SEMIANNUAL REPORT
DECEMBER 31, 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
February 9, 1999
Dear Shareholder:
The attractive valuation of the broad market we discussed in our third
quarter summary provided the backdrop for favorable returns in the fourth
quarter. The performance disparity that developed between the broad market and
the mega-cap stocks for the first nine months was not present in the fourth
quarter. This can be seen in fourth quarter returns of the Russell 1000 Growth
Index appreciating 26.7%, the Russell Mid Cap Growth Index gaining 26.5%, and
the Russell 2000 Growth advancing 23.6%. Since returns were less correlated with
market capitalization size, it allowed our stock selection to add value over the
final three months of 1998. The Eastcliff Growth Fund outperformed all
appropriate indices with a fourth quarter return of 29.8%
For the twelve months ending December 31, 1998, the Eastcliff Growth Fund
outperformed the S&P 500 Index. While the S&P 500 returned 28.8%, the Fund was
able to achieve a return of 29.2% in 1998 through strong stock selection and a
disciplined focus on strong businesses. The best performing sectors in the
Eastcliff Growth Fund for the most recent quarter were Technology and Consumer
Services. The best performing holding in the Technology sector was Tellabs. The
stock achieved a quarterly return in excess of 72%. Our stock selection in the
Consumer Services sector added value to your portfolio versus those in the
Russell 1000 Growth. The strongest performing consumer stock was Home Depot. It
gained 63% for the three months ending December 31, 1998. The best performing
stock in the Eastcliff Growth Fund was Network Associates, advancing 86% during
the fourth quarter. The Healthcare sector, third quarter's strongest performing
sector, underperformed in the fourth quarter. The average healthcare holding in
your portfolio appreciated 11%. Due to excessive valuations, the portfolio has
only minor exposure to Internet Mania.
As of December 29, 1998, your Board of Directors declared a distribution of
$0.072881 per share from net short-term gains and $0.11654 per share from long-
term capital gains, payable December 30, 1998, to shareholders of record on
December 28, 1998.
Respectfully submitted,
/s/Clark J. Winslow
Clark J. Winslow
Portfolio Manager
Past performance cannot guarantee future results. Prices will fluctuate and
redemption value may be more or less than original investment. This Fund is not
insured by the FDIC and is not a deposit or other obligation of or guaranteed by
Resource Trust Company or any of its affiliates.
Eastcliff Growth Fund
STATEMENT OF NET ASSETS
December 31, 1998 (Unaudited)
QUOTED
MARKET
SHARES COST VALUE
------ ----- -------
LONG-TERM INVESTMENTS -- 97.3% (A)<F2>
COMMON STOCKS -- 97.3% (A)<F2>
CAPITAL GOODS SECTOR -- 10.0%
- -----------------------------
MANUFACTURE-DIVERSE -- 3.7%
25,400 Tyco International Ltd. $ 966,721 $1,916,125
MANUFACTURE-SPECIAL -- 3.0%
34,400 BMC Software, Inc.*<F1> 1,437,945 1,532,967
WASTE MANAGEMENT -- 3.3%
36,100 Waste Management, Inc. 990,391 1,683,162
COMMUNICATION SERVICES SECTOR -- 6.9%
- -------------------------------------
TELECOMMUNICATIONS-CELLULAR -- 3.3%
23,800 AirTouch Communications, Inc.*<F1> 1,295,937 1,716,575
TELECOMMUNICATIONS-LONG DISTANCE -- 3.6%
25,500 MCI WorldCom Inc.*<F1> 1,179,130 1,829,625
CONSUMER CYCLICALS SECTOR -- 14.0%
- ----------------------------------
BUILDING MATERIALS -- 2.1%
37,000 Masco Corp. 1,071,550 1,063,750
LODGING-HOTELS -- 2.9%
31,100 Carnival Corp. 920,299 1,492,800
RETAIL-BUILDING SUPPLIES -- 3.8%
32,400 The Home Depot, Inc. 437,956 1,982,491
RETAIL-GENERAL MERCHANTS -- 2.1%
13,400 Wal-Mart Stores, Inc. 803,562 1,091,269
RETAIL-SPECIALTY -- 1.9%
27,000 Office Depot, Inc.*<F1> 843,421 997,326
TEXTILES-APPAREL -- 1.2%
10,600 Tommy Hilfiger Corp.*<F1> 302,524 636,000
CONSUMER STAPLES SECTOR -- 9.8%
- -------------------------------
BROADCAST MEDIA -- 2.7%
33,600 CBS Corp. 957,800 1,100,400
4,600 Jacor Communications, Inc.*<F1> 275,000 296,125
----------- -----------
1,232,800 1,396,525
DISTRIBUTION-FOOD & HEALTH -- 2.1%
30,400 Bergen Brunswig Corp. 671,692 1,060,200
RESTAURANTS -- 5.0%
28,125 Papa John's International, Inc.*<F1> 572,919 1,241,016
24,000 Starbucks Corp.*<F1> 806,571 1,347,000
----------- -----------
1,379,490 2,588,016
FINANCIALS SECTOR -- 11.5%
- --------------------------
BANKS-MAJOR REGIONAL -- 2.9%
37,200 Wells Fargo & Co. 1,380,225 1,485,694
BANKS-MONEY CENTER -- 1.7%
14,990 BankAmerica Corp. 722,479 901,274
CONSUMER FINANCE -- 2.0%
41,975 MBNA Corp. 279,129 1,046,773
FINANCIAL-DIVERSE -- 3.6%
24,800 Fannie Mae 1,557,304 1,835,200
INSURANCE-PROPERTY -- 1.3%
16,400 MGIC Investment Corp. 462,633 652,933
HEALTHCARE SECTOR -- 7.5%
- -------------------------
DIVERSE -- 1.7%
11,900 Warner-Lambert Co. 793,912 894,737
DRUGS MAJOR -- 1.3%
5,500 Pfizer Inc. 121,193 689,909
MEDICAL PRODUCTS & SUPPLIES -- 1.5%
26,800 STERIS Corp.*<F1> 366,825 762,138
SPECIALIZED SERVICES -- 3.0%
43,800 Omnicare, Inc. 1,126,058 1,522,050
TECHNOLOGY SECTOR -- 34.3%
- --------------------------
COMMUNICATION-EQUIPMENT -- 6.2%
50,000 ADC Telecommunications, Inc.*<F1> 1,253,440 1,737,500
21,000 Tellabs, Inc.*<F1> 692,563 1,439,823
----------- -----------
1,946,003 3,177,323
COMPUTER SOFTWARE/SERVICES -- 20.2%
31,000 Cadence Design Systems, Inc.*<F1> 891,579 922,250
16,200 Compuware Corp.*<F1> 750,628 1,265,625
61,300 HBO & Co. 1,861,640 1,758,574
6,600 Microsoft Corp.*<F1> 139,129 915,341
34,350 Networks Associates, Inc.*<F1> 1,150,117 2,275,688
47,400 Sterling Commerce, Inc.*<F1> 1,154,400 2,133,000
21,000 Synopsys, Inc.*<F1> 977,875 1,139,250
----------- -----------
6,925,368 10,409,728
COMPUTERS-NETWORKING -- 3.5%
19,175 Cisco Systems Inc.*<F1> 223,141 1,779,689
SERVICES-DATA PROCESSING -- 4.4%
27,000 Fiserv, Inc.*<F1> 1,005,741 1,388,826
22,200 HNC Software Inc.*<F1> 794,643 897,724
----------- -----------
1,800,384 2,286,550
UTILITIES SECTOR -- 3.3%
- ------------------------
POWER PRODUCERS-INDEPENDENT -- 3.3%
36,200 AES Corp. 1,471,431 1,714,975
----------- -----------
Total common stocks 32,709,503 50,145,804
----------- -----------
Total long-term investments 32,709,503 50,145,804
PRINCIPAL
AMOUNT
------
SHORT-TERM INVESTMENTS -- 2.8% (A)<F2>
VARIABLE RATE DEMAND NOTE
$1,446,539 Firstar Bank U.S.A., N.A. 1,446,539 1,446,539
----------- -----------
Total short-term
investments 1,446,539 1,446,539
----------- -----------
Total investments $34,156,042 51,592,343
-----------
-----------
Liabilities, less cash and
receivables (0.1%) (A)<F2> (73,419)
-----------
Net Assets $51,518,924
-----------
-----------
Net Asset Value Per Share
($0.01 par value 300,000,000
shares authorized), offering
and redemption price
($51,518,924 / 3,311,902
shares outstanding) $ 15.56
----------
----------
*<F1>Non-income producing security.
(a)<F2>Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
Eastcliff Growth Fund
STATEMENT OF OPERATIONS
For the Period Ending December 31, 1998 (Unaudited)
INCOME:
Dividends $ 88,342
Interest 49,306
----------
Total income 137,648
----------
EXPENSES:
Management fees 240,198
Administrative services 35,770
Professional fees 15,007
Transfer agent fees 10,441
Custodian fees 8,923
Registration fees 4,994
Amortization of organizational expenses 3,151
Printing and postage expense 1,260
Other expenses 2,224
----------
Total expenses 321,968
----------
NET INVESTMENT LOSS (184,320)
----------
NET REALIZED GAIN ON INVESTMENTS 3,193,858
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (215,788)
----------
NET GAIN ON INVESTMENTS 2,978,070
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,793,750
----------
----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ending December 31, 1998 (Unaudited) and
For the Year ended June 30, 1998
DECEMBER 31, JUNE 30,
1998 1998
----------- -----------
OPERATIONS:
Net investment loss $ (184,320) $ (448,758)
Net realized gain on investments 3,193,858 13,570,020
Net (decrease) increase in unrealized
appreciation on investments (215,788) 1,782,157
----------- -----------
Net increase in net assets
resulting from operations 2,793,750 14,903,419
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gains
($3.2244 and $0.63 per share, respectively) (10,153,275) (2,019,090)
----------- -----------
Total distributions (10,153,275) (2,019,090)*<F3>
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(66,473 and 327,564 shares, respectively) 858,666 5,032,445
Net asset value of shares issued in
distributions (704,428 and
140,578 shares, respectively) 9,744,911 2,018,697
Cost of shares redeemed
(626,235 and 628,274 shares, respectively) (8,318,827) (9,730,677)
----------- -----------
Net increase (decrease) in net assets
derived from Fund share activities 2,284,750 (2,679,535)
----------- -----------
TOTAL (DECREASE) INCREASE (5,074,775) 10,204,794
NET ASSETS AT THE BEGINNING OF THE PERIOD 56,593,699 46,388,905
----------- -----------
NET ASSETS AT THE END OF THE PERIOD $51,518,924 $56,593,699
----------- -----------
----------- -----------
*<F3>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>
(UNAUDITED) FOR THE
FOR THE PERIOD YEARS ENDED JUNE 30, FOR THE PERIOD FROM
ENDING DECEMBER 31, ------------------- JULY 1, 1995*<F4> TO
1998 1998 1997 JUNE 30, 1996
------------------- ------ ------ ----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $17.85 $13.92 $12.56 $10.00
Income from investment operations:
Net investment loss (a)<F7> (0.04) (0.15) (0.14) (0.08)
Net realized and unrealized gains on investments 0.97 4.71 1.50 2.64
------ ------ ------ ------
Total from investment operations 0.93 4.56 1.36 2.56
Less distributions:
Dividend from net investment income -- -- -- --
Distributions from net realized gains (3.22) (0.63) -- --
------ ------ ------ ------
Total from distributions (3.22) (0.63) -- --
------ ------ ------ ------
Net asset value, end of period $15.56 $17.85 $13.92 $12.56
------ ------ ------ ------
------ ------ ------ ------
TOTAL INVESTMENT RETURN 7.7%**<F5> 33.9% 10.8% 25.6%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 51,519 56,594 46,389 46,193
Ratio of expenses (after reimbursement)
to average net assets (b)<F8> 1.3%***<F6> 1.3% 1.3% 1.3%
Ratio of net investment loss to
average net assets (c)<F9> (0.8%)***<F6> (0.9%) (1.0%) (0.8%)
Portfolio turnover rate 53.9% 93.3% 54.3% 40.3%
</TABLE>
*<F4> Commencement of operations.
**<F5> Not annualized.
***<F6> Annualized.
(a)<F7> Net investment loss per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax
differences.
(b)<F8> 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, 1997 and 1996, 1.3% and
1.4%, respectively.
(c)<F9> If the Fund had paid all of its expenses, the ratios 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
February 9, 1999
Dear Shareholder:
We appreciate this opportunity to communicate the results of your Fund to
you. Substantial volatility has marked global capital markets this past year.
The S&P 500 Index moved 33% from its lows to highs. The speed and sheer volume
of information which is disseminated will continue to impact the world's
financial systems. Looking ahead, we believe market volatility is here to stay.
At year end, the Net Asset Value was $22.11 per share, and the total assets
of the Fund exceeded $27 million. For the 12-month period December 31, 1998, the
Fund out performed the S&P 500 Index, posting a gain of 38.7% compared to 28.8%
for the Index. The average annual compounded rate of return of the Fund for the
five and ten years ending December 31, 1998 was 21.3% and 16.3%.
The Fund's asset allocation at year end was 17% fixed income, 82% common
equities and 1% cash equivalents. The primary sectors were Technology (33.6%)
and Healthcare (23.6%).
We remain cautiously optimistic on the financial markets in 1999. We will
continue to focus on companies in dynamic growth industries with superior
products. The average return on stocks over the past 30 years is around 11%.
Shareholders should maintain realistic expectations going forward.
As of December 29, 1998, your Board of Directors declared a dividend of
$0.0724 per share from net investment income, a distribution of $0.09724 per
share from short-term capital gains and $1.19699 per share from long-term
capital gains, payable December 30, 1998, to shareholders of record on December
28, 1998. Total distributions paid in 1998 were $2.51949.
In closing, thank you for your continued confidence and investment in
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
STATEMENT OF NET ASSETS
December 31, 1998 (Unaudited)
QUOTED
MARKET
SHARES COST VALUE
------ ----- -------
LONG-TERM INVESTMENTS -- 98.4% (A)<F11>
COMMON STOCKS -- 81.6% (A)<F11>
CAPITAL GOODS SECTOR -- 3.4%
- ----------------------------
ELECTRICAL EQUIPMENT -- 3.4%
9,000 General Electric Co. (U.S.) $ 241,832 $ 918,567
COMMUNICATION SERVICES SECTOR -- 4.8%
- -------------------------------------
TELECOMMUNICATIONS-CELLULAR -- 2.1%
8,000 AirTouch
Communications, Inc.*<F10> 505,480 577,000
TELECOMMUNICATIONS-LONG DISTANCE -- 2.7%
10,000 MCI WorldCom Inc.*<F10> 379,350 717,500
CONSUMER CYCLICALS SECTOR -- 2.3%
- ---------------------------------
RETAIL-BUILDING SUPPLIES -- 2.3%
10,000 The Home Depot, Inc. 487,475 611,880
CONSUMER STAPLES SECTOR -- 5.9%
- -------------------------------
BEVERAGES-SOFT DRINK -- 2.5%
10,000 The Coca-Cola Co. 351,275 668,750
HOUSEHOLD PRODUCTS -- 3.4%
4,000 Clorox Co. 179,620 467,252
5,000 Colgate-Palmolive Co. 202,700 464,375
----------- -----------
382,320 931,627
FINANCIALS SECTOR -- 6.6%
- -------------------------
BANKS-MAJOR REGIONAL -- 1.8%
12,000 Bank of New York Company, Inc. 378,720 483,000
BANKS-MONEY CENTER -- 1.6%
7,375 BankAmerica Corp. 151,094 443,422
INSURANCE-MULTILINE -- 3.2%
9,000 American International Group, Inc. 273,556 869,625
HEALTHCARE SECTOR -- 23.6%
- --------------------------
DIVERSE -- 9.9%
11,000 Bristol-Myers Squibb Co. 379,893 1,471,943
10,000 Johnson & Johnson 299,675 838,750
5,000 Warner-Lambert Co. 380,300 375,940
----------- -----------
1,059,868 2,686,633
DRUGS MAJOR -- 13.7%
12,000 Eli Lilly & Co. 449,610 1,066,500
2,500 Merck & Co., Inc. 108,690 369,220
18,000 Pfizer Inc. 419,360 2,257,884
----------- -----------
977,660 3,693,604
TECHNOLOGY SECTOR -- 33.6%
- --------------------------
COMMUNICATION-EQUIPMENT -- 17.4%
14,000 Lucent Technologies Inc. 583,358 1,540,000
12,000 Nokia Corp. "A" ADR 384,360 1,445,256
20,000 Plantronics, Inc.*<F10> 373,000 1,720,000
----------- -----------
1,340,718 4,705,256
COMPUTER HARDWARE -- 6.5%
20,000 Compaq Computer Corp. 186,615 838,760
5,000 International Business Machines Corp. 199,463 923,750
----------- -----------
386,078 1,762,510
COMPUTER SOFTWARE/SERVICES -- 5.3%
10,400 Microsoft Corp.*<F10> 302,226 1,442,355
COMPUTERS-NETWORKING -- 2.7%
8,000 Cisco Systems Inc.*<F10> 440,925 742,504
ELECTRONICS-SEMICONDUCTORS -- 1.7%
3,800 Intel Corp. 133,423 450,540
UTILITIES SECTOR -- 1.4%
- ------------------------
ELECTRIC COMPANIES -- 1.4%
5,810 Duke Energy Corp. 135,932 372,206
----------- -----------
Total common stocks 7,927,932 22,076,979
----------- -----------
ASSET BACKED SECURITIES -- 2.0% (A)<F11>
$ 27,507 Keycorp Auto Grantor Trust,
5.80%, due 07/15/00 27,336 27,517
500,000 Discover Card Master Trust I,
6.55%, due 02/18/03 506,339 509,375
----------- -----------
Total asset
backed securities 533,675 536,892
----------- -----------
PRINCIPAL
AMOUNT
---------
FEDERAL AGENCIES -- 14.8% (A)<F11>
$500,000 FNMA, 7.55%, due 06/10/04 500,000 505,754
1,000,000 FHLMC, 6.718%, due 02/12/08 1,000,000 1,000,233
500,000 FHLMC, 6.80%,due 03/10/08 499,714 500,564
500,000 FNMA, 6.48%, due 04/02/08 499,130 505,494
500,000 FNMA, 6.23%,due 04/16/08 497,968 510,214
1,000,000 FNMA, 6.625%, due 04/15/08 998,839 997,453
----------- -----------
Total federal agencies 3,995,651 4,019,712
----------- -----------
Total long-term investments 12,457,258 26,633,583
SHORT-TERM INVESTMENTS -- 1.4% (A)<F11>
VARIABLE RATE DEMAND NOTE
368,107 Firstar Bank U.S.A., N.A. 368,107 368,107
----------- -----------
Total short-term investments 368,107 368,107
----------- -----------
Total investments $12,825,365 27,001,690
-----------
-----------
Cash and receivables, less
liabilities 0.2% (A)<F11> 60,708
-----------
Net Assets $27,062,398
-----------
-----------
Net Asset Value Per Share
($0.01 par value 300,000,000
shares authorized), offering
and redemption price
($27,062,398 / 1,224,261
shares outstanding) $ 22.11
-----------
-----------
*<F10>Non-income producing security.
FHLMC = Federal Home Loan Mortgage Corp.
FNMA = Federal National Mortgage Association
(a)<F11>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 Period Ending December 31, 1998 (Unaudited)
INCOME:
Dividends $ 64,481
Interest 178,265
----------
Total income 242,746
----------
EXPENSES:
Management fees 122,305
Administrative services 24,276
Professional fees 9,278
Transfer agent fees 8,286
Registration fees 3,474
Custodian fees 2,725
Printing and postage expense 1,329
Other expenses 2,162
----------
Total expenses before reimbursement 173,835
Less expenses assumed by adviser (15,024)
----------
Net expenses 158,811
----------
NET INVESTMENT INCOME 83,935
----------
NET REALIZED GAIN ON INVESTMENTS 1,501,391
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 2,041,625
----------
NET GAIN ON INVESTMENTS 3,543,016
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,626,951
----------
----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ending December 31, 1998 (Unaudited) and
For the Year Ended June 30, 1998
<TABLE>
DECEMBER 31, JUNE 30,
1998 1998
----------- -----------
<S>
OPERATIONS: <C> <C>
Net investment income $ 83,935 $ 280,595
Net realized gain on investments 1,501,391 1,218,630
Net increase in unrealized
appreciation on investments 2,041,625 5,324,182
----------- -----------
Net increase in net assets
resulting from operations 3,626,951 6,823,407
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.16696 and $0.2494 per share,
respectively) (192,872) (321,741)
Distributions from net realized gains
($2.35253 and $0.52647 per share,
respectively) (2,719,993) (680,452)
----------- -----------
Total distributions (2,912,865) (1,002,193)*<F12>
----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(43,384 and 163,200 shares, respectively) 873,107 2,976,105
Net asset value of shares issued in
distributions (120,050 and
40,964 shares, respectively) 2,587,962 697,988
Cost of shares redeemed
(122,937 and 303,025 shares, respectively) (2,566,844) (5,667,671)
----------- -----------
Net increase (decrease) in net assets
derived from Fund share activities 894,225 (1,993,578)
----------- -----------
TOTAL INCREASE 1,608,311 3,827,636
NET ASSETS AT THE BEGINNING OF THE PERIOD 25,454,087 21,626,451
----------- -----------
NET ASSETS AT THE END OF THE PERIOD
(including undistributed net investment
income of $0 and $108,880, respectively) $27,062,398 $25,454,087
----------- -----------
----------- -----------
*<F12>See Note 8.
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
Eastcliff Total Return Fund
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
FOR THE
(UNAUDITED) PERIOD
FOR THE FROM
PERIOD OCTOBER 1,
ENDING YEARS ENDED 1994 TO
DEC. 31, JUNE 30, JUNE 30, YEARS ENDED SEPTEMBER 30,
----------------------- ----------------------------------------------
1998 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $21.50 $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 0.07 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 3.06 5.19 3.47 2.90 0.71 0.12 1.28 1.27 2.30 (1.82) 1.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 3.13 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 (0.17) (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 (2.35) (0.53) (1.34) (0.16) (0.67) (0.55) (0.90) (0.77) (0.13) (0.18) (0.01)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from distributions (2.52) (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 period $22.11 $21.50 $16.86 $14.62 $11.96 $11.92 $12.38 $11.96 $11.56 $ 9.47 $11.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT
RETURN (d)<F17> 15.2%*<F13> 33.3% 28.1% 25.4% 10.4%(a)<F14> 2.2% 13.4% 13.2% 28.7% (13.5%) 16.8%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(in 000's $) 27,062 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)<F15> 1.3%(a)<F14>1.3% 1.3% 1.3% 1.5%(a)<F14> 2.0% 2.0% 2.7% 2.0% 2.4% 3.0%
Ratio of net investment
income to average
net assets (c)<F16> 0.7%(a)<F14>1.2% 1.5% 0.7% 2.5%(a)<F14> 1.3% 1.5% 1.2% 2.4% 2.8% 2.8%
Portfolio turnover rate 11.2% 38.4% 58.3% 95.1% 89.4% 13.2% 28.0% 34.9% 38.0% 62.7% 27.2%
</TABLE>
*<F13> Not annualized.
(a)<F14> Annualized.
(b)<F15> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios
would have been, for the period ending December 31, 1998 and 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 ended September 30, 1994,
1993, 1992, 1991, 1990 and 1989, as follows: 1.4%(a)<F14>, 1.4%, 1.5%,
1.6%, 2.6%(a)<F14>, 3.0%, 2.8%, 3.3%, 3.2%, 3.1% and 4.4%,
respectively.
(c)<F16> If the Fund had paid all of its expenses, the ratios would have been,
for the period ending December 31, 1998 and 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 ended September 30, 1994, 1993, 1992, 1991,
1990 and 1989, as follows: 0.6%(a)<F14>, 1.1%, 1.3%, 0.4%,
1.4%(a)<F14>, 0.2%, 0.8%, 0.6%, 1.3%, 2.1% and 1.4%, respectively.
(d)<F17> Effective December 31, 1994, the Fund changed investment advisers from
Fiduciary Management, Inc. to Resource Capital Advisers, Inc.
The accompanying notes to financial statements are an integral part of this
statement.
Eastcliff Regional
Small Capitalization
Value Fund
February 9, 1999
Dear Shareholder:
1998 has been an intellectually challenging period for small cap value
investors. It has been difficult to rationalize the unprecedented difference in
return between large and small capitalization stocks. The dominant factor in
determining how to make money in this environment seems to be driven more by
size and liquidity than valuation discrepancies. Value investors suffer in
periods like this where seemingly there is little relation between price and
value. The "surreal behavior" occurring in the world of Internet stocks suggests
that the precept of value is being severely challenged. In the past, the ending
of such an environment has been painful for those most swept up in the desire
for instant gratification. The term "crash and burn" comes to mind. We continue
to adhere to our investment discipline and maintain sense of price and value as
best we can. For the twelve months ended December 31, 1998 the total return for
the Eastcliff Regional Small Capitalization Value Fund was down 3.9% as compared
to the Russell 2000 Index at -2.5%. The annualized compounded rate of return
since the Fund's inception on September 16, 1996 was 11.0%. The net asset value
at year-end was $12.47 (after adjustments for capital gain distributions) and
the Fund's assets were over $51 million.
The Fund only holds common stocks and short-term investments. At year-end
1998, 97.6% was invested in equities with the remainder invested in short-term
investments. Your Fund holds investments in 47 companies representing a variety
of industries. Our bottom-up strategy of investing makes only nominal effort to
forecast the economy or moves in interest rates. Instead, we focus on investing
in the best companies we can find with strong managements and that are
undervalued by the market.
Some of the investments that benefited performance in 1998 were: Federal
Mogul, a Michigan based auto parts company with financial management skills and
a global consolidation strategy that is on the leading edge of the industry;
Alliant Techsystems, a Minnesota based defense company that has growing exposure
to high multiple space business, massive cash flows and a shareholder oriented
management team; National Computer Systems, a Minnesota based company that's
enjoying rapid and consistent growth as a leading supplier of products and
services to the education market; Fingerhut Companies, another Minnesota
company, which is expanding its catalog retailing strength into new markets
including the Internet.
Sincerely,
/s/Richard W. Jensen /s/Elizabeth M. Lilly /s/Richard J. Rinkoff
Richard W. Jensen Elizabeth M. Lilly Richard J. Rinkoff
Past performance cannot guarantee future results. Prices will fluctuate and
redemption value may be more or less than original investment. This Fund is not
insured by the FDIC and is not a deposit or other obligation of or guaranteed by
Resource Trust Company or any of its affiliates.
Eastcliff Regional Small Capitalization Value Fund
STATEMENT OF NET ASSETS
December 31, 1998 (Unaudited)
QUOTED
MARKET
SHARES COST VALUE
------ ---- -----
LONG-TERM INVESTMENTS -- 97.6% (A)<F19>
COMMON STOCKS -- 97.6% (A)<F19>
BASIC MATERIALS SECTOR -- 11.7%
- -------------------------------
CHEMICALS -- 2.5%
55,000 Geon Co. $1,140,208 $1,265,000
CHEMICALS-SPECIALTY -- 9.0%
60,400 Ferro Corp. 1,429,600 1,570,400
44,700 H.B. Fuller Co. 2,394,198 2,151,186
107,100 Material Sciences Corp.*<F18> 1,416,712 910,350
----------- -----------
5,240,510 4,631,936
IRON & STEEL -- 0.2%
30,600 Dynamic Materials Corp.*<F18> 273,417 114,750
CAPITAL GOODS SECTOR -- 28.9%
- -----------------------------
AEROSPACE/DEFENSE -- 3.8%
24,000 Alliant Techsystems Inc.*<F18> 1,363,771 1,978,512
CONTAINERS-METAL/GLASS -- 3.0%
85,800 U.S. Can Corp.*<F18> 1,439,063 1,533,675
ELECTRICAL EQUIPMENT -- 5.8%
75,000 MagneTek, Inc.*<F18> 1,375,695 867,225
31,700 SPX Corp. 1,308,436 2,123,900
----------- -----------
2,684,131 2,991,125
MACHINERY-DIVERSE -- 1.6%
29,600 Terex Corp. 480,783 845,465
MANUFACTURE-DIVERSE -- 10.9%
20,400 Binks Sames Corp. 857,349 336,600
58,300 Graco Inc. 1,267,529 1,719,850
33,100 IDEX Corp. 950,576 810,950
33,700 Premark International, Inc. 868,860 1,166,863
86,480 U.S. Industries, Inc. 1,746,844 1,610,690
----------- -----------
5,691,158 5,644,953
MANUFACTURE-SPECIAL -- 1.1%
28,100 Donaldson Company, Inc. 403,290 583,075
OFFICE EQUIPMENT & SUPPLIES -- 2.7%
36,900 National Computer Systems, Inc. 391,581 1,365,300
CONSUMER CYCLICALS SECTOR -- 25.5%
- ----------------------------------
AUTO PARTS & EQUIPMENT -- 8.5%
36,000 Federal-Mogul Corp. 821,607 2,142,000
54,500 Standard Motor Products, Inc. 985,963 1,321,625
38,000 Tower Automotive, Inc.*<F18> 695,501 947,644
----------- -----------
2,503,071 4,411,269
CONSUMER-JEWELRY/GIFT -- 0.7%
16,300 Enesco Group Inc. 426,541 378,975
FOOTWEAR -- 1.4%
82,100 The Stride Rite Corp. 1,054,471 718,375
PUBLISHING-NEWSPAPER -- 3.2%
23,200 Central Newspapers, Inc. 1,256,510 1,657,362
RETAIL-GENERAL MERCHANDISE -- 2.6%
87,900 Fingerhut Companies, Inc. 736,676 1,357,000
RETAIL-SPECIALTY -- 1.9%
56,100 Funco, Inc.*<F18> 837,485 981,750
SERVICES-ADVERTISING/MARKETING -- 4.2%
76,800 AC Nielsen Corp.*<F18> 1,488,287 2,169,600
SERVICES-COMMERCIAL & CONSUMER -- 1.2%
13,700 Alternative Resources Corp.*<F18> 140,711 145,562
15,700 Midas, Inc. 410,869 488,663
----------- -----------
551,580 634,225
TEXTILES-APPAREL -- 1.8%
109,000 Sport-Haley, Inc.*<F18> 1,637,770 926,500
CONSUMER STAPLES SECTOR -- 12.3%
- --------------------------------
ENTERTAINMENT -- 1.2%
89,800 LodgeNet Entertainment Corp.*<F18> 1,048,173 617,375
FOODS -- 9.1%
31,200 Corn Products International, Inc. 1,048,711 947,700
106,300 International Multifoods Corp. 2,361,195 2,743,922
41,900 Vlasic Foods International, Inc.*<F18> 881,750 997,765
----------- -----------
4,291,656 4,689,387
RESTAURANTS -- 1.0%
33,900 VICORP Restaurants, Inc. 478,692 525,450
SPECIALTY PRINTING -- 1.0%
27,800 Merrill Corp. 302,356 536,901
ENERGY SECTOR -- 0.5%
- ---------------------
OIL-EXPLORATION & PRODUCTS -- 0.5%
22,100 Basin Exploration, Inc.*<F18> 398,340 277,642
FINANCIALS SECTOR -- 9.6%
- -------------------------
BANKS-MAJOR REGIONAL -- 4.6%
35,500 Community First
Bankshares, Inc. 538,969 747,736
67,700 TCF Financial Corp. 1,588,324 1,637,528
----------- -----------
2,127,293 2,385,264
INSURANCE-LIFE/HEALTH -- 0.8%
65,300 RTW, Inc.*<F18> 548,173 416,288
INSURANCE-PROPERTY -- 4.2%
22,400 Highlands Insurance Group, Inc.*<F18> 532,714 292,611
65,900 Horace Mann Educators Corp. 1,529,046 1,878,150
----------- -----------
2,061,760 2,170,761
HEALTHCARE SECTOR -- 5.3%
- -------------------------
MEDICAL PRODUCTS & SUPPLIES -- 5.3%
68,900 Empi, Inc.*<F18> 1,245,015 1,722,500
98,300 Rehabilicare Inc.*<F18> 321,212 319,475
46,400 Rochester Medical Corp.*<F18> 740,213 707,600
----------- -----------
2,306,440 2,749,575
TECHNOLOGY SECTOR -- 3.8%
- -------------------------
COMMUNICATION-EQUIPMENT -- 0.9%
40,400 Communications Systems, Inc. 561,000 477,245
ELECTRONICS-INSTRUMENTS -- 1.7%
68,700 Bolder Technologies Corp.*<F18> 898,737 850,163
ELECTRONICS-SEMICONDUCTORS -- 1.2%
57,500 Aetrium Inc.*<F18> 955,800 632,500
----------- -----------
Total common stocks 45,578,723 50,517,398
----------- -----------
Total long-term
investments 45,578,723 50,517,398
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS -- 2.6% (A)<F19>
VARIABLE RATE DEMAND NOTE
$1,330,076 Firstar Bank U.S.A., N.A. 1,330,076 1,330,076
----------- -----------
Total short-term
investments 1,330,076 1,330,076
----------- -----------
Total investments $46,908,799 51,847,474
-----------
-----------
Liabilities, less cash and
receivables (0.2%) (A)<F19> (83,695)
-----------
Net Assets $51,763,779
-----------
-----------
Net Asset Value Per Share
($0.01 par value 300,000,000
shares authorized), offering
and redemption price
($51,763,779 / 4,150,204
shares outstanding) $ 12.47
-----------
-----------
*<F18>Non-income producing security.
(a)<F19>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 Period Ending December 31, 1998 (Unaudited)
INCOME:
Dividends $ 231,263
Interest 32,097
-----------
Total income 263,360
-----------
EXPENSES:
Management fees 255,680
Administrative services 36,665
Professional fees 12,791
Transfer agent fees 10,065
Custodian fees 9,090
Registration fees 8,789
Printing and postage expense 5,433
Amortization of organizational expenses 2,487
Other expenses 6,545
-----------
Total expenses 347,545
-----------
NET INVESTMENT LOSS (84,185)
-----------
NET REALIZED LOSS ON INVESTMENTS (2,017,860)
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (3,098,110)
-----------
NET LOSS ON INVESTMENTS (5,115,970)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(5,200,155)
-----------
-----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ending December 31, 1998 (Unaudited) and for the Year Ended June
30 ,1998
DECEMBER 31, JUNE 30,
1998 1998
----------- -------
OPERATIONS:
Net investment loss $ (84,185) $ (72,349)
Net realized (loss) gain on investments (2,017,860) 655,165
Net (decrease) increase in
unrealized appreciation on investments (3,098,110) 4,056,705
----------- -----------
Net (decrease) increase in
net assets resulting from operations (5,200,155) 4,639,521
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distribution from net investment
income ($0.00566 per share) -- (13,912)
Distributions from net realized gains
($0.1144 and $0.08783 per share, respectively) (522,086) (241,045)
----------- -----------
Total distributions (522,086) (254,957)*<F20>
----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(274,794 and 4,074,336 shares, respectively) 3,251,753 53,855,081
Net asset value of shares issued
in distributions (40,053 and
19,272 shares, respectively) 499,462 246,086
Cost of shares redeemed
(746,829 and 1,901,473 shares, respectively) (8,403,759) (25,578,485)
----------- -----------
Net (decrease) increase in
net assets derived from
Fund share activities (4,652,544) 28,522,682
----------- -----------
TOTAL (DECREASE) INCREASE (10,374,785) 32,907,246
NET ASSETS AT THE BEGINNING OF THE PERIOD 62,138,564 29,231,318
----------- -----------
NET ASSETS AT THE END OF THE PERIOD $51,763,779 $62,138,564
----------- -----------
----------- -----------
*<F20> See Note 8.
The accompanying notes to financial statements are an integral part of these
statements.
Eastcliff Regional Small Capitalization Value Fund
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
(UNAUDITED)
FOR THE PERIOD FOR THE FOR THE PERIOD FROM
ENDING DECEMBER 31, YEAR ENDED SEPTEMBER 16, 1996+<F21> TO
1998 JUNE 30, 1998 JUNE 30, 1997
------------------- -------------- ---------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $13.56 $12.23 $10.00
Income from investment operations:
Net investment (loss) income (0.02) (0.01) 0.02
Net realized and unrealized
(losses) gains on investments (0.96) 1.43 2.23
------ ------ ------
Total from investment operations (0.98) 1.42 2.25
Less distributions:
Dividends from net investment income -- (0.00) (0.02)
Distributions from net realized gains (0.11) (0.09) --
------ ------ ------
Total from distributions (0.11) (0.09) (0.02)
------ ------ ------
Net asset value, end of period $12.47 $13.56 $12.23
------ ------ ------
------ ------ ------
TOTAL INVESTMENT RETURN (7.2%)**<F23> 11.7% 22.5%**<F23>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 51,764 62,139 29,231
Ratio of expenses (after reimbursement)
to average net assets (a)<F24> 1.3%*<F22> 1.3% 1.3%*<F22>
Ratio of net investment (loss)
income to average net assets (b)<F25> (0.3%)*<F22> (0.1%) 0.3%*<F22>
Portfolio turnover rate 11.3% 35.5% 29.4%
</TABLE>
+<F21> Commencement of operations.
*<F22> Annualized.
**<F23> Not annualized.
(a)<F24> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses for the period
September 16, 1996+<F21> to June 30, 1997, the ratio would have been
1.6%*<F22>.
(b)<F25> If the Fund had paid all of its expenses for the period September 16,
1996+<F21> to June 30, 1997, the ratio would have been (0.0)%*<F22>.
The accompanying notes to financial statements are an integral part of this
statement.
Eastcliff Contrarian Value Fund
February 9, 1999
Dear Shareholder:
Contrarian value investing by definition is never easy under the best of
market conditions because you do not get to buy clean, problem-free companies
with attractive sequential revenue and earnings growth. 1998, our first year as
the newest member of the Eastcliff Funds, was clearly a difficult and
disappointing year for our discipline with the total return for the Eastcliff
Contrarian Value Fund down 9.1% versus 10.1% for the Russell Mid-Cap benchmark.
The annualized compounded rate of return since the Fund's inception on December
30, 1997 was -8.8%. This result was not what either you or we expected as many
of our portfolio holdings were adversely impacted by the spreading deflation and
fear of the Asian economic and financial crisis. Fear of this unquantifiable
Asian crisis replaced greed in the Fall of 1998, and led to a flight to quality
large capitalization growth stocks (drugs, technology, telephone utilities) to
the detriment of small and medium size companies that fell into the value style.
Is there a silver lining for contrarian value ideas that were completely out
of sync with the broad market in 1998? We believe the answer is a resounding
yes, and while counter-intuitive, the severe underperformance of value stocks in
1998 is good for pure contrarian value investors because it created more
bargains in undervalued companies than we have seen since 1974 and the third
quarter of 1990! Early signs in 1999 point to stabilization in Asia and even
some increases in commodity prices. Your portfolio is loaded with many
attractive basic industrial restructuring ideas, that while shunned in 1998,
should produce dramatic catch-up gains in 1999. The earnings leverage after the
pain of lower pricing in 1998 should be inverse and in some cases geometric on
the upside given the dramatic cost reductions already realized. Typically,
following this kind of bear market for small/medium companies and value, our
style outperforms the broader market for several consecutive years. We have been
strengthening and repositioning our portfolio to take advantage of the expected
return to leadership for contrarian value in 1999 and we expect your patience
will be rewarded.
As of December 29, 1998, your Board of Directors declared a distribution of
$0.03861 per share from net investment income and $0.17922 per share from short-
term capital gains, payable December 30, 1998, to shareholders of record on
December 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
STATEMENT OF NET ASSETS
December 31, 1998 (Unaudited)
QUOTED
MARKET
SHARES COST VALUE
------ ----- ------
LONG-TERM INVESTMENTS -- 95.6% (A)<F27>
COMMON STOCKS -- 95.6% (A)<F27>
BASIC MATERIALS SECTOR -- 22.8%
- -------------------------------
ALUMINUM -- 3.7%
11,000 Reynolds Metals Co. $ 646,332 $ 579,568
CHEMICALS-DIVERSE -- 3.1%
11,800 Engelhard Corp. 234,265 230,100
40,600 Terra Industries, Inc. 478,907 251,233
----------- -----------
713,172 481,333
CHEMICALS-SPECIALTY -- 6.6%
38,300 W.R. Grace & Co.*<F26> 555,126 600,850
16,100 Hercules Inc. 657,305 440,738
----------- -----------
1,212,431 1,041,588
IRON & STEEL -- 9.4%
29,500 AK Steel Holding Corp. 519,895 693,250
22,100 Allegheny Teledyne Inc. 535,199 451,680
75,100 Armco, Inc. 365,186 328,562
----------- -----------
1,420,280 1,473,492
CAPITAL GOODS SECTOR -- 17.6%
- -----------------------------
CONTAINERS-METAL/GLASS -- 4.7%
16,200 Ball Corp. 552,158 741,150
MANUFACTURE-DIVERSE -- 9.1%
20,600 Tenneco, Inc. 795,316 701,698
39,500 U.S. Industries, Inc. 1,007,364 735,687
----------- -----------
1,802,680 1,437,385
WASTE MANAGEMENT -- 3.8%
12,672 Waste Management, Inc. 534,461 590,832
CONSUMER CYCLICALS SECTOR -- 9.6%
- ---------------------------------
AUTO PARTS & EQUIPMENT -- 2.8%
11,100 ITT Industries, Inc. 345,734 441,225
PUBLISHING -- 1.7%
4,800 The Times Mirror Co. 280,442 268,800
RETAIL-APPAREL -- 2.9%
18,500 Footstar, Inc.*<F26> 519,292 462,500
RETAIL-SPECIALTY -- 2.2%
54,800 Ventator Group, Inc. 958,884 352,802
CONSUMER STAPLES SECTOR -- 6.4%
- --------------------------------
BROADCAST MEDIA -- 3.0%
14,200 CBS Corp. 395,577 465,050
SPECIALTY PRINTING -- 3.4%
12,200 R. R. Donnelley & Sons Co. 437,116 534,519
ENERGY SECTOR -- 15.8%
- ----------------------
OIL & GAS-DRILLING & EQUIPMENT -- 1.2%
7,600 Cooper Cameron Corp.*<F26> 179,681 186,200
OIL & GAS-REFINING & MARKETING - 7.5%
30,852 Pennzoil-Quaker State Co. 704,443 457,011
19,819 Sunoco, Inc. 762,252 714,732
----------- -----------
1,466,695 1,171,743
OIL-DOMESTIC -- 2.2%
21,500 PennzEnergy Co. 526,288 350,730
OIL-EXPLORATION & PRODUCTS -- 4.9%
4,000 Kerr-McGee Corp. 147,142 153,000
27,300 Oryx Energy Co. 643,987 366,857
29,300 Pioneer Natural Resources Co. 620,303 256,375
----------- -----------
1,411,432 776,232
FINANCIALS SECTOR -- 5.6%
- -------------------------
FINANCIAL-DIVERSE -- 5.6%
3,700 Alleghany Corp. 658,607 695,138
4,000 Chicago Title Corp. 148,139 187,752
----------- -----------
806,746 882,890
TECHNOLOGY SECTOR -- 3.4%
- -------------------------
PHOTOGRAPH/IMAGING -- 3.4%
7,400 Eastman Kodak Co. 460,526 532,800
TRANSPORTATION SECTOR -- 2.0%
- -----------------------------
RAILROADS -- 2.0%
6,900 Union Pacific Corp. 318,662 310,935
UTILITIES SECTOR -- 12.4%
- -------------------------
ELECTRIC COMPANIES -- 6.4%
24,200 Northeast Utilities 337,693 387,200
18,600 Western Resources, Inc. 757,353 618,450
----------- -----------
1,095,046 1,005,650
NATURAL GAS -- 6.0%
9,600 Eastern Enterprises 408,696 420,000
22,000 UGI Corp. 612,062 522,500
----------- -----------
1,020,758 942,500
----------- -----------
Total common stocks 17,104,393 15,029,924
----------- -----------
Total long-term investments 17,104,393 15,029,924
PRINCIPAL
AMOUNT
--------
SHORT-TERM INVESTMENTS -- 3.6% (A)<F27>
VARIABLE RATE DEMAND NOTE
$572,442 Firstar Bank U.S.A., N.A. 572,442 572,442
----------- -----------
Total short-term
investments 572,442 572,442
----------- -----------
Total investments $17,676,835 15,602,366
-----------
-----------
Cash and receivables, less
liabilities 0.8% (A)<F27> 118,281
-----------
Net Assets $15,720,647
-----------
-----------
Net Asset Value Per Share
($0.01 par value 300,000,000
shares authorized), offering
and redemption price
($15,720,647 / 1,795,553
shares outstanding) $ 8.76
-----------
-----------
*<F26> Non-income producing security.
(a)<F27> 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 Ending December 31, 1998 (Unaudited)
INCOME:
Dividends $ 161,330
Interest 21,181
-----------
Total income 182,511
-----------
EXPENSES:
Management fees 88,902
Administrative services 17,780
Professional fees 8,078
Transfer agent fees 7,971
Custodian fees 5,622
Registration fees 3,284
Amortization of organizational expenses 2,326
Printing and postage expense 494
Other expenses 1,548
-----------
Total expenses before reimbursement 136,005
Less expenses assumed by adviser (20,433)
-----------
Net expenses 115,572
-----------
NET INVESTMENT INCOME 66,939
-----------
NET REALIZED LOSS ON INVESTMENTS (317,164)
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (2,438,276)
-----------
NET LOSS ON INVESTMENTS (2,755,440)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(2,688,501)
-----------
-----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ending December 31, 1998 (Unaudited) and for the Period from
December 30, 1997 (commencement of operations) to June 30, 1998
DECEMBER 31, JUNE 30,
1998 1998
---------- -------
OPERATIONS:
Net investment income $ 66,939 $ 66,808
Net realized (loss) gain on investments (317,164) 225,965
Net (decrease) increase in unrealized
appreciation on investments (2,438,276) 363,807
---------- ----------
Net (decrease) increase in
net assets resulting from operations (2,688,501) 656,580
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.07285 per share) (137,368) --
Distributions from net realized gains
($0.29322 per share) (547,599) --
---------- ----------
Total distributions (684,967) --
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(238,840 and 2,027,118 shares, respectively) 2,333,621 20,406,328
Net asset value of shares issued
in distributions (58,268 shares) 524,234 --
Cost of shares redeemed
(381,753 and 146,921 shares, respectively) (3,332,974) (1,493,674)
---------- ----------
Net (decrease) increase in
net assets derived from
Fund share activities (475,119) 18,912,654
---------- ----------
TOTAL (DECREASE) INCREASE (3,848,587) 19,569,234
NET ASSETS AT THE BEGINNING OF THE PERIOD 19,569,234 --
---------- ----------
NET ASSETS AT THE END OF THE PERIOD
(including undistributed net
investment income of $0 and
$68,602, respectively) $15,720,647 $19,569,234
---------- ----------
---------- ----------
The accompanying notes to financial statements are an integral part of these
statements.
Eastcliff Contrarian Value Fund
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
(UNAUDITED)
FOR THE PERIOD FOR THE PERIOD FROM
ENDING DECEMBER 31, DECEMBER 30, 1997+<F28>
1998 TO JUNE 30, 1998
------------------- -------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.41 $10.00
Income from investment operations:
Net investment income 0.04 0.04
Net realized and unrealized (losses)
gains on investments (1.32) 0.37
------ ------
Total from investment operations (1.28) 0.41
Less distributions:
Dividends from net investment income (0.07) --
Distributions from net realized gains (0.30) --
------ ------
Total from distributions (0.37) --
------ ------
Net asset value, end of period $8.76 $10.41
------ ------
------ ------
TOTAL INVESTMENT RETURN (12.4%)**<F30> 4.1%**<F30>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 15,721 19,569
Ratio of expenses (after reimbursement)
to average net assets (a)<F31> 1.3%*<F29> 1.3%*<F29>
Ratio of net investment income
to average net assets (b)<F32> 0.8%*<F29> 0.7%*<F29>
Portfolio turnover rate 24.4% 13.6%
</TABLE>
+<F28> Commencement of operations.
*<F29> Annualized.
**<F30>Not annualized.
(a)<F31> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios
would have been 1.5%*<F29> and 1.5%*<F29>, respectively for the period
ending December 31, 1998 and for the period December 30, 1997+<F28> to
June 30, 1998.
(b)<F32> If the Fund had paid all of its expenses, the ratios would have been
0.5%*<F29> and 0.5%*<F29>, respectively for the period ending December
31, 1998 and for the period December 30, 1997+<F28> to June 30, 1998.
The accompanying notes to financial statements are an integral part of this
statement.
Eastcliff Funds
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 (Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
The following is a summary of significant accounting policies of the
Eastcliff Funds, Inc. (the "Company"), which is registered as an open-end
management investment company under the Investment Company Act of 1940. This
Company consists of a series of 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 amounts as reported on the statements of net assets are the same for
Federal income tax purposes.
(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 Funds 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 $15,024 and $20,433
for the period ending December 31, 1998, for the Total Return Fund and 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
December 31, 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 December 30, 1998, to shareholders of record on
December 28, 1998.
<TABLE>
TOTAL REGIONAL CONTRARIAN
GROWTH FUND RETURN FUND SMALL CAP FUND VALUE FUND
---------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Dividend from net investment income $ -- $ 83,987 $ -- $ 68,762
$ per share -- 0.0724 -- 0.03861
Short-term gains 238,559 112,802 -- 319,179
$ per share 0.072881 0.09724 -- 0.17922
Long-term capital gains 381,467 1,388,552 -- --
$ per share 0.116540 1.19699 -- --
Shareholders were 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 December 31,
1998, were $9,451, $13,676 and $18,607, respectively.
(5) INVESTMENT TRANSACTIONS --
For the period ending December 31, 1998, purchases and proceeds of sales of
investment securities of the Growth Fund (excluding short-term securities)
were $25,213,917 and $33,900,955, respectively; purchases and proceeds of
sales of investment securities of the Total Return Fund (excluding short-term
securities) were $2,586,875 and $4,576,137, respectively; purchases and
proceeds of sales of investment securities of the Regional Small Cap Fund,
(excluding short-term securities) were $5,671,752 and $10,673,151,
respectively; and purchases and proceeds of sales of investment securities of
the Contrarian Value Fund (excluding short-term securities) were $4,105,016
and $5,428,448, respectively.
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of December 31, 1998, liabilities of the Funds included the following:
</TABLE>
<TABLE>
TOTAL REGIONAL CONTRARIAN
GROWTH FUND RETURN FUND SMALL CAP FUND VALUE FUND
---------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Payable to brokers for
investments purchased $ -- $ -- $ 58,650 $ --
Payable to RCA for management fees and
deferred expenses 49,799 22,099 56,168 32,231
Other liabilities 44,598 6,957 37,682 4,087
</TABLE>
(7) SOURCES OF NET ASSETS --
<TABLE>
TOTAL REGIONAL CONTRARIAN
GROWTH FUND RETURN FUND SMALL CAP FUND VALUE FUND
---------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
As of December 31, 1998, the sources
of net assets were as follows:
Fund shares issued and outstanding $31,557,192 $12,890,096 $48,856,415 $18,433,997
Net unrealized appreciation
(depreciation) on investments 17,436,301 14,176,325 4,938,675 (2,074,469)
Undistributed net realized gains
(losses) on investments 2,525,431 (3,966) (2,031,311) (638,798)
Overdistributed net investment income -- (57) -- (83)
----------- ----------- ----------- -----------
$51,518,924 $27,062,398 $51,763,779 $15,720,647
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Aggregate net unrealized appreciation (depreciation)
as of December 31, 1998, consisted of the following:
Aggregate gross unrealized appreciation $17,652,450 $14,182,071 $10,121,810 $ 1,016,862
Aggregate gross unrealized depreciation (216,149) (5,746) (5,183,135) (3,091,331)
----------- ----------- ----------- -----------
Net unrealized appreciation (depreciation)$17,436,301 $14,176,325 $ 4,938,675 $ (2,074,469)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
(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.
<TABLE>
TOTAL REGIONAL CONTRARIAN
GROWTH FUND RETURN FUND SMALL CAP FUND VALUE FUND
---------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
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 -- --
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
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.
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
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
