON INVESTMENTS (122,213)
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 1,304,226
----------
NET GAIN ON INVESTMENTS 1,182,013
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,209,101
==========
The accompanying notes to financial statements are an integral part of these
statements.
EASTCLIFF REGIONAL SMALL CAPITALIZATION VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period from September 16, 1996 (commencement of operations)
to December 31, 1996 (Unaudited)
OPERATIONS:
Net investment income $27,088
Net realized loss on investments (122,213)
Net increase in unrealized appreciation on investments 1,304,226
----------
Net increase in net assets resulting from operations 1,209,101
----------
DISTRIBUTION TO SHAREHOLDERS:
Distribution from net investment income ($0.0175 per share) (28,177)
----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (1,672,556 shares) 17,020,810
Net asset value of shares issued in distribution (1,341 shares) 14,533
Cost of shares redeemed (55,096 shares) (590,612)
----------
Net increase in net assets derived from Fund share activities 16,444,731
----------
TOTAL INCREASE 17,625,655
NET ASSETS AT THE BEGINNING OF THE PERIOD --
----------
NET ASSETS AT THE END OF THE PERIOD $17,625,655
===========
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout the period)
(UNAUDITED)
FOR THE PERIOD FROM
SEPTEMBER 16, 1996+<F21>TO
DECEMBER 31, 1996
----------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income 0.02
Net realized and unrealized gains on investments 0.89
------
Total from investment operations 0.91
Less distributions:
Dividend from net investment income (0.02)
Distribution from net realized gains --
------
Total from distributions (0.02)
------
Net asset value, end of period $10.89
======
TOTAL INVESTMENT RETURN 9.1%**<F23>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 17,626
Ratio of expenses (after reimbursement) to average net assets (a)<F24>1.3%*<F22>
Ratio of net investment income to average net assets (b)<F25> 0.9%*<F22>
Portfolio turnover rate 15.3%
Average commission rate paid $0.0700
+<F21>Commencement of operations.
*<F22>Annualized.
** <F23>Not annualized.
(a)<F24>Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratio would have
been 1.9%*<F22>.
(b)<F25>If the Fund had paid all of its expenses, the ratio would have
been 0.3%*<F22>.
The accompanying notes to financial statements are an integral part of these
statements.
EASTCLIFF FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 (Unaudited)
(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 three funds: the Eastcliff Growth Fund (the
"Growth Fund'), the Eastcliff Total Return Fund (the "Total Return Fund") and
the Eastcliff Regional Small Capitalization Value Fund (the "Value 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.
(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 Value Fund
will elect and the Growth Fund and Total Return Fund have 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.
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 $17,119, $20,753 and
$16,940 for the period ending December 31, 1996, for the Growth Fund, Total
Return Fund, and Value 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 period ending
December 31, 1996, no such expenses were incurred.
(3) DISTRIBUTION TO SHAREHOLDERS --
Net investment income and net realized gains are distributed to shareholders.
On December 27, 1996, the Total Return Fund distributed a dividend from net
investment income of $112,970 ($0.0907 per share). In addition, the Total
Return Fund distributed $166,853 from net short-term realized gains ($0.1329
per share) and $338,679 ($0.2697 per share) from net long-term realized gains.
Also, the Value Fund distributed a dividend from net investment income of
$27,099 ($0.0175 per share). The distributions were paid on December 30, 1996,
to shareholders of record on December 26, 1996.
(4) DEFERRED EXPENSES --
Organizational expenses for the Growth Fund and the Value 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 and the Value Fund
over a period of five years. The unamortized organizational expenses at
December 31, 1996, were $22,054 and $28,411, respectively.
(5) INVESTMENT TRANSACTIONS --
For the period ending December 31, 1996, purchases and proceeds of sales of
investment securities of the Growth Fund (excluding short-term securities)
were $10,360,943 and $12,220,935, respectively; purchases and proceeds of
sales of investment securities of the Total Return Fund (excluding short-term
securities) were $5,245,592 and $6,144,229, respectively; purchases and
proceeds of sales of investment securities of the Value Fund (excluding short-
term securities) were $15,504,725 and $1,198,173, respectively, and $1,999,500
and $0, respectively for short-term U.S. Government Securities.
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of December 31, 1996, liabilities of the Funds included the following:
TOTAL
GROWTH FUND RETURN FUND VALUE FUND
----------- ----------- ----------
Payable to brokers for investments
purchased $-- $119,870 $78,047
Payable to RCA for management fees
and deferred expenses 61,400 15,899 42,778
Other liabilities 10,574 4,304 4,161
(7)SOURCES OF NET ASSETS --
As of December 31, 1996, the sources of net assets were as follows:
Fund shares issued and
outstanding $35,528,193 $14,208,943 $16,444,731
Net unrealized appreciation
on investments 10,774,849 4,156,164 1,304,226
Undistributed net realized
(losses) gains on investments (850,988) 229,612 (122,213)
Undistributed (overdistributed)
net investment income -- 1,775 (1,089)
---------- ---------- ----------
$45,452,054 $18,596,494 $17,625,655
========== ========== ==========
Aggregate net unrealized appreciation as of December 31, 1996, consisted of
the following:
Aggregate gross unrealized
appreciation $12,405,061 $4,205,984 $1,503,117
Aggregate gross unrealized
depreciation (1,630,212) (49,820) (198,891)
---------- --------- ---------
Net unrealized appreciation $10,774,849 $4,156,164 $1,304,226
========== ========= ==========
EASTCLIFF FUNDS
900 Second Avenue South
300 International Centre
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.
EASTCLIFF REGIONAL SMALL CAPITALIZATION VALUE FUND
WOODLAND PARTNERS LLC
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
1-800-595-5519
or
414-765-4124
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, Minnesota 55402
LEGAL COUNSEL
FOLEY & LARDNER
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
