ANNUAL REPORT
June 30, 1998
(Eastcliff Funds Logo)
Eastcliff Growth Fund
Eastcliff Total Return Fund
Eastcliff Regional Small
Capitalization Value Fund
Eastcliff Contrarian
Value Fund
NO-LOAD MUTUAL FUNDS
Eastcliff Growth Fund
July 29, 1998
Dear Shareholder:
The Eastcliff Growth Fund's investment objective is to produce long-term
growth of capital. It does so by holding a portfolio of equities that have the
prospect for strong future earnings growth and are attractively priced relative
to other investment opportunities. This philosophy includes large, mid and some
small market capitalization companies.
According to Indata, the S&P 500 outperformed more than 75% of all equity
mutual funds for the most recent four quarters. In the twelve months ended June
30, 1998, the Eastcliff Growth Fund appreciated 33.9%. This compares favorably
with the median equity mutual fund's performance of 27.0% and the 30.3% return
posted by the S&P 500 index.
The Fund's overweighted positions in technology, healthcare and consumer
cyclical companies were additive to results in the first six months of 1998. The
best performing holdings in the Technology sector for the six months were Cisco
Systems and Microsoft with price moves of 65%. The portfolio's average
technology stock appreciated 31% for the first two quarters. The Eastcliff
Growth Fund's healthcare investments on average moved up 40%, with Warner-
Lambert's 68% move leading the way. In addition, the specialty retailers owned
in the portfolio advanced 35%, with Tommy Hilfiger up over 75%. During the same
time period the Finance and Energy sectors detracted from the overall return. In
the Financials sector, the average holding appreciated 7%. We are slightly
overweighted in the Energy sector and our companies declined 14%, but it is a
small part of the portfolio and the long-term outlook is favorable.
The investment philosophy guidelines have led us to overweighted positions in
the Consumer Cyclical, Technology and Healthcare sectors relative to our
benchmark. We look for individual stocks in these sectors to report strong
earnings and do not foresee the need to position the Fund differently for the
upcoming quarters. In the most recent quarter, the average reported earnings
gain for the companies in your portfolio was 30%.
As of July 29, 1998, your Board of Directors declared a distribution of
$0.78224 per share from net short-term gains and $2.25275 per share from net
long-term capital gains, payable July 30, 1998, to shareholders of record on
July 28, 1998.
The NASDAQ Symbol for the Eastcliff Growth Fund is EASGX.
We appreciate all of your support and interest in the Fund and look forward
to providing each of our shareholders with favorable investment returns over the
long term.
Respectfully submitted,
/s/ Clark J. Winslow
Clark J. Winslow
Portfolio Manager
Past performance cannot guarantee future results. Prices will fluctuate and
redemption value may be more or less than original investment. This Fund is not
insured by the FDIC and is not a deposit or other obligation of or guaranteed by
Resource Trust Company or any of its affiliates.
Eastcliff Growth Fund
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
June 30, 1998
Over the past several years investors have been treated to one blockbuster
year after another. However, the second quarter of 1998 saw greater volatility
in the market averages and market sectors than the one-way rise in the first
quarter. Specifically, from its mid-May high the Dow Jones Industrial Average
fell by 7% (700 points) before rising at quarter end. The Transportation Index
fell by 12% (450 points) before rebounding. Investor returns also were lower.
The largest capitalized companies, as measured by the Russell 1000 Growth Index,
appreciated 8.6% in the quarter ending June 30, 1998. In comparison the smallest
capitalization sector declined 10.1% for the same time period.
For the twelve months ending June 30, 1998, the portfolio outperformed its
benchmark. The results can be attributed to a combination of strong stock
selection and moderate value added by sector allocation. Our research and stock
selection efforts were seen in overweighted positions in consumer cyclical,
healthcare, financial and technology companies. Many of the stocks that
performed strongly in 1997 have continued to move ahead in the first half of
1998. The strongest performing stocks in your portfolio over the last six months
would include Tommy Hilfiger (+78%), Warner Lambert (+68%), Microsoft (+68%) and
Cisco Systems (+65%).
In an environment of slowing corporate profits, stock and sector selection
become increasingly important. Our optimism for second half performance in our
portfolio, despite the prospect of the market being relatively flat, is based on
the Fund's emphasis in sectors showing domestic growth such as retailers,
healthcare and financial services. We think over the next six months there will
be several earnings disappointments and investment performance may be more
dependent on avoiding the losers rather than identifying the winners.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
EASTCLIFF GROWTH FUND, RUSSELL 1000 GROWTH INDEX AND STANDARD & POOR'S 500 STOCK
INDEX
AVERAGE ANNUAL TOTAL RETURN
1-Year +33.9%
Since inception 7/1/95 +23.1%
Eastcliff Russell 1000 Standard & Poor's
date Growth Fund Growth Index**<F3> 500 Stock Index*<F2>
7/1/95*<F1> 10,000 10,000 10,000
9/30/95 10,990 10,980 10,799
12/31/95 10,860 11,480 11,440
3/31/96 11,680 12,096 12,064
6/30/96 12,560 12,865 12,612
9/30/96 13,080 13,329 13,000
12/31/96 12,690 14,134 14,100
3/31/97 11,530 14,210 14,469
6/30/97 13,920 14,287 16,994
9/30/97 15,280 15,361 18,287
12/31/97 15,532 15,594 18,807
3/31/98 17,943 17,957 21,432
6/30/98 18,632 18,772 22,144
*<F1> Inception date
Past Performance is not predictive of future performance.
*<F2> 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.
**<F3> The Russell 1000 Growth Index contains those Russell 1000 securities
with a greater-than-average growth orientation. Securities in this Index tend
to exhibit higher price-to-book and price-earnings ratios, lower dividend
yields and higher forecasted growth values than the Value universe.
Eastcliff Growth Fund
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
ASSETS:
Investments in securities, at value (cost $39,046,760) $56,698,849
Receivable from investments sold 12,018,560
Dividend receivable 15,934
Interest receivable 4,056
Deferred organizational expenses 12,602
----------
Total assets $68,750,001
----------
----------
LIABILITIES:
Payable to brokers for investments purchased $12,058,185
Payable to adviser for management
fees and deferred expenses 57,714
Other liabilities 40,403
----------
Total liabilities 12,156,302
----------
NET ASSETS:
Capital Stock, $0.01 par value; 300,000,000
shares authorized; 3,171,236 shares outstanding 29,456,762
Net unrealized appreciation on investments 17,652,089
Undistributed net realized gains on investments 9,484,848
----------
Net assets 56,593,699
----------
Total liabilities and net assets $68,750,001
----------
----------
CALCULATION OF REDEMPTION PRICE:
Net asset value and redemption price per share
($56,593,699 / 3,171,236 shares outstanding) $ 17.85
----------
----------
The accompanying notes to financial statements are an integral part of this
statement.
Eastcliff Growth Fund
SCHEDULE OF INVESTMENTS
June 30, 1998
SHARES OR QUOTED
PRINCIPAL MARKET
AMOUNT COST VALUE
------ ----- -----
LONG-TERM INVESTMENTS -- 98.5% (A)<F5>
COMMON STOCKS -- 98.5% (A)<F5>
CAPITAL GOODS SECTOR -- 7.5%
- ----------------------------
MANUFACTURE-DIVERSE -- 4.5%
32,400 Thermo Electron Corp.*<F4> $ 1,331,885 $ 1,107,691
22,700 Tyco International Ltd. 829,485 1,430,100
---------- ----------
2,161,370 2,537,791
WASTE MANAGEMENT -- 3.0%
34,100 USA Waste Services, Inc.*<F4> 06,037 1,683,687
COMMUNICATION SERVICES SECTOR -- 2.2%
- -------------------------------------
TELECOMMUNICATION-LONG DISTANCE -- 2.2%
25,900 WorldCom, Inc.* <F4> 1,213,450 1,254,544
CONSUMER CYCLICALS SECTOR -- 24.6%
- ----------------------------------
BUILDING MATERIALS -- 2.3%
22,100 Masco Corp. 1,283,444 1,337,050
LODGING-HOTELS -- 3.3%
30,800 Carnival Corp. 1,175,171 1,220,450
36,400 Prime Hospitality Corp.* <F4> 801,437 634,743
---------- ----------
1,976,608 1,855,193
RETAIL-BUILDING SUPPLY -- 4.1%
27,900 The Home Depot, Inc. 762,202 2,317,458
RETAIL-DEPARTMENT STORES -- 5.1%
44,682 Dollar General Corp. 412,544 1,767,754
21,600 Kohl's Corp.* <F4> 261,740 1,120,500
---------- ---------
674,284 2,888,254
RETAIL-GENERAL MERCHANDISE -- 2.6%
24,100 Wal-Mart Stores, Inc. 1,445,212 1,464,075
SERVICES-ADVERTISING/MARKETING -- 1.9%
17,000 Cognizant Corp. 636,554 1,071,000
SERVICES-COMMERCIAL & CONSUMER -- 3.3%
44,300 Cendant Corp.* <F4> 1,090,254 924,763
28,000 Gartner Group, Inc.* <F4> 799,587 980,000
---------- ----------
1,889,841 1,904,763
TEXTILES-APPAREL -- 2.0%
18,000 Tommy Hilfiger Corp.* <F4> 536,851 1,125,000
CONSUMER STAPLES SECTOR -- 4.8%
- -------------------------------
DISTRIBUTION (FOOD & HEALTH) -- 0.9%
11,100 Bergen Brunswig Corp. 506,177 514,762
RESTAURANTS -- 3.9%
28,125 Papa John's International, Inc.*<F4> 572,919 1,109,194
20,500 Starbucks Corp.* <F4> 698,464 1,095,479
--------- ---------
1,271,383 2,204,673
ENERGY SECTOR -- 3.3%
- ---------------------
OIL & GAS DRILLING & EQUIPMENT -- 3.3%
28,300 Santa Fe International Corp. 962,878 856,075
14,600 Schlumberger Ltd. 870,433 997,370
--------- ---------
1,833,311 1,853,445
FINANCIALS SECTOR -- 12.0%
- --------------------------
BANKS-MAJOR REGIONAL -- 2.2%
33,000 Norwest Corp. 1,370,862 1,233,375
BANKS-MONEY CENTER -- 2.7%
17,900 BankAmerica Corp. 1,559,428 1,547,240
CONSUMER FINANCE -- 2.0%
33,650 MBNA Corp. 335,653 1,110,450
FINANCIAL (DIVERSE) -- 3.3%
31,100 Fannie Mae 1,970,057 1,889,325
INSURANCE-PROPERTY -- 1.8%
18,200 MGIC Investment Corp. 514,441 1,038,547
HEALTHCARE SECTOR -- 11.9%
- --------------------------
DIVERSE -- 2.8%
23,100 Warner-Lambert Co. 1,541,123 1,602,562
DRUGS MAJOR -- 3.8%
10,300 Merck & Co., Inc. 842,962 1,377,625
7,200 Pfizer Inc. 158,894 782,554
---------- ----------
1,001,856 2,160,179
MANAGED CARE -- 1.0%
8,700 United Healthcare Corp. 543,184 552,450
MEDICAL PRODUCTS & SUPPLIES -- 1.5%
13,400 STERIS Corp.* <F4> 366,825 852,160
SPECIALIZED SERVICES -- 2.8%
41,500 Omnicare, Inc. 1,060,994 1,582,187
TECHNOLOGY SECTOR -- 32.2%
- --------------------------
COMMUNICATION-EQUIPMENT -- 3.0%
47,300 ADC Telecommunications, Inc.*<F4> 1,294,473 1,727,916
COMPUTER SOFTWARE/SERVICES -- 20.4%
36,875 Computer Associates International, Inc. 1,387,489 2,048,886
39,400 HBO & Co. 1,273,112 1,388,850
17,900 HNC Software Inc.*<F4> 668,574 730,553
6,600 Microsoft Corp.*<F4> 139,129 715,275
25,350 Networks Associates, Inc.*<F4> 1,160,813 1,213,631
75,200 Parametric Technology Corp.*<F4> 1,077,727 2,039,800
20,100 PeopleSoft, Inc.*<F4> 134,519 944,700
29,100 Sterling Commerce, Inc.*<F4> 865,460 1,411,350
23,400 Synopsys, Inc.*<F4> 1,046,444 1,070,550
---------- ----------
7,753,267 11,563,595
COMPUTERS-NETWORKING -- 5.3%
32,350 Cisco Systems Inc.*<F4> 566,373 2,978,238
SERVICES-DATA PROCESSING -- 3.5%
30,000 Fiserv, Inc.* <F4> 1,135,491 1,274,070
17,962 Paychex, Inc. 191,987 730,838
---------- ----------
1,327,478 2,004,908
---------- ----------
Total common stocks 38,202,738 55,854,827
---------- ----------
Total long-term investments 38,202,738 55,854,827
SHORT-TERM INVESTMENTS -- 1.5% (A)<F5>
VARIABLE RATE DEMAND NOTE
$844,022 Firstar Bank U.S.A., N.A. 844,022 844,022
---------- ----------
Total short-term investments 844,022 844,022
---------- ----------
TOTAL INVESTMENTS - 100% $39,046,760 $56,698,849
---------- ----------
---------- ----------
*<F4> Non-income producing security.
(a)<F5> Percentages for the various classifications relate to total
investments.
The accompanying notes to financial statements are an integral part of this
schedule.
Eastcliff Growth Fund
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1998
INCOME:
Dividends $ 149,482
Interest 68,119
----------
Total income 217,601
----------
EXPENSES:
Management fees 512,180
Administrative services 76,677
Professional fees 23,712
Transfer agent fees 15,800
Custodian fees 14,670
Amortization of organizational expenses 6,301
Printing and postage expense 3,913
Registration fees 2,084
Other expenses 11,022
----------
Total expenses 666,359
----------
NET INVESTMENT LOSS (448,758)
----------
NET REALIZED GAIN ON INVESTMENTS 13,570,020
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 1,782,157
----------
NET GAIN ON INVESTMENTS 15,352,177
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $14,903,419
----------
----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1998 and June 30, 1997
1998 1997
---------- ----------
OPERATIONS:
Net investment loss $ (448,758) $ (437,091)
Net realized gain (loss) on investments 13,570,020 (70,019)
Net increase in unrealized appreciation
on investments 1,782,157 5,204,147
---------- ----------
Net increase in net assets
resulting from operations 14,903,419 4,697,037
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distribution from net realized
gains ($0.63 per share) (2,019,090) --
---------- ----------
Total distributions (2,019,090)*<F6> --
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(327,564 and 517,469 shares, respectively) 5,032,445 6,481,669
Net asset value of shares issued
in distribution (140,578 shares) 2,018,697 --
Cost of shares redeemed
(628,274 and 865,221 shares, respectively) (9,730,677) (10,982,363)
---------- ----------
Net decrease in net assets
derived from Fund share activities (2,679,535) (4,500,694)
---------- ----------
TOTAL INCREASE 10,204,794 196,343
NET ASSETS AT THE BEGINNING OF THE YEAR 46,388,905 46,192,562
---------- ----------
NET ASSETS AT THE END OF THE YEAR $56,593,699 $46,388,905
---------- ----------
---------- ----------
*<F6> See Note 8.
The accompanying notes to financial statements are an integral part of these
statements.
Eastcliff Growth Fund
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
FOR THE FOR THE PERIOD FROM
YEARS ENDED JUNE 30, JULY 1, 1995*<F7>
------------------- TO
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)<F8> (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)<F9> 1.3% 1.3% 1.3%
Ratio of net investment loss to
average net assets (c)<F10> (0.9)% (1.0%) (0.8%)
Portfolio turnover rate 93.3% 54.3% 40.3%
</TABLE>
*<F7> Commencement of operations.
(a)<F8> Net investment loss per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax differences.
(b)<F9> 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)<F10> 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.
The accompanying notes to financial statements are an integral part of this
statement.
Eastcliff Total Return Fund
July 29, 1998
Dear Shareholder:
The Eastcliff Total Return Fund performed well over the fiscal year ending
June 30, 1998. The Fund gained 33.3% compared to the S&P 500 Index, which was up
30.3% for the same period. I am pleased to report that for the twelve months
ended June 30, 1998, your Fund ranked first in the Flexible Portfolio Fund
Category as tracked by Lipper Analytical Services, a leading mutual fund rating
company. The average annual compounded rate of return of the Fund for the five
and ten years ending June 30 was 19.4% and 14.5%.
During the first quarter of 1998, the market showed remarkable resilience
from the October downdraft. Investors used this as a buying opportunity. Your
Fund benefited as investors came in to buy high quality brand name companies in
a "flight to quality."
The four top sectors in the Fund are technology, healthcare, financials, and
consumer staples. The best performing individual holdings over the past twelve
months were: Lucent Technologies, Plantronics, Nokia Corp. ADR, Texas
Industries, and Pfizer, Inc. New stocks added in 1998 included: Cisco Systems,
the market leader in computer networking technology; America Online, the leading
internet and online service provider; Medtronic, Inc., manufacturer of medical
devices including pacemakers and heart valves; and Worldcom, Inc., a
telecommunications company serving customers in the United States and
internationally.
The asset allocation as of June 30, 1998 was 80% equities, 18% bonds, and 2%
cash. I believe we will continue to see volatility in the market as the impact
of Asia's turmoil continues to unfold. I feel confident in our companies' growth
prospects and ability to generate strong returns; however, I would expect more
modest results going forward.
As of July 29, 1998, your Board of Directors declared a dividend of $0.09456
per share from net investment income and a distribution of $1.0583 per share
from net long-term capital gains, payable July 30, 1998, to shareholders of
record on July 28, 1998.
In closing, I would like to thank you for investing in the Eastcliff Total
Return Fund.
Sincerely,
/s/ Patrice J. Neverett
Patrice J. Neverett
Portfolio Manager
Past performance cannot guarantee future results. Prices will fluctuate and
redemption value may be more or less than original investment. This Fund is not
insured by the FDIC and is not a deposit or other obligation of or guaranteed by
Resource Trust Company or any of its affiliates.
Eastcliff Total Return Fund
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
June 30, 1998
The stock market has been pushed to new heights over the past year as a
result of low interest rates, minimal inflation, and steady corporate earnings.
The gross domestic product, perhaps the best indication of U.S. economic
strength, surged from 3.7% in the fourth quarter of 1997 to 4.2% in the first
quarter of 1998. The unemployment level was at a 24-year low.
Trends which have enhanced overall economic growth include tremendous
advances in technology and a record level of mergers and acquisitions. This
consolidation enables industries to improve profitability and, in turn, drives
stock prices higher.
The objective of the Eastcliff Total Return Fund is to realize a combination
of capital appreciation and income resulting in the highest total return, while
assuming reasonable risks. In seeking to attain the Total Return Fund's
objective, no minimum or maximum percentage of the Fund's assets is required to
be invested in a specific asset class. At times, the Fund may be 100% invested
in common stocks. During the fiscal year ended June 30, 1998, we maintained an
asset allocation approximating 80% common equities and 20% fixed income.
Over the past year, the Fund maintained its sector emphasis in technology,
healthcare, financials, and consumer staples. The Fund is dedicated to high
quality "brand name" companies with superior products and excellent management.
Although we remain positive about the market; going forward, we will continue to
cautiously select investments based on solid company fundamentals.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
EASTCLIFF TOTAL RETURN FUND, STANDARD & POOR'S 500 STOCK INDEX,
NASDAQ COMPOSITE INDEX AND LEHMAN INTERMEDIATE CORPORATE BOND INDEX
AVERAGE ANNUAL TOTAL RETURN
1-Year +33.3%
5-Year +19.4%
10-Year +14.5%
<TABLE>
Lehman
Eastcliff Total Standard & Poor's Nasdaq Intermediate Corporate
date Return Fund 500 Stock Index*<F11>Composite Index**<F12> Bond Index***<F13>
<S> <C> <C> <C> <C>
9/30/88 10,000 10,000 10,000 10,000
9/30/89 11,680 13,270 12,190 10,970
9/30/90 10,103 12,036 8,874 11,891
9/30/91 13,003 15,815 13,569 13,544
9/30/92 14,719 17,571 15,034 15,265
9/30/93 16,692 19,855 19,680 16,516
9/30/94 17,059 20,570 19,719 16,235
6/30/95 18,372 24,725 24,077 17,778
6/30/96 23,039 31,178 30,578 18,720
6/30/97 29,513 41,996 37,213 20,236
6/30/98 39,341 54,721 48,898 21,956
Past performance is not predictive of future performance.
*<F11> 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.
**<F12> The Nasdaq Composite Index is a market capitalization price only
index that tracks the performance of domestic common stocks traded on the
regular Nasdaq market as well as National Market System - traded foreign
common stocks and ADRs.
***<F13> The Lehman Intermediate Corporate Bond Index includes all
Intermediate publicly issued, fixed rate debt issues rated investment grade
or higher, nonconvertible investment grade, dollar denominated, SEC-
registered corporate debt. The Index includes Bonds with maturities of one to
ten years and have outstanding par values of at least $100 million.
Eastcliff Total Return Fund
STATEMENT OF NET ASSETS
June 30, 1998
SHARES OR QUOTED
PRINCIPAL MARKET
AMOUNT COST VALUE
------ ----- -----
LONG-TERM INVESTMENTS -- 98.5% (A)<F15>
COMMON STOCKS -- 80.4% (A)<F15>
BASIC MATERIALS SECTOR -- 1.2%
- ------------------------------
IRON & STEEL -- 1.2%
5,700 Texas Industries, Inc. $277,005 $302,100
CAPITAL GOODS SECTOR -- 3.2%
- ----------------------------
ELECTRICAL EQUIPMENT -- 3.2%
9,000 General Electric Co. (U.S.) 241,832 819,000
COMMUNICATION SERVICES SECTOR -- 1.9%
- -------------------------------------
TELECOMMUNICATIONS-LONG DISTANCE -- 1.9%
10,000 WorldCom, Inc.*<F14> 379,350 484,380
CONSUMER STAPLES SECTOR -- 9.7%
- -------------------------------
BEVERAGES-SOFT DRINK -- 3.4%
10,000 The Coca-Cola Co. 351,275 855,000
HOUSEHOLD PRODUCTS -- 3.2%
4,000 Clorox Co. 179,620 381,500
5,000 Colgate-Palmolive Co. 202,700 440,000
---------- ----------
382,320 821,500
PERSONAL CARE -- 3.1%
14,000 Gillette Co. 336,045 793,632
ENERGY SECTOR -- 1.0%
- ---------------------
OIL-DOMESTIC -- 1.0%
7,000 USX-Marathon Group 140,420 240,191
FINANCIALS SECTOR -- 12.7%
- --------------------------
BANKS-MAJOR REGIONAL -- 0.5%
3,000 SouthTrust Corp. 102,000 130,500
BANKS-MONEY CENTER -- 8.8%
4,000 Citicorp 162,490 597,000
21,375 NationsBank Corp. 459,830 1,635,187
---------- ----------
622,320 2,232,187
INSURANCE-MULTILINE -- 3.4%
6,000 American International Group, Inc. 273,556 876,000
HEALTHCARE SECTOR -- 22.3%
- --------------------------
DIVERSE -- 7.8%
11,000 Bristol-Myers Squibb Co. 379,892 1,264,318
10,000 Johnson & Johnson 299,675 737,500
---------- ----------
679,567 2,001,818
DRUGS MAJOR -- 13.0%
12,000 Eli Lilly & Co. 449,610 792,756
2,500 Merck & Co., Inc. 108,690 334,375
20,000 Pfizer Inc. 486,920 2,173,760
---------- ----------
1,045,220 3,300,891
MEDICAL PRODUCTS & SUPPLIES -- 1.5%
6,000 Medtronic, Inc. 324,210 382,500
TECHNOLOGY SECTOR -- 26.7%
- --------------------------
COMMUNICATION-EQUIPMENT -- 12.0%
14,000 Lucent Technologies Inc. 583,358 1,164,632
12,000 Nokia Corp. "A" ADR 384,360 870,756
20,000 Plantronics, Inc.*<F14> 373,000 1,030,000
---------- ----------
1,340,718 3,065,388
COMPUTER HARDWARE -- 4.5%
20,000 Compaq Computer Corp. 186,615 567,500
5,000 International Business
Machines Corp. 199,463 574,065
---------- ----------
386,078 1,141,565
COMPUTER SOFTWARE/SERVICES -- 6.9%
6,000 America Online Inc.* <F14> 384,680 636,000
10,400 Microsoft Corp.* <F14> 302,226 1,127,100
---------- ----------
686,906 1,763,100
COMPUTERS-NETWORKING -- 2.2%
6,000 Cisco Systems Inc.* <F14> 468,750 552,378
ELECTRONICS-SEMICONDUCTORS -- 1.1%
3,800 Intel Corp. 133,423 281,675
UTILITIES SECTOR -- 1.7%
- ------------------------
ELECTRIC COMPANIES -- 1.7%
7,310 Duke Energy Corp. 178,898 433,118
---------- ----------
Total common stocks 8,349,893 20,476,923
FEDERAL AGENCIES -- 18.1% (A)<F15>
$500,000 FNMA, 7.55%, due 06/10/04 500,000 507,735
500,000 FNMA, 6.40%, due 01/14/05 500,000 498,401
100,000 FHLB, 7.375%, due 07/09/07 100,000 100,047
1,000,000 FHLMC, 6.718%, due 02/12/08 1,000,000 998,793
500,000 FHLMC, 6.80%, due 03/10/08 499,698 500,357
500,000 FNMA, 6.48%, due 04/02/08 499,082 500,718
1,000,000 FNMA, 6.625%, due 04/15/08 998,776 996,842
500,000 FNMA, 6.23%, due 04/16/08 497,858 500,191
---------- ----------
Total federal agencies 4,595,414 4,603,084
---------- ----------
Total long-term investments 12,945,307 25,080,007
SHORT-TERM INVESTMENTS -- 1.2% (A)<F15>
VARIABLE RATE DEMAND NOTE
$303,286 Firstar Bank U.S.A., N.A. 303,286 303,286
---------- ----------
Total short-term investments 303,286 303,286
---------- ----------
Total investments $13,248,593 25,383,293
----------
----------
Cash and receivables, less
liabilities 0.3% (A)<F15> 70,794
----------
Net Assets $25,454,087
----------
----------
Net Asset Value Per Share
($0.01 par value 300,000,000
shares authorized), offering
and redemption price
($25,454,087 / 1,183,764
shares outstanding) $ 21.50
----------
----------
*<F14> Non-income producing security.
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corp.
FNMA = Federal National Mortgage Association
(a)<F15> Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
Eastcliff Total Return Fund
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1998
INCOME:
Dividends $ 196,640
Interest 391,196
---------
Total income 587,836
---------
EXPENSES:
Management fees 236,368
Administrative services 47,236
Professional fees 23,145
Transfer agent fees 13,374
Custodian fees 5,426
Registration fees 3,201
Printing and postage expense 3,150
Other expenses 2,830
---------
Total expenses before reimbursement 334,730
Less expenses assumed by adviser (27,489)
---------
Net expenses 307,241
---------
NET INVESTMENT INCOME 280,595
---------
NET REALIZED GAIN ON INVESTMENTS 1,218,630
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 5,324,182
---------
NET GAIN ON INVESTMENTS 6,542,812
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,823,407
---------
---------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1998 and 1997
1998 1997
---------- ----------
OPERATIONS:
Net investment income $ 280,595 $ 291,137
Net realized gain on investments 1,218,630 1,161,127
Net increase in unrealized
appreciation on investments 5,324,182 3,367,773
---------- ----------
Net increase in net assets
resulting from operations 6,823,407 4,820,037
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.2494 and $0.11856 per share,
respectively) (321,741) (147,615)
Distributions from net realized gains
($0.52647 and $1.33951 per share,
respectively) (680,452) (1,639,171)
---------- ----------
Total distributions (1,002,193)*<F16> (1,786,786)
---------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(163,200 and 186,332 shares, respectively) 2,976,105 2,803,684
Net asset value of shares issued
in distributions (40,964 and 122,270
shares, respectively) 697,988 1,640,933
Cost of shares redeemed (303,025 and
243,315 shares, respectively) (5,667,671) (3,650,816)
---------- ----------
Net (decrease) increase in net
assets derived from Fund share
activities (1,993,578) 793,801
---------- ----------
TOTAL INCREASE 3,827,636 3,827,052
NET ASSETS AT THE BEGINNING OF THE YEAR 21,626,451 17,799,399
---------- ----------
NET ASSETS AT THE END OF THE YEAR
(including undistributed net investment
income of $108,880 and $150,041,
respectively) $25,454,087 $21,626,451
---------- ----------
---------- ----------
*<F16> See Note 8.
The accompanying notes to financial statements are an integral part of these
statements.
Eastcliff Total Return Fund
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each year)
</TABLE>
<TABLE>
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)<F20> 33.3% 28.1% 25.4% 10.4%(a)<F17> 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)<F18> 1.3% 1.3% 1.3% 1.5%(a)<F17> 2.0% 2.0% 2.7% 2.0% 2.4% 3.0%
Ratio of net investment income
to average net
assets(c)<F19> 1.2% 1.5% 0.7% 2.5%(a)<F17> 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)<F17> Annualized.
(b)<F18> 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)<F19> 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)<F20> Effective December 31, 1994, the Fund changed investment advisers from
Fiduciary Management, Inc. to Resource Capital Advisers, Inc.
The accompanying notes to financial statements are an integral part of this
statement.
Eastcliff Regional Small Capitalization Value Fund
July 29, 1998
Dear Shareholder:
The degree of reward for investors in the first half of 1998 has been almost
directly proportional to their proximity to large cap stocks. If you owned
shares in the large companies you generally had reason to cheer, whereas
ownership in smaller companies offered less reward.
Your portfolio, which by its charter is invested in small capitalization
companies, produced a return of 3.6% for the first half of 1998, versus its
benchmark Russell 2000 Index portfolio return of 4.9%. At June 30, 1998 the
funds assets were $62 million and the net asset value had appreciated to $13.56.
Notwithstanding the rewards that favored large companies, we had several
investments that turned in excellent performance: Federal-Mogal Corp., a
Michigan based manufacturer of parts for automobiles and light trucks which is
undergoing significant operational restructuring that should enhance the long-
term earnings power was up 66%; Fingerhut, a database catalog marketing company
was up 54%; National Computer Systems, a manufacturer and marketer of automated
information systems and educational testing software, up 36%; and Graco, a
designer, manufacturer and marketer of fluid control systems was up 40%.
As of July 29, 1998, your Board of Directors declared a distribution of
$0.06884 per share from net short-term gains and $0.04556 per share from net
long-term capital gains, payable July 30, 1998, to shareholders of record on
July 28, 1998.
In closing, let us point out that we have endured similar periods in the past
twenty years, where the attention and "fun" have been in areas other than small
capitalization companies. Tending to the portfolio by investing in the best
companies we can find until the pendulum "swings back" to favor our arena has
generally produced excellent rewards for our patience and diligence.
Sincerely,
/s/ Richard W. Jensen /s/ Elizabeth M. Lilly /s/ Richard J. Rinkoff
Richard W. Jensen Elizabeth M. Lilly Richard J. Rinkoff
Portfolio Manager Portfolio Manager Portfolio Manager
Past performance cannot guarantee future results. Prices will fluctuate and
redemption value may be more or less than original investment. This Fund is not
insured by the FDIC and is not a deposit or other obligation of or guaranteed by
Resource Trust Company or any of its affiliates.
Eastcliff Regional Small Capitalization Value Fund
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
June 30, 1998
Woodland Partners is often asked for its opinion about the level of the stock
market and general economic conditions. We spend only a nominal amount of time
trying to determine the future direction of the economy, interest rates or the
stock market. We don't know with any useful precision whether the economy will
speed up or slow down, interest rates will rise or fall or whether inflation
will rear its ugly head. Rather than focusing in the level of the market, our
task is to concentrate every day on investing in the best companies we can find
for the Fund. Longer term, we continue to believe that compounding money at a
steady rate is the best strategy and that stocks will provide better returns
than bonds or cash. The economic environment in the first six months of 1998 has
been very favorable. As we enter the second half, we see nothing that will
materially disturb the current environment which is beneficial for equity
ownership. We will always stay alert to change but focus our time where we
believe we have an edge that will benefit the Fund.
At present, we have forty-nine companies represented in the portfolio. As
managers of a capital appreciation fund, we believe in investing a relatively
high portion of the portfolio in a limited number of companies. We follow a
bottom-up strategy to investing that pays nominal attention to forecasting the
economy or moves in interest rates. Instead, we focus on investing in the best
companies we can find with strong managements and that are undervalued by the
market.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
EASTCLIFF REGIONAL SMALL CAPITALIZATION VALUE FUND AND RUSSELL 2000 INDEX
AVERAGE ANNUAL TOTAL RETURN
1-Year +11.7%
Since inception 9/16/96 +19.2%
Eastcliff Regional Small
date Capitalization Value Fund Russell 2000 Index*<F22>
9/16/96*<F21> 10,000 10,000
9/30/96 9,850 10,128
12/31/96 10,908 10,655
3/31/97 10,517 10,104
6/30/97 12,251 11,742
9/30/97 13,847 13,489
12/31/97 13,209 13,030
3/31/98 14,168 14,346
6/30/98 13,683 13,672
*<F21> inception date 9/16/96
Past performance is not predictive of future performance.
*<F22> The Russell 2000 Index is an index comprised of 2000 publicly traded
small capitalization common stocks that are ranked in terms of capitalization
below the large and mid-range capitalization sectors of the United States
equity market. The Russell 2000 Index is a trademark/service mark of the
Frank Russell Company.
Eastcliff Regional Small Capitalization Value Fund
STATEMENT OF NET ASSETS
June 30, 1998
SHARES OR QUOTED
PRINCIPAL MARKET
AMOUNT COST VALUE
------ ----- ------
LONG-TERM INVESTMENTS -- 97.6% (A)<F24>
COMMON STOCKS -- 97.6% (A)<F24>
BASIC MATERIALS SECTOR -- 12.5%
- -------------------------------
CHEMICALS -- 2.3%
62,500 Geon Co. $1,301,909 $1,433,625
CHEMICALS-SPECIALTY -- 8.0%
66,300 Ferro Corp. 1,583,884 1,678,252
36,700 H.B. Fuller Co. 1,994,607 2,034,575
107,100 Material Sciences Corp.*<F23> 1,416,712 1,245,037
---------- ----------
4,995,203 4,957,864
IRON & STEEL -- 0.6%
48,300 Dynamic Materials Corp.* <F23> 477,192 380,362
METALS MINING -- 1.6%
51,200 Citation Corp.* <F23> 843,616 1,024,000
CAPITAL GOODS SECTOR -- 24.0%
- -----------------------------
AEROSPACE/DEFENSE -- 2.6%
26,100 Alliant Techsystems Inc.* <F23> 1,500,006 1,650,825
CONTAINERS (METAL/GLASS) -- 1.8%
75,600 U.S. Can Corp.* <F23> 1,274,843 1,110,413
ELECTRICAL EQUIPMENT -- 1.9%
75,000 MagneTek, Inc.* <F23> 1,375,695 1,181,250
MANUFACTURE-DIVERSE -- 10.8%
20,100 Binks Sames Corp. 845,406 878,129
47,300 Graco Inc. 984,054 1,649,587
50,600 IDEX Corp. 1,563,074 1,745,700
33,700 Premark International, Inc. 868,860 1,086,825
53,920 U.S. Industries, Inc. 1,198,493 1,334,520
---------- ----------
5,459,887 6,694,761
MANUFACTURE-SPECIAL -- 3.7%
58,700 Donaldson Co., Inc. 1,079,832 1,386,788
49,600 OmniQuip International, Inc 839,081 917,600
---------- ----------
1,918,913 2,304,388
OFFICE EQUIPMENT & SUPPLIES -- 3.2%
82,200 National Computer Systems, Inc. 1,087,787 1,972,800
CONSUMER CYCLICALS SECTOR -- 29.3%
- ----------------------------------
AUTO PARTS & EQUIPMENT -- 12.2%
49,500 Federal-Mogul Corp. 1,465,554 3,341,250
30,200 SPX Corp.* <F23> 1,337,073 1,944,125
67,300 Standard Motor Products, Inc. 1,259,700 1,497,425
18,700 Tower Automotive, Inc.* <F23> 683,638 801,763
---------- ----------
4,745,965 7,584,563
CONSUMER (JEWELRY/GIFT) -- 0.8%
16,300 Enesco Group Inc. 426,542 501,225
FOOTWEAR -- 2.4%
100,100 The Stride Rite Corp. 1,322,300 1,507,806
PUBLISHING-NEWSPAPER -- 3.5%
31,000 Central Newspapers, Inc. 1,787,822 2,162,250
RETAIL-COMPUTER & ELECTRIC -- 0.3%
9,600 RDO Equipment Co.* 160,899 160,800
RETAIL-GENERAL MERCHANDISE -- 3.0%
57,100 Fingerhut Companies,Inc. 1,112,286 1,884,300
RETAIL-SPECIALTY -- 1.3%
56,100 Funco, Inc.* <F23> 837,485 792,412
SERVICES-ADVERTISING/MARKETING -- 3.7%
92,200 AC Nielsen Corp.* <F23> 1,841,370 2,328,050
TEXTILES-APPAREL -- 2.1%
99,000 Sport-Haley, Inc.* <F23> 1,505,596 1,299,375
CONSUMER STAPLES SECTOR -- 12.9%
- --------------------------------
ENTERTAINMENT -- 1.6%
96,800 LodgeNet
Entertainment Corp.* <F23> 1,160,648 980,100
FOODS -- 7.2%
28,800 Corn Products
International, Inc.* <F23> 980,670 975,600
105,900 International Multifoods Corp. 2,390,408 2,912,250
28,100 Vlasic Foods
International, Inc.* <F23> 617,691 565,513
---------- ----------
3,988,769 4,453,363
RESTAURANTS -- 1.7%
68,000 VICORP Restaurants, Inc.* <F23> 1,033,067 1,045,500
SPECIALTY PRINTING -- 2.4%
67,700 Merrill Corp. 1,107,944 1,493,665
ENERGY SECTOR -- 0.7%
- ---------------------
OIL-EXPLORATION & PRODUCTS -- 0.7%
22,100 Basin Exploration, Inc.* <F23> 398,340 389,513
2,600 St. Mary Land & Exploration Co. 94,081 62,725
---------- ----------
492,421 452,238
FINANCIALS SECTOR -- 10.0%
- --------------------------
BANKS-MAJOR REGIONAL -- 4.3%
57,400 Community First Bankshares, Inc. 1,073,450 1,503,191
39,800 TCF Financial Corp. 907,633 1,174,100
--------- ----------
1,981,083 2,677,291
INSURANCE-LIFE/HEALTH -- 0.7%
54,300 RTW, Inc.* <F23> 463,554 420,825
INSURANCE-PROPERTY -- 5.0%
22,400 Highlands Insurance
Group, Inc.* <F23> 532,713 414,400
77,600 Horace Mann Educators Corp. 1,902,258 2,677,200
---------- ----------
2,434,971 3,091,600
HEALTHCARE SECTOR -- 3.7%
- -------------------------
MEDICAL PRODUCTS & SUPPLIES -- 3.7%
83,200 Empi, Inc.* <F23> 1,567,515 1,378,042
98,300 Rehabilicare Inc.* <F23> 321,212 264,230
46,400 Rochester Medical Corp.* <F23> 740,213 672,800
---------- ----------
2,628,940 2,315,072
TECHNOLOGY SECTOR -- 4.5%
- -------------------------
COMMUNICATION-EQUIPMENT -- 1.8%
70,400 Communications Systems, Inc. 1,067,481 1,126,400
COMPUTER HARDWARE -- 0.5%
31,600 Ciprico Inc.*<F23> 436,347 317,991
ELECTRONICS-INSTRUMENTS -- 1.4%
68,700 Bolder Technologies Corp.* <F23> 898,738 858,750
ELECTRONICS-SEMICONDUCTORS -- 0.8%
54,600 Aetrium Inc.* <F23> 928,725 470,925
---------- ----------
Total common stocks 52,598,004 60,634,789
---------- -----------
Total long-term investments 52,598,004 60,634,789
SHORT-TERM INVESTMENTS -- 2.5% (A)<F24>
VARIABLE RATE DEMAND NOTE
$1,550,873 Firstar Bank U.S.A., N.A. 1,550,873 1,550,873
---------- -----------
Total short-term investments 1,550,873 1,550,873
---------- -----------
Total investments $54,148,877 62,185,662
----------
----------
Liabilities, less cash and
receivables (0.1%) (A)<F24> (47,098)
-----------
Net Assets $62,138,564
-----------
-----------
Net Asset Value Per Share
($0.01 par value 300,000,000
shares authorized), offering
and redemption price
($62,138,564 / 4,582,186
shares outstanding) $ 13.56
-----------
-----------
*<F23> Non-income producing security.
(a)<F24>Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
Eastcliff Regional Small Capitalization Value Fund
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1998
INCOME:
Dividends $398,073
Interest 237,382
---------
Total income 635,455
---------
EXPENSES:
Management fees 544,391
Administrative services 77,094
Professional fees 22,109
Custodian fees 18,982
Transfer agent fees 16,235
Registration fees 14,229
Printing and postage expense 6,698
Amortization of organizational expenses 4,974
Other expenses 3,092
---------
Total expenses 707,804
---------
NET INVESTMENT LOSS (72,349)
---------
NET REALIZED GAIN ON INVESTMENTS 655,165
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 4,056,705
---------
NET GAIN ON INVESTMENTS 4,711,870
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,639,521
---------
---------
The accompanying notes to financial statements are an integral part of this
statement.
Eastcliff Regional Small Capitalization Value Fund
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended June 30, 1998 and For the Period from September 16, 1996
(commencement of operations) to June 30, 1997
1998 1997
---- ----
OPERATIONS:
Net investment (loss) income $(72,349) $39,286
Net realized gain on investments 655,165 163,139
Net increase in unrealized
appreciation on investments 4,056,705 3,980,080
---------- ----------
Net increase in net assets
resulting from operations 4,639,521 4,182,505
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment
income ($0.00566 and $0.0175 per
share, respectively) (13,912) (28,177)
Distributions from net realized gains
($0.08783 per share) (241,045) --
---------- ----------
Total distributions (254,957)*<F25> (28,177)
---------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (4,074,336 and
2,565,434 shares, respectively) 53,855,081 27,036,329
Net asset value of shares issued in
distribution (19,272 and1,341
shares, respectively) 246,086 14,533
Cost of shares redeemed (1,901,473 and
176,724 shares, respectively) (25,578,485) (1,973,872)
---------- ----------
Net increase in net assets derived from
Fund share activities 28,522,682 25,076,990
---------- ----------
TOTAL INCREASE 32,907,246 29,231,318
NET ASSETS AT THE BEGINNING OF THE PERIOD 29,231,318 --
---------- ----------
NET ASSETS AT THE END OF THE PERIOD
(including undistributed net investment
income of $0 and $13,906, respectively)) $62,138,564 $29,231,318
---------- ----------
---------- ----------
*<F25> See Note 8.
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
FOR THE FOR THE PERIOD FROM
YEAR ENDED SEPTEMBER 16, 1996+<F26>TO
JUNE 30, 1998 JUNE 30, 1997
------------ -------------------
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%**<F28>
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)<F29> 1.3% 1.3%*<F27>
Ratio of net investment (loss)
income to average net assets (b)<F30> (0.1%) 0.3%*<F27>
Portfolio turnover rate 20.4% 29.4%
+<F26> Commencement of operations.
*<F27> Annualized.
**<F28> Not annualized.
(a)<F29> 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+ to June 30, 1997, the ratio would have been 1.6%*.
(b)<F30> If the Fund had paid all of its expenses for the period September 16,
1996+ to June 30, 1997, the ratio would have been (0.0)%*.
The accompanying notes to financial statements are an integral part of these
statements.
Eastcliff Contrarian Value Fund
July 29, 1998
Dear Shareholder:
We would like to take this opportunity as the newest Fund in the Eastcliff
family to welcome our new shareholders to the Eastcliff Contrarian Value Fund.
Our focus as a mid-cap value manager is on restructurings and turnarounds where
there is an unrecognized "Jewel" or growth business hidden within an
undervalued, underperforming company. Our typical company is both out-of-favor
and selling at a large discount to asset value and future earning power. These
companies are frequently mispriced and offer relatively low price risk because
expectations are typically minimal. This style is the exact opposite of
investing in what is currently fashionable and comfortable, the domain of the
momentum growth style. Our investment approach requires fortitude, patience,
discipline and intensive research of both the assets and the management to be
successful. We seek high absolute returns without taking large risks. Our
portfolio is relatively concentrated in 35 companies because we believe if we
have a competitive advantage in our company-specific research, then over-
diversification makes no sense from either a return or risk standpoint.
The stock market since the inception of the Fund on December 30, 1997, has
continued to favor the largest growth companies as "large" and "growth" have
outperformed "small" and "value" because of the uncertainty surrounding the
impact of the widening financial Asian crisis. Significant capital has flowed
into the large U.S. liquid growth companies and U.S. Government bonds from
overseas investors seeking safety and liquidity. The U.S. economy is now in a
profit deceleration mode because of global deflation brought on by the Pac Rim
collapse. Stock market risk will be higher than normal until Japan and Asia have
reformed their financial structures and stabilized their economies. Both heavy
internal and external pressures on these countries should produce a bottom over
the next 12 months but uncertainty of the timing will keep volatility in our
market high. While the current economic environment does not favor some of our
late cycle restructuring ideas (manufacturing, capital goods, energy), the
eventual bounce off the bottom in these undervalued companies will be very large
with high absolute rates of return.
The six month performance of your shares as of June 30, 1998, was +4.1%
compared to +9.4% for the Russell Mid-Cap Index. We appreciate your support and
expect your investment in this contrarian value style to provide both low
correlation to your growth funds and high long-term risk adjusted returns.
As of July 29, 1998, your Board of Directors declared a dividend of $0.03424
per share from net investment income and a distribution of $0.114 per share from
net short-term gains, payable July 30, 1998, to shareholders of record on July
28, 1998.
Respectfully submitted,
/s/ Bruce D. Bottomley /s/ Lee C. Garcia
Bruce D. Bottomley Lee C. Garcia
Portfolio Manager Portfolio Manager
Past performance cannot guarantee future results. Prices will fluctuate and
redemption value may be more or less than original investment. This Fund is not
insured by the FDIC and is not a deposit or other obligation of or guaranteed by
Resource Trust Company or any of its affiliates.
Eastcliff Contrarian Value Fund
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
June 30, 1998
The Fund invests in financial underachievers: underperforming, diversified
companies where low return businesses are masking the profitability of high
return businesses ("Jewels"). These investments include restructurings,
turnarounds, and spin-offs where motivated and incented management's mission is
to fix, rebuild and grow their companies.
Approximately one-third of our portfolio companies (manufacturing, energy,
capital goods, raw materials) were impacted to varying degrees by the Asian
crisis because unit volume is slowing from the deterioration in exports and
reduced pricing power is hurting profits. These late cycle turnarounds offer
substantial appreciation potential, once this Pac Rim collapse stabilizes.
However, over two-thirds of our portfolio reacts to independent, specific
corporate restructuring events (spin-offs, asset sales, share repurchase, debt
reduction) that create shareholder value independent of the market or Asian
problems. These kinds of corporate events should provide high absolute returns
and be better appreciated in the marketplace once the Asian crisis has
stabilized and investors stop gravitating towards the safety of large-cap growth
stocks. While more difficult to find, we are continuing to uncover new ideas
where we can buy corporate assets at 50-60% of their true business value. The
majority of our new ideas over the past six months have been in undervalued
companies that are not as cyclically vulnerable to the current global deflation.
We will stick to our disciplined approach in this tough environment because we
expect significant absolute positive returns from our long-term contrarian value
style.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
EASTCLIFF CONTRARIAN VALUE FUND AND RUSSELL MIDCAP INDEX
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION 12/30/97
+8.4%
Eastcliff Contrarian Russell Midcap
date Value Fund Index*<F32>
12/30/97*<F31> 10,000 10,000
12/31/97 10,030 10,026
3/31/98 10,780 11,110
6/30/98 10,410 10,942
*<F31> inception date 12/30/97
Past performance is not predictive of future Performance
*<F32> 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.
Eastcliff Contrarian Value Fund
STATEMENT OF NET ASSETS
June 30, 1998
SHARES OR QUOTED
PRINCIPAL MARKET
AMOUNT COST VALUE
------ ----- -----
LONG-TERM INVESTMENTS -- 97.7% (A)<F34>
COMMON STOCKS -- 97.7% (A)<F34>
BASIC MATERIALS SECTOR -- 15.7%
- -------------------------------
ALUMINUM -- 3.5%
12,200 Reynolds Metals Co. $ 725,737 $ 682,444
CHEMICALS-DIVERSE -- 2.0%
42,900 Terra Industries, Inc. 528,049 386,100
CHEMICALS-SPECIALTY -- 2.4%
4,100 W.R. Grace & Co.*<F33> 66,296 69,958
9,800 Hercules Inc. 476,309 403,025
---------- ----------
542,605 472,983
IRON & STEEL -- 7.8%
31,200 AK Steel Holding Corp. 571,218 557,700
20,100 Allegheny Teledyne Inc. 514,158 459,787
79,500 Armco, Inc.* <F33> 395,612 506,813
---------- ----------
1,480,988 1,524,300
CAPITAL GOODS SECTOR -- 16.1%
- -----------------------------
AEROSPACE/DEFENSE -- 2.4%
7,400 Alliant Techsystems Inc.* <F33> 422,102 468,050
CONTAINERS (METAL/GLASS) -- 3.3%
16,200 Ball Corp. 561,540 651,046
MANUFACTURER-DIVERSE -- 7.3%
16,200 Tenneco, Inc. 648,874 616,621
33,200 U.S. Industries, Inc. 947,145 821,700
---------- ----------
1,596,019 1,438,321
WASTE MANAGEMENT -- 3.1%
9,300 USA Waste Services, Inc.* <F33> 409,487 459,187
4,100 Waste Management, Inc. 123,440 143,500
---------- ----------
532,927 602,687
CONSUMER CYCLICALS SECTOR -- 14.5%
- ----------------------------------
AUTO PARTS & EQUIPMENT -- 4.5%
23,700 ITT Industries, Inc. 787,029 885,787
PUBLISHING -- 2.0%
6,300 The Times Mirror Co. 369,852 396,112
RETAIL-APPAREL -- 3.8%
15,400 Footstar, Inc.* <F33> 407,975 739,200
RETAIL-SPECIALTY -- 4.2%
42,500 Venator Group, Inc.* <F33> 897,085 812,813
CONSUMER STAPLES SECTOR -- 10.2%
- --------------------------------
BROADCAST MEDIA -- 3.1%
19,300 CBS Corp.* <F33> 540,946 612,775
RESTAURANTS -- 3.5%
21,400 Tricon Global
Restaurants, Inc.* <F33> 589,221 678,123
SPECIALTY PRINTING -- 3.6%
15,500 R. R. Donnelley & Sons Co. 573,329 709,125
ENERGY SECTOR -- 12.4%
- ----------------------
OIL & GAS-REFINING & MARKETING -- 3.0%
15,219 Sun Company, Inc. 611,871 590,695
OIL-DOMESTIC -- 3.1%
11,800 Pennzoil Co. 744,949 597,375
OIL-EXPLORATION & PRODUCTS -- 6.3%
28,800 Oryx Energy Co.* <F33> 700,801 637,200
24,600 Pioneer Natural Resources Co. 624,549 587,325
---------- ----------
1,325,350 1,224,525
FINANCIALS SECTOR -- 10.5%
- --------------------------
FINANCIAL (DIVERSE) -- 8.7%
3,800 Alleghany Corp.* <F33> 681,992 886,350
15,100 Castle & Cooke, Inc.* <F33> 245,180 286,900
11,400 Chicago Title Corp.* <F33> 439,008 526,543
---------- ----------
1,366,180 1,699,793
INSURANCE-MULTILINE -- 1.8%
15,500 TIG Holdings, Inc. 474,115 356,500
TECHNOLOGY SECTOR -- 3.0%
- -------------------------
PHOTOGRAPH/IMAGING -- 3.0%
8,000 Eastman Kodak Co. 503,581 584,504
TRANSPORTATION SECTOR -- 2.9%
- -----------------------------
RAILROADS -- 2.9%
12,700 Union Pacific Corp. 701,816 560,388
UTILITIES SECTOR -- 12.4%
- -------------------------
ELECTRIC COMPANIES -- 5.4%
17,700 Northeast Utilities*<F33> 236,532 299,803
19,700 Western Resources, Inc. 805,623 764,616
---------- ----------
1,042,155 1,064,419
NATURAL GAS -- 7.0%
5,250 Columbia Energy Group 262,621 292,031
11,700 Eastern Enterprises 500,953 501,638
23,200 UGI Corp. 656,032 577,100
---------- ----------
1,419,606 1,370,769
---------- ----------
Total common stocks 18,745,027 19,108,834
---------- ----------
Total long-term investments 18,745,027 19,108,834
SHORT-TERM INVESTMENTS -- 2.6% (A)<F34>
VARIABLE RATE DEMAND NOTE
$514,756 Firstar Bank U.S.A., N.A. 514,756 514,756
---------- ----------
Total short-term investments 514,756 514,756
---------- ----------
Total investments $19,259,783 19,623,590
----------
----------
Liabilities, less cash and
receivables (0.3%) (A)<F34> (54,356)
----------
Net Assets $19,569,234
----------
----------
Net Asset Value Per Share
($0.01 par value 300,000,000
shares authorized), offering
and redemption price
($19,569,234 / 1,880,197
shares outstanding) $ 10.41
----------
----------
* <F33> Non-income producing security.
(a)<F34> Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
Eastcliff Contrarian Value Fund
STATEMENT OF OPERATIONS
For the Period from December 30, 1997 (commencement of operations) to June 30,
1998
INCOME:
Dividends $ 143,359
Interest 40,968
---------
Total income 184,327
---------
EXPENSES:
Management fees 90,399
Administrative services 18,080
Transfer agent fees 6,383
Registration fees 6,081
Custodian fees 5,793
Professional fees 4,985
Amortization of organizational expenses 2,326
Printing and postage expense 349
Other expenses 667
---------
Total expenses before reimbursement 135,063
Less expenses assumed by adviser (17,544)
---------
Net expenses 117,519
---------
NET INVESTMENT INCOME 66,808
---------
NET REALIZED GAIN ON INVESTMENTS 225,965
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 363,807
---------
NET GAIN ON INVESTMENTS 589,772
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 656,580
---------
---------
The accompanying notes to financial statements are an integral part of this
statement.
Eastcliff Contrarian Value Fund
STATEMENT OF CHANGES IN NET ASSETS
For the Period from December 30, 1997 (commencement of operations) to June 30,
1998
OPERATIONS:
Net investment income $ 66,808
Net realized gain on investments 225,965
Net increase in unrealized appreciation on investments 363,807
----------
Net increase in net assets resulting from operations 656,580
----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (2,027,118 shares) 20,406,328
Cost of shares redeemed (146,921 shares) (1,493,674)
----------
Net increase in net assets derived
from Fund share activities 18,912,654
----------
TOTAL INCREASE 19,569,234
NET ASSETS AT THE BEGINNING OF THE PERIOD --
----------
NET ASSETS AT THE END OF THE PERIOD
(including undistributed net
investment income of $68,602) $19,569,234
----------
----------
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout the period)
FOR THE PERIOD FROM
DECEMBER 30, 1997+<F35> 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%**<F37>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 19,569
Ratio of expenses (after reimbursement)
to average net assets (a)<F38> 1.3%*<F36>
Ratio of net investment income to
average net assets (b)<F39> 0.7%*<F36>
Portfolio turnover rate 13.6%
+<F35> Commencement of operations.
*<F36> Annualized.
**<F37> Not annualized.
(a)<F38> 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%*<F36>.
(b)<F39> If the Fund had paid all of its expenses, the ratio would have been
0.5%*<F36>.
The accompanying notes to financial statements are an integral part of these
statements.
Eastcliff Funds
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
The following is a summary of significant accounting policies of the
Eastcliff Funds, Inc. (the "Company"), which is registered as an open-end
management investment company under the Investment Company Act of 1940. This
Company consists of a series of four funds: 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 "Funds"). The assets and liabilities of each Fund are segregated and a
shareholder's interest is limited to the Fund in which the shareholder owns
shares. The Company was incorporated under the laws of Wisconsin on May 23,
1986.
The investment objective of the Growth Fund is to produce long-term growth of
capital by investing principally in equity securities; 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 by
investing in a combination of equity and debt securities, while assuming
reasonable risks; the investment objective of the Regional Small Cap Fund is
to produce capital appreciation by investing principally in equity securities
of small capitalization companies headquartered in Colorado, Illinois,
Indiana, Iowa, Michigan, Minnesota, Montana, Nebraska, North and South Dakota,
Ohio and Wisconsin; and the investment objective of the Contrarian Value Fund
is to produce long-term capital by investing in out-of-favor, undervalued
companies with restructuring and turnaround potential. The Contrarian Value
Fund commenced operations on December 30, 1997.
(a) Each security, excluding short-term investments, is valued at the last sale
price reported by the principal security exchange on which the issue is traded,
or if no sale is reported, the latest bid price. Securities which are traded
over-the-counter are valued at the latest bid price. Securities for which
quotations are not readily available are valued at fair value as determined by
the investment adviser under the supervision of the Board of Directors. Short-
term investments are valued at amortized cost which approximates quoted market
value. Investment transactions are recorded no later than the first business day
after the trade date. The cost amount of securities for Federal income tax
purposes aggregates $39,095,137, $13,252,587, $54,162,276 and $19,262,221 for
the Growth Fund, Total Return Fund, Regional Small Cap Fund and Contrarian Value
Fund, respectively. The difference between cost amounts for book purposes and
tax purposes is due to deferred wash sale losses.
(b) The Funds may purchase securities on a when-issued or delayed delivery
basis. Although the payment and interest terms of these securities are
established at the time the purchaser enters into the agreement, these
securities may be delivered and paid for at a future date, generally within 45
days. The Funds record purchases of when-issued securities and reflect the value
of such securities in determining net asset value in the same manner as other
portfolio securities.
(c) Net realized gains and losses on common stock are computed on the basis of
the cost of specific certificates.
(d) Provision has not been made for Federal income taxes since the Contrarian
Value Fund will elect and the Growth Fund, Total Return Fund and Regional Small
Cap Fund have elected to be taxed as "regulated investment companies" and intend
to distribute substantially all income to shareholders and otherwise comply with
the provisions of the Internal Revenue Code applicable to regulated investment
companies.
(e) Dividend income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis.
(f) The Funds have investments in short-term variable rate demand notes, which
are unsecured instruments. The Funds may be susceptible to credit risk with
respect to these notes to the extent the issuer defaults on its payment
obligation. The Funds' policy is to monitor the creditworthiness of the issuer
and does not anticipate nonperformance by these counterparties.
(g) Generally accepted accounting principles require that permanent financial
reporting and tax differences be reclassified to paid-in capital.
(h) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES --
The Funds have entered into management agreements with Resource Capital
Advisers, Inc. ("RCA"), with whom certain officers and directors of the Funds
are affiliated, to serve as investment adviser and manager. Under the terms of
the agreements, the Growth Fund, Regional Small Cap Fund and Contrarian Value
Fund pay RCA a monthly fee at the annual rate of 1% of such Funds daily net
assets and for the Total Return Fund, 1% on the first $30,000,000 of the daily
net assets and 0.75% on the daily net assets over $30,000,000.
In addition to the reimbursement required under the management agreements,
RCA has voluntarily reimbursed the Funds for expenses over 1.3% of the daily
net assets of the Funds. These reimbursements amounted to $27,489 and $17,544
for the year ending June 30, 1998, for the Total Return Fund and for the
period from December 30, 1997 to June 30, 1998 for the Contrarian Value Fund,
respectively. These voluntary reimbursements may be modified or discontinued
at any time by RCA.
The Funds have administrative agreements with Fiduciary Management, Inc.
("FMI"), with whom certain directors of the Funds are affiliated, to supervise
all aspects of the Funds' operations except those performed by RCA. Under the
terms of the agreements, the Funds will each pay FMI a monthly administrative
fee at the annual rate of 0.2% on the first $25,000,000 of the daily net
assets of such Fund, 0.1% on the daily net assets of such Fund on the next
$20,000,000 and 0.05% on the daily net assets of such Fund over $45,000,000.
The Funds have entered into Distribution Plans (the "Plans"), pursuant to
Rule 12b-1 under the Investment Company Act of 1940 with RCA. The Plans
provide that the Funds may incur certain costs which may not exceed the lesser
of a monthly amount equal to 1% of the Funds' daily net assets or the actual
distribution costs incurred by RCA during the year. Amounts payable under the
Plans are paid monthly to RCA for any activities or expenses primarily
intended to result in the sale of shares of such Fund. For the period ending
June 30, 1998, no such expenses were incurred.
(3) DISTRIBUTION TO SHAREHOLDERS --
Net investment income and net realized gains are distributed to shareholders.
The distributions were paid on July 30, 1998, to shareholders of record on
July 28, 1998.
TOTAL REGIONAL CONTRARIAN
GROWTH FUND RETURN FUND SMALL CAP FUND VALUE FUND
---------- ---------- -------------- ----------
Dividend from net
investment income $ -- $ 108,880 $ -- $ 68,602
$ per share -- 0.09456 -- 0.03424
Short-term gains 2,457,097 -- 314,149 228,403
$ per share 0.78224 -- 0.06884 0.114
Long-term capital gains
taxed at 20% 6,920,828 1,218,630 28,064 --
$ per share 2.20330 1.0583 0.00615 --
Long-term capital
gains taxed at 28% 155,300 -- 179,821 --
$ per share 0.04945 -- 0.03941 --
Shareholders will be sent a 1998 Form 1099-DIV in January, 1999 representing
their proportionate share of these distributions. The Form 1099-DIV would
consider the impact of any retroactive tax law changes.
(4) DEFERRED EXPENSES --
Organizational expenses for the Growth Fund, Regional Small Cap Fund and
Contrarian Value Fund were deferred and are being amortized on a straight-line
basis over a period of five years beginning with the date of sales of shares
to the public. These expenses were advanced by RCA who will be reimbursed by
the Growth Fund, Regional Small Cap Fund and Contrarian Value Fund over a
period of five years. The unamortized organizational expenses at June 30,
1998, were $12,602, $16,163 and $20,933, respectively.
(5) INVESTMENT TRANSACTIONS --
For the year ending June 30, 1998, purchases and proceeds of sales of
investment securities of the Growth Fund (excluding short-term securities)
were $46,702,380 and $52,190,096, respectively; purchases and proceeds of
sales of investment securities of the Total Return Fund (excluding short-term
securities) were $8,867,301 and $11,039,865, respectively; purchases and
proceeds of sales of investment securities of the Regional Small Cap Fund,
(excluding short-term securities) were $45,692,805 and $17,853,559,
respectively, and $9,997,017 and $0, respectively for short-term U.S.
Government Securities; and purchases and proceeds of sales of investment
securities of the Contrarian Value Fund for the period from December 30, 1997
(commencement of operations) to June 30, 1998, (excluding short-term
securities) were $20,385,559 and $1,869,494, respectively and $8,976,625 and
$7,985,372, respectively for short-term U.S. Government Securities.
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of June 30, 1998, liabilities of the Funds included the following:
TOTAL REGIONAL CONTRARIAN
GROWTH FUND RETURN FUND SMALL CAP FUND VALUE FUND
---------- ---------- -------------- ----------
Payable to brokers
for investments
purchased $12,058,185 $ -- $ 7,813 $75,146
Payable to RCA for
management fees and
deferred expenses 57,714 20,343 66,820 36,924
Other liabilities 40,403 3,975 44,061 2,841
(7) SOURCES OF NET ASSETS --
TOTAL REGIONAL CONTRARIAN
GROWTH FUND RETURN FUND SMALL CAP FUND VALUE FUND
---------- ---------- -------------- ----------
As of June 30, 1998, the
sources of net assets
were as follows:
Fund shares issued
and outstanding $29,456,762 $11,995,871 $53,593,144 $18,910,860
Net unrealized
appreciation on
investments 17,652,089 12,134,700 8,036,785 363,807
Undistributed net
realized gains
on investments 9,484,848 1,214,636 508,635 225,965
Undistributed net
investment income -- 108,880 -- 68,602
----------- ----------- ----------- -----------
$56,593,699 $25,454,087 $62,138,564 $19,569,234
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Aggregate net unrealized appreciation as of June 30, 1998, consisted of the
following:
Aggregate gross
unrealized
appreciation $18,622,694 $12,139,440 $10,753,479 $ 1,614,782
Aggregate gross
unrealized
depreciation (970,605) (4,740) (2,716,694) (1,250,975)
----------- ----------- ----------- -----------
Net unrealized
appreciation $17,652,089 $12,134,700 $ 8,036,785 $ 363,807
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(8) REQUIRED FEDERAL INCOME TAX DISCLOSURES (UNAUDITED) --
In early 1998, shareholders received information regarding all distributions
paid to them by the Funds during the fiscal year ended
June 30, 1998. The Funds hereby designate the following amounts as long-term
capital gains distributions.
TOTAL REGIONAL CONTRARIAN
GROWTH FUND RETURN FUND SMALL CAP FUND VALUE FUND
---------- ---------- -------------- ----------
Capital gains
taxed at 20% $2,019,090 $ -- -- --
Capital gains
taxed at 28% -- 673,290 -- --
--------- ---------- ------- -------
Total long-term
capital gains $2,019,090 $673,290 -- --
--------- ---------- ------- -------
--------- ---------- ------- -------
For the Total Return Fund and Regional Small Cap Fund, the percentage of
ordinary income which is eligible for the corporate dividend received
deduction for the fiscal year ended June 30, 1998, was 51% and 67%,
respectively.
REPORT OF INDEPENDENT ACCOUNTANTS
3100 Multifoods Tower Telephone 612 332 7000
33 South Sixth Street
Minneapolis, MN 55402
(PricewaterhouseCoopers logo)
July 24, 1998
To the Shareholders and Board of Directors of Eastcliff Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities and
schedule of investments of the Eastcliff Growth Fund and the statements of net
assets of Eastcliff Total Return Fund, Eastcliff Regional Small Capitalization
Value Fund, and Eastcliff Contrarian Value Fund (constituting Eastcliff Funds,
Inc., hereafter referred to as the "Funds") and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Funds at June
30, 1998, the results of each of their operations, the changes in each of their
net assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
/s/ PricewaterhouseCoopers LLP
EASTCLIFF FUNDS
900 Second Avenue South
300 International Centre
Minneapolis, Minnesota 55402
612-336-1444
INVESTMENT ADVISER
RESOURCE CAPITAL ADVISERS, INC.
900 Second Avenue South
300 International Centre
Minneapolis, Minnesota 55402
PORTFOLIO MANAGERS
EASTCLIFF GROWTH FUND
WINSLOW CAPITAL MANAGEMENT, INC.
EASTCLIFF TOTAL RETURN FUND
PALM BEACH INVESTMENT ADVISERS, INC.
EASTCLIFF REGIONAL SMALL CAPITALIZATION VALUE FUND
WOODLAND PARTNERS LLC
EASTCLIFF CONTRARIAN VALUE FUND
SASCO CAPITAL, INC.
ADMINISTRATOR
FIDUCIARY MANAGEMENT, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
CUSTODIAN, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
FIRSTAR TRUST COMPANY
615 East Michigan Street
Milwaukee, Wisconsin 53202
1-800-595-5519
or
414-765-4124
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
