091296-16 Registration No. 33-6836
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
-----------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 18 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 20 |X|
(Check appropriate box or boxes.)
EASTCLIFF FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
900 Second Avenue South
Suite 300
Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
(612) 336-1444
(Registrant's Telephone Number, including Area Code)
Copy to:
John Clymer Richard L. Teigen
900 Second Avenue South Foley & Lardner
Suite 300 777 East Wisconsin Avenue
Minneapolis, Minnesota 55402 Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
------------------------------
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective.
It is proposed that this filing become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
|X| on October 30, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] on (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] on (date) pursuant to paragraph (a) (2) of Rule 485
<PAGE>
<TABLE>
<CAPTION>
EASTCLIFF FUNDS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and the
Statement of Additional Information of the responses to the items of Parts A and
B of Form N-1A.)
Caption or Subheading in Prospectus
Item No. on Form N-1A or Statement of Additional Information
<S> <C>
(1) Cover Page Cover Page
(2) Synopsis Expense Information
(3) Condensed Financial Information Financial Highlights; Performance Information
(4) General Description of Registrant Introduction; Investment Objectives and Policies; Investment
Practices and Risks
(5) Management of the Fund Management of the Funds; Brokerage Transactions
5A. Management's Discussion of Fund Included in Annual Report to Shareholders
Performance
(6) Capital Stock and Other Securities Dividend Reinvestment; Dividends, Distributions and Taxes;
Capital Structure; Shareholder Reports
(7) Purchase of Securities Being Offered Distribution Plan; Determination of Net Asset Value; Purchase
of Shares; Exchange Privilege; Dividend Reinvestment;
Automatic Investment Plan; Retirement Plans
(8) Redemption or Repurchase Redemption of Shares; Systematic
Withdrawal Plan
(9) Legal Proceedings *
Part B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
(10) Cover Page Cover Page
(11) Table of Contents Table of Contents
</TABLE>
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* Answer negative or inapplicable
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(12) General Information and History General Information and History
(13) Investment Objectives and Policies Investment Restrictions; Investment Considerations
(14) Management of the Registrant Directors and Officers of the Corporation
(15) Control Persons and Principal Holders of Directors and Officers of the Corporation; Ownership of
Securities Management and Principal Shareholders
(16) Investment Advisory and Other Services Investment Adviser, Portfolio Managers and Administrator;
Distribution of Shares; Custodian; Independent Accountants
(17) Brokerage Allocation and Other Practices Allocation of Portfolio Brokerage
(18) Capital Stock and Other Securities Included in Prospectus under "Capital Structure" and
Shareholder Meetings
(19) Purchase, Redemption and Pricing of Included in Prospectus under "Determination of Net Asset
Securities Being Offered Value"; "Dividend Reinvestment"; "Automatic Investment Plan";
"Systematic Withdrawal Plan"; "Exchange Privilege"; and
"Retirement Plans"; Determination of Net Asset Value and
Performance; Information Incorporated by Reference
(20) Tax Status Taxes
(21) Underwriters *
(22) Calculations of Performance Data Determination of Net Asset Value and Performance
(23) Financial Statements Financial Statements
</TABLE>
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* Answer negative or inapplicable
<PAGE>
P R O S P E C T U S
(EASTCLIFF FUNDS LOGO)
Eastcliff Growth Fund
Eastcliff Total Return Fund
Eastcliff Regional Small
Capitalization Value Fund
Eastcliff Contrarian
Value Fund
NO-LOAD MUTUAL FUNDS
P R O S P E C T U S OCTOBER 31, 1998
(EASTCLIFF FUNDS LOGO)
900 SECOND AVENUE SOUTH
300 INTERNATIONAL CENTRE
MINNEAPOLIS, MINNESOTA 55402
(612) 336-1444
Eastcliff Funds, Inc. (the "Corporation") is an open-end, diversified management
investment company consisting of four separate portfolios, the Eastcliff Growth
Fund (the "Growth Fund"), the Eastcliff Total Return Fund (the "Total Return
Fund"), the Eastcliff Regional Small Capitalization Value Fund (the "Regional
Small Cap Fund") and the Eastcliff Contrarian Value Fund (the "Contrarian Value
Fund") (collectively, the "Eastcliff Funds" or "Funds"), offering distinct
investment choices.
EASTCLIFF GROWTH FUND
The investment objective of the Growth Fund is to produce long-term growth of
capital. The Growth Fund seeks to achieve its objective by investing
principally in equity securities.
EASTCLIFF TOTAL RETURN FUND
The investment objective of the Total Return Fund is to realize a combination of
capital appreciation and income which will result in the highest total return,
while assuming reasonable risks. The term "reasonable risks" refers to the
judgment of the Total Return Fund's investment adviser or portfolio manager that
investment in certain securities would not present an excessive risk of loss in
light of current and anticipated future general market and economic conditions,
trends in yields and interest rates, and fiscal and monetary policies. The
Total Return Fund intends to invest in a combination of equity and debt
securities.
EASTCLIFF REGIONAL SMALL CAPITALIZATION VALUE FUND
The investment objective of the Regional Small Cap Fund is to produce capital
appreciation. The Regional Small Cap Fund seeks to achieve its objective by
investing principally in equity securities of small capitalization companies
headquartered in Minnesota, North and South Dakota, Montana, Wisconsin,
Michigan, Iowa, Nebraska, Colorado, Illinois, Indiana and Ohio.
EASTCLIFF CONTRARIAN VALUE FUND
The investment objective of the Contrarian Value Fund is to produce long-term
capital appreciation. The Contrarian Value Fund seeks to achieve its objective
by investing in out-of-favor, undervalued companies with restructuring and
turnaround potential.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING RESOURCE TRUST COMPANY AND ANY OF ITS
AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, DUE TO
FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus sets forth concisely the information about the Funds that
prospective investors should know before investing. Investors are advised to
read this Prospectus and retain it for future reference. This Prospectus does
not set forth all of the information included in the Registration Statement and
Exhibits thereto which the Funds have filed with the Securities and Exchange
Commission. A Statement of Additional Information, dated October 31, 1998, which
is a part of such Registration Statement, is incorporated by reference in this
Prospectus. Copies of the Statement of Additional Information will be provided
without charge to each person to whom a Prospectus is delivered upon written or
oral request made by writing to the address or calling the telephone number,
stated above. All such requests should be directed to the attention of the
Corporation's Vice President.
TABLE OF CONTENTS
PAGE
----
Expense Information i
Financial Highlights 1
Introduction 4
Investment Objectives and Policies 4
Investment Practices and Risks 7
Management of the Funds 10
Distribution Plan 14
Determination of Net Asset Value 14
Purchase of Shares 15
Redemption of Shares 16
Exchange Privilege 18
Dividend Reinvestment 19
Automatic Investment Plan 19
Systematic Withdrawal Plan 20
Retirement Plans 20
Dividends, Distributions and Taxes 22
Brokerage Transactions 22
Capital Structure 23
Shareholder Reports 24
Year 2000 24
Performance Information 24
Share Purchase Application centerfold
EXPENSE INFORMATION
<TABLE>
EASTCLIFF EASTCLIFF EASTCLIFF REGIONAL EASTCLIFF CONTRARIAN
GROWTH FUND TOTAL RETURN FUND SMALL CAP FUND VALUE FUND
------------ ------------------ -------------------- --------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases or Reinvested Dividends NONE NONE NONE NONE
Deferred Sales Load NONE NONE NONE NONE
Redemption Fee NONE*<F1> NONE*<F1> NONE*<F1> NONE*<F1>
Exchange Fee NONE NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.00% 1.00% 1.00% 1.00%
12b-1 Fees 0.00%**<F2> 0.00%**<F2> 0.00%**<F2> 0.00%**<F2>
Other Expenses (after reimbursement) 0.30%***<F3> 0.30%***<F3> 0.30%***<F3> 0.30%***<F3>
------- ------- ------- -------
TOTAL FUND OPERATING EXPENSES
(AFTER REIMBURSEMENT) 1.30%***<F3> 1.30%***<F3> 1.30%***<F3> 1.30%***<F3>
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
*<F1> A fee of $12.00 is charged for each wire redemption.
**<F2> Although each of the Funds has adopted a 12b-1 Plan, each presently
intends not to pay any 12b-1 Fees during the fiscal year ending June
30, 1999.
***<F3> Other Expenses and Total Fund Operating Expenses reflect the fact
that the Adviser has voluntarily agreed to waive its advisory fee
and/or reimburse other operating expenses to the extent necessary to
ensure that Total Fund Operating Expenses do not exceed 1.30% of the
average daily net assets of each of the Growth Fund, the Total
Return Fund, the Regional Small Cap Fund and the Contrarian Value
Fund. Total Fund Operating Expenses and Other Expenses for the Total
Return Fund for the fiscal year ended June 30, 1998 would have been
1.42% and 0.42%, respectively, without the expense reimbursement.
Total Fund Operating Expenses and Other Expenses for the Contrarian
Value Fund for the period from December 30, 1997 (commencement of
operations) to June 30, 1998 would have been 1.49% (annualized) and
0.49% (annualized), respectively, without the expense
reimbursement.
<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
EXAMPLE:
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$10,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period:
Eastcliff Growth Fund $132 $412 $713 $1,568
Eastcliff Total Return Fund $132 $412 $713 $1,568
Eastcliff Regional Small Capitalization Value Fund $132 $412 $713 $1,568
Eastcliff Contrarian Value Fund $132 $412 $713 $1,568
</TABLE>
The purpose of the preceding table is to assist investors in understanding
the various costs that an investor in a particular Fund will bear, directly or
indirectly. THEY SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The
Annual Fund Operating Expenses are based on the actual expenses for the year
ended June 30, 1998. The example assumes a 5% annual rate of return pursuant to
requirements of the Securities and Exchange Commission. This hypothetical rate
of return is not intended to be representative of past or future performance of
any of the Funds.
FINANCIAL HIGHLIGHTS
(Selected Data for each share of a Fund outstanding throughout each period)
The Financial Highlights of the Funds should be read in conjunction with the
Funds' audited financial statements and notes thereto, included in the Funds'
Annual Report to Shareholders which contains the auditor's report as to the
Financial Highlights. The Funds' audited financial statements, notes thereto and
auditor's report thereon contained in the Funds' Annual Report to Shareholders
are incorporated by reference into the Statement of Additional Information. The
Financial Highlights of each Fund set forth below have been audited. Further
information about the performance of the Funds is also contained in the Funds'
Annual Report to Shareholders, copies of which may be obtained, without charge,
upon request. Prior to December 17, 1987, the investment adviser to the Total
Return Fund was Resource Capital Advisers, Inc. and from December 17, 1987 until
December 31, 1994, the investment adviser to the Total Return Fund was Fiduciary
Management, Inc.
<TABLE>
EASTCLIFF GROWTH FUND
FOR THE YEARS FOR THE PERIOD FROM
ENDED JUNE 30, JULY 1, 1995+<F4> TO
-------------------
1998 1997 JUNE 30, 1996
------ ------ ----------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $13.92 $12.56 $10.00
Income from investment operations:
Net investment loss (a)<F5> (0.15) (0.14) (0.08)
Net realized and unrealized gains on investments 4.71 1.50 2.64
------- ------- -------
Total from investment operations 4.56 1.36 2.56
Less distributions:
Dividend from net investment income -- -- --
Distribution from net realized gains (0.63) -- --
------- ------- -------
Total from distributions (0.63) -- --
------- ------- -------
Net asset value, end of period $17.85 $13.92 $12.56
------- ------- -------
------- ------- -------
TOTAL INVESTMENT RETURN 33.9% 10.8% 25.6%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 56,594 46,389 46,193
Ratio of expenses (after reimbursement)
to average net assets (b)<F6> 1.3% 1.3% 1.3%
Ratio of net investment loss to
average net assets (c)<F7> (0.9%) (1.0%) (0.8%)
Portfolio turnover rate 93.3% 54.3% 40.3%
</TABLE>
+<F4> Commencement of operations.
(a)<F5> Net investment loss per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax
differences.
(b)<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, for the years ended June 30, 1997 and 1996, 1.3% and 1.4%,
respectively.
(c)<F7> If the Fund had paid all of its expenses, the ratio would have been,
for the years ended June 30, 1997 and 1996, (1.0%) and (0.9%),
respectively.
<TABLE>
EASTCLIFF TOTAL RETURN FUND
FOR THE
PERIOD
FROM
OCTOBER 1,
YEARS ENDED 1994 TO
JUNE 30, JUNE 30, YEARS ENDED SEPTEMBER 30,
-------------------------- ------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of year $16.86 $14.62 $11.96 $11.92 $12.38 $11.96 $11.56 $ 9.47 $11.40 $ 9.88
Income from
investment operations:
Net investment income 0.23 0.23 0.09 0.14 0.15 0.19 0.13 0.28 0.33 0.24
Net realized and
unrealized gains (losses)
on investments 5.19 3.47 2.90 0.71 0.12 1.28 1.27 2.30 (1.82) 1.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 5.42 3.70 2.99 0.85 0.27 1.47 1.40 2.58 (1.49) 1.64
Less distributions:
Dividends from net
investment income (0.25) (0.12) (0.17) (0.14) (0.18) (0.15) (0.23) (0.36) (0.26) (0.11)
Distributions from net
realized gains (0.53) (1.34) (0.16) (0.67) (0.55) (0.90) (0.77) (0.13) (0.18) (0.01)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from distributions (0.78) (1.46) (0.33) (0.81) (0.73) (1.05) (1.00) (0.49) (0.44) (0.12)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year $21.50 $16.86 $14.62 $11.96 $11.92 $12.38 $11.96 $11.56 $ 9.47 $11.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT
RETURN (D)<F11> 33.3% 28.1% 25.4% 10.4%(a)<F8> 2.2% 13.4% 13.2% 28.7% (13.5%) 16.8%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in 000's $) 25,454 21,626 17,799 15,806 2,478 2,683 2,631 2,225 2,055 2,728
Ratio of expenses
(after reimbursement)
to average net
assets (b)<F9> 1.3% 1.3% 1.3% 1.5%(a)<F8> 2.0% 2.0% 2.7% 2.0% 2.4% 3.0%
Ratio of net investment income
to average net
assets (c)<F10> 1.2% 1.5% 0.7% 2.5%(a)<F8> 1.3% 1.5% 1.2% 2.4% 2.8% 2.8%
Portfolio turnover rate 38.4% 58.3% 95.1% 89.4% 13.2% 28.0% 34.9% 38.0% 62.7% 27.2%
</TABLE>
(a)<F8> Annualized.
(b)<F9> 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 years ended June 30, 1998, 1997 and 1996, for the
period from October 1, 1994 to June 30, 1995 and for the years ending
September 30, 1994, 1993, 1992, 1991, 1990 and 1989, as follows: 1.4%,
1.5%, 1.6%, 2.6%(a), 3.0%, 2.8%, 3.3%, 3.2%, 3.1% and 4.4%,
respectively.
(c)<F10>If the Fund had paid all of its expenses, the ratios would have been,
for the years ended June 30, 1998, 1997 and 1996, for the period from
October 1, 1994 to June 30, 1995 and for the years ending September 30,
1994, 1993, 1992, 1991, 1990 and 1989, as follows: 1.1%, 1.3%, 0.4%,
1.4%(a), 0.2%, 0.8%, 0.6%, 1.3%, 2.1% and 1.4%, respectively.
(d)<F11>Effective December 31, 1994, the Fund changed investment advisers from
Fiduciary Management, Inc. to Resource Capital Advisers, Inc.
<TABLE>
EASTCLIFF REGIONAL SMALL CAPITALIZATION VALUE FUND
FOR THE FOR THE PERIOD FROM
YEAR ENDED SEPTEMBER 16, 1996+<F12> TO
JUNE 30, 1998 JUNE 30, 1997
--------------- ---------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $12.23 $10.00
Income from investment operations:
Net investment (loss) income (0.01) 0.02
Net realized and unrealized gains on investments 1.43 2.23
------- -------
Total from investment operations 1.42 2.25
Less distributions:
Dividends from net investment income (0.00) (0.02)
Distributions from net realized gains (0.09) --
------- -------
Total from distributions (0.09) (0.02)
------- -------
Net asset value, end of period $13.56 $12.23
------- -------
------- -------
TOTAL INVESTMENT RETURN 11.7% 22.5%**<F14>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 62,139 29,231
Ratio of expenses (after reimbursement)
to average net assets (a)<F15> 1.3% 1.3%*<F13>
Ratio of net investment (loss) income
to average net assets (b)<F16> (0.1%) 0.3%*<F13>
Portfolio turnover rate 35.5% 29.4%
</TABLE>
+<F12> Commencement of operations.
*<F13> Annualized.
**<F14> Not annualized.
(a)<F15> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses for the period
September 16, 1996+<F12> to June 30, 1997, the ratio would have been
1.6%*<F13>.
(b)<F16> If the Fund had paid all of its expenses for the period September
16, 1996+<F12> to June 30, 1997, the ratio would have been
(0.0%)*.<F13>
EASTCLIFF CONTRARIAN VALUE FUND
FOR THE PERIOD FROM
DECEMBER 30, 1997+<F17> TO
JUNE 30, 1998
--------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income 0.04
Net realized and unrealized gains on investments 0.37
-------
Total from investment operations 0.41
Less distributions:
Dividend from net investment income --
Distribution from net realized gains --
-------
Total from distributions --
-------
Net asset value, end of period $10.41
-------
-------
TOTAL INVESTMENT RETURN 4.1%**<F19>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 19,569
Ratio of expenses (after reimbursement)
to average net assets (a)<F20> 1.3%*<F18>
Ratio of net investment income
to average net assets (b)<F21> 0.7%*<F18>
Portfolio turnover rate 13.6%
+<F17> Commencement of operations.
*<F18> Annualized.
**<F19> Not annualized.
(a)<F20> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratio would
have been 1.5%*.<F18>
(b) F21> If the Fund had paid all of its expenses, the ratio would have been
0.5%*.<F18>
INTRODUCTION
The Corporation is an open-end, diversified management investment company,
better known as a mutual fund, registered under the Investment Company Act of
1940 (the "Act"). It was incorporated under the laws of Wisconsin on May 23,
1986. The Corporation consists of four funds: Eastcliff Growth Fund, Eastcliff
Total Return Fund, Eastcliff Regional Small Capitalization Value Fund and
Eastcliff Contrarian Value Fund. Each of the Funds obtains its assets by
continuously selling its shares to the public. Proceeds from such sales are
invested by the particular Fund in securities of other issuers. In this manner,
each Fund: combines the resources of many investors, with each individual
investor having an interest in every one of the securities owned by such Fund;
provides each individual investor with diversification by investing in the
securities of many different issuers; and, furnishes experienced management to
select and watch over its investments. As an open-end investment company, the
Corporation will redeem any of its outstanding shares on demand of the owner at
their next determined net asset value. Registration of the Corporation under the
Act does not involve supervision of the Corporation's management or policies by
the Securities and Exchange Commission.
INVESTMENT OBJECTIVES AND POLICIES
EASTCLIFF GROWTH FUND
The investment objective of the Growth Fund is to produce long-term growth of
capital. The Growth Fund will seek to meet its objective by investing
principally in equity securities. The Growth Fund generally will invest in
domestic equity securities that are listed on a securities exchange or traded in
the over-the-counter market. Under normal market conditions, the Growth Fund
will invest at least 65% of its total assets in equity securities, which may
include common stocks, preferred stocks, convertible securities, and warrants.
In addition, at least 80% of the Growth Fund's total assets will be invested in
domestic securities and no more than 20% of the Growth Fund's total assets may
be invested in foreign securities. The Growth Fund may also invest in corporate
bonds, debentures and notes, debt securities issued or guaranteed by the United
States government and its agencies or instrumentalities, and short-term money
market instruments, such as U.S. Treasury Bills, bank certificates of deposit,
commercial paper, commercial paper master notes and repurchase agreements. There
can be no assurance that the Growth Fund will achieve its investment objective.
See "Investment Practices and Risks."
Investments may be made in well-known established companies, as well as in
newer and relatively unseasoned companies. Potential investments for the Growth
Fund are evaluated using fundamental analysis including criteria such as:
earnings outlook, cash flow, asset values, sustainability of product cycles,
expansion opportunities, management capabilities, industry outlook, competitive
position, and current price relative to long-term value of the company.
Investments generally will not be made on the basis of market timing techniques;
rather, it is anticipated that the Growth Fund will be relatively fully
invested at most times.
At times, the Growth Fund's investment adviser or portfolio manager may
invest in put or call options, futures contracts and options on futures
contracts to hedge the Growth Fund's position in an individual security,
provided that not more than 5% of the Growth Fund's net assets will be invested
in put or call options and options on futures contracts and not more than 5% of
its net assets will be invested in futures contracts. Such investments will be
effected as a defensive measure during periods of anticipated market weakness
and will not result in leveraging the Growth Fund. A description of the
foregoing securities and the risks associated therewith is included in the
Statement of Additional Information.
EASTCLIFF TOTAL RETURN FUND
The investment objective of the Total Return Fund is to realize a combination
of capital appreciation and income which will result in the highest total
return, while assuming reasonable risks. The term "reasonable risks" refers to
the judgment of the Total Return Fund's investment adviser or portfolio manager
that investment in certain securities would not present an excessive risk of
loss in light of current and anticipated future general market and economic
conditions, trends in yields and interest rates, and fiscal and monetary
policies. Because the Total Return Fund's objective is to realize the highest
total return, the percentage of such Fund's portfolio invested to produce
capital appreciation may at any time be greater or less than the percentage of
such Fund's portfolio invested to produce current income. In seeking to attain
the Total Return Fund's objective, such Fund intends to invest in common stocks,
both growth and income-oriented, preferred stocks, securities convertible into
common stocks, warrants, corporate bonds, debentures and notes, asset-backed or
mortgage-backed securities, debt securities issued or guaranteed by the United
States government and its agencies or instrumentalities, short-term money market
instruments, such as U.S. Treasury Bills, bank certificates of deposit,
commercial paper, commercial paper master notes and repurchase agreements and
securities of foreign issuers. There can be no assurance that the Total Return
Fund will achieve its investment objective. See "Investment Practices and
Risks."
No minimum or maximum percentage of the Total Return Fund's assets is
required to be invested in common stocks or any other type of security. At
times, the Total Return Fund may be 100% invested in common stocks and other
types of equity securities. On the other hand, when the Total Return Fund's
investment adviser or portfolio manager believes that in the light of current
economic and market conditions such Fund's investment objective may be more
readily attainable in debt securities, up to 100% of the Total Return Fund's
assets may be invested in such securities. Among the economic and market
conditions considered by the Total Return Fund's investment adviser are:
historic dividend yields as compared to current dividend yields; historic price-
earnings ratios as compared to current price-earnings ratios; interest rate
movements; and, inflation measures. If, based on the investment adviser's
evaluation, the investment adviser determines that prices of common stocks will
generally rise, the investment adviser will cause the Total Return Fund to
invest principally in common stocks or other equity securities. If, based on the
investment adviser's evaluation, the investment adviser determines that prices
of common stocks will generally decline or remain stable, the investment adviser
will cause such Fund to invest principally in debt securities.
The Total Return Fund's investment adviser and portfolio manager consider
various financial characteristics including: earnings growth; book value; net
current asset value per share; replacement cost; and, dividends. The investment
adviser will study the financial statements of the issuing corporation and other
companies in the same industry, market trends and economic conditions in
general. No formula is used in such analysis. Common stocks will generally be
purchased for long-term capital appreciation. However in appropriate situations
purchases may be made with the expectation of price appreciation over a
relatively short period of time. The Total Return Fund's investments in commons
stocks and other equity-type investments, such as preferred stocks, securities
convertible into common stocks and warrants, may be made without regard to any
objective criteria such as size, exchange listing or seasoning. The Total Return
Fund may invest in both exchange-listed and over-the-counter securities, in
small or large companies, and in well-established or unseasoned companies.
EASTCLIFF REGIONAL SMALL CAPITALIZATION VALUE FUND
The investment objective of the Regional Small Cap Fund is to produce capital
appreciation. The Regional Small Cap Fund seeks to achieve its objective by
investing, in normal market conditions, at least 65% of its total assets in
equity securities of small capitalization companies headquartered in Minnesota,
North and South Dakota, Montana, Wisconsin, Michigan, Iowa, Nebraska, Colorado,
Illinois, Indiana and Ohio.
The Regional Small Cap Fund's investment adviser and portfolio manager
invests primarily in the securities of small capitalization companies which, in
their opinion, generally have the following characteristics: company-specific
fundamentals that grow shareholder value; experienced, shareholder-oriented
management; and, undervaluation by the market. Small capitalization companies
are generally deemed those with market capitalizations of less than $1.5
billion.
In addition to the risks associated with investing in small capitalization
companies, the Regional Small Cap Fund's policy of concentrating its equity
investments in a geographic region means that it may be subject to adverse
economic, political or other developments in that region. Although the region in
which the Regional Small Cap Fund principally invests has a diverse industrial
base (including, but not limited to, agriculture, mining, retail,
transportation, utilities, heavy and light manufacturing, financial services,
insurance, computer technology and medical technology), this industrial base may
not be as diverse as that of the country as a whole. The Regional Small Cap Fund
may be less diversified by industry and company than other funds with a similar
investment objective and no geographic limitation.
The Regional Small Cap Fund may also invest up to 35% of its total assets in
equity securities without regard to the location of the issuer's headquarters or
the issuer's market capitalization, corporate bonds, debentures and notes, debt
securities issued or guaranteed by the United States government and its agencies
or instrumentalities, short-term money market instruments, such as U.S. Treasury
Bills, bank certificates of deposit, commercial paper, commercial paper master
notes and repurchase agreements. There can be no assurance that the Regional
Small Cap Fund will achieve its investment objective. See "Investment Practices
and Risks".
At times the Regional Small Cap Fund's investment adviser or portfolio
manager may purchase put and call options on equity securities and on stock
indices and write covered call options on equity securities owned by the
Regional Small Cap Fund in an effort to reduce risk. Not more than 5% of the
Regional Small Cap Fund's net assets will be invested in put and call options
and the premium received by the Regional Small Cap Fund with respect to
unexpired call options written by the Regional Small Cap Fund will not exceed 5%
of the Regional Small Cap Fund's net assets. Such investments will be effected
during periods of anticipated market weakness and will not result in leveraging
the Regional Small Cap Fund. A description of the foregoing securities and the
risks associated therewith is included in the Statement of Additional
Information.
EASTCLIFF CONTRARIAN VALUE FUND
The investment objective of the Contrarian Value Fund is to produce long-term
capital appreciation. The Contrarian Value Fund seeks to achieve its objective
by investing principally in equity securities of out-of-favor, undervalued
companies with restructuring and turnaround potential.
The Contrarian Value Fund's investment adviser and portfolio manager utilize
a proprietary screening process and bottom-up analysis to identify and value a
company's individual business segments and private market value. The portfolio
manager conducts intensive fundamental research to determine whether there is
opportunity for shareholder-oriented management to refocus and grow the company
to produce higher earnings that lead to higher stock prices. The Contrarian
Value Fund's portfolio manager will meet with the senior management of the
companies selected for the portfolio.
The Contrarian Value Fund will hold a relatively limited number of securities
(i.e., generally 35-40 or less, other than money market instruments) which
generally will sell at a substantial discount to their private market value,
have the potential of doubling their earnings power, and have significant price
appreciation potential over a three-year period. This investment approach
provides for an average holding period of three years and annual turnover of
approximately 35%. It is anticipated that the Contrarian Value Fund will be
relatively fully invested at all times, with cash as a residual of the
investment process; but, in normal market conditions it will have at least 85%
of its net assets invested in common stocks. The Contrarian Value Fund may also
invest in convertible securities, preferred stocks, corporate bonds, debentures
and notes, debt securities issued or guaranteed by the United States government
and its agencies or instrumentalities, and short-term money market instruments,
such as U.S. Treasury Bills, bank certificates of deposit, commercial paper,
commercial paper master notes and repurchase agreements.
The risks associated with the Contrarian Value Fund's investment style, over
and above a general market decline, include: the company's anticipated
restructuring events do not materialize; the underlying private market value
deteriorates; or, key senior management departs. In addition, a period of severe
economic or financial distress could cause a temporary decline in shareholder
value-enhancing strategies such as asset sales, debt reduction, spin-offs and
share buybacks. These actions are integral to the success of the Contrarian
Value Fund's investment process. Since out-of-favor stocks often are not widely
followed, there is also the risk that improving fundamentals may not be
recognized as quickly as would be the case with more widely followed stocks and
that the market for out-of-favor stocks may be more volatile than the market for
stocks where there is greater trading volume. In taking a contrarian position
there is always the risk that the negative opinion of the majority is correct.
Therefore, there can be no assurance that the Contrarian Value Fund will achieve
its investment objective. See "Investment Practices and Risks."
At times the Contrarian Value Fund's investment adviser or portfolio manager
may purchase put and call options on equity securities and on stock indices and
write covered call options on equity securities owned by the Contrarian Value
Fund in an effort to reduce risk. Not more than 5% of the Contrarian Value
Fund's net assets will be invested in put and call options and the premium
received by the Contrarian Value Fund with respect to unexpired call options
written by the Contrarian Value Fund will not exceed 5% of the Fund's net
assets. Such investments will be effected during periods of anticipated market
weakness and will not result in leveraging the Contrarian Value Fund. A
description of the foregoing securities and the risks associated therewith is
included in the Statement of Additional Information.
INVESTMENT PRACTICES AND RISKS
In addition to the investment policies described above (and subject to
certain restrictions described below) each of the Funds may invest in the
following securities and may employ some or all of the following investment
techniques, some of which may present special risks as described below. A more
complete discussion of certain of these securities and investment techniques and
the associated risks is contained in the Statement of Additional Information.
EQUITY SECURITIES GENERALLY
The market prices of individual stocks, and of stocks in general, are
frequently subject to significant volatility. Investors should be aware that
since the major portion of each Fund's portfolio will normally be invested in
common stocks, such Fund's net asset value may be subject to greater fluctuation
than a portfolio containing a substantial amount of fixed income securities.
Each Fund is intended for investors who can accept the risks involved in
investments in equity and equity-related securities. An investment in shares of
any of the Funds does not constitute a complete investment program. Investors
may wish to complement an investment in the Funds with other types of
investments.
SMALL CAPITALIZATION COMPANIES
Each Fund may invest a substantial portion of its assets in small
capitalization companies. While small capitalization companies can provide
greater growth potential than larger, more mature companies, investing in the
securities of such companies also involves greater risk and potential price
volatility. These companies often involve higher risks because they lack the
management experience, financial resources, product diversification, markets,
distribution channels and competitive strengths of larger companies. In
addition, in many instances, the frequency and volume of their trading is
substantially less than is typical of larger companies. Therefore, the
securities of smaller companies, as well as start-up companies, may be subject
to wider price fluctuations. The spreads between the bid and asked prices of the
securities of these companies in the U.S. over-the-counter market typically are
larger than the spreads for more actively traded securities. As a result, a Fund
could incur a loss if it determined to sell such a security shortly after its
acquisition. When making large sales, a Fund may have to sell portfolio holdings
at discounts from quoted prices or may have to make a series of small sales over
an extended period of time due to the trading volume of smaller company
securities. Small capitalization companies tend to have less potential for
current dividend income than investments in larger, more mature companies. Not
more than 5% of the Total Return Fund's assets and 10% of each of the Growth
Fund's, Regional Small Cap Fund's and Contrarian Value Fund's assets may be
invested in unseasoned companies (defined as companies which have a record of
less than three years of continuous operation, including the operation of a
predecessor business of a company which came into existence as a result of a
merger, consolidation, reorganization or purchase of substantially all of the
assets of such predecessor business).
FOREIGN SECURITIES
The Total Return Fund may invest up to 25% and the Growth Fund and the
Contrarian Value Fund up to 20% of their respective assets in foreign
securities. Such investments may involve risks which are in addition to the
usual risks inherent in domestic investments. The value of a Fund's foreign
investments may be significantly affected by changes in currency exchange rates,
and a Fund may incur costs in converting securities denominated in foreign
currencies to U.S. dollars. In many countries, there is less publicly available
information about issuers than is available in the reports and ratings published
about companies in the United States. Additionally, foreign companies may not be
subject to uniform accounting, auditing and financial reporting standards.
Dividends and interest on foreign securities may be subject to foreign
withholding taxes, which would reduce a Fund's income without providing a tax
credit for a Fund's shareholders. Each Fund will limit such investments to
securities of foreign issuers domiciled in Australia and the non-communist
nations of Western Europe, North America and Eastern Asia. There is the
possibility of expropriation, confiscatory taxation, currency blockage or
political or social instability which could affect investments in those nations.
Foreign securities include sponsored and unsponsored American Depository
Receipts ("ADRs"). ADRs typically are issued by a U.S. bank or trust company and
evidence ownership of underlying securities issued by a foreign corporation.
Unsponsored ADRs differ from sponsored ADRs in that the establishment of
unsponsored ADRs are not approved by the issuer of the underlying securities. As
a result, available information concerning the issuer may not be as current or
reliable as the information for sponsored ADRs, and the price of unsponsored
ADRs may be more volatile.
WARRANTS AND RIGHTS
Each Fund may invest up to 5% of its net assets in warrants or rights, valued
at the lower of cost or market, which entitle the holder to buy securities
during a specific period of time. A Fund will make such investments only if the
underlying securities are deemed appropriate by the Fund's investment adviser or
portfolio manager for inclusion in that Fund's portfolio. Additionally, the
Total Return Fund will purchase warrants or rights only if they are sold as a
unit with another equity or debt security. Included in the 5% amount, but not to
exceed 2% of net assets, are warrants and rights whose underlying securities are
not traded on principal domestic or foreign exchanges. Warrants and rights
acquired by a Fund in units or attached to securities are not subject to these
restrictions.
CONVERTIBLE SECURITIES
Each of the Funds will limit its investments in convertible securities to
those for which such Fund's investment adviser or portfolio manager believes (a)
the underlying common stock is a suitable investment for the Fund using the
criteria described above, and (b) a greater potential for total return exists by
purchasing the convertible security because of its higher yield. None of the
Funds will invest more than 5% of its net assets at the time of investment in
convertible securities rated less than investment grade. Securities rated BBB by
Standard & Poor's Corporation ("Standard & Poor's") or Baa by Moody's Investors
Service, Inc. ("Moody's"), although investment grade, do exhibit speculative
characteristics and are more sensitive than higher rated securities to changes
in economic conditions. Investments in less than investment grade securities
entail relatively greater risk of loss of income or principal than investments
in investment grade securities.
DEBT SECURITIES
Each of the Funds may invest in interest-bearing debt securities. In
particular, to achieve its investment objective, the Total Return Fund may at
times emphasize the generation of interest income by investing in interest-
bearing debt securities, both short and intermediate to long-term. Investment in
intermediate to long-term debt securities may also be made with a view to
realizing capital appreciation when a Fund's investment adviser or portfolio
manager believes that interest rates on such investments may decline, thereby
increasing their market value. Debt securities having maturities from three to
ten years are considered to be intermediate-term, and debt securities having
maturities in excess of ten years are considered to be long-term. Each of the
Funds may also purchase "deep discount bonds," i.e., bonds which are selling at
a substantial discount from their face amount, with a view to realizing capital
appreciation. The Funds will invest only in those publicly distributed
nonconvertible debt securities which have been assigned one of the highest three
ratings of either Standard & Poor's or Moody's. The values of the interest-
bearing debt securities held by a Fund are subject to price fluctuations
resulting from various factors, including rising or declining interest rates
("market risks") and the ability of the issuers of such investments to make
scheduled interest and principal payments ("financial risks"). For example,
interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The investment adviser
and portfolio managers for the Funds attempt to minimize these risks when
selecting investments by taking into account interest rates, terms and
marketability of obligations, as well as the capitalization, earnings, liquidity
and other indicators of the issuer's financial condition. The Funds' investment
in securities of, or guaranteed by, the United States government, its agencies
or instrumentalities may be supported by the full faith and credit of the United
States, supported by the right of the agency to borrow from the U.S. Treasury or
supported only by the credit of the agency or instrumentality. Agencies or
instrumentalities whose securities are supported by the full faith and credit of
the United States include, but are not limited to, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration and Government National Mortgage
Association. Examples of agencies or instrumentalities whose securities are
supported by the right of the agency to borrow from the U.S. Treasury include,
but are not limited to, the Federal Home Loan Bank, Federal Intermediate Credit
Banks and Tennessee Valley Authority. There is no assurance that these
commitments will be undertaken in full. No assurances can be given that the U.S.
government will provide financial support to obligations issued or guaranteed by
agencies or instrumentalities that are not backed by the full faith and credit
of the United States, since it is not obligated to do so by law.
PREFERRED STOCKS
Each of the Funds may invest in preferred stocks. Preferred stocks have a
preference over common stocks in liquidation (and generally dividends as well)
but are subordinated to the liabilities of the issuer in all respects. As a
general rule, the market value of preferred stocks with a fixed dividend rate
and no conversion element varies inversely with interest rates and perceived
credit risks while the market price of convertible preferred stock generally
also reflects some element of conversion value. Because preferred stock is
junior to debt securities and other obligations of the issuer, deterioration in
the credit quality of the issuer will cause greater changes in the value of a
preferred stock than in a more senior debt security with similarly stated yield
characteristics. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions.
MONEY MARKET INSTRUMENTS
Each of the Funds has reserved the freedom to invest any portion of its
assets for temporary defensive purposes in conservative fixed-income securities
such as United States Treasury Bills, certificates of deposit of U.S. banks
(provided that the bank has capital, surplus and undivided profits (as of the
date of its most recently published annual financial statements) with a value in
excess of $100,000,000 at the date of investment), commercial paper and
commercial paper master notes (which are demand instruments without a fixed
maturity bearing interest at rates which are fixed to known lending rates and
automatically adjusted when such lending rates change) rated A-1 by Standard &
Poor's, money market mutual funds and repurchase agreements. Repurchase
agreements are agreements under which the seller of a security agrees at the
time of sale to repurchase the security at an agreed time and price. The Funds
will not enter into repurchase agreements with entities other than banks or
invest over 5% of their respective net assets in repurchase agreements.
PORTFOLIO TURNOVER
Each of the Funds typically will purchase common stocks for long-term capital
appreciation, but may on occasion place emphasis on short-term trading profits.
As a consequence, each of the Funds expects usually to have an annual portfolio
turnover rate ranging from 30% to 80%. The annual portfolio turnover rate
indicates changes in a Fund's portfolio and is calculated by dividing the lesser
of purchases or sales of portfolio securities (excluding securities having
maturities at acquisition of one year or less) for the fiscal year by the
monthly average of the value of the portfolio securities (excluding securities
having maturities at acquisition of one year or less) owned by such Fund during
the fiscal year. The annual portfolio turnover rate may vary widely from year to
year depending upon market conditions and prospects. High turnover in any year
will result in the payment by a Fund from capital of above-average amounts of
brokerage commissions and could result in the payment by shareholders of above-
average amounts of taxes on realized investment gains. Distributions to
shareholders of such investment gains, to the extent they consist of net short-
term capital gains, will be considered ordinary income for federal income tax
purposes.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or delay-delivery
basis. When such a transaction is negotiated, the purchase price is fixed at the
time the purchase commitment is made, but delivery of and payment for the
securities take place at a later date. A Fund will not accrue income with
respect to securities purchased on a when-issued or delayed-delivery basis prior
to their stated delivery date. Pending delivery of the securities, each Fund
will maintain in a segregated account cash or liquid securities in an amount
sufficient to meet its purchase commitments. The purpose and effect of such
segregation is to prevent the Fund from gaining investment leverage from such
transactions. The purchase of securities on a when-issued or delayed-delivery
basis exposes a Fund to risk because the securities may decrease in value prior
to delivery. The Funds will engage in when-issued and delayed-delivery
transactions only for the purpose of acquiring portfolio securities consistent
with their investment objectives and not for the purpose of investment leverage.
A seller's failure to deliver securities to a Fund could prevent the Fund from
realizing a price or yield considered to be advantageous.
GENERAL CONSIDERATIONS
Under certain circumstances each of the Funds may (a) temporarily borrow
money from banks for emergency or extraordinary purposes, provided that such
borrowings not exceed 5% of the value of such Fund's net assets, (b) pledge up
to 10% of its net assets to secure borrowings and (c) purchase securities of
other investment companies. None of the Funds may invest more than 10% of its
net assets in illiquid securities, including repurchase agreements maturing in
more than seven days. The Contrarian Value Fund may invest up to 5% of its net
assets in restricted securities. The Funds' Statement of Additional Information
includes a more complete discussion of the circumstances in which each of the
Funds may engage in these activities, as well as certain other investment
restrictions applicable to the Funds. Except for the foregoing investment
restrictions and the Funds' policies with respect to investments in warrants,
repurchase agreements and securities of unseasoned companies, the investment
objective and other policies of each Fund described under "Investment Objectives
and Policies" are not fundamental policies and may be changed without
shareholder approval. A change in a particular Fund's investment objective may
result in such Fund having an investment objective different from the objective
which the shareholder considered appropriate at the time of investment in such
Fund.
MANAGEMENT OF THE FUNDS
As a Wisconsin corporation, the business and affairs of the Funds are managed
by its Board of Directors. The investment activities of the Funds are managed
through a multi-manager structure. Each of the Funds has entered into an
investment advisory agreement (the "Management Agreements") with Resource
Capital Advisers, Inc. (the "Adviser"), 900 Second Avenue South, 300
International Centre, Minneapolis, Minnesota 55402, pursuant to which the
Adviser will provide consulting, investment and administrative services to the
Funds. The specific security investments for each Fund will be made by one or
more portfolio managers (sub-advisers) selected for the Funds by the Adviser.
The Management Agreements provide that the Adviser, subject to the management
and direction of the Corporation's Board of Directors and officers, will
evaluate, select and monitor the various portfolio managers for each Fund. The
Adviser and the Funds will enter into separate subadvisory contracts with the
portfolio managers (the "Sub-Advisory Agreements").
The Adviser is the investment adviser to individuals and institutional
clients (including investment companies). The Adviser was organized in 1984 and
is a wholly-owned subsidiary of Resource Trust Company, a Minnesota state bank.
Resource Trust Company is a wholly-owned subsidiary of Resource Companies, Inc.
The Adviser was also the investment adviser to the Total Return Fund prior to
December 17, 1987. On such date the investment advisory agreement with the
Adviser was terminated and the Total Return Fund entered into a substantially
identical investment advisory agreement with Fiduciary Management, Inc. On
December 31, 1994 the investment advisory agreement with Fiduciary Management,
Inc. was terminated and the Total Return Fund entered into a substantially
identical investment advisory agreement with the Adviser. On June 30, 1995, the
investment advisory agreement with the Adviser was terminated and replaced with
the current Management Agreement.
THE ADVISER
The Adviser: (i) provides or oversees the provision of all general management
and administration, investment advisory and portfolio management, and general
services for the Funds; (ii) provides the Funds with office space, equipment and
personnel necessary to operate and administer the Funds' business, and to
supervise the provision of services by third parties such as the money managers
and custodian; (iii) develops the investment programs, selects money managers,
allocates assets among money managers and monitors the money managers'
investment programs and results; and (iv) is authorized to select, or hire money
managers to select, individual portfolio securities held by the Funds. The
Adviser bears the expenses it incurs in providing these services as well as the
costs of preparing and distributing explanatory materials concerning the Funds.
The Adviser also provides asset management consulting services including
objective-setting and asset-allocation input, and money manager research and
evaluation assistance.
For the foregoing, the Adviser receives from the Total Return Fund a monthly
fee of 1/12 of 1% (1% per annum) on the first $30,000,000 of the daily net
assets of such Fund and 1/12 of .75% (.75% per annum) on the daily net assets of
such Fund over $30,000,000; and from each of the Growth Fund, Regional Small Cap
Fund and Contrarian Value Fund a monthly fee of 1/12 of 1% (1% per annum) of the
daily net assets of such Fund. The Adviser is responsible for the payment of all
fees to the portfolio managers. The advisory fees paid by the Growth Fund, the
Total Return Fund, the Regional Small Cap Fund and the Contrarian Value Fund in
the fiscal year ended June 30, 1998 were equal to 1.00%, 1.00%, 1.00% and 1.00%
(annualized), respectively, of such Funds' average net assets.
THE PORTFOLIO MANAGERS
The assets of each Fund are allocated currently among the portfolio managers
listed below. The allocation of a Fund's assets among portfolio managers may be
changed at any time by the Adviser. Portfolio managers may be employed or their
services may be terminated at any time by the Adviser, subject to approval by
the Corporation's Board of Directors. The employment of a new portfolio manager
for a Fund currently requires the prior approval of the shareholders of that
Fund. The Corporation, however, may request an order of the Securities and
Exchange Commission exempting the Funds from the requirement for shareholder
approval of new portfolio managers. If an order is granted, the Corporation will
notify shareholders of the Fund concerned promptly when a new portfolio manager
begins providing services. There can be no assurance, however, that the
Corporation may request such an order or that such an order will be granted with
respect to the Funds.
The Adviser pays the fees of each portfolio manager. Each portfolio manager
is paid an annual fee expressed as a percentage of Fund assets under
management; there are no performance or incentive fees. Some portfolio managers
may execute portfolio transactions for the Funds through broker-dealer
affiliates and receive brokerage commissions for doing so.
Portfolio managers are selected for the Funds based primarily upon the
research and recommendations of the Adviser, which evaluates quantitatively and
qualitatively the manager's skills and results in managing assets for specific
asset classes, investment styles and strategies. The Adviser evaluates the risks
and returns of the portfolio managers' investment style over an entire market
cycle. Short-term investment performance, by itself, is not a controlling factor
in selecting or terminating a portfolio manager.
Each portfolio manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund within such Fund's investment objectives,
restrictions and policies, and the more specific strategies developed by the
Adviser. Although the portfolio managers' activities are subject to general
oversight by the Board of Directors and officers of the Corporation, none of the
Board, the officers or the Adviser evaluate the investment merits of the
portfolio manager's individual securities selections.
As of the date of this Prospectus, the portfolio manager of the Growth Fund
is Winslow Capital Management, Inc. ("WCM"), 4720 IDS Tower, 80 South Eighth
Street, Minneapolis, Minnesota 55402. WCM was organized as a Minnesota
corporation in 1992 and is a registered investment adviser. WCM is owned by six
of its investment professionals and controlled by Clark J. Winslow. All
investment decisions are made by a team of investment professionals, any of whom
may make recommendations subject to final approval of Mr. Winslow or another
senior member of WCM's management team to whom he may delegate that authority.
As such, Mr. Winslow is primarily responsible for the day-to-day management of
the Growth Fund's portfolio and has been so since July 1, 1995. Mr. Winslow has
served as President, Chief Executive Officer, director and portfolio manager of
WCM since 1992. Prior to such time, he was senior vice president and portfolio
manager at Alliance Capital Management from 1987 to 1992 and portfolio manager
at John W. Bristol & Co. from 1980 to 1987. WCM currently serves and has served
since October, 1992 as sub-adviser to another mutual fund, Advantus Capital
Appreciation Fund (formerly MIMLIC Capital Appreciation Fund). WCM also manages
equity portfolios for large pension and profit-sharing plans, foundations,
endowments and other private accounts. As of September 30, 1998, WCM managed
approximately $1.1 billion in assets. For its services to the Growth Fund, WCM
receives from the Adviser (not the Growth Fund) a monthly fee of 1/12 of 0.60%
(0.60% per annum) of the daily net assets of such Fund.
As of the date of this Prospectus, the portfolio manager of the Total Return
Fund is Palm Beach Investment Advisers, LLC ("PBIA"), 249 Royal Palm Way, Suite
400, Palm Beach, Florida 33480. PBIA was organized as a Delaware limited
liability company in 1998 and is a registered investment adviser. Prior to its
being structured as a limited liability company, PBIA was a Florida corporation
since its inception in 1990. Robert E. Whalen is President and Chief Executive
Officer of PBIA, which is controlled by the Adviser. Patrice J. Neverett,
Executive Vice President and Chief Investment Officer of PBIA, is primarily
responsible for the day-to-day management of the Total Return Fund's portfolio
and has been so since April 21, 1998. Prior to April 21, 1998, Ms. Neverett was
a co-portfolio manager of the Total Return Fund since July 1, 1995. Ms. Neverett
has been employed by PBIA in various capacities since August 1990. PBIA manages
equity and fixed income portfolios for individual and institutional clients,
including pension and profit-sharing plans, foundations and endowments. As of
September 30, 1998 PBIA managed approximately $330 million in assets. For its
services to the Total Return Fund, PBIA receives from the Adviser (not the Total
Return Fund) a monthly fee of 1/12 of 0.40% (0.40% per annum) on the first
$30,000,000 of such Fund's daily net assets and 1/12 of 0.30% (0.30% per annum)
on the daily net assets of such Fund in excess of $30,000,000.
As of the date of this Prospectus, the portfolio manager of the Regional
Small Cap Fund is Woodland Partners LLC ("WP"), 60 South Sixth Street, Suite
3750, Minneapolis, Minnesota 55402. WP was organized as a Minnesota limited
liability company in 1996 and is a registered investment adviser owned in equal
parts by Richard W. Jensen, Elizabeth M. Lilly and Richard J. Rinkoff. Ms. Lilly
and Mr. Rinkoff are responsible for the day-to-day management of the Regional
Small Cap Fund's portfolio. As of September 30, 1998, WP managed approximately
$350 million in assets. For its services to the Regional Small Cap Fund, WP
receives from the Adviser (not the Regional Small Cap Fund) a monthly fee of
1/12 of 0.60% (0.60% per annum) of the daily net assets of such Fund. Prior to
founding WP on June 1, 1996, Mr. Jensen, Ms. Lilly and Mr. Rinkoff were employed
at First Asset Management, a division of First Bank National Association - Mr.
Jensen since 1967, Ms. Lilly since 1992 and Mr. Rinkoff since 1977. While at
First Asset Management, Ms. Lilly and Mr. Rinkoff served as portfolio managers
for the Regional Equity Fund, a series of First American Investment Funds, Inc.,
and for various other similarly managed private accounts.
As of the date of this Prospectus, the portfolio manager of the Contrarian
Value Fund is Sasco Capital, Inc. ("Sasco"), 10 Sasco Hill Road, Fairfield,
Connecticut 06430. Sasco was organized as a Connecticut corporation in 1985, and
is a registered investment adviser independently owned and managed by its
founders Ms. Hoda Bibi, Mr. Bruce Bottomley, Mr. Lee Garcia and Mr. Daniel
Leary. Messrs. Bottomley, Garcia and Leary are responsible for the day-to-day
management of the Contrarian Value Fund and have been Managing Directors and
Portfolio Managers of Sasco since its inception. Ms. Bibi currently serves as
President and Managing Director of Sasco and has been an officer of Sasco since
its inception. As of September 30, 1998, Sasco managed approximately $3 billion
in various accounts including corporate pension funds, state retirement plans,
endowments and foundations. For its service to the Contrarian Value Fund, Sasco
receives from the Adviser (not the Contrarian Value Fund) a monthly fee of 1/12
of .60% (0.60% per annum) of the daily net assets of such Fund.
Historical Performance of Investment Advisory Accounts Managed by Sasco
Set forth below is composite historical performance data relating to the
Sasco Accounts (hereinafter defined), measured against relevant broad-based
market indices. The Sasco Accounts include all portfolios managed by Sasco with
objectives, strategies and techniques substantially similar to those employed by
the Contrarian Value Fund. (Since January 1, 1998 the Sasco Accounts have
included the Contrarian Value Fund.) All performance data presented is
historical and investors should not consider this performance data as an
indication of the future performance of the Contrarian Value Fund or the results
an individual investor might achieve by investing in the Contrarian Value Fund.
Investors should not rely on the historical performance when making an
investment decision. All returns quoted are dollar-weighted total rates of
return and include the reinvestment of dividends and interest. Performance
figures are net of investment advisory fees and expenses. The average fees and
expenses of the Sasco Accounts were less than the annual expenses for the
Contrarian Value Fund. The performance of the Sasco Accounts would have been
lower had the Sasco Accounts incurred higher fees and expenses. Except for the
Contrarian Value Fund, the Sasco Accounts were not subject to certain investment
limitations, diversification requirements and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results of the composite.
All information presented is based on data supplied by Sasco or from
statistical services, reports or other sources believed by Sasco to be reliable.
However, such information has not been verified by any third party and is
unaudited.
COMPOUNDED ANNUAL RATES OF RETURN (1)<F22>
(For the Period Ended September 30, 1998)
10 Years 5 Years 3 Years 1 Year
-------- ------- ------- -------
Sasco Accounts Composite 14.0% 14.3% 12.8% -14.3%
S&P 500 Index(2)<F23> 17.3 19.9 22.6 9.1
Russell Midcap Index (3)<F24> 14.8 13.7 13.8 -6.0
(1)<F22>All returns quoted are dollar-weighted total rates of return and include
the reinvestment of dividends and interest. Performance figures are net
of investment advisory fees and expenses. Total annual rate of return is
the change in redemption value of units purchased with an initial $1,000
investment, assuming the reinvestment of dividends. Compounded annual
rate of return represents the level annual rate which if earned for each
year in a multiple year period, would produce the cumulative rate of
return over that period.
(2)<F23>The Standard & Poor's 500 Index consists of 500 selected common stocks,
most of which are listed on the New York Stock Exchange. The Standard &
Poor's Ratings Group designates the stocks to be included in the Index
on a statistical basis. A particular stock's weighting in the Index is
based on its relative total market value (i.e., its market price per
share times the number of shares outstanding). Stocks may be added or
deleted from the Index from time to time.
(3)<F24>The Russell Midcap Index consists of the smallest 800 securities in the
Russell 1000 Index as ranked by total market capitalization. This index
is widely regarded to accurately capture the medium-sized universe of
securities and represents approximately 34% of the Russell 1000 market
capitalization. The Russell Midcap Index and the Russell 1000 Index are
trademarks/service marks of the Frank Russell Company.
Past performance may not be indicative of future rates of return. Investors
should also be aware that other performance calculation methods may produce
different results, and that comparisons of investment results should consider
qualitative circumstances and should be made only for portfolios with generally
similar investment objectives.
THE ADMINISTRATOR
Each of the Funds also has entered into an administration agreement
(collectively, the "Administration Agreements") with Fiduciary Management, Inc.
(the "Administrator"), 225 East Mason Street, Milwaukee, Wisconsin 53202. Under
the Administration Agreements the Administrator prepares and maintains the
books, accounts and other documents required by the Act, calculates each Fund's
net asset value, responds to shareholder inquiries, prepares each Fund's
financial statements and excise tax returns, prepares certain reports and
filings with the Securities and Exchange Commission and with state Blue Sky
authorities, furnishes statistical and research data, clerical, accounting and
bookkeeping services and stationery and office supplies, keeps and maintains
each Fund's financial and accounting records and generally assists in all
aspects of the Funds' operations. The Administrator at its own expense and
without reimbursement from any of the Funds, furnishes office space and all
necessary office facilities, equipment and executive personnel for performing
the services required to be performed by it under the Administration Agreements.
For the foregoing, the Administrator receives from each of the Funds a monthly
fee of 1/12 of 0.2% (0.2% per annum) on the first $25,000,000 of the daily net
assets of such Fund, 1/12 of 0.1% (0.1% per annum) on the next $20,000,000 of
the daily net assets of such Fund and 1/12 of 0.05% (0.05% per annum) of the
daily net assets of such Fund over $45,000,000, subject to a fiscal year minimum
of $20,000. The administration fee paid by the Growth Fund, the Total Return
Fund, the Regional Small Cap Fund and the Contrarian Value Fund in the fiscal
year ended June 30, 1998 to the Administrator were equal to 0.15%, 0.20%, 0.14%
and 0.20% (annualized), respectively, of such Funds' average net assets. The
Administrator separately charges the Funds for blue sky filings.
The Funds pay all of their own expenses not assumed by the Adviser or the
Administrator including, without limitation, the cost of preparing and printing
their registration statements required under the Securities Act of 1933 and the
Act and any amendments thereto, the expense of registering their shares with the
Securities and Exchange Commission and in the various states, the printing and
distribution costs of prospectuses mailed to existing investors, reports to
investors, reports to government authorities and proxy statements, fees paid to
directors who are not interested persons of the Adviser, interest charges,
taxes, legal expenses, association membership dues, auditing services, insurance
premiums, brokerage commissions and expenses in connection with portfolio
transactions, fees and expenses of the custodian of the Funds' assets, printing
and mailing expenses and charges and expenses of dividend disbursing agents,
accounting services agents, registrars and stock transfer agents.
DISTRIBUTION PLAN
Each of the Funds has adopted a Distribution Plan (the "Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The Plan provides that each
Fund may incur certain costs which may not exceed a maximum amount equal to 1/12
of 1% (1% per annum) of such Fund's average daily net assets. However, each of
the Funds presently intends not to pay any 12b-1 fees during the fiscal year
ending June 30, 1999. Payments made pursuant to the Plan may only be used to pay
distribution expenses incurred in the current year. Amounts paid under the Plan
by a Fund may be spent by such Fund on any activities or expenses primarily
intended to result in the sale of shares of such Fund, including but not limited
to, advertising, compensation for sales and sales marketing activities of
financial institutions and others, such as dealers or distributors, shareholder
account servicing, the printing and mailing of prospectuses to other than
current shareholders, and the printing and mailing of sales literature.
Distribution expenses will be authorized by the officers of the Corporation as
the Funds do not employ a distributor. To the extent any activity financed by
the Plan is one which a Fund may finance without a 12b-1 plan, such Fund may
also make payments to finance such activity outside of the Plan and not subject
to its limitations.
DETERMINATION OF NET ASSET VALUE
The per share net asset value of each Fund is determined by dividing the
total value of such Fund's net assets (meaning its assets less its liabilities
excluding capital and surplus) by the total number of its shares outstanding at
that time. Each Fund's net asset value is determined as of the close of regular
trading (currently 4:00 p.m. Eastern time) on the New York Stock Exchange on
each day the New York Stock Exchange is open for trading. This determination is
applicable to all transactions in shares of such Fund prior to that time and
after the previous time as of which net asset value was determined. Accordingly,
purchase orders accepted or shares tendered for redemption prior to the close of
regular trading on a day the New York Stock Exchange is open for trading will be
valued as of the close of trading, and purchase orders accepted or shares
tendered for redemption after that time will be valued as of the close of the
next trading day.
Securities traded on any national stock exchange or quoted on the Nasdaq
National Market System will be valued on the basis of the last sale price on the
date of valuation or, in the absence of any sales on that date, the most recent
bid price. Other securities will be valued by an independent pricing service at
the most recent bid price, if market quotations are readily available. Any
securities for which there are no readily available market quotations and other
assets will be valued at their fair value as determined in good faith by the
Corporation's Board of Directors. Odd lot differentials and brokerage
commissions will be excluded in calculating values.
PURCHASE OF SHARES
Shares of the Funds may be purchased directly from the Corporation. A share
purchase application form is included in the center of this Prospectus. The
price per share of each Fund is the next determined per share net asset value
after receipt of an application. Additional purchase applications may be
obtained from the Corporation. Purchase applications should be mailed directly
to: Eastcliff Funds, c/o Firstar Mutual Fund Services, LLC, P.O. Box 701,
Milwaukee, Wisconsin 53201-0701. The U.S. Postal Service and other independent
delivery services are not agents of the Funds. Therefore, deposit in the mail or
with such services of purchase applications does not constitute receipt by
Firstar Mutual Fund Services, LLC, or the Fund. DO NOT mail letters by overnight
courier to the Post Office Box address. To purchase shares by overnight or
express mail, please use the following street address: Eastcliff Funds, c/o
Firstar Mutual Fund Services, LLC, Third Floor, 615 East Michigan Street,
Milwaukee, Wisconsin 53202. All applications must be accompanied by payment in
the form of a check made payable to the full name of the Fund whose shares are
being purchased, or by direct wire transfer as described below. All purchases
must be made in U.S. dollars and checks must be drawn on U.S. banks. No cash
will be accepted. Firstar Mutual Fund Services, LLC, will charge a $20 fee
against a shareholder's account for any payment check returned for insufficient
funds. THE SHAREHOLDER WILL ALSO BE RESPONSIBLE FOR ANY LOSSES SUFFERED BY ANY
FUND AS A RESULT. When a purchase is made by check (other than a cashiers or
certified check), the Corporation may delay the mailing of a redemption check
until it is satisfied that the check has cleared. (It will normally take up to 3
days to clear local personal or corporate checks and up to 7 days to clear other
personal and corporate checks.) To avoid redemption delays, purchases may be
made by cashiers or certified check or by direct wire transfers. Funds should be
wired to: Firstar Bank Milwaukee, NA, 777 East Wisconsin Avenue, Milwaukee,
Wisconsin, ABA #075000022, Firstar Mutual Fund Services, LLC, Account
#112952137, for further credit to: "full name of appropriate Fund," "name of
shareholder and existing account number" if any. The establishment of a new
account by wire transfer should be preceded by a phone call to Firstar Mutual
Fund Services, LLC, 1-800-595-5519, to provide information for the setting up of
the account. A follow up application should be sent for all new accounts opened
by wire transfer. Securities dealers and financial institutions who notify a
Fund prior to the close of any business day that they intend to wire federal
funds to purchase shares of such Fund on the next business day (prior to 10:00
a.m. Central time) will be deemed to have purchased shares at the time of
notification. Funds should not be wired on the same day of notification. When a
purchase of shares of a Fund is made by direct wire transfer by investors other
than securities dealers and financial institutions, the purchase will become
effective upon receipt by Firstar Bank Milwaukee, N.A. Wire transmissions may
be subject to delays of several hours, in which event the effectiveness of the
purchase will be delayed. Shares cannot be purchased by direct wire transfer on
any day that the New York Stock Exchange is not open for trading. Applications
are subject to acceptance by the Corporation, and are not binding until so
accepted. The Corporation does not accept telephone orders for purchase of
shares and reserves the right to reject applications in whole or in part. The
Board of Directors of the Corporation has established $1,000 as the minimum
initial purchase for each Fund and $100 as the minimum for any subsequent
purchase (except through dividend reinvestment), which minimum amounts are
subject to change at any time. Shareholders of the Funds will be advised at
least thirty days in advance of any increases in such minimum amounts. Stock
certificates for shares so purchased are not issued unless requested in writing.
There are no sales loads on purchases of shares of the Funds nor redemption
charges on redemptions of such shares. Purchase payments are fully invested at
net asset value, of the applicable Fund.
Investors may purchase Shares of the Funds through programs of services
offered or administered by broker-dealers, financial institutions or other
service providers ("Processing Intermediaries") that have entered into
agreements with the Funds. Such Processing Intermediaries may become
shareholders of record and may use procedures and impose restrictions in
addition to or different from those applicable to shareholders who invest
directly in the Funds. Certain services of the Funds may not be available or may
be modified in connection with the programs provided by Processing
Intermediaries. The Funds may only accept requests to purchase additional shares
into an account in which the Processing Intermediary is the shareholder of
record from the Processing Intermediary.
The Funds may authorize one or more Processing Intermediaries (and other
Processing Intermediaries properly designated thereby) to accept purchase orders
on the Funds' behalf. In such event, a Fund will be deemed to have received a
purchase order when the Processing Intermediary accepts the customer order, and
the order will be priced at the Fund's net asset value next computed after it is
accepted by the Processing Intermediary.
Processing Intermediaries may charge fees or assess other charges for the
services they provide to their customers. Any such fee or charge paid directly
by shareholders is retained by the Processing Intermediary and is not remitted
to the Funds or the Adviser. Additionally, the Adviser and/or the Funds may pay
fees to Processing Intermediaries to compensate them for the services they
provide. Program materials provided by the Processing Intermediary should be
read in conjunction with the Prospectus before investing in this manner. Shares
of the Funds may be purchased through Processing Intermediaries without regard
to a Fund's minimum purchase requirement.
REDEMPTION OF SHARES
A shareholder may require the Corporation to redeem his shares of any Fund in
whole or part at any time during normal business hours. Unless the telephone
redemption privilege is requested as described below, redemption requests must
be made in writing and directed to: Eastcliff Funds, c/o Firstar Mutual Fund
Services, LLC, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. The U.S. Postal
Service or other independent delivery services are not agents of the Funds.
Therefore, deposit in the mail or with such services of redemption requests does
not constitute receipt by Firstar Mutual Fund Services, LLC, or the Funds. DO
NOT mail letters by overnight courier to the Post Office Box address.
Correspondence mailed by overnight courier should be sent to Firstar Mutual Fund
Services, LLC, Third Floor, 615 East Michigan Street, Milwaukee, Wisconsin
53202. If a written redemption request is inadvertently sent to the Corporation,
it will be forwarded to Firstar Mutual Fund Services, LLC, but the effective
date of redemption will be delayed until the request is received by Firstar
Mutual Fund Services, LLC. Requests for redemption by telegram and requests
which are subject to any special conditions or which specify an effective date
other than as provided herein cannot be honored.
Redemption requests should specify the name of the appropriate Fund, the
number of shares or dollar amount to be redeemed, shareholder's name, account
number, and the additional requirements listed below that apply to the
particular account.
<TABLE>
TYPE OF REGISTRATION REQUIREMENTS
-------------------- --------------
<C> <C>
Individual, Joint Tenants, Sole Redemption request signed by all person(s) required to sign for
Proprietor, Custodial (Uniform Gift the account, exactly as it is registered.
to Minors Act), General Partners
Corporations, Associations Redemption request and a corporate resolution, signed by
person(s) required to sign for the account, accompanied
by signature guarantee(s).
Trusts Redemption request signed by the trustee(s) with a signature
guarantee. (If the trustee's name is not registered on the account,
a copy of the trust document certified within the last 60 days is
also required.)
</TABLE>
Redemption requests from shareholders in an Individual Retirement Account
must include instructions regarding federal income tax withholding. Unless
otherwise indicated, these redemptions, as well as redemptions of other
retirement plans not involving a direct rollover to an eligible plan, will be
subject to federal income tax withholding. If a shareholder is not included in
any of the above registration categories (e.g., executors, administrators,
conservators or guardians), the shareholder should call the transfer agent,
Firstar Mutual Fund Services, LLC, (1-800-595-5519), for further
instructions.
Signatures need not be guaranteed unless the proceeds of redemption are
requested to be sent by wire transfer, to a person other than the registered
holder or holders of the shares to be redeemed, or to be mailed to other than
the address of record, in which cases each signature on the redemption request
must be guaranteed by a commercial bank or trust company in the United States, a
member firm of the New York Stock Exchange or other eligible guarantor
institution. If certificates have been issued for any of the shares to be
redeemed, the certificates, properly endorsed or accompanied by a properly
executed stock power, must accompany the request for redemption. Redemptions
will not be effective or complete until all of the foregoing conditions,
including receipt of all required documentation by Firstar Mutual Fund Services,
LLC, in its capacity as transfer agent, have been satisfied.
The redemption price for each Fund is the net asset value for such Fund next
determined after receipt of the request in proper form with all required
documentation by Firstar Mutual Fund Services, LLC, in its capacity as transfer
agent. The amount received will depend on the market value of the investments in
the appropriate Fund's portfolio at the time of determination of net asset
value, and may be more or less than the cost of the shares redeemed. Proceeds
for shares redeemed will be mailed, wired or forwarded via Electronic Funds
Transfer ("EFT") to the holder no later than the seventh day after receipt of
the redemption request in proper form and all required documentation except as
indicated in "Purchase of Shares" for certain redemptions of shares purchased by
check. Firstar Mutual Fund Services, LLC, currently charges a $12.00 fee for
each payment made by wire of redemption proceeds, which will be deducted from
the shareholder's account. Transfers via EFT generally will take up to 3
business days to reach the shareholder's bank account.
If a shareholder instructs Firstar Mutual Fund Services, LLC, in writing,
redemption requests may be made by telephone by calling only Firstar Mutual Fund
Services, LLC, (not the Corporation, the Adviser or any portfolio manager) at
(800) 595-5519 or (414) 765-4124, provided the redemption proceeds are to be
mailed, wired or sent via EFT to the shareholder's address or bank of record as
shown on the records of the transfer agent. Proceeds redeemed by telephone will
be mailed, wired or sent via EFT to an address or account other than that shown
on the records of the transfer agent only if such has been prearranged by a
written request sent via mail or facsimile copy to Firstar Mutual Fund Services,
LLC. Such a request must be signed by the shareholder with signatures guaranteed
as described above. Additional documentation may be requested from those who
hold shares in a fiduciary or representative capacity or who are not natural
persons. The Funds reserve the right to refuse a telephone redemption request if
it is believed advisable to do so. Redemption by telephone is not available for
IRA accounts or if share certificates have been issued for the account.
Procedures for telephone redemptions may be modified or terminated at any time
by the Corporation or Firstar Mutual Fund Services, LLC. Neither the
Corporation, the Funds nor Firstar Mutual Fund Services, LLC, will be liable for
following instructions for telephone redemption transactions that they
reasonably believe to be genuine, provided reasonable procedures are used to
confirm the genuineness of the telephone instructions, but may be liable for
unauthorized transactions if they fail to follow such procedures. These
procedures include requiring some form of personal identification prior to
acting upon the telephone instructions and recording all telephone calls. During
periods of substantial economic or market change, telephone redemptions may be
difficult to implement. In the event a shareholder cannot contact Firstar Mutual
Fund Services, LLC, by telephone, he or she should make a redemption request in
writing in the manner set forth above.
Shares of the Funds purchased through programs of services offered or
administered by Processing Intermediaries that have entered into agreements with
a Fund may be required to be redeemed through such programs. Such Processing
Intermediaries may become shareholders of record and may use procedures and
impose restrictions in addition to or different from those applicable to
shareholders who redeem shares directly through the Funds. The Funds may only
accept redemption requests from an account in which the Processing Intermediary
is the shareholder of record from the Processing Intermediary. The Funds may
authorize one or more Processing Intermediaries (and other Processing
Intermediaries properly designated thereby) to accept redemption requests on the
Funds' behalf. In such event, a Fund will be deemed to have received a
redemption request when the Processing Intermediary accepts the customer
request, and the redemption price will be the Fund's net asset value next
computed after the customer redemption request is accepted by the Processing
Intermediary.
The right to redeem shares of any Fund will be suspended for any period
during which the New York Stock Exchange is closed because of financial
conditions or any other extraordinary reason and may be suspended for any period
during which (a) trading on the New York Stock Exchange is restricted pursuant
to rules and regulations of the Securities and Exchange Commission, (b) the
Securities and Exchange Commission has by order permitted such suspension or (c)
an emergency, as defined by rules and regulations of the Securities and Exchange
Commission, exists as a result of which it is not reasonably practicable for the
Corporation to dispose of such Fund's securities or fairly to determine the
value of its net assets.
The Corporation reserves the right to redeem the shares held in any account:
(i) in connection with the termination of a particular Fund; (ii) if the value
of the shares in an account falls below $500 or such other amount as the Board
of Directors may establish, provided the Corporation gives the shareholder 60
days prior written notice; (iii) to reimburse the appropriate Fund for any loss
it has sustained by failure of the shareholder to make full payment for his
shares; (iv) to collect any charge relating to a transaction effected for the
benefit of a shareholder; or (v) if it would otherwise be appropriate to carry
out the Corporation's responsibilities under the Investment Company Act of 1940.
The involuntary redemption procedures are designed to facilitate reimbursement
of the Funds for any losses they sustain as a result of any failures by
shareholders to pay for their shares or required fees in connection with
transactions involving their shares and to relieve the Funds of the cost of
maintaining uneconomical accounts. Involuntary redemptions of small accounts,
however, would not be made because the value of shares in an account falls below
the minimum amount solely because of a decline in a particular Fund's net asset
value. Any involuntary redemptions would be made at net asset value.
EXCHANGE PRIVILEGE
The Corporation generally permits shareholders to exchange shares of one of
the Eastcliff Funds for shares of another Eastcliff Fund. A written request to
exchange shares of one Eastcliff Fund for shares of another may be made at no
cost to the shareholder. The shareholder must give the account name, account
number and the amount or number of shares of a particular Fund to be exchanged.
The registration of the account from which the exchange is being made and the
account to which the exchange is being made must be identical. Signatures
required are the same as explained under "Redemption of Shares."
There is currently no limitation on the number of exchanges a shareholder may
make. However, shares subject to an exchange must have a current value of at
least $1,000. Furthermore, in establishing a new account in another Eastcliff
Fund through this privilege, the exchanged shares must have a value at least
equal to the minimum investment required by the Fund into which the exchange is
being made. A completed purchase application also must be sent to Eastcliff
Funds, c/o Firstar Mutual Fund Services, LLC, P.O. Box 701, Milwaukee, Wisconsin
53201-0701, immediately after establishing a new account through this
privilege.
The exchange privilege is available only in states where the exchange may be
legally made. Exchange requests may be subject to other limitations, including
those relating to frequency, that may be established from time to time to ensure
that the exchanges do not disadvantage a particular Fund or its shareholders.
Shareholders will be notified at least 60 days in advance of any changes in such
limitations and may obtain the terms of any such limitation by writing to
Eastcliff Funds, c/o Firstar Mutual Fund Services, LLC, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701. No exchange fee is currently imposed by the Corporation on
exchanges; however, the Corporation reserves the right to impose an
administrative fee in the future.
An exchange involves a redemption of all or a portion of the shares in one
Fund and the investment of the redemption proceeds in shares of the other Fund
and is subject to any applicable adjustments in connection with such redemption
and investment. The redemption will be made at the per share net asset value of
the shares to be redeemed next determined after the exchange request is received
as described above. The shares of the Fund to be acquired will be purchased
(subject to any applicable adjustment) at the per share net asset value of those
shares next determined coincident with the time of redemption. Both the
redemption and the investment of the redemption proceeds will take place as of
the close of regular trading (currently 4:00 p.m. Eastern time) on the New York
Stock Exchange on each day the New York Stock Exchange is open for trading.
Investors may find the exchange privilege useful if their investment
objectives should change after they invest in the Eastcliff Funds. For federal
income tax purposes, an exchange of shares is a taxable event and, accordingly,
a capital gain or loss may be realized by an investor. Before making an exchange
request, an investor should consult a tax or other financial adviser to
determine the tax consequences of a particular exchange.
DIVIDEND REINVESTMENT
Shareholders of any Fund may elect to have all income dividends and capital
gains distributions reinvested in such Fund or paid in cash. Shareholders may
also elect to have income dividends reinvested in such Fund and capital gains
distributions paid in cash or capital gains distributions reinvested in such
Fund and income dividends paid in cash. Shareholders having dividends and/or
capital gains distributions paid in cash may choose to have such amounts mailed
or sent via EFT. Transfers via EFT generally take up to 3 business days to reach
the shareholder's bank account. See the share purchase application form included
in the center of this Prospectus for further information. If the shareholder
does not specify an election, all income dividends and capital gains
distributions automatically will be reinvested in full and fractional shares of
the appropriate Fund calculated to the nearest 1,000th of a share. Shares of a
particular Fund are purchased at the net asset value of such Fund in effect on
the business day after the dividend record date and are credited to the
shareholder's account on the dividend payment date. As in the case of normal
purchases, stock certificates are not issued unless requested. Shareholders will
be advised of the number of shares purchased and the price following each
reinvestment. An election to reinvest or receive dividends and distributions in
cash will apply to all shares of a Fund registered in the same name, including
those previously purchased.
A shareholder may change an election at any time by notifying the appropriate
Fund in writing. If such a notice is received between a dividend declaration
date and payment date, it will become effective on the day following the payment
date. The Corporation may modify or terminate its dividend reinvestment program
at any time on thirty days' notice to participants.
AUTOMATIC INVESTMENT PLAN
Shareholders wishing to invest fixed dollar amounts in a particular Fund
monthly or quarterly can make automatic purchases in amounts of $50 or more on
any day they choose by using the Corporation's Automatic Investment Plan. If
such day is a weekend or holiday, such purchase shall be made on the next
business day. There is no service fee for participating in this Plan. To use
this service, the shareholder must authorize the transfer of funds from their
checking account, NOW account or savings account by completing the Automatic
Investment Plan application included as part of the share purchase application
located in the center of this Prospectus. Additional application forms may be
obtained by calling the Corporation's office at (612) 336-1444. The Corporation
reserves the right to suspend, modify or terminate the Automatic Investment Plan
without notice.
The Automatic Investment Plan is designed to be a method to implement dollar
cost averaging. Dollar cost averaging is an investment approach providing for
the investment of a specific dollar amount on a regular basis thereby precluding
emotions dictating investment decisions. Dollar cost averaging does not insure a
profit nor protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
The Corporation has available to shareholders a Systematic Withdrawal Plan,
pursuant to which a shareholder who owns shares of any Fund worth at least
$10,000 at current net asset value may provide that a fixed sum will be
distributed to him at regular intervals. To participate in the Systematic
Withdrawal Plan, a shareholder deposits his shares of a particular Fund with the
Corporation and appoints it as his agent to effect redemptions of shares of such
Fund held in his account for the purpose of making monthly or quarterly
withdrawal payments of a fixed amount to him out of his account. To utilize the
Systematic Withdrawal Plan, the shares cannot be held in certificate form. The
Systematic Withdrawal Plan does not apply to shares of any Fund held in
Individual Retirement Accounts or defined contribution retirement plans. An
application for participation in the Systematic Withdrawal Plan is included as
part of the share purchase application located in the center of this Prospectus.
Additional application forms may be obtained by calling the Corporation's office
at (612) 336-1444.
The minimum amount of a withdrawal payment is $100. These payments will be
made from the proceeds of periodic redemption of shares of a particular Fund in
the account at net asset value. Redemptions will be made on such day (no more
than monthly) as a shareholder chooses or, if that day is a weekend or holiday,
on the next business day. See the share purchase application located in the
center of this Prospectus for further information. Participation in the
Systematic Withdrawal Plan constitutes an election by the shareholder to
reinvest in additional shares of such Fund, at net asset value, all income
dividends and capital gains distributions payable by the Corporation on shares
held in such account, and shares so acquired will be added to such account. The
shareholder may deposit additional shares of such Fund in his account at any
time.
Withdrawal payments cannot be considered as yield or income on the
shareholder's investment, since portions of each payment will normally consist
of a return of capital. Depending on the size or the frequency of the
disbursements requested, and the fluctuation in the value of the applicable
Fund's portfolio, redemptions for the purpose of making such disbursements may
reduce or even exhaust the shareholder's account.
The shareholder may vary the amount or frequency of withdrawal payments,
temporarily discontinue them, or change the designated payee or payee's address,
by notifying Firstar Mutual Fund Services, LLC.
RETIREMENT PLANS
INDIVIDUAL RETIREMENT ACCOUNTS
Individual shareholders may establish their own tax-sheltered Individual
Retirement Accounts ("IRA"). Each of the Funds currently offers a Traditional
IRA, a Roth IRA and an Education IRA, that can be adopted by executing the
appropriate Internal Revenue Service ("IRS") Form.
Traditional IRA. In a Traditional IRA, amounts contributed to the IRA may be
tax deductible at the time of contribution depending on whether the shareholder
is an "active participant" in an employer-sponsored retirement plan and the
shareholder's income. Distributions from a Traditional IRA will be taxed at
distribution except to the extent that the distribution represents a return of
the shareholder's own contributions for which the shareholder did not claim (or
was not eligible to claim) a deduction. Distributions prior to age 59-1/2 may be
subject to an additional 10% tax applicable to certain premature distributions.
Distributions must commence by April 1 following the calendar year in which the
shareholder attains age 70-1/2. Failure to begin distributions by this date (or
distributions that do not equal certain minimum thresholds) may result in
adverse tax consequences.
Roth IRA. In a Roth IRA, amounts contributed to the IRA are taxed at the time
of contribution, but distributions from the IRA are not subject to tax if the
shareholder has held the IRA for certain minimum periods of time (generally,
until age 59-1/2). Shareholders whose incomes exceed certain limits are
ineligible to contribute to a Roth IRA. Distributions that do not satisfy the
requirements for tax-free withdrawal are subject to income taxes (and possibly
penalty taxes) to the extent that the distribution exceeds the shareholder's
contributions to the IRA. The minimum distribution rules applicable to
Traditional IRAs do not apply during the lifetime of the shareholder. Following
the death of the shareholder, certain minimum distribution rules apply.
For Traditional and Roth IRAs, the maximum annual contribution generally is
equal to the lesser of $2,000 or 100% of the shareholder's compensation (earned
income). An individual may also contribute to a Traditional IRA or Roth IRA on
behalf of his or her spouse provided that the individual has sufficient
compensation (earned income). Contributions to a Traditional IRA reduce the
allowable contribution under a Roth IRA, and contributions to a Roth IRA reduce
the allowable contribution to a Traditional IRA.
Education IRA. In an Education IRA, contributions are made to an IRA
maintained on behalf of a beneficiary under age 18. The maximum annual
contribution is $500 per beneficiary. The contributions are not tax deductible
when made. However, if amounts are used for certain educational purposes,
neither the contributor nor the beneficiary of the IRA are taxed upon
distribution. The beneficiary is subject to income (and possibly penalty taxes)
on amounts withdrawn from an Education IRA that are not used for qualified
educational purposes. Shareholders whose income exceeds certain limits are
ineligible to contribute to an Education IRA.
Under current IRS regulations, an IRA applicant must be furnished a
disclosure statement containing information specified by the IRS. The applicant
generally has the right to revoke his account within seven days after receiving
the disclosure statement and obtain a full refund of his contributions. The
custodian may, in its discretion, hold the initial contribution uninvested until
the expiration of the seven-day revocation period. The custodian does not
anticipate that it will exercise its discretion but reserves the right to do so.
SIMPLIFIED EMPLOYEE PENSION PLAN
A Traditional IRA may also be used in conjunction with a Simplified Employee
Pension Plan ("SEP-IRA"). A SEP-IRA is established through execution of Form
5305-SEP together with a Traditional IRA established for each eligible employee.
Generally, a SEP-IRA allows an employer (including a self-employed individual)
to purchase shares with tax deductible contributions, not exceeding annually for
any one participant, 15% of compensation (disregarding for this purpose
compensation in excess of $160,000 per year). The $160,000 compensation limit
applies for 1998 and is adjusted periodically for cost of living increases. A
number of special rules apply to SEP Plans, including a requirement that
contributions generally be made on behalf of all employees of the employer
(including for this purpose a sole proprietorship or partnership) who satisfy
certain minimum participation requirements.
SIMPLE IRA
An IRA may also be used in connection with a SIMPLE Plan established by the
shareholder's employer (or by a self-employed individual). When this is done,
the IRA is known as a SIMPLE IRA, although it is similar to a Traditional IRA
with the exceptions described below. Under a SIMPLE Plan, the shareholder may
elect to have his or her employer make salary reduction contributions of up to
$6,000 per year to the SIMPLE IRA. The $6,000 limit applies for 1998 and is
adjusted periodically for cost of living increases. In addition, the employer
will contribute certain amounts to the shareholder's SIMPLE IRA, either as a
matching contribution to those participants who make salary reduction
contributions or as a non-elective contribution to all eligible participants
whether or not making salary reduction contributions. A number of special rules
apply to SIMPLE Plans, including (1) a SIMPLE Plan generally is available only
to employers with fewer than 100 employees; (2) contributions must be made on
behalf of all employees of the employer (other than bargaining unit employees)
who satisfy certain minimum participation requirements; (3) contributions are
made to a special SIMPLE IRA that is separate and apart from the other IRAs of
employees; (4) the distribution excise tax (if otherwise applicable) is
increased to 25% on withdrawals during the first two years of participation in a
SIMPLE IRA; and (5) amounts withdrawn during the first two years of
participation may be rolled over tax-free only into another SIMPLE IRA (and not
to a Traditional IRA or to a Roth IRA). A SIMPLE IRA is established by executing
Form 5304-SIMPLE together with an IRA established for each eligible
employee.
403(B)(7) CUSTODIAL ACCOUNT
A 403(b)(7) Custodial Account is available for use in conjunction with the
403(b)(7) program established by certain educational organizations and other
organizations that are exempt from tax under 501(c)(3) of the Internal Revenue
Code as amended (the "Code"). Amounts contributed to the custodial account in
accordance with the employer's 403(b)(7) program will be invested on a tax-
deductible basis in shares of any Fund. Various contribution limits apply with
respect to 403(b)(7) arrangements.
DEFINED CONTRIBUTION RETIREMENT PLAN (401(K))
A prototype defined contribution plan is available for employers who wish to
purchase shares of any Fund with tax deductible contributions. The plan consists
of both profit sharing and money purchase pension components. The profit sharing
component includes a Section 401(k) cash or deferred arrangement for employers
who wish to allow eligible employees to elect to reduce their compensation and
have such amounts contributed to the plan. The limit on employee salary
reduction contributions is $10,000 annually (as adjusted for cost-of-living
increases) although lower limits may apply as a result of non-discrimination
requirements incorporated into the plan. The Corporation has received an opinion
letter from the IRS holding that the form of the prototype defined contribution
retirement plan is acceptable under Section 401 of the Code. The maximum annual
contribution that may be allocated to the account of any participant is
generally the lesser of $30,000 or 25% of compensation (earned income).
Compensation in excess of $160,000 (as periodically indexed for cost-of-living
increases) is disregarded for this purpose. The maximum amount that is
deductible by the employer depends upon whether the employer adopts both the
profit sharing and money purchase components of the plan, or only one
component.
RETIREMENT PLAN FEES
Firstar Bank Milwaukee, Milwaukee, Wisconsin, serves as trustee or custodian
of the retirement plans. Firstar Bank Milwaukee invests all cash contributions,
dividends and capital gains distributions in shares of the appropriate Fund. For
such services, the following fees are charged against the accounts of
participants; $12.50 annual maintenance fee per participant account; $15 for
transferring to a successor trustee or custodian; $15 for distribution(s) to a
participant; and $15 for refunding any contribution in excess of the deductible
limit. Firstar Bank Milwaukee's, fee schedule may be changed upon written
notice.
Requests for information and forms concerning the retirement plans should be
directed to the Corporation. Because a retirement program may involve
commitments covering future years, it is important that the investment objective
of the Funds be consistent with the participant's retirement objectives.
Premature withdrawal from a retirement plan will result in adverse tax
consequences. Consultation with a competent financial and tax adviser regarding
the retirement plans is recommended.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each of the Funds will endeavor to qualify as a "regulated investment
company" under Subchapter M of the Code. Each Fund is taxed as a separate entity
under Subchapter M and qualifies on a separate basis. Pursuant to the
qualification requirements of Subchapter M, each Fund intends to distribute
substantially all of its net investment income to its shareholders annually.
Each of the Funds also intends to distribute substantially all of its net
capital gains less available capital loss carryovers annually and other income
to reduce or avoid federal income and excise taxes. For federal income tax
purposes, distributions by a Fund, whether invested in additional shares of
Common Stock or received in cash, will be taxable to such Fund's shareholders
unless exempt from federal taxation. Shareholders will be notified annually as
to the federal tax status of dividends and distributions.
Distributions and redemptions may also be taxed under state and local tax
laws. Investors are advised to consult their tax adviser concerning the
application of state and local taxes.
BROKERAGE TRANSACTIONS
The Management Agreements and Sub-Advisory Agreements authorize the Adviser,
WCM (with respect to the Growth Fund only), PBIA (with respect to the Total
Return Fund only), WP (with respect to the Regional Small Cap Fund only) and
Sasco (with respect to the Contrarian Value Fund only) to select the brokers or
dealers that will execute the purchases and sales of the Funds' portfolio
securities. In placing purchase and sale orders for the Funds, it is the policy
of the Adviser and the portfolio managers to seek the best execution of orders
at the most favorable price in light of the overall quality of brokerage and
research services provided.
The Management Agreements and Sub-Advisory Agreements permit the Adviser, and
respective sub-adviser, to cause the applicable Fund to pay a broker which
provides brokerage and research services to the Adviser, WCM, PBIA, WP or Sasco
a commission for effecting securities transactions in excess of the amount
another broker would have charged for executing the transaction, provided the
Adviser, or respective sub-adviser, believes this to be in the best interests of
such Fund. Although the Funds do not intend to market their shares through
intermediary broker-dealers, the Funds may place portfolio orders with broker-
dealers who recommend the purchase of their shares to clients if the Adviser,
WCM, PBIA, WP or Sasco believes the commissions and transaction quality are
comparable to that available from other brokers and allocate portfolio brokerage
on that basis.
CAPITAL STRUCTURE
The Corporation's authorized capital consists of 10,000,000,000 shares of
Common Stock, of which 300,000,000 are allocated to the Growth Fund, 300,000,000
are allocated to the Total Return Fund, 300,000,000 are allocated to the
Regional Small Cap Fund and 300,000,000 are allocated to the Contrarian Value
Fund. Each share outstanding entitles the holder to one vote. Generally shares
are voted in the aggregate and not by each Fund, except where class voting by
each Fund is required by Wisconsin law or the Act (e.g., a change in investment
policy or approval of an investment advisory agreement). By virtue of its stock
ownership Resource Trust Company controls each of the Funds and the Corporation
and First Trust National Association is deemed to control the Regional Small Cap
Fund.
The shares of each Fund have the same preferences, limitations and rights,
except that all consideration received from the sale of shares of each Fund,
together with all income, earnings, profits and proceeds thereof, belong to that
Fund and are charged with the liabilities in respect of that Fund and of that
Fund's share of the general liabilities of the Corporation in the proportion
that the total net assets of the Fund bears to the total net assets of all of
the Funds. However the Board of Directors of the Corporation may, in their
discretion direct that any one or more general liabilities of the Corporation be
allocated among the Funds on a different basis. The net asset value per share
of eachFund is based on the assets belonging to that Fund less the liabilities
charged to that Fund, and dividends are paid on shares of each Fund only out of
lawfully available assets belonging to that Fund. In the event of liquidation
or dissolution of the Corporation, the shareholders of each Fund will be
entitled, out of the assets of the Corporation available for distribution, to
the assets belonging to such Fund.
There are no conversion or sinking fund provisions applicable to the shares
of any Fund, and the holders have no preemptive rights and may not cumulate
their votes in the election of directors. Consequently the holders of more than
50% of the Corporation's shares voting for the election of directors can elect
the entire Board of Directors, and in such event, the holders of the remaining
shares voting for the election of directors will not be able to elect any person
or persons to the Board of Directors. The Wisconsin Business Corporation Law
permits registered investment companies, such as the Corporation, to operate
without an annual meeting of shareholders under specified circumstances if an
annual meeting is not required by the Act. The Corporation has adopted the
appropriate provisions in its Bylaws and does not anticipate holding an annual
meeting of shareholders to elect directors unless otherwise required by the Act.
The Corporation has also adopted provisions in its Bylaws for the removal of
directors by its shareholders.
The shares of each Fund are redeemable and are freely transferable. All
shares issued and sold by the Corporation will be fully paid and nonassessable,
except as provided in Section 180.0622(2)(b) of the Wisconsin Business
Corporation Law. Fractional shares of each Fund entitle the holder to the same
rights as whole shares of such Fund. Firstar Mutual Fund Services, LLC, 615 East
Michigan Street, Milwaukee, Wisconsin 53202, acts as the Corporation's transfer
agent and dividend disbursing agent.
The Corporation will not issue certificates evidencing shares purchased
unless so requested in writing. Where certificates are not issued, the
shareholder's account will be credited with the number of shares purchased,
relieving shareholders of responsibility for safekeeping of certificates and the
need to deliver them upon redemption. Written confirmations are issued for all
purchases of shares of each Fund. Any shareholder may deliver certificates to
Firstar Mutual Fund Services, LLC, and direct that his account be credited with
the shares. A shareholder may direct Firstar Mutual Fund Services, LLC, at any
time to issue a certificate for his shares without charge.
SHAREHOLDER REPORTS
Shareholders of each Fund will be provided at least semi-annually with a
report showing such Fund's portfolio and other information. Annually, after the
close of the Corporation's fiscal year, which currently ends June 30,
shareholders will be provided an annual report containing audited financial
statements. Shareholders who have questions about the Funds should call Firstar
Mutual Fund Services, LLC, at 1-800-595-5519 or (414) 765-4124 or write to:
Eastcliff Funds, 900 Second Avenue South, 300 International Centre, Minneapolis,
Minnesota 55402, Attention: Corporate Vice President.
YEAR 2000
The Funds are aware of the "Year 2000" issue. The "Year 2000" issue stems
from the use of a two-digit format to define the year in certain date-sensitive
computer application systems rather than the use of a four-digit format. As a
result, date-sensitive software programs could recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major systems or
process failures or the generation of erroneous data, which would lead to
disruptions in the Funds' business operations.
The Funds have no application systems of their own and are entirely dependent
on their service providers' systems and software. The Funds are working with
their service providers (including their investment adviser, portfolio managers,
administrator, transfer agent and custodian) to identify and remedy any Year
2000 issues. However, the Funds cannot guarantee that all Year 2000 issues will
be identified and remedied, and the failure to successfully identify and remedy
all Year 2000 issues could result in an adverse impact on the Funds.
PERFORMANCE INFORMATION
Each of the Funds may provide from time to time, in advertisements, reports
to shareholders and other communications with shareholders, its average annual
compounded rate of return. A Fund's average annual compounded rate of return
refers to the rate of return which, if applied to an initial investment in such
Fund at the beginning of a stated period and compounded over the period, would
result in the redeemable value of the investment in such Fund at the end of the
stated period. The calculation assumes reinvestment of all dividends and
distributions and reflects the effect of all recurring fees. Each Fund may also
provide "aggregate" total return information for various periods, representing
the cumulative change in value of an investment in a Fund for a specific period
(again reflecting changes in share price and assuming reinvestment of dividends
and distributions).
Any performance results will be based on historical earnings and should not
be considered as representative of the performance of a Fund in the future. An
investment in a Fund will fluctuate in value and at redemption its value may be
more or less than the initial investment.
Each of the Funds may compare its performance to other mutual funds with
similar investment objectives and to the industry as a whole, as reported by
Morningstar, Inc. and Lipper Analytical Services, Inc.; Money, Forbes, Business
Week and Barron's magazines; and, The Wall Street Journal. (Morningstar, Inc.
and Lipper Analytical Services, Inc. are independent ranking services that rank
over 1,000 mutual funds based upon total return performance.) Each of the Fund's
may also compare its performance to the Dow Jones Industrial Average, Nasdaq
Composite Index, Nasdaq Industrials Index, Value Line Composite Index, the S&P
500 Index, S&P400 Mid-Cap Growth Index, Lehman Intermediate Corporate Bond
Index, Russell 1000 Growth Index, Russell 2000 Index, Russell Midcap Index and
the Consumer Price Index. Such comparisons may be made in advertisements,
shareholder reports or other communications to shareholders.
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, LLC
EASTCLIFF REGIONAL SMALL CAPITALIZATION VALUE FUND
WOODLAND PARTNERS LLC
EASTCLIFF CONTRARIAN VALUE FUND
SASCO CAPITAL, INC.
ADMINISTRATOR
FIDUCIARY MANAGEMENT, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
FIRSTAR MUTUAL FUND SERVICES, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
1-800-595-5519
or
414-765-4124
CUSTODIAN
FIRSTAR BANK MILWAUKEE
615 East Michigan Street
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, Minnesota 55402
LEGAL COUNSEL
FOLEY & LARDNER
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
EASTCLIFF FUNDS
PURCHASE APPLICATION
- --- This is a follow-up application to an investment by wire transfer.
Mail completed application to:
Eastcliff Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Overnight Express Mail to:
Eastcliff Funds
c/o Firstar Mutual Fund Services, LLC
3rd Floor
615 E. Michigan Street
Milwaukee, WI 53202
Use this form for individual, custodial, trust, profit sharing or pension plan
accounts, including self-directed IRA and 401(k) plans. DO NOT USE THIS FORM
FOR THE EASTCLIFF FUNDS-SPONSORED IRAs, SEP-IRA, SIMPLE IRA, 403(b)(7),
DEFINED CONTRIBUTION (KEOGH OR CORPORATE PROFIT-SHARING AND MONEY-PURCHASE)
OR 401(K) PLANS WHICH REQUIRE FORMS AVAILABLE FROM THE EASTCLIFF FUNDS.
For information please call 1-800-595-5519 or 1-414-765-4124.
- ------------------------------------------------------------------------------
A. INVESTMENT
The minimum initial investment is $1,000 for shares in any of the Eastcliff
Funds. Minimum additions to any Fund are $100 (except $50 for the Automatic
Investment Plan).
Wiring instructions: Firstar Bank Milwaukee, NA, 777 E Wisconsin Ave.,
Milwaukee, WI 53202,
ABA: 075000022, For credit to Firstar Mutual Fund Services, LLC, Account
# 112-952-137,
For further credit (insert full name of Fund) (shareholders name) & (account
-------------------------------------------- -------
number).
- ------
Notify Firstar Mutual Fund Services, LLC, at 1-800-595-5519 or 1-414-765-4124
prior to sending wire.
PAYMENT BY --- Check --- Wire AMOUNT
- --- Eastcliff Growth Fund $--------------
- --- Eastcliff Total Return Fund $--------------
- --- Eastcliff Regional Small Capitalization Value Fund $--------------
- --- Eastcliff Contrarian Value Fund $--------------
- ------------------------------------------------------------------------------
B. REGISTRATION
- --- Individual
- --- Self-Directed IRA
- ------------------- ----------------- CITIZEN OF -- U.S. -- OTHER -----------
NAME SOCIAL SECURITY # BIRTHDATE
(Mo/Dy/Yr)
- --- Joint Owner*<F26>
(Cannot be a minor)
- ------------------- ----------------- CITIZEN OF -- U.S. -- OTHER -----------
NAME SOCIAL SECURITY # BIRTHDATE
(Mo/Dy/Yr)
*<F26>Registration will be Joint Tenancy with Rights of Survivorship (JTWROS),
unless otherwise specified.
- --- Gift to Minor
- ----------------------------------------- CITIZEN OF -- U.S. -- OTHER
CUSTODIAN'S NAME (only one permitted)
- ----------------------------------------- CITIZEN OF -- U.S. -- OTHER
MINOR'S NAME (only one permitted)
- --------------------------- ----------------------------- -----------------
MINOR'S SOCIAL SECURITY # MINOR'S BIRTHDATE (Mo/Dy/Yr) STATE OF RESIDENCE
- --- Trust, Estate or Guardianship**<F27>
- ------------------------------------------------------------------------------
NAME OF TRUSTEE(S) (if to be included in registration)**<F27>
- --- Corporate***<F28> (including Corporate Pension Plans)
- --- Partnership**<F27>
- --- Other Entity**<F27>
- ------------------------------------------------------------------------------
NAME OF TRUST**<F27> / CORPORATION***<F28> / PARTNERSHIP
- ------------------------------------------------- --------------------------
SOCIAL SECURITY # / TAX ID # DATE OF AGREEMENT (Mo/Dy/Yr)
**<F27>Additional documentation and certification may be requested
***<F28>Corporate Resolution is required
- ------------------------------------------------------------------------------
C. ADDRESS
Mailing Address
- ---------------------------------------------------- -----------------------
STREET APT / SUITE
- -------------------------------------------- ----------------- -----------
CITY STATE ZIP
- ----------------------------------------- ----------------------------------
DAYTIME PHONE # EVENING PHONE #
- --- Duplicate Confirmation (if desired) to:
- --------------------------- ----- ----------------------------------------
FIRST NAME M.I. LAST NAME
- ---------------------------------------------------- -----------------------
STREET APT / SUITE
- -------------------------------------------- ----------------- -----------
CITY STATE ZIP
- ------------------------------------------------------------------------------
D. DISTRIBUTION OPTIONS
Capital gains & dividends will be reinvested if no option is selected.
--- Capital Gains & --- Capital Gains &
Dividends Reinvested Dividends in Cash
--- Capital Gains in Cash & --- Capital Gains Reinvested &
Dividends Reinvested Dividends in Cash
If the distribution is to be paid in cash, specify payment method below:
--- Send check to mailing address in Section C.
--- Automatic deposit to my bank account via EFT. This transfer may take
up to 3 business days to reach your bank account (please complete bank
information below).
- ------------------------------------------------------------------------------
NAME(S) ON BANK ACCOUNT
- ---------------------------------------- -----------------------------------
BANK NAME ACCOUNT NUMBER
- ------------------------------------------------------------------------------
BANK ADDRESS
An unsigned voided check (for checking accounts) or a savings account deposit
slip is required with your application. Your signed application must be received
at least 15 business days prior to the initial distribution transaction.
- ------------------------------------------------------------------------------
E. TELEPHONE REDEMPTIONS
I authorize Eastcliff Funds, Inc. to act upon my telephone instructions to
redeem shares from my account.
--- The proceeds will be mailed to the address in Section C.
--- The proceeds of any redemption will be wired to your bank (complete bank
information below). A wire fee of $12.00 will be charged.
--- The proceeds of any redemption will be transferred via Electronic Funds
Transfer ("EFT"). This transfer may take up to 3 business days to reach your
bank (please complete bank information below).
- ------------------------------------------------------------------------------
NAME(S) ON BANK ACCOUNT
- -------------------------------------------- -------------------------------
BANK NAME ACCOUNT NUMBER
- ------------------------------------------------------------------------------
BANK ADDRESS
An unsigned voided check (for checking accounts) or a savings account deposit
slip is required with your application. Your signed application must be received
at least 15 business days prior to the initial redemption transaction.
- ------------------------------------------------------------------------------
F. EXCHANGE PRIVILEGE
If investment is by exchange, such exchange should be made from:
--- Eastcliff Growth Fund --- Eastcliff Total Return Fund
Account # --------------- Account #----------------------
--- Eastcliff Regional Small Capitalization Value Fund
Account # -----------------------
--- Eastcliff Contrarian Value Fund
Account #------------------------
(I understand that exchanges between the Funds are taxable transactions.)
Amount of Exchange $-------------- or Number of Shares ------------------
- ------------------------------------------------------------------------------
G. SYSTEMATIC WITHDRAWALS
I would like to withdraw from Eastcliff Fund name-----------------------------
Account # ------------- $------------------ ($100 minimum) as follows:
- --- I would like to have payments made to me on or about the ------ day of each
month, Or
- --- I would like to have payments made to me on or about the ------ day of the
months that I have circled below:
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
- --- I would like my payments automatically deposited to my checking, NOW or
savings account. Complete bank account information below and attach a copy of a
voided check or savings deposit slip. (A check will be mailed to the address
from section C if this selection is not marked).
- ------------------------------------------------------------------------------
NAME(S) ON BANK ACCOUNT
- --------------------------------------------- ------------------------------
BANK NAME ACCOUNT NUMBER
- ------------------------------------------------------------------------------
BANK ADDRESS
An unsigned voided check (for checking accounts) or a savings account deposit
slip is required with your application. A balance of at least $10,000 is
required.
- ------------------------------------------------------------------------------
H. AUTOMATIC INVESTMENT PLAN
I would like to establish an Automatic Investment Plan for the Eastcliff
Funds as described in the Prospectus. Based on these instructions, Firstar
Firstar Mutual Fund Services, LLC, as Transfer Agent for the Eastcliff Funds,
will automatically transfer money directly from my checking, NOW or savings
account to purchase shares in the Eastcliff Fund of my choice. I understand
if the automatic purchase cannot be made due to insufficient funds, stop
payment or any other reason, a $20 fee will be assessed. Your signed
application must be received at least 15 business days prior to initial
transaction. Attach an unsigned, voided check (for checking accounts) or a
savings account deposit slip and complete this form.
Please indicate the day of debit from bank account------------------------
Start Date (month & year) -------------- --- Monthly --- Quarterly
Eastcliff Fund name --------------------------------
Account Number, if known ---------------------------
Indicate amount to be withdrawn from my bank account $---------- (minimum $50)
- ------------------------------------------------------------------------------
NAME(S) ON BANK ACCOUNT
- ---------------------------------------------- -----------------------------
BANK NAME ACCOUNT NUMBER
- ------------------------------------------------------------------------------
BANK ADDRESS
- ------------------------------------------ ---------------------------------
SIGNATURE OF BANK ACCOUNT OWNER SIGNATURE OF JOINT OWNER (if any)
An unsigned voided check (for checking accounts) or a savings account deposit
slip is required with your application.
- ------------------------------------------------------------------------------
I. SIGNATURE AND CERTIFICATION REQUIRED BY THE INTERNAL REVENUE SERVICE
Neither the Fund nor its transfer agent will be responsible for the
authenticity of transaction instructions received by telephone, provided that
reasonable security procedures have been followed.
By selecting the options in Section (G or H), I hereby authorize the Fund to
initiate debits/credits to my account at the bank indicated and for the bank
to debit/credit the same to such account through the Automated Clearing House
("ACH") system.
UNDER THE PENALTY OF PERJURY, I CERTIFY THAT (1) THE SOCIAL SECURITY NUMBER
OR TAXPAYER IDENTIFICATION NUMBER SHOWN ON THIS FORM IS MY CORRECT TAXPAYER
IDENTIFICATION NUMBER, AND (2) I AM NOT SUBJECT TO BACKUP WITHHOLDING EITHER
AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR THE IRS HAS
NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING. THE IRSDOES
NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE
CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
- --------------------------------- ------------------------------------------
DATE (Mo/Dy/Yr) SIGNATURE OF OWNER*<F30>
- -------------------------------- -------------------------------------------
DATE (Mo/Dy/Yr) SIGNATURE OF JOINT OWNER, if any
*<F30>If shares are to be registered in (1) joint names, both persons should
sign, (2) a custodian for a minor, the custodian should sign, (3) a trust, the
trustee(s) should sign, or (4) a corporation or other entity, an officer should
sign and print name and title on space provided below.
- ------------------------------------------------------------------------------
PRINT NAME AND TITLE OF OFFICER SIGNING FOR A CORPORATION OR OTHER ENTITY.
STATEMENT OF ADDITIONAL INFORMATION October 31, 1998
- -----------------------------------
EASTCLIFF FUNDS, INC.
900 Second Avenue South
300 International Centre
Minneapolis, Minnesota 55402
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Eastcliff Funds, Inc. dated
October 31, 1998. Requests for copies of the prospectus should be made in
writing to Eastcliff Funds, Inc., 900 Second Avenue South, 300 International
Centre, Minneapolis, Minnesota 55402, Attention: Corporate Secretary, or by
calling (612) 336-1444.
<PAGE>
EASTCLIFF FUNDS, INC.
Table of Contents
Page No.
GENERAL INFORMATION AND HISTORY................................................1
INVESTMENT RESTRICTIONS........................................................1
INVESTMENT CONSIDERATIONS......................................................3
DIRECTORS AND OFFICERS OF THE CORPORATION.................................... 10
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS........................... 15
INVESTMENT ADVISER, PORTFOLIO MANAGERS AND ADMINISTRATOR..................... 16
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE..............................19
DISTRIBUTION OF SHARES....................................................... 22
ALLOCATION OF PORTFOLIO BROKERAGE............................................ 23
CUSTODIAN.....................................................................24
TAXES ........................................................................25
SHAREHOLDER MEETINGS......................................................... 25
INDEPENDENT ACCOUNTANTS.......................................................26
FINANCIAL STATEMENTS......................................................... 27
DESCRIPTION OF SECURITIES RATINGS............................................ 27
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated October 31, 1998 and, if given or made,
such information or representations may not be relied upon as having been
authorized by Eastcliff Funds, Inc.
The Statement of Additional Information does not constitute an offer to
sell securities.
<PAGE>
GENERAL INFORMATION AND HISTORY
Eastcliff Funds, Inc., a Wisconsin corporation organized on May 23,
1986 (the "Corporation"), is an open-end, diversified investment management
company consisting of four portfolios, Eastcliff Growth Fund (the "Growth
Fund"), Eastcliff Total Return Fund (the "Total Return Fund"), Eastcliff
Regional Small Capitalization Value Fund (the "Regional Small Cap Fund") and
Eastcliff Contrarian Value Fund (the "Contrarian Value Fund") (collectively, the
"Eastcliff Funds" or the "Funds"). The Corporation was called "Fiduciary Total
Return Fund, Inc." prior to December 23, 1994.
INVESTMENT RESTRICTIONS
As set forth in the prospectus dated October 31, 1998 of the
Corporation under the caption "Investment Objectives and Policies", the
investment objective of the Growth Fund is to produce long-term growth of
capital. The investment objective of the Total Return Fund is to realize a
combination of capital appreciation and income which will result in the highest
total return, while assuming reasonable risks. (The term "reasonable risks"
refers to the judgment of the Total Return Fund's investment adviser or
portfolio manager that investment in certain securities would not present an
excessive risk of loss in light of current and anticipated future general market
and economic conditions, trends in yields and interest rates, and fiscal and
monetary policies.) The investment objective of the Regional Small Cap Fund is
to produce capital appreciation. The investment objective of the Contrarian
Value Fund is to produce long-term capital appreciation. Consistent with these
investment objectives, each of the Funds has adopted the following investment
restrictions which are matters of fundamental policy. Each Fund's fundamental
investment policies cannot be changed without approval of the holders of the
lesser of: (i) 67% of that Fund's shares present or represented at a
shareholders' meeting at which the holders of more than 50% of such shares are
present or represented; or (ii) more than 50% of the outstanding shares of that
Fund.
1. None of the Funds will purchase securities on margin, participate in
a joint-trading account, sell securities short, or write or invest in put or
call options, except that (a) the Growth Fund may invest for hedging purposes up
to 5% of its net assets in put or call options and options on futures contracts
and up to 5% of its net assets in futures contracts, and (b) each of the
Regional Small Cap Fund and the Contrarian Value Fund may write or invest in put
and call options to the extent permitted by the Investment Company Act of 1940.
No Fund's investments in warrants, valued at the lower of cost or market, will
exceed 5% of the value of such Fund's net assets.
2. None of the Funds will borrow money or issue senior securities,
except for temporary bank borrowings (not in excess of 5% of the value of its
net assets) or for emergency or extraordinary purposes, and none of the Funds
will pledge any of its assets, except to secure borrowings and only to an extent
not greater than 10% of the value of such Fund's net assets.
3. None of the Funds will lend money (except by purchasing publicly
distributed debt securities or entering into repurchase agreements provided that
repurchase agreements maturing in more than seven days plus all other illiquid
securities will not exceed
<PAGE>
10% of such Fund's net assets) or will lend its portfolio securities. A
repurchase agreement involves a sale of securities to a Fund with the concurrent
agreement of the seller to repurchase the securities at the same price plus an
amount equal to an agreed upon interest rate, within a specified time. In the
event of a bankruptcy or other default of a seller of a repurchase agreement,
such Fund could experience both delays in liquidating the underlying securities
and losses, including: (a) possible decline in value of the collateral during
the period while such Fund seeks to enforce its rights thereto; (b) possible
decreased levels of income during this period; and (c) expenses of enforcing its
rights.
4. None of the Funds will make investments for the purpose of
exercising control or management of any company.
5. None of the Funds will purchase securities of any issuer (other than
the United States or an agency or instrumentality of the United States) if, as a
result of such purchase, such Fund would hold more than 10% of any class of
securities, including voting securities, of such issuer or more than 5% of such
Fund's assets, taken at current value, would be invested in securities of such
issuer, except that up to 25% of the assets of each of the Regional Small Cap
Fund and the Contrarian Value Fund may be invested without regard to these
limitations.
6. None of the Funds will concentrate more than 25% of the value of its
net assets, determined at the time an investment is made, exclusive of
government securities, in securities issued by companies primarily engaged in
the same industry.
7. None of the Funds will acquire or retain any security issued by a
company, an officer or director of which is an officer or director of the
Corporation or an officer, director or other affiliated person of any Fund's
investment adviser.
8. None of the Funds will acquire or retain any security issued by a
company if any of the directors or officers of the Corporation, or directors,
officers or other affiliated persons of any Fund's investment adviser,
beneficially own more than 1/2% of such company's securities and all of the
above persons owning more than 1/2% own together more than 5% of its securities.
9. None of the Funds will act as an underwriter or distributor of
securities other than shares of the Corporation and none of the Funds, other
than the Contrarian Value Fund, may purchase any securities which are restricted
from sale to the public without registration under the Securities Act of 1933,
as amended.
10. None of the Funds will purchase oil, gas or other mineral leases or
any interest in any oil, gas or any other mineral exploration or development
program.
11. None of the Funds will purchase or sell real estate, real estate
mortgage loans or real estate limited partnerships.
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12. None of the Funds will purchase or sell commodities or commodities
contracts, except that the Growth Fund may invest in futures contracts and
options on future contracts to the extent set forth in Investment Restriction
No. 1 above.
13. The Total Return Fund will not invest more than 5% of its total
assets, and each of the Growth Fund, the Regional Small Cap Fund and the
Contrarian Value Fund will not invest more than 10% of its total assets, in
securities of issuers which have a record of less than three years of continuous
operation, including the operation of any predecessor business of a company
which came into existence as a result of a merger, consolidation, reorganization
or purchase of substantially all of the assets of such predecessor business.
The following investment limitation is not fundamental, and may be
changed without shareholder approval.
1. None of the Funds will purchase securities of other investment
companies except (a) as part of a plan of merger, consolidation or
reorganization approved by the shareholders of such Fund; (b) securities of
money market mutual funds; or (c) securities of registered closed-end investment
companies on the open market where no commission or profit results, other than
the usual and customary broker's commission. No purchases described in (b) and
(c) will be made if as a result of such purchase such Fund would hold more than
3% of any class of securities, including voting securities, of any registered
investment company or more than 5% of such Fund's assets, taken at current
value, would be invested in the securities of any registered investment company
or in securities of registered closed-end investment companies.
INVESTMENT CONSIDERATIONS
Low-Rated Securities
As set forth in the Funds' prospectus dated October 31, 1998 under the
caption "Investment Practices and Risks", each of the Funds will limit its
investments in convertible securities to those for which such Fund's investment
adviser believes (a) the underlying common stock is a suitable investment for
that Fund and (b) a greater potential for total return exists by purchasing the
convertible security because of its higher yield. Moreover, none of the Funds
will invest more than 5% of its net assets at the time of investment in
convertible securities rated less than investment grade.
Corporate obligations rated less than investment grade (hereinafter
referred to as "low-rated securities") are commonly referred to as "junk bonds",
and while generally offering higher yields than investment grade securities with
similar maturities, involve greater risks, including the possibility of default
or bankruptcy. They are regarded as predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal. The special risk
considerations in connection with investments in low-rated securities are
discussed below.
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Effect of Interest Ra tes and Economic Changes. Even though the
exposure of each of the Funds to the low-rated security market is limited to a
maximum of 5% of its net assets, the Funds are required to provide the following
discussion of such market.
The low-rated security market is relatively new and its growth
paralleled a long economic expansion. As a result, it is not clear how this
market may withstand a prolonged recession or economic downturn. Such a
prolonged economic downturn could severely disrupt the market for and adversely
affect the value of high-yield securities.
Interest-bearing securities typically experience appreciation when
interest rates decline and depreciation when interest rates rise. The market
values of low-rated securities tend to reflect individual corporate developments
to a greater extent than do higher rated securities, which react primarily to
fluctuations in the general level of interest rates. Low-rated securities also
tend to be more sensitive to economic conditions than are higher-rated
securities. As a result, they generally involve more credit risks than
securities in the higher-rated categories. During an economic downturn or a
sustained period of rising interest rates, highly leveraged issuers of low-rated
securities may experience financial stress and may not have sufficient revenues
to meet their payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific corporate developments,
or the issuer's inability to meet specific projected business forecasts or the
unavailability of additional financing. The risk of loss due to default by an
issuer of low-rated securities is significantly greater than issuers of
higher-rated securities because such securities are generally unsecured and are
often subordinated to other creditors. Further, if the issuer of a low-rated
security defaulted, the applicable Fund might incur additional expenses in
seeking recovery. Periods of economic uncertainty and changes would also
generally result in increased volatility in the market prices of low-rated
securities and thus in the applicable Fund's net asset value.
As previously stated, the value of a low-rated security generally will
decrease in a rising interest rate market, and accordingly, so normally will the
applicable Fund's net asset value. If such Fund experiences unexpected net
redemptions in such a market, it may be forced to liquidate a portion of its
portfolio securities without regard to their investment merits. Due to the
limited liquidity of low-rated securities (discussed below), the Fund may be
forced to liquidate these securities at a substantial discount. Any such
liquidation would reduce the Fund's asset base over which expenses could be
allocated and could result in a reduced rate of return for the Fund.
Payment Expectations. Low-rated securities typically contain
redemption, call or prepayment provisions which permit the issuer of such
securities containing such provisions to, at their discretion, redeem the
securities. During periods of falling interest rates, issuers of low-rated
securities are likely to redeem or prepay the securities and refinance them with
debt securities with a lower interest rate. To the extent an issuer is able to
refinance the securities or otherwise redeem them, the applicable Fund may have
to replace the securities with a lower yielding security which would result in
lower returns for the Fund.
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Credit Ratings. Credit ratings issued by credit rating agencies
evaluate the safety of principal and interest payments of rated securities. They
do not, however, evaluate the market value risk of low-rated securities and
therefore may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the security. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
Liquidity and Valuation. A Fund may have difficulty disposing of
certain low-rated securities because there may be a thin trading market for such
securities. Because not all dealers maintain markets in all low-rated securities
there is no established retail secondary market for many of these securities.
The Funds anticipate that such securities could be sold only to a limited number
of dealers or institutional investors. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for higher
rated securities. The lack of a liquid secondary market may have an adverse
impact on the market price of the security, and accordingly, the net asset value
of a particular Fund and its ability to dispose of particular securities when
necessary to meet its liquidity needs, or in response to a specific economic
event, or an event such as a deterioration in the creditworthiness of the
issuer. The lack of a liquid secondary market for certain securities may also
make it more difficult for a Fund to obtain accurate market quotations for
purposes of valuing their respective portfolios. Market quotations are generally
available on many low-rated issues only from a limited number of dealers and may
not necessarily represent firm bids of such dealers or prices for actual sales.
During periods of thin trading, the spread between bid and asked prices is
likely to increase significantly. In addition, adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield securities, especially in a thinly-traded
market.
Hedging Instruments
As set forth above under the caption "Investment Restrictions", the
Growth Fund may invest up to 5% of its net assets in put or call options and
options on futures contracts and up to 5% of its net assets in futures
contracts. Similarly, as set forth in the Prospectus under the captions
"Investment Objectives and Policies -- Eastcliff Regional Small Capitalization
Value Fund" and "Investment Objectives and Policies -- Eastcliff Contrarian
Value Fund", each of the Regional Small Cap Fund and Contrarian Value Fund may
purchase put and call options on equity securities and on stock indices and
write covered call options on equity securities owned by the Fund, provided not
more than 5% of the Fund's net assets will be invested in put and call options
and the premiums received by the Fund with respect to unexpired call options
written by the Fund will not exceed 5% of the Fund's net assets. The foregoing
investments will be effected during periods of anticipated market weakness and
will not result in leveraging of the applicable Fund's portfolio.
Futures Contracts. When the Growth Fund purchases a futures contract,
it agrees to purchase a specified underlying instrument at a specified future
date. When the Growth Fund sells a futures contract, it agrees to sell the
underlying instrument at a specified
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<PAGE>
future date. The price at which the purchase and sale will take place is fixed
when the Growth Fund enters into the contract. Futures can be held until their
delivery dates, or can be closed out before then if a liquid secondary market is
available.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore, purchasing
futures contracts will tend to increase the Growth Fund's exposure to positive
and negative price fluctuations in the underlying instrument, much as if the
Growth Fund had purchased the underlying instrument directly. When the Growth
Fund sells a futures contract, by contrast, the value of its future position
will tend to move in a direction contrary to the market. Selling futures
contracts, therefore, will tend to offset both positive and negative market
price changes, much as if the underlying instrument had been sold.
Futures Margin Payments. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and seller
are required to deposit "initial margin" with a futures broker, known as a
Futures Commission Merchant ("FCM"), when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value. If the value
of either party's position declines, that party will be required to make
additional "variation margin" payments to settle the change in value on a daily
basis. The party that has a gain may be entitled to receive all or a portion of
this amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of the Growth Fund's investment limitations.
In the event of the bankruptcy of an FCM that holds margin on behalf of the
Growth Fund, such Fund may be entitled to return of margin owed to it only in
proportion to the amount received by the FCM's other customers, potentially
resulting in losses to the Fund.
Purchasing Put and Call Options. By purchasing a put option, the Growth
Fund, the Regional Small Cap Fund or the Contrarian Value Fund, as the case may
be, obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). The Growth
Fund may purchase options on futures contracts, as well as options on equity
securities and stock indices. The Regional Small Cap Fund and the Contrarian
Value Fund may purchase options on equity securities and on stock indices. The
Growth Fund, the Regional Small Cap Fund or the Contrarian Value Fund, as the
case may be, may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. If the option is allowed to
expire, the Fund will lose the entire premium it paid. If a Fund exercises the
option, it completes the sale of the underlying instrument at the strike price.
Such Fund may also terminate a put option position by closing it out in the
secondary market at its current price, if a liquid secondary market exists. The
buyer of a put option can expect to realize a gain if security prices fall
substantially. However, if the underlying instrument's price does not fall
enough to offset the cost of purchasing the option, a put buyer can expect to
suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).
-6-
<PAGE>
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer attempts to participate in potential price increases of the
underlying instrument with risk limited to the cost of the option if security
prices fall. At the same time, the buyer can expect to suffer a loss if security
prices do not rise sufficiently to offset the cost of the option. Only exchange
listed options will be acquired.
Stock Index Options. Stock index options are put options and call
options on various stock indexes. In most respects, they are identical to listed
options on common stocks. The primary difference between stock options and index
options occurs when index options are exercised. In the case of stock options,
the underlying security, common stock, is delivered. However, upon the exercise
of an index option, settlement does not occur by delivery of the securities
comprising the index. The option holder who exercises the index option receives
an amount of cash if the closing level of the stock index upon which the option
is based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the stock index and the exercise price
of the option expressed in dollars times a specified multiple. A stock index
fluctuates with changes in the market value of the stocks included in the index.
For example, some stock index options are based on a broad market index, such as
the Standard & Poor's 500 or the Value Line Composite Index, or a narrower
market index, such as the Standard & Poor's 100. Indexes also may be based on an
industry or market segment, such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. Options on stock indexes are currently traded on
the following exchanges: the Chicago Board Options Exchange, the New York Stock
Exchange, the American Stock Exchange, the Pacific Stock Exchange, and the
Philadelphia Stock Exchange.
Writing Call and Put Options. When the Growth Fund, the Regional Small
Cap Fund or the Contrarian Value Fund, as the case may be, writes a call option,
it receives a premium and agrees to sell the related investments to a purchaser
of the call during the call period (usually not more than nine months) at a
fixed exercise price (which may differ from the market price of the related
investments) regardless of market price changes during the call period. If the
call is exercised, the Fund forgoes any gain from an increase in the market
price over the exercise price. When writing an option on a futures contract the
Growth Fund will be required to make margin payments to an FCM as described
above for futures contracts.
To terminate its obligations on a call which it has written, the Growth
Fund, the Regional Small Cap Fund or the Contrarian Value Fund, as the case may
be, may purchase a call in a "closing purchase transaction." (As discussed
above, such Funds may also purchase calls other than as part of such closing
transactions.) A profit or loss will be realized depending on the amount of
option transaction costs and whether the premium previously received is more or
less than the price of the call purchased. A profit may also be realized if the
call lapses unexercised, because the Fund retains the premium received. Any such
profits are considered short-term gains for federal income tax purposes and,
when distributed, are taxable as ordinary income.
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<PAGE>
Writing calls generally is a profitable strategy if prices remain the
same or fall. Through receipt of the option premium, a call writer mitigates the
effects of a price decline. At the same time, because a call writer must be
prepared to deliver the underlying instrument in return for the strike price,
even if its current value is greater, a call writer gives up some ability to
participate in security price increases.
When a Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of a premium, the
Fund assumes the obligation to pay the strike price for the option's underlying
instrument if the other party to the option chooses to exercise it. The Growth
Fund may only write covered puts and the Regional Small Cap Fund and the
Contrarian Value Fund currently will not write put options. For a put to be
covered, the Growth Fund must maintain in a segregated account cash or
high-quality, short-term readily marketable obligations equal to the option
price. A profit or loss will be realized depending on the amount of option
transaction costs and whether the premium previously received is more or less
than the put purchased in a closing purchase transaction. A profit may also be
realized if the put lapses unexercised because the Fund retains the premium
received. Any such profits are considered short-term gains for federal income
tax purposes and, when distributed, are taxable as ordinary income.
Combined Option Positions. The Growth Fund, the Regional Small Cap Fund
or the Contrarian Value Fund may purchase and write options (subject to the
limitations discussed above) in combination with each other to adjust the risk
and return characteristics of the overall position. For example, either Fund may
purchase a put option and write a call option on the same underlying instrument,
in order to construct a combined position whose risk and return characteristics
are similar to selling a futures contract. Another possible combined position
would involve writing a call option at one strike price and buying a call option
at a lower price, in order to reduce the risk of the written call option in the
event of a substantial price increase. Because combined options involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the applicable Fund's current or
anticipated investments. The Growth Fund, the Regional Small Cap Fund or the
Contrarian Value Fund may invest in options and (with respect to the Growth Fund
only) futures contracts based on securities which differ from the securities in
which it typically invests. This involves a risk that the options or futures
position will not track the performance of the Fund's investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instrument match the applicable
Fund's investments well. Options and future prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities
-8-
<PAGE>
are traded, or from imposition of daily price fluctuation limits or trading
halts. The Growth Fund, the Regional Small Cap Fund and the Contrarian Value
Fund may purchase or sell options and (with respect to the Growth Fund only)
futures contracts with a greater or less value than the securities it wishes to
hedge or intends to purchase in order to attempt to compensate for differences
in historical volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in the applicable Fund's
options or futures positions are poorly correlated with its other investments,
the positions may fail to produce anticipated gains or result in losses that are
not offset by gains in other investments. Successful use of these techniques
requires skills different from those needed to select portfolio securities.
Liquidity of Options and Futures Contracts. There is no assurance a
liquid secondary market will exist for any particular option or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying instruments'
current price. In addition, exchanges may establish daily price fluctuation
limits for options and futures contracts, and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for the Growth Fund, the Regional Small Cap Fund
or the Contrarian Value Fund, as the case may be, to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the
applicable Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, such Fund's access to other
assets held to cover its options or futures positions could also be impaired.
Asset Coverage for Futures and Option Positions. The Growth Fund, the
Regional Small Cap Fund and the Contrarian Value Fund will comply with
guidelines established by the Securities and Exchange Commission with respect to
coverage of options and futures strategies by mutual funds, and if the
guidelines so require will set aside cash or liquid securities in a segregated
custodial account in the amount prescribed. Securities held in a segregated
account cannot be sold while the futures or option strategy is outstanding,
unless they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a portion of the applicable Fund's assets could
impede portfolio management or such Fund's ability to meet redemption requests
or other current obligations.
Special Risks of Hedging and Income Enhancement Strategies.
Participation in the options or futures markets involves investment risks and
transactions costs to which the Growth Fund, the Regional Small Cap Fund or the
Contrarian Value Fund, as applicable, would not be subject absent the use of
these strategies. In particular, the loss from investing in futures contracts is
potentially unlimited. If the applicable Fund's portfolio manager(s)' prediction
of movements in the direction of the securities and interest rate markets are
inaccurate, the adverse consequences to such Fund may leave such Fund in a worse
position than if such strategies were not used. Risks inherent in the use of
futures contracts and options on futures contracts include: (1) dependence on
the portfolio manager(s)' ability to predict
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<PAGE>
correctly movements in the direction of interest rates, securities prices and
currency markets; (2) imperfect correlation between the price of options and
futures contracts and options thereon and movements in the prices of the
securities being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
and (5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences.
Illiquid Securities. Each of the Funds may invest up to 10% of its net
assets in securities for which there is no readily available market ("illiquid
securities"). The 10% limitation includes certain securities whose disposition
would be subject to legal restrictions ("restricted securities") which may be
purchased by the Contrarian Value Fund but not the other Funds. However, certain
restricted securities that may be resold pursuant to Rule 144A under the
Securities Act may be considered liquid. The Board of Directors of the
Corporation has delegated to Resource Capital Advisers, Inc. (the "Adviser") the
day-to-day determination of the liquidity of a security although it has retained
oversight and ultimate responsibility for such determinations. Although no
definite quality criteria are used, the Board of Directors has directed the
Adviser to consider such factors as (i) the nature of the market for a security
(including the institutional private resale markets); (ii) the terms of these
securities or other instruments allowing for the disposition to a third party or
the issuer thereof (e.g. certain repurchase obligations and demand instruments);
(iii) and availability of market quotations; and (iv) other permissible factors.
Restricted securities may be sold in private negotiated or other exempt
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. When registration is required,
the Contrarian Value Fund may be obligated to pay all or part of the
registration expenses and a considerable time may elapse between the decision to
sell and the sale date. If, during such period, adverse market conditions were
to develop, the Contrarian Value Fund might obtain a less favorable price than
the price which prevailed when it decided to sell. Restricted securities will be
priced at fair value as determined in good faith by the Board of Directors.
DIRECTORS AND OFFICERS OF THE CORPORATION
The name, age, address, principal occupation(s) during the past five
years and other information with respect to each of the directors and officers
of the Corporation are as follows:
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CONLEY BROOKS, JR.*
900 Second Avenue South
Suite 300
Minneapolis, Minnesota 55402
(PRESIDENT AND A DIRECTOR OF THE CORPORATION)
Mr. Brooks, age 52, has been President of Brooks Associates, Inc., an
asset and investment management firm, since 1982 . He has been Chairman of the
Board of Resource Companies, Inc. since 1992 and was elected CEO in 1998.
Resource Companies, Inc. is a bank holding company which owns Resource Trust
Company (where Mr. Brooks has also been CEO since 1998), the corporate parent of
Resource Capital Advisers, Inc. Mr. Brooks has been President and a director of
the Corporation since December, 1994.
ROLF ENGH
1101 S. 3rd ST.
Minneapolis, Minnesota 55415
(A DIRECTOR OF THE CORPORATION)
Mr. Engh, age 45, has been General Counsel, Vice
President-International Sales, General Manager Color Corp. and Corporate
Secretary of The Valspar Corporation, a paint manufacturing company, since 1993.
Mr. Engh has been a director of the Corporation since July, 1998.
JOHN J. FAUTH
3100 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
(A DIRECTOR OF THE CORPORATION)
Mr. Fauth, age 53, has been Chairman and Chief Executive Officer of The
Churchill Companies, a private investment company, since April, 1982. Mr. Fauth
has been a director of the Corporation since December, 1994. He is also a
director of Kinnard Investments, Inc.
- -----------------
*Messrs. Brooks, Welch and Wilson are directors who are "interested
persons" of the Fund as that term is defined in teh Investment Company Act of
1940.
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<PAGE>
A. SKIDMORE THORPE
4900 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
(A DIRECTOR OF THE CORPORATION)
Mr. Thorpe, age 69, is a private investor; he has been Chairman of
Andrus California Timberland Partnerships, a private investment firm, since
1988. Mr. Thorpe has been a director of the Corporation since December, 1994.
E. THOMAS WELCH*
900 Second Avenue South
Suite 300
Minneapolis, Minnesota 55402
(VICE PRESIDENT AND A DIRECTOR OF THE CORPORATION)
Mr. Welch, age 60, has been President and Managing Director of Resource
Trust Company since 1984, President of Resource Companies, Inc. since January,
1990 and Chief Operating Officer of Resource Capital Advisers, Inc. since
February, 1992. He has served as Vice President and a director of the
Corporation since December, 1994. Mr. Welch is also a director of Casino Magic.
JOHN A. CLYMER
900 Second Avenue South
Suite 300
Minneapolis, Minnesota 55402
(VICE PRESIDENT, SECRETARY AND TREASURER OF THE CORPORATION)
Mr. Clymer, age 50, has been a Managing Director of Resource Trust
Company and President of Resource Capital Advisers, Inc. since 1994. Prior to
joining the Resource companies, he was president of Minnesota Mutual Life
Insurance Company, and had held various positions within Minnesota Mutual Life
Insurance Company since 1972. Mr. Clymer has served as a Vice President of the
Corporation since June, 1996 and as Secretary and Treasurer of the Corporation
since June, 1997. Mr. Clymer is a director of Hanover Capital Mortgage Holdings,
Inc., a real estate investment trust, and WTC Industries, Inc.
-12-
<PAGE>
DONALD S. WILSON*
225 East Mason Street
Milwaukee, Wisconsin 53202
(A DIRECTOR OF THE CORPORATION)
Mr. Wilson, age 55, co-founded Fiduciary Management, Inc., a Milwaukee,
Wisconsin, investment advisory firm, in 1980 and has served as a director and in
various executive capacities since that time, including as President and
Treasurer since 1987. Mr. Wilson has served in various capacities with the
Corporation since its inception in 1986. He has been a director of the
Corporation since 1987. From 1986 through December, 1994, Mr. Wilson served as
Vice President and Assistant Secretary of the Corporation, and from December,
1994 through June, 1997, he served as Secretary and Treasurer of the
Corporation. Mr. Wilson also serves as a director of Fiduciary Capital Growth
Fund, Inc. and FMI Funds, Inc.
A. RODNEY BOREN
900 Second Avenue South
Suite 300
Minneapolis, Minnesota 55402
(VICE PRESIDENT OF THE CORPORATION)
Mr. Boren, age 52, has been a Managing Director of Resource Trust
Company since January, 1996. Prior to joining Resource Trust Company, he was
with Norwest Bank since 1974, most recently serving as Executive Vice President,
Norwest Institutional Trust Services, from 1990 to 1995. Mr. Boren served as an
Investment Officer of the Corporation from February, 1996 to June, 1997 and has
served as Vice President of the Corporation since June, 1997.
SARAH A. HILLESHEIM
900 Second Avenue South
Suite 300
Minneapolis, Minnesota 55402
(VICE PRESIDENT AND ASSISTANT SECRETARY OF THE CORPORATION)
Ms. Hillesheim, age 37, has been employed at Resource Capital Advisers,
Inc. in various capacities since 1994. From November 1992 until June 1994, she
was employed at the Center for Diagnostic Imaging, Ms. Hillesheim has been a
Vice President and Assistant Secretary of the Corporation since November, 1995.
- ---------------
*Messr. Brooks, Welch and Wilson are directors who are "interested
persons" of the Fund as that term is defined in the Investment Company Act of
1940.
-13-
<PAGE>
ROBERT W. WHALEN
249 Royal Palm Way
Suite 400
Palm Beach, Florida 33480
(VICE PRESIDENT OF THE CORPORATION)
Mr. Whalen, age 55, has been President and Chief Executive Officer of
Palm Beach Investment Advisers, LLC. since April 1998. From 1992 to April 1998
he was the Vice President/Managing Director of U.S. Trust Company of Florida in
Vero Beach Florida. Mr. Whalen served as Vice President of Managers Funds, Inc.
from 1990 to 1992 and Greenwich Capital Markets, Inc. from 1988 to 1990 and
Chief Executive Officer of Lomas & Nettleton Securities Corp. from 1983 to 1988.
PATRICE J. NEVERETT
249 Royal Palm Way
Suite 400
Palm Beach, Florida 33480
(VICE PRESIDENT OF THE CORPORATION)
Ms. Neverett, age 45, has been Executive Vice President and Senior
Portfolio Manager of Palm Beach Investment Advisers, LLC. since 1990. Ms.
Neverett is the Investment Manager of the Eastcliff Total Return Fund.
The Corporation's standard method of compensating directors is to pay
each director who is not an officer of the Corporation a fee of $500 for each
meeting of the Board of Directors attended. During the fiscal year ended June
30, 1998 the Corporation paid $1,000 in directors' fees to the Corporation's
directors who are not officers of the Corporation. The table below sets forth
the compensation paid by the Corporation to each of the current directors of the
Corporation during the fiscal year ended June 30, 1998:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Total
Pension or Retirement Estimated Annual Compensation
Name of Aggregate Compensation Benefits Accrued As Benefits Upon from Corporation
Person from Corporation Part of Fund Expenses Retirement Paid to Directors
------ ---------------- --------------------- ---------- -----------------
<S> <C> <C> <C> <C>
Conley Brooks, Jr. $0 $0 $0 $0
John J. Fauth $500 $0 $0 $500
A. Skidmore Thorpe $500 $0 $0 $500
-14-
<PAGE>
Pension or Retirement Estimated Annual Compensation
Name of Aggregate Compensation Benefits Accrued As Benefits Upon from Corporation
Person from Corporation Part of Fund Expenses Retirement Paid to Directors
------ ---------------- --------------------- ---------- -----------------
E. Thomas Welch $0 $0 $0 $0
Donald S. Wilson $0 $0 $0 $0
Rolf Engh* $0 $0 $0 $0
</TABLE>
- --------------------
*Mr. Engh did not become a director of the Corporation until July, 1998.
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
As of September 30, 1998. All officers and directors of the Corporation
as a group (11 persons) beneficially owned 139,537 shares of the Growth Fund
(which constituted 3.83% of its then outstanding shares), 2,514 shares of the
Total Return Fund (which constituted 0.21% of its then outstanding shares) ,
28,689 shares of the Regional Small Cap Fund (which constituted 0.64% of its
then outstanding shares) and 4,970 shares of the Contrarian Value Fund (which
constituted 0.25% of its then outstanding shares). As of such date, the sole
beneficial holders of more than 5% of the Growth Fund's then outstanding shares
were Resource Trust Company, Suite 300, 900 Second Avenue South, Minneapolis,
Minnesota 55402, which owned 3,127,444 shares of such Fund (constituting 85.82%
of its then outstanding shares), and Hollybrook & Company, an affiliate of
Conley Brooks, Jr., which owned 207,273 shares of the Growth Fund (constituting
5.69% of its then outstanding shares). The Growth Fund shares held by Hollybrook
& Company are included in the 3,127,444 shares held by Resource Trust Company.
As of the same date, the sole beneficial holder of more than 5% of the Total
Return Fund's then outstanding shares was Resource Trust Company, Suite 300, 900
Second Avenue South, Minneapolis, Minnesota 55402, which owned 1,065,035 shares,
or 90.30% of the total shares of such Fund then outstanding. As of the same
date, the sole beneficial holders of more than 5% of the Regional Small Cap
Fund's then outstanding shares were Resource Trust Company, Suite 300, 900
Second Avenue South, Minneapolis, Minnesota 55402, which owned 1,683,256 shares
of such Fund (constituting 37.78% of its then outstanding shares), First Trust
National Association, 180 E. 5 St., P.O. Box 64488, St. Paul, Minnesota
55164-0488, which owned 988,433 shares of such Fund (constituting 22.18% of its
then outstanding shares), and Norwest Bank MN, NA, P. O. Box 1533, Minn, MN
55480, which owned 266,344 shares of such Fund (constituting 5.98% of its then
outstanding shares). As of the same date, the sole beneficial holder of more
than 5% of the Contrarian Value Fund's then outstanding shares was Resource
Trust Company, 900 Second Avenue South, Minn, MN 55402, which owned 1,894,333
shares, or 95.08% of the total shares of such Fund then outstanding. Resource
Trust Company, a Minnesota corporation, is the parent company of Resource
Capital Advisers, Inc., the investment adviser to each of the Funds.
The Growth Fund, the Total Return Fund, the Regional Small Cap Fund,
the Contrarian Value Fund and the Corporation are controlled by Resource Trust
Company. Resource Trust Company owns sufficient shares of the Growth Fund, the
Total Return Fund, the Contrarian Value Fund and, with First Trust National
Association, the Regional Small Cap Fund to approve or disapprove all matters
brought before shareholders of such Funds,
-15-
<PAGE>
including the election of directors of the Corporation and the approval of
auditors. The Corporation does not control any person.
INVESTMENT ADVISER, PORTFOLIO MANAGERS AND ADMINISTRATOR
As set forth in the Prospectus under the caption "Management of the
Funds" the investment adviser to each of the Funds is Resource Capital Advisers,
Inc. (the "Adviser"), the portfolio manager to the Growth Fund is Winslow
Capital Management, Inc. ("WCM"), the portfolio manager to the Total Return Fund
is Palm Beach Investment Advisers, LLC ("PBIA"), the portfolio manager to the
Regional Small Cap Fund is Woodland Partners LLC ("WP") and the portfolio
manager to the Contrarian Value Fund is Sasco Capital, Inc. ("Sasco"). The
Adviser is a wholly-owned subsidiary of Resource Trust Company, a Minnesota
state bank. Resource Trust Company is a wholly-owned subsidiary of Resource
Companies, Inc., a Minnesota corporation. The Adviser's executive officers
include E. Thomas Welch, Chief Operating Officer, John A. Clymer, President,
Compliance Officer and Chief Investment Officer, and Dan W. Melcher, Chief
Financial Officer. The directors of the Adviser are E. Thomas Welch, Conley
Brooks, Jr. and Lyman E. Wakefield, Jr. WCM is controlled by Clark J. Winslow,
its President, Chief Executive Officer, and principal shareholder. PBIA is
controlled by the Adviser. WP is owned in equal parts by Richard W. Jensen,
Elizabeth M. Lilly and Richard J. Rinkoff. Sasco is owned by Hoda Bibi, Bruce
Bottomley, Lee Garcia and Daniel Leary.
Pursuant to separate investment advisory agreements entered into
between the Funds and the Adviser effective July 1, 1995 with respect to the
Growth Fund and the Total Return Fund, September 16, 1996 with respect to the
Regional Small Cap Fund and December 30, 1997 with respect to the Contrarian
Value Fund (the "Management Agreements"), the Adviser provides consulting,
investment and administrative services to each of the Funds. The specific
investments for each Fund will be made by one or more portfolio managers
selected for such Fund by the Adviser. The Adviser has overall responsibility
for assets under management, provides overall investment strategies and programs
for the Funds, selects portfolio managers, allocates assets among the portfolio
managers and monitors and evaluates the portfolio managers' performance. The
Adviser and each of the Funds enter into separate sub-advisory agreements with
such Fund's portfolio managers. The Adviser also provides each of the Funds with
office space, equipment and personnel necessary to operate and administer such
Fund's business and to supervise the provision of services by third parties such
as the transfer agent and the custodian. During the fiscal years ended June 30,
1998, 1997 and 1996 the Total Return Fund paid the Adviser advisory fees of
$236,368, $191,191 and $129,207, respectively, and the Adviser waived $0, $0 and
$38,729, respectively, in additional advisory fees. During the fiscal years
ended June 30, 1998, 1997 and 1996, the Growth Fund paid the Adviser advisory
fees of $512,180, $454,388 and $372,152, respectively, and the Adviser waived
$0, $0 and $15,451 in additional advisory fees, respectively. The Regional Small
Cap Fund did not begin operations until September 16, 1996. During the fiscal
year ended June 30, 1998 and during the period from September 16, 1996 through
June 30, 1997, the Regional Small Cap Fund paid the Adviser advisory fees of
$544,391 and $144,375, respectively. The Contrarian Value Fund did not begin
operations until December 30, 1997.
-16-
<PAGE>
During the period from December 30, 1997 through June 30, 1998, the Contrarian
Value Fund paid the Adviser advisory fees of $90,399.
The Adviser has undertaken to reimburse each Fund to the extent that
the aggregate annual operating expenses exceed that percentage of the daily net
assets of such Fund for such year, as determined by valuations made as of the
close of each business day of the year, which is the most restrictive percentage
provided by the state laws of the various states in which the shares of such
Fund are qualified for sale or, if the states in which the shares of such Fund
are qualified for sale impose no such restrictions, 2%. As of the date of this
Statement of Additional Information the shares of the Funds are not qualified
for sale in any state which imposes an expense limitation. Notwithstanding the
most restrictive applicable expense limitation of state securities commissions
set forth above or the terms of the Management Agreements, the Adviser has
voluntarily agreed to reimburse each of the Funds for expenses in excess of 1.3%
of such Fund's average daily net assets during the fiscal year ending June 30,
1999, and did so for the fiscal years ended June 30, 1998, 1997 and 1996 for
each of the Funds operating at such times. Each Fund monitors its expense ratio
on a monthly basis. If the accrued amount of the expenses of a Fund exceeds the
expense limitation, such Fund creates an account receivable from the Adviser for
the amount of such excess. In such a situation the monthly payment of the
Adviser's fee will be reduced by the amount of such excess, subject to
adjustment month by month during the balance of such Fund's fiscal year if
accrued expenses thereafter fall below this limit. During the fiscal years ended
June 30, 1998, 1997 and 1996 , the Adviser reimbursed the Total Return Fund
$27,489, $35,832 and $9,060 , respectively (in addition to the waiver of
advisory fees described above), for excess expenses . During the fiscal years
ended June 30, 1998, 1997 and 1996, the Adviser reimbursed the Growth Fund $0,
$14,325 and $17,342, respectively, (in addition to the waiver of advisory fees
described above) for excess expenses . The Regional Small Cap Fund did not begin
operations until September 16, 1996. During the fiscal year ended June 30, 1998
and during the period from September 16, 1996 through September 30, 1997, the
Advisor reimbursed the Regional Small Cap Fund $0 and $45,235 for excess
expenses . The Contrarian Value Fund did not begin operations until December 30,
1997 . During the period from December 30, 1997 through June 30, 1998, the
Advisor reimbursed the Contrarian Value Fund $17,544 for excess expenses.
As of the date hereof, WCM is the sole portfolio manager of the Growth
Fund, PBIA is the sole portfolio manager of the Total Return Fund, WP is the
sole portfolio manager of the Regional Small Cap Fund and Sasco is the sole
portfolio manager of the Contrarian Value Fund. Each of WCM, PBIA, WP and Sasco
has entered into a separate sub-advisory contract with the applicable Fund and
the Adviser (the Sub-Advisory Agreements"). Pursuant to their respective
Sub-Advisory Agreements, WCM makes specific portfolio investments for that
segment of the assets of the Growth Fund under its management in accordance with
such Fund's investment objective and WCM's investment approach and strategies,
PBIA makes specific portfolio investments for that segment of the assets of the
Total Return Fund under its management in accordance with such Fund's investment
objective and PBIA's investment approach and strategies, WP makes specific
portfolio investments for that segment of the assets of the Regional Small Cap
Fund under its management in accordance with such Fund's
-17-
<PAGE>
investment objectives and WP's investment approach and strategies and Sasco
makes specific portfolio investments for that segment of the assets of the
Contrarian Value Fund under its management in accordance with such Fund's
investment objectives and Sasco's investment approach and strategies.
Portfolio managers of the Funds, including WCM, PBIA, WP, and Sasco are
employed and may be terminated by the Adviser subject to prior approval by the
Board of Directors of the Corporation. The employment of a new portfolio manager
currently requires the prior approval of the shareholders of the applicable
Fund. The Corporation, however, may request an order of the Securities and
Exchange Commission exempting the Funds from the requirements under the
Investment Company Act of 1940 relating to shareholder approval of new portfolio
managers. There can be no assurance that the Corporation will request such an
order, or, if requested, that such an order will be granted with respect to the
Funds. Selection and retention criteria for portfolio managers include: (i)
their historical performance records; (ii) consistent performance in the context
of the markets and preservation of capital in declining markets; (iii)
organizational stability and reputation; (iv) the quality and depth of
investment personnel; and (v) the ability of the portfolio manager to apply its
approach consistently. Each portfolio manager will not necessarily exhibit all
of the criteria to the same degree. Portfolio managers are paid by the Adviser
(not the Funds).
The portfolio managers' activities are subject to general supervision
by the Adviser and the Board of Directors of the Corporation. Although the
Adviser and the Board do not evaluate the investment merits of the portfolio
managers' specific securities selections, they do review the performance of each
portfolio manager relative to the selection criteria.
As set forth in the Prospectus under the caption "Management of the
Funds", Fiduciary Management, Inc. (the "Administrator") is the administrator to
each of the Funds. The Administrator is controlled by Mr. Wilson and Ted D.
Kellner. Pursuant to separate administration agreements entered into between
each of the Funds and the Administrator (the "Administration Agreements"), the
Administrator supervises all aspects of the Funds' operations except those
performed by the Adviser or the portfolio managers. In connection with such
supervision the Administrator prepares and maintains the books, accounts and
other documents required by the Investment Company Act of 1940 (the "Act"),
calculates the Fund's net asset value, responds to shareholder inquiries,
prepares the Fund's financial statements and excise tax returns, prepares
reports and filings with the Securities and Exchange Commission and with state
Blue Sky authorities, furnishes statistical and research data, clerical,
accounting and bookkeeping services and stationery and office supplies, keeps
and maintains the Fund's financial accounts and records and generally assists in
all aspects of the Fund's operations. During the fiscal years ended June 30,
1998, 1997 and 1996, the Total Return Fund paid the Administrator $47,236,
$38,238 and $33,575, respectively, pursuant to such Fund's Administration
Agreement. During the fiscal years ended June 30, 1998, 1997 and 1996, the
Growth Fund paid the Administrator $76,677, $75,438 and $68,201, respectively,
pursuant to such Fund's Administration Agreement. The Regional Small Cap Fund
did not commence operations until September 16, 1996. During the fiscal year
ended June 30, 1998 and during the period from September 16, 1996 through June
30, 1997, the Regional Small Cap Fund paid
-18-
<PAGE>
the Administrator $77,094 and $28,875, respective pursuant to such Fund's
Administration Agreement. The Contrarian Value Fund did not commence operations
until December 30, 1997 . During the period from December 30, 1997 through June
30, 1998, the Contrarian Value Fund paid the Administrator $18,080 pursuant to
such Fund's Administration Agreement.
The respective Management Agreements and Sub-Advisory Agreements of
each of the Funds will remain in effect as long as its continuance is
specifically approved at least annually (i) by the Board of Directors of the
Corporation, or, in the case of the Management Agreements, by the vote of a
majority (as defined in the Act) of the outstanding shares of the applicable
Fund, and (ii) by the vote of a majority of the directors of the Corporation who
are not parties to the Management Agreement or Sub-Advisory Agreement relating
to the applicable Fund or interested persons of the Adviser or applicable
Portfolio Manager, cast in person at a meeting called for the purpose of voting
on such approval. The Administration Agreements will remain in effect until
terminated. Each of the Management Agreements provides that it may be terminated
at any time without the payment of any penalty, by the Board of Directors of the
Corporation or by vote of a majority of the applicable Fund's shareholders, on
sixty days written notice to the Adviser and by the Adviser on the same notice
to the applicable Fund, and that it shall be automatically terminated if it is
assigned. Each of the Sub-Advisory Agreements provides that it may be terminated
by any party upon giving 30 days written notice to the other parties and that it
shall be automatically terminated if it is assigned. Each of the Administration
Agreements provides that it may be terminated at any time without the payment of
any penalty by the Board of Directors of the Corporation on ninety days written
notice to the Administrator and by the Administrator on the same notice to the
applicable Fund.
The Management Agreements, the Sub-Advisory Agreements and the
Administration Agreements provide that the Adviser, WCM, PBIA, WP, Sasco and the
Administrator, as the case may be, shall not be liable to either of the Funds or
their shareholders for anything other than willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations or duties. The Management
Agreements, the Sub-Advisory Agreements and the Administration Agreements also
provide that the Adviser, WCM, PBIA, WP, Sasco and the Administrator, and their
respective officers, directors and employees, may engage in other businesses,
devote time and attention to any other business whether of a similar or
dissimilar nature, and render services to others.
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
As set forth in the Prospectus under the caption "Determination of Net
Asset Value", the net asset value of each Fund will be determined as of the
close of regular trading (currently 4:00 P.M. Eastern Time) on each day the New
York Stock Exchange is open for trading. The New York Stock Exchange is open for
trading Monday through Friday except New Year's Day, Dr. Martin Luther King, Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, if any of the aforementioned
holidays falls on a Saturday, the New York Stock Exchange will not
-19-
<PAGE>
be open for trading on the preceding Friday and when any such holiday falls on a
Sunday, the New York Stock Exchange will not be open for trading on the
succeeding Monday, unless unusual business conditions exist, such as the ending
of a monthly or the yearly accounting period. The New York Stock Exchange may
also be closed on national days of mourning.
Any total rate of return quotation for a particular Fund will be for a
period of three or more months and will assume the reinvestment of all dividends
and capital gains distributions which were made by such Fund during that period.
Any period total rate of return quotation of a Fund will be calculated by
dividing the net change in value of a hypothetical shareholder account
established by an initial payment of $1,000 at the beginning of the period by
1,000. The net change in the value of a shareholder account is determined by
subtracting $1,000 from the product obtained by multiplying the net asset value
per share at the end of the period by the sum obtained by adding (A) the number
of shares purchased at the beginning of the period plus (B) the number of shares
purchased during the period with reinvested dividends and distributions. Any
average annual compounded total rate of return quotation of a Fund will be
calculated by dividing the redeemable value at the end of the period (i.e., the
product referred to in the preceding sentence) by $1,000. A root equal to the
period, measured in years, in question is then determined and 1 is subtracted
from such root to determine the average annual compounded total rate of return.
The foregoing computation may also be expressed by the following
formula:
P(1+T)n = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the stated periods
at the end of the stated periods.
Total return is the cumulative rate of investment growth which assumes
that income dividends and capital gains are reinvested. It is determined by
assuming a hypothetical investment at the net asset value at the beginning of
the period, adding in the reinvestment of all income dividends and capital
gains, calculating the ending value of the investment at the net asset value as
of the end of the specified time period, subtracting the amount of the original
investment, and dividing this amount by the amount of the original investment.
This calculated amount is then expressed as a percentage by multiplying by 100.
The Growth Fund's average annual compounded return for the
one-year period ended June 30, 1998 was 33.86% and for the period from the
Growth Fund's commencement of operations (July 1, 1995) through June 30, 1998
was 23.08%. The Total Return Fund's average annual compounded returns for the
one-year, five-year and ten-year periods ended June 30, 1998 and for the period
from the Fund's commencement of operations (December 30,
-20-
<PAGE>
1986) through June 30, 1998 were 33.33%, 19.43%, 14.50% and 15.65%,
respectively. The Regional Small Cap Fund's average annual compounded return for
the one-year period ended June 30, 1998 was 11.69%, and for the period from the
Regional Small Cap Fund's commencement of operations (September 16, 1996)
through June 30, 1998 was 19.18%. The Contrarian Value Fund's return for the
period from the Contrarian Value Fund's Commencement of operations (December 30,
1997) through June 30, 1998 was 4.10%.
The results below show the value of an assumed initial investment in
the Growth Fund of $10,000 made on June 30, 1995 through June 30, 1998, assuming
reinvestment of all dividends and distributions.
Value of $10,000 Cumulative % Change
Date Investment (i.e. total return)
- ---- --------------- -------------------
December 31, 1995 $ 10,860 + 8.6%
December 31, 1996 12,690 +26.9
December 31, 1997 15,533 +55.3
June 30, 1998 18,633 +86.3
The results below show the value of an assumed initial investment in
the Total Return Fund of $10,000 made on December 30, 1986 through June 30,
1998, assuming reinvestment of all dividends and distributions.
Value of $10,000 Cumulative % Change
Date Investment (i.e. total return)
- ---- ---------------- -------------------
December 31, 1986 $ 10,000 ---
December 31, 1987 11,225 +12.2%
December 31, 1988 13,554 +35.5
December 31, 1989 15,341 +53.4
December 31, 1990 14,663 +46.6
December 31, 1991 19,070 +90.7
December 31, 1992 21,052 +110.5
December 31, 1993 23,381 +133.8
December 31, 1994 22,909 +129.1
December 31, 1995 28,221 +182.2
December 31, 1996 34,000 +240.0
December 31, 1997 44,214 +342.1
June 30, 1998 53,225 +432.2
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<PAGE>
The results below show the value of an assumed initial investment in
the Regional Small Cap Fund of $10,000 made on September 16, 1996 through June
30, 1998, assuming reinvestment of all dividends and distributions.
Value of $10,000 Cumulative % Change
Investment (i.e. total return)
Date
December 31, 1996 $ 10,908 9.1%
December 31, 1997 13,207 32.1
June 30, 1998 13,682 36.8
The results below show the value of an assumed initial investment in
the Contrarian Value Fund of $10,000 made on December 30, 1997 through June 30,
1998, assuming reinvestment of all dividends and distributions.
Cumulative % Change
Date Value of $10,000 Investment (i.e. total return)
December 31, 1997 $10,030 +0.3%
June 30, 1998 10,410 +4.1
The foregoing performance results are based on historical earnings and
should not be considered as representative of the performance of the Growth
Fund, the Total Return Fund , the Regional Small Cap Fund or the Contrarian
Value Fund in the future. Such performance results also reflect reimbursements
made by the Adviser to keep total fund operating expenses at or below 1.3% of
average daily net assets. An investment in the Growth Fund, the Total Return
Fund , the Regional Small Cap Fund or the Contrarian Value Fund will fluctuate
in value and at redemption its value may be more or less than the initial
investment.
DISTRIBUTION OF SHARES
Each of the Funds has adopted a Distribution Plan (the "Plan") in
anticipation that such Fund will benefit from the Plan through increased sales
of shares, thereby reducing such Fund's expense ratio and providing an asset
size that allows the Adviser greater flexibility in management. However, each of
the Funds presently intends not to utilize the Plan or pay any 12b-1 fees during
the fiscal year ending June 30, 1999. The Plan may be terminated by any Fund at
any time by a vote of the directors of the Corporation who are not interested
persons of the Corporation and who have no direct or indirect financial interest
in the Plan or any agreement related thereto (the "Rule 12b-1 Directors") or by
a vote of a majority of the outstanding shares of such Fund. Messrs. Fauth and
Thorpe are currently the Rule 12b-1 Directors. Any change in the Plan that would
materially increase the distribution expenses of a particular Fund provided for
in the Plan requires approval of the shareholders of such Fund and the Board of
Directors, including the Rule 12b-1 Directors.
-23-
<PAGE>
While the Plan is in effect, the selection and nomination of directors
who are not interested persons of the Corporation will be committed to the
discretion of the directors of the Corporation who are not interested persons of
the Corporation. The Board of Directors of the Corporation must review the
amount and purposes of expenditures pursuant to the Plan quarterly as reported
to it by a Distributor, if any, or officers of the Corporation. The Plan will
continue in effect for as long as its continuance is specifically approved at
least annually by the Board of Directors, including the Rule 12b-1 Directors.
The Growth Fund did not begin operations until June 30, 1995, and such Fund has
not incurred any distribution costs to date. The Regional Small Cap Fund did not
begin operations until September 16, 1996 and such Fund has not incurred any
distribution costs to date. The Contrarian Value Fund did not begin operations
until December 30, 1997 and, such Fund has not incurred any distribution costs
to date.
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities for the Growth Fund are made by
the Adviser and WCM, for the Total Return Fund are made by the Adviser and PBIA,
for the Regional Small Cap Fund are made by the Adviser and WP and for the
Contrarian Value Fund are made by the Adviser and Sasco, in each case subject to
review by the Corporation's Board of Directors. In placing purchase and sale
orders for portfolio securities for the Funds, it is the policy of the Adviser,
WCM, PBIA, WP and Sasco to seek the best execution of orders at the most
favorable price in light of the overall quality of brokerage and research
services provided, as described in this and the following paragraph. In
selecting brokers to effect portfolio transactions, the determination of what is
expected to result in best execution at the most favorable price involves a
number of largely judgmental considerations. Among these are the evaluation by
the Adviser, WCM, PBIA, WP and/or Sasco of the broker's efficiency in executing
and clearing transactions, block trading capability (including the broker's
willingness to position securities) and the broker's financial strength and
stability. The most favorable price to a Fund means the best net price without
regard to the mix between purchase or sale price and commission, if any.
Over-the-counter securities are generally purchased and sold directly with
principal market makers who retain the difference in their cost in the security
and its selling price. In some instances, the Adviser, WCM, PBIA, WP or Sasco
may feel that better prices are available from non-principal market makers who
are paid commissions directly. Although none of the Funds intends to market its
shares through intermediary broker-dealers, a Fund may place portfolio orders
with broker-dealers who recommend the purchase of such Fund's shares to clients
if the Adviser, WCM, PBIA, WP or Sasco, as the case may be, believes the
commissions and transaction quality are comparable to that available from other
brokers and may allocate portfolio brokerage on that basis.
In allocating brokerage business for the Funds, the Adviser, WCM, PBIA,
WP and Sasco also take into consideration the research, analytical, statistical
and other information and services provided by the broker, such as general
economic reports and information, reports or analyses of particular companies or
industry groups, market timing and technical information, and the availability
of the brokerage firm's analysts for consultation. While each of the Adviser,
WCM, PBIA, WP and Sasco believes these services have substantial value,
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they are considered supplemental to the efforts of the Adviser, WCM, PBIA, WP or
Sasco in the performance of its duties under the applicable Management Agreement
or Sub-Advisory Agreement. Other clients of the Adviser, WCM, PBIA, WP or Sasco
may indirectly benefit from the availability of these services to the Adviser,
WCM, PBIA, WP or Sasco, and the Funds may indirectly benefit from services
available to the Adviser, WCM, PBIA, WP or Sasco as a result of transactions for
other clients. Each of the Management Agreements and Sub-Advisory Agreements
provides that the Adviser, WCM, PBIA, WP or Sasco, as the case may be, may cause
the applicable Fund to pay a broker which provides brokerage and research
services to the Adviser, WCM, PBIA, WP or Sasco, a commission for effecting a
securities transaction in excess of the amount another broker would have charged
for effecting the transaction, if the Adviser, WCM, PBIA, WP or Sasco determines
in good faith that such amount of commission is reasonable in relation to the
value of brokerage and research services provided by the executing broker viewed
in terms of either the particular transaction or the overall responsibilities of
the Adviser, WCM, PBIA, WP or Sasco with respect to the applicable Fund and the
other accounts as to which it exercises investment discretion. During the fiscal
years ended June 30, 1996 , 1997, and 1998, the Growth Fund paid brokerage
commissions of $70,820 on transactions having a total market value of
$67,831,156 , $43,545 on transactions having a total market value of $25,936,201
and $75,062 on transactions having a total market value of $60,131,748,
respectively. Brokerage commissions paid by the Total Return Fund totaled
$28,705 on transactions having a total market value of $32,270,945, $19,854 on
transactions having a total market value of $15,590,327 and $7,130 on
transactions having a total market value of $6,703,149 for the fiscal years
ended June 30, 1996 , 1997 and 1998, respectively. The Regional Small Cap Fund
did not commence operations until September 16, 1996. During the period from
September 16, 1996 through June 30, 1997, the Regional Small Cap Fund paid
brokerage commissions of $50,392 on transactions having a total market value of
$15,758,909 and for the fiscal year ended June 30, 1998 paid $77,720 on
transactions having a market value of $34,327,567. The Contrarian Value Fund did
not commence operations until December 30, 1997 . During the period from
December 30, 1997 through June 30, 1998, The Contrarian Value Fund paid
brokerage Commission of $40,438 on transactions having a total market value of
$22,255,053. All of the brokers to whom commissions were paid by the Growth
Fund, the Total Return Fund, the Regional Small Cap Fund and the Contrarian
Value Fund provided research services to the Adviser.
CUSTODIAN
Firstar Bank Milwaukee, N.A., 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as custodian for the Funds. As such, Firstar Bank
Milwaukee, N.A. holds all securities and cash of the Funds, delivers and
receives payment for securities sold, receives and pays for securities
purchased, collects income from investments and performs other duties, all as
directed by officers of the Corporation. Firstar Bank Milwaukee, N.A. does not
exercise any supervisory function over the management of the Funds, the purchase
and sale of securities or the payment of distributions to shareholders. Firstar
Mutual fund Services LLC also acts as the Funds' transfer agent and dividend
disbursing agent.
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TAXES
As set forth in the Prospectus under the caption "Dividends,
Distributions and Taxes", each of the Funds will endeavor to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code. A
portion of each Fund's ordinary income distribution may be eligible for the 70%
dividends-received deduction for domestic corporation shareholders.
Dividends from each Fund's net investment income and distributions from
each Fund's net realized capital gains maybe taxable to shareholders, whether
received in cash or additional shares of such Fund.
Any dividend or capital gains distribution paid shortly after a
purchase of shares will have the effect of reducing the per share net asset
value of such shares by the amount of the dividend or distribution. Furthermore,
if the net asset value of the shares immediately after a dividend or
distribution is less than the cost of such shares to the shareholder, the
dividend or distribution will be taxable to the shareholder even though it
results in a return of capital to him.
Each Fund may be required to withhold Federal income tax at a rate of
31% ("backup withholding") from dividend payments and redemption proceeds if a
shareholder fails to furnish such Fund with his social security number or other
tax identification number and certify under penalty of perjury that such number
is correct and that he is not subject to backup withholding due to the under
reporting of income. The certification form is included as part of the share
purchase application and should be completed when the account is opened.
SHAREHOLDER MEETINGS
The Wisconsin Business Corporation Law permits registered investment
companies, such as the Corporation, to operate without an annual meeting of
shareholders under specified circumstances if an annual meeting is not required
by the Act. The Corporation has adopted the appropriate provisions in its bylaws
and, at its discretion, may not hold an annual meeting in any year in which none
of the following matters is required to be acted upon by the shareholders under
the Act: (i) election of directors; (ii) approval of an investment advisory
agreement; (iii) ratification of the selection of auditors; and (iv) approval of
a distribution agreement.
The Corporation's bylaws also contain procedures for the removal of
directors by its shareholders. At any meeting of shareholders, duly called and
at which a quorum is present, the shareholders may, by the affirmative vote of
the holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors to
fill any resulting vacancies for the unexpired terms of removed directors.
Upon the written request of the holders of shares entitled to not less
than ten percent (10%) of all the votes entitled to be cast at such meeting, the
Secretary of the
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Corporation shall promptly call a special meeting of shareholders for the
purpose of voting upon the question of removal of any director. Whenever ten or
more shareholders of record who have been such for at least six months preceding
the date of application, and who hold in the aggregate either shares having a
net asset value of at least $25,000 or at least one percent (1%) of the total
outstanding shares, whichever is less, shall apply to the Corporation's
Secretary in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to a request for a meeting as
described above and accompanied by a form of communication and request which
they wish to transmit, the Secretary shall within five business days after such
application either: (1) afford to such applicants access to a list of the names
and addresses of all shareholders as recorded on the books of the Corporation;
or (2) inform such applicants as to the approximate number of shareholders of
record and the approximate cost of mailing to them the proposed communication
and form of request.
If the Secretary elects to follow the course specified in clause (2) of
the last sentence of the preceding paragraph, the Secretary, upon the written
request of such applicants, accompanied by a tender of the material to be mailed
and of the reasonable expenses of mailing, shall, with reasonable promptness,
mail such material to all shareholders of record at their addresses as recorded
on the books unless within five business days after such tender the Secretary
shall mail to such applicants and file with the Securities and Exchange
Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Board of Directors to the effect
that in their opinion either such material contains untrue statements of fact or
omits to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion.
After opportunity for hearing upon the objections specified in the
written statement so filed, the Securities and Exchange Commission may, and if
demanded by the Board of Directors or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of
them. If the Securities and Exchange Commission shall enter an order refusing to
sustain any of such objections, or if, after the entry of an order sustaining
one or more of such objections, the Securities and Exchange Commission shall
find, after notice and opportunity for hearing, that all objections so sustained
have been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all shareholders with reasonable promptness after the
entry of such order and the renewal of such tender.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 3100 Multifoods Tower, 33 South Sixth
Street, Minneapolis, Minnesota 55402, currently serves as the independent
accountants for the Corporation and has so served since the fiscal year ended
September 30, 1989.
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FINANCIAL STATEMENTS
The following audited financial statements are incorporated by
reference to the Annual Report, dated June 30, 1998, of Eastcliff Funds, Inc.
(File No. 811-4722), as filed with the Securities and Exchange Commission on
August 5, 1998:
o Statement of Asset & Liabilities (Growth Fund only)
o Schedule of Investments (Growth Fund only)
o Statements of Net Assets (Total Return Fund, Regional Small
Cap Fund and Contrarian Value Fund only)
o Statements of Operations
o Statements of Changes in Net Assets
o Financial Highlight
o Notes to the Financial Statements
o Report of Independent Accountants
DESCRIPTION OF SECURITIES RATINGS
As set forth in the Prospectus under the caption "Investment Objectives
and Policies", each of the Funds may invest in various securities assigned
ratings of either Standard & Poor's Corporation or Moody's Investors Service,
Inc. A brief description of the ratings symbols and their meanings follows.
Standard & Poor's Corporation Bond Ratings. A Standard & Poor's
corporate debt rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment may take into
consideration obligors such as guarantors, insurers of lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform any audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
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I. Likelihood of default - capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights;
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in the higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC Bonds are regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, they are outweighed by
large uncertainties or major risk exposures to adverse conditions.
Moody's Investors Service, Inc Bond Ratings.
Aaa - Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large, or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
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A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations; (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each of the foregoing
generic rating classifications. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
Standard & Poor's Commercial Paper Ratings. A Standard & Poor's
commercial paper rating is a current assessment of the likelihood of timely
payment of debt considered short-term in the relevant market. Ratings are graded
into several categories, ranging from A-1 for the highest quality obligations to
D for the lowest. The three highest categories are as follows:
A-1. This highest category indicates that the degree of safety
regarding timely payment is strong. Those issuers determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
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A-2. Capacity for timely payment on issues with this designation is
satisfactory. However the relative degree of safety is not as high as for
issuers designated "A-1".
A-3. Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying a higher designation.
Standard & Poor's Preferred Stock Ratings. A Standard & Poor's
preferred stock rating is an assessment of the capacity and willingness of an
issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
I. Likelihood of payment -- capacity and willingness of the issuer to
meet the timely payment of preferred stock dividends and any applicable sinking
fund requirements in accordance with the terms of the obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
"AAA" This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
"AA" A preferred stock issue rated "AA" also qualifies as a
high-quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
"AAA."
"A" An issued rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
"BBB" An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make payments
for a preferred stock in this category than for issues in the "A" category.
"BB," "B," "CCC" Preferred stock rated "BB," "B," and "CCC" are
regarded, on balance, as predominately speculative with respect to the issuer's
capacity to pay
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preferred stock obligations. "BB" indicates the lowest degree of speculation and
"CCC" the highest degree of speculation. While such issues will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
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OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a.) Audited Financial Statements (Financial Highlights included in
Part A and all incorporated by reference to the Annual Report, dated June 30,
1998 (File No. 811-4722) of Eastcliff Funds, Inc. (as filed with the Securities
and Exchange Commission on August 5, 1998)).
Eastcliff Funds, Inc.
Statement of Assets and Liabilities (Growth Fund only)
Schedule of Investments (Growth Fund only)
Statements of Net Assets (Total Return Fund, Regional Small
Cap Fund and Contrarian Value Fund only)
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
(b.) Exhibits
(1.1) Registrant's Restated Articles of Incorporation, as
amended.(4)
(1.2) Articles of Amendment relating to Series D Common Stock of
Eastcliff Funds, Inc.(4)
(2) Registrant's By-Laws, as amended. (3)
(3) None
(4) None
(5.1) Investment Advisory Agreement between Eastcliff Total Return
Fund and Resource Capital Advisers, Inc.(3)
(5.2) Investment Advisory Agreement between Eastcliff Growth Fund
and Resource Capital Advisers, Inc.(3)
(5.3) Sub-Advisory Agreement among Eastcliff Growth Fund, Resource
Capital Advisers, Inc. and Winslow Capital Management, Inc.(3)
(5.4) Sub-Advisory Agreement among Eastcliff Total Return Fund,
Resource Capital Advisers, Inc. and Palm Beach Investment
Advisers, Inc.(3)
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(5.5) Investment Advisory Agreement between Eastcliff Regional Small
Capitalization Value Fund and Resource Capital Advisers,
Inc.(1)
(5.6) Sub-Advisory Agreement among Eastcliff Regional Small
Capitalization Value Fund, Resource Capital Advisers, Inc. and
Woodland Partners LLC.(1)
(5.7) Investment Advisory Agreement between Eastcliff Contrarian
Value Fund and Resource Capital Advisers, Inc.(4)
(5.8) Sub-Advisory Agreement among Eastcliff Contrarian Value Fund,
Resource Capital Advisers, Inc. and Sasco Capital, Inc.(4)
(6) None
(7) None
(8.1) Custodian Agreement between Eastcliff Total Return Fund
(formerly Fiduciary Total Return Fund) and Firstar Trust
Company.(3)
(8.2) Custodian Agreement between Eastcliff Growth Fund and Firstar
Trust Company.(3)
(8.3) Custodian Agreement between Eastcliff Regional Small
Capitalization Value Fund and Firstar Trust Company.(3)
(8.4) Custodian Agreement between Eastcliff Contrarian Value Fund
and Firstar Trust Company.(4)
(9.1) Administrative Agreement, including addendum, between
Eastcliff Total Return Fund (formerly Fiduciary Total Return
Fund) and Fiduciary Management, Inc.(3)
(9.2) Administrative Agreement, including addendum, between
Eastcliff Growth Fund and Fiduciary Management, Inc.(3)
(9.3) Administrative Agreement, including addendum, between
Eastcliff Regional Small Capitalization Value Fund and
Fiduciary Management, Inc.(1)
(9.4) Administrative Agreement, including addendum, between
Eastcliff Contrarian Value Fund and Fiduciary Management,
Inc.(4)
(10) Opinion of Foley & Lardner, counsel for Registrant.
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(11) Consent of PricewaterhouseCoopers LLP.
(12) None
(13) Subscription Agreement.(3)
(14.1) Eastcliff Funds (formerly Fiduciary Funds) Individual
Retirement Account.(3)
(14.2) Eastcliff Funds (formerly Fiduciary Funds) Self-Employed
Defined Contribution Retirement Plan.(3)
(14.3) Eastcliff Funds (formerly Fiduciary Funds) Simplified Employee
Pension.(3)
(14.4) Eastcliff Funds Savings Incentive Match Program for Small
Employers ("SIMPLE") Individual Retirement Account.(3)
(14.5) Eastcliff Funds Section 403(b)(7) Retirement Plan.(3)
(15.1) Amended and Restated Servicing and Distribution Plan of
Eastcliff Funds, Inc.(3)
(15.2) Servicing and Distribution Agreement.(3)
(16) Schedule for Computation of Performance Quotations.(2)
(17) Financial Data Schedule.
(18) None.
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(1) Previously filed as an exhibit to Amendment No. 15 to Registrant's
Registration Statement on Form N-1A and incorporated by reference
thereto. Amendment No. 15 was filed on July 3, 1996 and its accession
number is 0000897069-96-000189.
(2) Previously filed as an exhibit to Amendment No. 16 to Registrant's
Registration Statement on Form N-1A and incorporated by reference
thereto. Amendment No. 16 was filed on September 13, 1996 and its
accession number is 0000897069-96-000313.
(3) Previously filed as an exhibit to Amendment No. 18 to Registrant's
Registration Statement on Form N-1A and incorporated by reference
thereto. Amendment No. 18 as filed on October 1, 1997 and its accession
number is 0000897069-97-000403.
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(4) Previously filed as an exhibit to Amendment No. 19 to Registrant's
Registration Statement on Form N-1A and incorporated by reference
thereto. Amendment No. 19 was filed on October 16, 1997 and its
accession number is 0000897069-97-000415.
Item 25. Persons Controlled by or under Common Control with Registrant
The Registrant, the Eastcliff Total Return Fund, the Eastcliff Growth
Fund , the Eastcliff Regional Small Capitalization Value Fund and the Eastcliff
Contrarian Value Fund are controlled by Resource Trust Company, which owned
90.30%, 85.82%, 37.78% and 95.08% of the Total Return Fund's, the Growth Fund's
, the Regional Small Cap Fund's and the Contrarian Value Fund's outstanding
shares, respectively, as of September 30, 1998. Registrant does not control any
person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of September 30, 1998
-------------- -------------------------
Common Stock (Total Return Fund) 73
Common Stock (Growth Fund) 76
Common Stock (Regional Small Cap Fund) 215
Common Stock (Contrarian Value Fund) 14
Item 27. Indemnification
Pursuant to the authority of the Wisconsin Business Corporation Law,
Registrant's Board of Directors has adopted the following By-Law which is in
full force and effect and has not been modified or canceled:
Article VII
INDEMNIFICATION
7.01 Provision of Indemnification. The corporation shall
indemnify all of its corporate representatives against expenses,
including attorney's fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by them in connection with
the defense of any action, suit or proceeding, or threat or claim of
such action, suit or proceeding, whether civil, criminal,
administrative, or legislative, no matter by whom brought, or in any
appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the
corporation and with respect to any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful
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provided that the corporation shall not indemnify corporate
representatives in relation to matters as to which any such corporate
representative shall be adjudged in such action, suit or proceeding to
be liable for gross negligence, willful misfeasance, bad faith,
reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not
permitted by the Wisconsin Business Corporation Law.
7.02 Determination of Right to Indemnification. In the absence
of an adjudication which expressly absolves the corporate
representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if a determination
that indemnification of the corporate representative is proper because
he has met the applicable standard of conduct set forth in Section
7.01. Such determination shall be made: (i) by the board of directors,
by a majority vote of a quorum which consists of directors who were not
parties to the action, suit or proceeding nor interested persons of the
corporation as defined in Section 2(a)(19) of the Investment Company
Act of 1940; (ii) if the required quorum is not obtainable or if a
quorum of disinterested directors so direct, by independent legal
counsel in a written opinion; or (iii) by the shareholders. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
was guilty of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties and obligations involved in the
conduct of his or her office, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his or her conduct
was unlawful.
7.03 Allowance of Expenses. Expenses, including attorneys'
fees, incurred in the preparation of and/or presentation of the defense
of a civil or criminal action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding as authorized in the manner provided in Sections 180.0853 or
180.0856 of the Wisconsin Business Corporation Law and in accordance
with the requirements of the Securities and Exchange Commission upon
receipt of an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the
corporation as authorized in this by-law.
7.04 Additional Rights to Indemnification. The indemnification
provided by this by-law shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under these by-laws,
any agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to
action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs,
executors
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and administrators of such a person subject to the limitations imposed
from time to time by the Investment Company Act of 1940, as amended.
7.05 Insurance. This corporation shall have power to purchase
and maintain insurance on behalf of any corporate representative
against any liability asserted against him or her and incurred by him
or her in such capacity or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or
her against such liability under this by-law, provided that no
insurance may be purchased or maintained to protect any corporate
representative against liability for gross negligence, willful
malfeasance, bad faith, or reckless disregard of the duties and
obligations involved in the conduct of his or her office.
7.06 Definitions. "Corporate Representative" means an
individual who is or was a director, officer, agent or employee of the
corporation or who serves or served another corporation, partnership,
joint venture, trust or other enterprise in one of these capacities at
the request of the corporation and who, by reason of his or her
position, is, was or is threatened to be made a party to a proceeding
described herein.
In reference to Article VII, Section 7.01 of the By-laws, Section
180.0851 of the Wisconsin Business Corporation Law provides for mandatory
indemnification (a) if a corporate representative was successful on the merits
or otherwise in the defense of a proceeding, and (b) if the corporate
representative was not successful on the merits or otherwise but the liability
incurred was not the result of a breach or failure to perform a duty which
constituted any of the following: (1) a willful failure to deal fairly with the
corporation or its shareholders in connection with a matter in which the
corporate representative has a material conflict of interest; (2) a violation of
criminal law, unless the corporate representative had reasonable cause to
believe his or her conduct was lawful or no reasonable cause to believe his or
her conduct was unlawful; (3) a transaction from which the corporate
representative derived an improper personal profit; or (4) willful misconduct.
Insofar as indemnification for and with respect to liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer or controlling person or
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Incorporated by reference to pages 10 through 14 of the Statement of
Additional Information pursuant to Rule 411 under the Securities Act of 1933.
Item 29. Principal Underwriters
Registrant has no principal underwriters.
Item 30. Location of Accounts and Records
All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the physical possession of Registrant's Administrator,
Fiduciary Management, Inc., at its corporate offices, 225 East Mason Street,
Milwaukee, Wisconsin 53202, Registrant's investment adviser, Resource Capital
Advisers, Inc., at its corporate offices, 300 International Centre, 900 Second
Avenue South, Minneapolis, Minnesota 55402, the Eastcliff Growth Fund's
portfolio manager, Winslow Capital Management, Inc., at its corporate offices,
4720 IDS Tower, 80 South Eighth Street, Minneapolis, Minnesota 55402, the
Eastcliff Regional Small Capitalization Value Fund's portfolio manager, Woodland
Partners LLC, at its corporate offices, 60 South Sixth Street, Suite 3750,
Minneapolis, Minnesota 55402, or Firstar Trust Company, 615 East Michigan
Street, Milwaukee, Wisconsin 53202.
Item 31. Management Services
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
Registrant undertakes to provide its Annual Report to Shareholders upon
request without charge to any recipient of a Prospectus.
With respect to shareholder meetings, Registrant undertakes to call
shareholder meetings in accordance with the provisions of Article II of its
Bylaws, which are discussed in Parts A and B of this Registration Statement.
S-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amended
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Minneapolis and State of Minnesota on the 30th
day of October, 1998.
EASTCLIFF FUNDS, INC.
(Registrant)
By: /s/ Conley Brooks, Jr.
Conley Brooks, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Name Title Date
---- ----- ----
/s/ Conley Brooks, Jr. Principal Executive, October 30, 1998
- ------------------------------ Financial and
Conley Brooks, Jr. Accounting Officer
and Director
/s/ E. Thomas Welch Vice President and October 30, 1998
- ------------------------------ Director
E. Thomas Welch
/s/ John J. Fauth Director October 30, 1998
- ------------------------------
John J. Fauth
/s/ A. Skidmore Thorpe Director October 30, 1998
- ------------------------------
A. Skidmore Thorpe
/s/ Donald S. Wilson Director October 30, 1998
- ------------------------------
Donald S. Wilson
/s/ Rolf Engh Director October 30, 1998
- ------------------------------
Rolf Engh
S-8
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
(1.1) Registrant's Restated Articles of Incorporation,
as amended*
(1.2) Articles of Amendment relating to Series D Common
Stock of Eastcliff Funds, Inc.*
(2) Registrant's By-Laws, as amended*
(3) None
(4) None
(5.1) Investment Advisory Agreement between Eastcliff Total
Return Fund (formerly Fiduciary Total Return Fund) and
Resource Capital Advisers, Inc.*
(5.2) Investment Advisory Agreement between Eastcliff Growth
Fund and Resource Capital Advisers, Inc. *
(5.3) Sub-Advisory Agreement among Eastcliff Growth Fund,
Resource Capital Advisers, Inc. and Winslow Capital
Management, Inc. *
(5.4) Sub-Advisory Agreement among Eastcliff Total Return
Fund, Resource Capital Advisers, Inc. and Palm Beach
Investment
Advisers, LLC. *
(5.5) Investment Advisory Agreement between Eastcliff Regional
Small Capitalization Value Fund and Resource Capital
Advisers, Inc. *
(5.6) Sub-Advisory Agreement among Eastcliff Regional Small
Capitalization Value Fund, Resource Capital Advisers, Inc.
and Woodland Partners LLC*
(5.7) Investment Advisory Agreement between Eastcliff Contrarian
Value Fund and Resource Capital Advisers, Inc.*
- ---------------------
* Incorporated by reference
Exhibit Index - Page 1
<PAGE>
Exhibit No. Exhibit Page No.
(5.8) Sub-Advisory Agreement among Eastcliff Contrarian Value
Fund, Resource Capital Advisers, Inc. and Sasco
Capital, Inc.*
(6) None
(7) None
(8.1) Custodian Agreement between Eastcliff Total Return Fund
(formerly Fiduciary Total Return Fund) and Firstar Trust
Company*
(8.2) Custodian Agreement between Eastcliff Growth Fund and
Firstar Trust Company*
(8.3) Custodian Agreement between Eastcliff Regional Small
Capitalization Value Fund and Firstar Trust Company*
(8.4) Custodian Agreement between Eastcliff Contrarian Value
Fund and Firstar Trust Company.*
(9.1) Administrative Agreement, including addendum, between
Eastcliff Total Return Fund (formerly Fiduciary Total
Return Fund) and Fiduciary Management, Inc. *
(9.2) Administrative Agreement, including addendum, between
Eastcliff Growth Fund and Fiduciary Management, Inc. *
(9.3) Administrative Agreement, including addendum, between
Eastcliff Regional Small Capitalization Value Fund and
Fiduciary Management, Inc. *
(9.4) Administrative Agreement, including addendum, between
Eastcliff Contrarian Value Fund and Fiduciary
Management, Inc.*
(10) Opinion of Foley & Lardner, Counsel for Registrant
- ------------------
* Incorporated by reference.
Exhibit Index - Page 2
<PAGE>
(11) Consent of PricewaterhouseCoopers LLP
(12) None
(13) Subscription Agreement*
(14.1) Eastcliff Funds (formerly Fiduciary Funds) Individual
Retirement Account*
(14.2) Eastcliff Funds (formerly Fiduciary Funds) Defined
Contribution Retirement Plan*
(14.3) Eastcliff Funds (formerly Fiduciary Funds) Simplified
Employee Pension*
(14.4) Eastcliff Funds Savings Incentive Match Program for Small
Employers ("SIMPLE") Individual Retirement Account*
(14.5) Eastcliff Funds Section 403(b)(7) Retirement Plan*
(15.1) Amended and Restated Servicing and Distribution Plan of
Eastcliff Funds, Inc. *
(15.2) Servicing and Distribution Agreement*
(16) Schedule for Computation of Performance Quotations*
(17) Financial Data Schedule
(18) None
- -----------------
*Incorporated by reference.
Exhibit Index - Page 3
EXHIBIT 10
October 30, 1998
Eastcliff Funds, Inc.
900 Second Avenue South, Suite 300
Minneapolis, Minnesota 55402
Gentlemen:
We have acted as counsel for you in connection with the preparation of
an Amended Registration Statement on Form N-1A relating to the sale by you of an
indefinite amount of Eastcliff Funds, Inc. Common Stock, $.01 par value (such
Common Stock being hereinafter referred to as the "Stock") in the manner set
forth in the Registration Statement to which reference is made. In this
connection we have examined: (a) the Amended Registration Statement on Form
N-1A; (b) your Articles of Incorporation and By-Laws, as amended to date; (c)
corporate proceedings relative to the authorization for issuance of the Stock;
and (d) such other proceedings, documents and records as we have deemed
necessary to enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the shares of
Stock when sold as contemplated in the Amended Registration Statement will be
legally issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an Exhibit to the
Amended Registration Statement on Form N-1A. In giving this consent, we do not
admit that we are experts within the meaning of Section 11 of the Securities Act
of 1933, as amended, or within the category of persons whose consent is required
by Section 7 of said Act.
Very truly yours,
/s/ Foley & Lardner
FOLEY & LARDNER
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
and Statement of Additional Information constituting parts of this
Post-Effective Amendment No. 18 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated July __, 1998, relating to the
financial statements and financial highlights appearing in the June 30, 1998
Annual Report to Shareholders of Eastcliff Funds, Inc., portions of which are
incorporated by reference into the Registration Statement. We also consent to
the reference to us under the heading "Independent Accountants" in such
Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
October __, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements of Eastcliff Funds, Inc. as of and for the year ended June 30, 1998
and is qulaified in its entirety by reference to such financial statements
</LEGEND>
<CIK> 0000796227
<NAME> EASTCLIFF FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> EASTCLIFF TOTAL RETURN FUND
<S> <C>
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<INVESTMENTS-AT-VALUE> 25,383
<RECEIVABLES> 95
<ASSETS-OTHER> 0
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<INTEREST-INCOME> 391
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<EXPENSES-NET> 307
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<NET-CHANGE-FROM-OPS> 6824
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<DISTRIBUTIONS-OF-INCOME> 322
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The schedule contains summary financial information extracted from the financial
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and is qulaified in its entirety by reference to such financial statements
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<CIK> 0000796227
<NAME> EASTCLIFF FUNDS, INC.
<SERIES>
<NUMBER> 2
<NAME> EASTCLIFF GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
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<INVESTMENTS-AT-COST> 39,047
<INVESTMENTS-AT-VALUE> 56,699
<RECEIVABLES> 12,038
<ASSETS-OTHER> 13
<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 12,058
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 98
<TOTAL-LIABILITIES> 12,156
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,457
<SHARES-COMMON-STOCK> 3,171
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<OVERDISTRIBUTION-NII> 0
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<INTEREST-INCOME> 68
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<EXPENSES-NET> 666
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<NET-CHANGE-FROM-OPS> 14,903
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<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2019
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The schedule contains summary financial information extracted from the financial
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and is qulaified in its entirety by reference to such financial statements
</LEGEND>
<CIK> 0000796227
<NAME> EASTCLIFF FUNDS, INC.
<SERIES>
<NUMBER> 3
<NAME> EASTCLIFF REGIONAL SMALL CAPITALIZATION VALUE FUND
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<INVESTMENTS-AT-VALUE> 62,186
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<INTEREST-INCOME> 237
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<EXPENSES-NET> 707
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<REALIZED-GAINS-CURRENT> 655
<APPREC-INCREASE-CURRENT> 4057
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<DISTRIBUTIONS-OF-INCOME> 14
<DISTRIBUTIONS-OF-GAINS> 241
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<TABLE> <S> <C>
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<LEGEND>
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</LEGEND>
<CIK> 0000796227
<NAME> EASTCLIFF FUNDS, INC.
<SERIES>
<NUMBER> 4
<NAME> EASTCLIFF CONTRARIAN FUND
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<EXPENSE-RATIO> 1.3
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
