Registration No. 33-6836; 811-04722
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 19 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 21 |X|
(Check appropriate box or boxes.)
EASTCLIFF FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
900 Second Avenue South
Suite 300
Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
(612) 336-1444
(Registrant's Telephone Number, including Area Code)
Copy to:
John Clymer Richard L. Teigen
900 Second Avenue South Foley & Lardner
Suite 300 777 East Wisconsin Avenue
Minneapolis, Minnesota 55402 Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
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Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective.
It is proposed that this filing become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] on (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
|X| on September 30, 1999 pursuant to paragraph (a) (2) of Rule 485
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P R O S P E C T U S
September 30, 1999
The Eastcliff Funds
The Eastcliff Funds are a family of five no load mutual funds. Each of the
Eastcliff Funds invests mainly in common stocks of U.S. companies.
The Eastcliff Funds are:
* Eastcliff Total Return Fund * Eastcliff Regional Small
Capitalization Value Fund
* Eastcliff Growth Fund * Eastcliff Contrarian
Value Fund
* Eastcliff Emerging Growth Fund
Please read this Prospectus and keep it for future reference. It contains
important information, including information on how the Eastcliff Funds invest
and the services they offer to shareholders.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Eastcliff Funds, Inc.
900 Second Avenue South
300 International Centre
Minneapolis, Minnesota 55402
(612) 336-1444 TABLE OF CONTENTS
Questions Every Investor Should Ask
Before Investing in the Eastcliff Funds
Investment Objectives and Strategies.........
Management of the Funds......................
The Funds' Share Price ......................
Purchasing Shares............................
Redeeming Shares.............................
Exchanging Shares............................
Dividends, Distributions and Taxes...........
Financial Highlights.........................
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QUESTIONS EVERY INVESTOR SHOULD ASK BEFORE
INVESTING IN THE EASTCLIFF FUNDS
1. What are the Eastcliff Funds' Goals?
Eastcliff Total Return Fund
Eastcliff Total Return Fund seeks a combination of long-term growth of
capital and income to achieve a high total return, while assuming
reasonable risks.
Eastcliff Growth Fund
Eastcliff Growth Fund seeks long-term growth of capital.
Eastcliff Emerging Growth Fund
Eastcliff Emerging Growth Fund seeks long-term growth of capital.
Eastcliff Regional Small Capitalization Value Fund
Eastcliff Regional Small Capitalization Value Fund seeks long-term
growth of capital.
Eastcliff Contrarian Value Fund
Eastcliff Contrarian Value Fund seeks long-term growth of capital.
2. What are the Eastcliff Funds' Principal Investment Strategies?
Each of the Eastcliff Funds invests mainly in common stocks of United
States companies. The Funds employ different investment strategies to achieve
their investment objectives. Unlike many mutual fund families where most of the
stock funds invest in substantially the same companies, each of the Eastcliff
Funds targets a different subset of the domestic stock market. While from time
to time there will be some investments common to some or all of the Eastcliff
Funds, their portfolios and performance will vary significantly. Please read
this Prospectus carefully to determine which of the Eastcliff Funds best meets
your investment objectives.
Eastcliff Total Return Fund
The Total Return Fund is our flexible Fund. We anticipate that the Total
Return Fund will invest in common stocks most of the time. However, because it
is a flexible fund, it may also invest in bonds and other debt securities,
including money market instruments. The Total Return Fund is not required to
invest any minimum or maximum percentage of its assets in common stocks or any
other type of security. The common stocks the Total Return Fund purchases are
generally of large capitalization growth companies (i.e. companies having a
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market capitalization of $7 billion or more at the time of purchase). The debt
securities the Total Return Fund purchases are primarily U.S. government
securities.
Eastcliff Growth Fund
The Growth Fund is one of our two "growth" funds. Our "growth" Funds invest
in companies that have the potential for above-average future earnings growth.
We believe investing in these companies provides an opportunity for achieving
superior portfolio returns (i.e., returns in excess of the returns of the
average stock mutual fund) over the long term. The Growth Fund generally invests
in mid to large capitalization companies. These are companies having a market
capitalization in excess of $1.5 billion at the time of purchase.
Eastcliff Emerging Growth Fund
The Emerging Growth Fund is our second "growth" Fund. The Emerging Growth
Fund differs from the Growth Fund in that it primarily invests in small
capitalization companies and smaller mid-cap companies (i.e. companies having a
market capitalization under $3.0 billion at the time of purchase). The portfolio
manager of the Emerging Growth Fund looks for the "rising stars" in all sectors.
The Emerging Growth Fund also does not automatically sell proven performers if
their market capitalization subsequently exceeds $3.0 billion, but generally
will not add to its holdings of these companies.
Eastcliff Regional Small Capitalization Value Fund
The Regional Small Capitalization Value Fund is one of our two "value"
Funds. Our "value" Funds invest in companies that have relatively low
price/earnings ratios which our portfolio managers believe to be undervalued. We
believe this investment approach also has the potential to produce superior
portfolio returns if the market ultimately recognizes that investments held by
these Funds are undervalued. The Regional Small Capitalization Value Fund
generally invests in small capitalization companies (i.e., companies having a
market capitalization of $1.5 billion or less at the time of purchase)
headquartered in the states of Minnesota, North Dakota, South Dakota, Montana,
Wisconsin, Michigan, Iowa, Nebraska, Colorado, Illinois, Indiana and Ohio.
Eastcliff Contrarian Value Fund
The Contrarian Value Fund is our second "value" Fund. The Contrarian Value
Fund differs from the Regional Small Capitalization Value Fund in that it
primarily invests in mid-cap companies. These are companies having a market
capitalization between $1.5 billion and $7.0 billion at the time of purchase.
Also, the Contrarian Value Fund's investments are not concentrated in a
geographical region of the United States. The portfolio manager of the
Contrarian Value Fund looks for companies with restructuring and turnaround
potential that are selling at a substantial discount to their private market
value.
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3. What are the Principal Risks of Investing in the Eastcliff Funds?
Investors in the Eastcliff Funds may lose money. There are risks associated
with investments in the types of securities in which the Eastcliff Funds
invest. These risks include:
o Market Risk: The prices of the securities in which the Eastcliff Funds
invest may decline for a number of reasons. The price declines of
common stocks, in particular, may be steep, sudden and/or prolonged.
o Smaller Capitalization Companies Risk: The Regional Small
Capitalization Value Fund and the Emerging Growth Fund invest
primarily in smaller capitalization companies. Smaller capitalization
companies typically have relatively lower revenues, limited product
lines and lack of management depth, and may have a smaller share of
the market for their products or services, than larger capitalization
companies. The stocks of smaller capitalization companies tend to have
less trading volume than stocks of larger capitalization companies.
Less trading volume may make it more difficult for our portfolio
managers to sell securities of smaller capitalization companies at
quoted market prices. Finally, there are periods when investing in
smaller capitalization stocks falls out of favor with investors and
the stocks of smaller capitalization companies underperform.
o Growth Investing Risk: Each of the Total Return Fund, the Growth Fund
and the Emerging Growth Fund primarily invest in "growth" stocks. Our
portfolio managers may be wrong in their assessments of a company's
potential for growth and the stocks these Funds hold may not grow as
our portfolio managers anticipate. From time to time "growth"
investing falls out of favor with investors. During these periods,
these Funds' relative performance may suffer.
o Value Investing Risk: Each of the Regional Small Capitalization Value
Fund and the Contrarian Value Fund primarily invest in "value" stocks.
Our portfolio managers may be wrong in their assessment of a company's
value and the stocks these Funds hold may not reach what the portfolio
managers believe are their full values.
o Regional Concentration Risk: The Regional Small Capitalization Value
Fund's policy of concentrating its common stock investments in a
geographic region means that it may be subject to adverse economic,
political or other developments in that region.
o Interest Rate Risk: At times, the Total Return Fund may invest
primarily in debt securities. In general, the value of bonds and other
debt securities rises when interest rates fall and falls when interest
rates rise. Longer term obligations are usually more sensitive to
interest rate changes than shorter term
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obligations. While bonds and other debt securities normally fluctuate
less in price than common stocks, there have been extended periods of
increases in interest rates that have caused significant declines in
bond prices.
o Credit Risk: At times, the Total Return Fund may invest primarily in
debt securities. The issuers of the bonds and other debt securities
held by the Total Return Fund may not be able to make interest or
principal payments. Even if these issues are able to make interest or
principal payments, they may suffer adverse changes in financial
condition that would lower the credit quality of the security, leading
to greater volatility in the price of the security.
o Prepayment Risk: At times, the Total Return Fund may invest primarily
in debt securities. The issuers of the bonds and other debt securities
held by the Total Return Fund may prepay principal due on securities,
particularly during periods of declining interest rates. Securities
subject to prepayment risk generally offer less potential for gain
when interest rates decline, and may offer a greater potential for
loss when interest rates rise. Rising interest rates may cause
prepayments to occur at a slower than expected rate thereby increasing
the average life of the security and making the security more
sensitive to interest rate changes. Prepayment risk is a major risk of
mortgage-backed securities.
o Asset Allocation Risk: As a flexible fund, the Total Return Fund
allocates its investments among various asset classes. The Total
Return Fund's performance will be affected by its portfolio manager's
ability to anticipate correctly the relative potential returns and
risks of the asset classes in which the Total Return Fund invests. For
example, the Total Return Fund's relative investment performance would
suffer if only a small portion of the Total Return Fund's assets were
allocated to stocks during a significant stock market advance, and its
absolute investment performance would suffer if a major portion of its
assets were allocated to stocks during a market decline.
Because of these risks the Funds are a suitable investment only for those
investors who have long-term investment goals. Prospective investors who
are uncomfortable with an investment that will increase and decrease in
value should not invest in the Funds.
4. How have the Eastcliff Funds Performed?
The bar charts and tables that follow provide some indication of the risks
of investing in the Eastcliff Funds by showing changes in the performance
from year to year of the Total Return Fund, the Growth Fund, the Regional
Small Capitalization Value Fund and the Contrarian Value Fund and how their
average annual returns over various periods compare to the performance of
various broad-based securities indexes. (The Emerging Growth Fund will
commence operations on September 30, 1999.) Please remember that each
Fund's past performance is not necessarily an indication of its future
performance. It may perform better or worse in the future.
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Eastcliff Total Return Fund
(Total return per calendar year)
40% 38.69%
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30.04%
30% 23.19%
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20.48%
20%
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10%
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0%
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-10%
1995 1996 1997 1998
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Note: During the four year period shown on the bar chart, the Fund's highest
total return for a quarter was 24.02% (quarter ended December 31, 1998)
and the lowest total return for a quarter was -7.10% (quarter ended
September 30, 1998).
The Fund's 1999 year to date total return is ___% (January 1, 1999 through
the quarter ended September 30, 1999).
Average Annual Total Returns Since
(for the periods ending December 31, January 1,
1998) Past Year 1995*
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Eastcliff Total Return Fund 38.69% 27.91%
S&P 500** 28.75% 30.61%
Lehman Brothers Intermediate
Corporate Bond Index *** 8.44% 9.80%
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* The bar chart does not disclose performance information from January 1, 1989
through December 31, 1994 because the investment adviser to the Total Return
Fund was Fiduciary Management, Inc.
**The S&P 500 is the Standard & Poor's Composite Index of 500 Stocks, a widely
recognized unmanaged index of common stock prices.
*** The Lehman Brothers Intermediate Corporate Bond Index includes all
intermediate publicly issued, fixed rate, nonconvertible investment grade,
dollar denominated, SEC-registered corporate debt. The Index includes bonds with
maturities of one to ten years and outstanding par values of at least $100
million.
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Eastcliff Growth Fund
(Total return per calendar year)
30% 29.23%
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22.40%
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20%
16.85%
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10%
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0%
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-10%
1996 1997 1998
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Note: During the three year period shown on the bar chart, the Fund's highest
total return for a quarter was 29.76% (quarter ended December 31, 1998)
and the lowest total return for a quarter was -16.98% (quarter ended
September 30, 1998).
The Fund's 1999 year to date total return is ____% (January 1, 1999
through the quarter ended September 30, 1999).
Average Annual Total Returns Since the inception
(for the periods ending December 31, of the Fund
1998) Past Year (July 1, 1995)
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Eastcliff Growth Fund 29.23% 22.02%
S&P 500 28.75% 28.73%
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Eastcliff Regional Small Capitalization Value Fund
(Total return per calendar year)
30%
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21.08%
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20%
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10%
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0%
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-3.86%
-10%
1997 1998
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Note: During the two year period shown on the bar chart, the Fund's highest
total return for a quarter was 22.26% (quarter ended December 31, 1998)
and the lowest total return for a quarter was -24.09% (quarter ended
September 30, 1998).
The Fund's 1999 year to date total return is ____% (January 1, 1999
through the quarter ended September 30, 1999).
Average Annual Total Returns Since the inception
(for the periods ending December 31, of the Fund
1998) Past Year (September 16, 1996)
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Eastcliff Regional Small
Capitalization Value Fund -3.86% 10.99%
Russell 2000 Index* -2.55% 11.02%
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*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. This index attempts to accurately capture the performance of the
universe of small capitalization common stocks.
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Eastcliff Contrarian Value Fund
(Total return per calendar year)
10%
----------------------------------
0%
----------------------------------
-10% -9.07%
1998
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Note: During the one year period shown on the bar chart, the Fund's highest
total return for a quarter was 7.48% (quarter ended March 31, 1998) and
the lowest total return for a quarter was -17.29% (quarter ended
September 30, 1998).
The Fund's 1999 year to date total return is ____% (January 1, 1999
through the quarter ended September 30, 1999).
Average Annual Total Returns Since the inception
(for the periods ending December 31, of the Fund
1998) Past Year (December 30, 1997)
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Eastcliff Contrarian Value Fund -9.07% -8.78%
Russell Midcap Index* 10.10% 10.36%
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* The Russell Midcap Index consists of the smallest 800 securities in the
Russell 1000 Index as ranked by total market capitalization. This index attempts
to capture the performance of the medium-sized universe of common stocks.
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FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy
and hold shares of the Eastcliff Funds.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment)
Eastcliff Total Eastcliff Growth Eastcliff Emerging
Return Fund Fund Growth Fund
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as a
Percentage of offering price)..................No Sales Charge No Sales Charge No Sales Charge
Maximum Deferred Sales Charge (Load).............No Deferred Sales No Deferred Sales No Deferred Sales Charge
Charge Charge
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
And Distributions..............................No Sales Charge No Sales Charge No Sales Charge
Redemption Fee...................................None* None * None*
Exchange Fee.....................................None None None
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*Our transfer agent charges a fee of $12.00 for each wire redemption.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees..................................1.00% 1.00% 1.00%
Distribution and/or Service (12b-1) Fees.........0.00% 0.00% 0.00%
Other Expenses...................................0.42%(1) 0.30% 1.00%(1)(2)
Total Annual Fund Operating Expenses.............1.42% 1.30% 2.00%
</TABLE>
SHAREHOLDER FEES (fees paid directly from your investment)
Eastcliff Regional
Small
Capitalization Value Eastcliff Contrarian
Fund Value Fund
Maximum Sales Charge (Load)
Imposed on Purchases (as a
Percentage of offering price).........No Sales Charge No Sales Charge
Maximum Deferred Sales Charge (Load)...No Deferred Sales No Deferred Sales
Charge Charge
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
And Distributions.....................No Sales Charge No Sales Charge
Redemption Fee........................None* None*
Exchange Fee..........................None None
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*Our transfer agent charges a fee of $12.00 for each wire redemption.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees..................................1.00% 1.00%
Distribution and/or Service (12b-1) Fees.........0.00% 0.00%
Other Expenses...................................0.30% 0.49%(1)
Total Annual Fund Operating Expenses.............1.30% 1.49%
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(1) Both the Total Return Fund and the Contrarian Value Fund had actual Total
Annual Fund Operating Expenses for the most recent fiscal year that were less
than the amounts shown. Our investment adviser reimbursed each Fund to the
extent necessary to insure that Total Annual Fund Operating Expenses did not
exceed the amounts set forth below. The portfolio manager for the Emerging
Growth Fund will reimburse the Emerging Growth Fund to the extent necessary to
insure that its Total Annual Fund Operating Expenses do not exceed the amounts
set forth below:
Eastcliff Total Return Fund 1.30%
Eastcliff Emerging Growth Fund 1.30%
Eastcliff Contrarian Value Fund 1.30%
Our investment adviser and the Emerging Growth Fund's portfolio manager may
discontinue these reimbursements at any time, but will not do so prior to June
30, 2000.
(2) Based on our estimates for the fiscal year ending June 30, 2000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Eastcliff Funds with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a Fund for the time periods
indicated and then redeem all of your shares at the end of these periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
1 Year 3 Years 5 Years 10 Years
Eastcliff Total Return Fund $145 $449 $776 $1702
Eastcliff Growth Fund $132 $412 $713 $1568
Eastcliff Emerging Growth Fund $203 $627 $1,078 $2,327
Eastcliff Regional Small Capitalization
Value Fund $132 $412 $713 $1568
Eastcliff Contrarian Value Fund $152 $471 $813 $1779
INVESTMENT OBJECTIVES AND STRATEGIES
General
Eastcliff Total Return Fund seeks a combination of long-term growth of
capital and income to achieve a high total return, while assuming reasonable
risks. Eastcliff Growth Fund seeks long-term growth of capital. Eastcliff
Emerging Growth Fund seeks long-term growth of capital. Eastcliff Regional Small
Capitalization Value Fund seeks long-term growth of capital. Eastcliff
Contrarian Value Fund seeks long-term growth of capital. Each Fund may
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change its investment objective without obtaining shareholder approval. Please
remember that an investment objective is not a guarantee. An investment in the
Eastcliff Funds might not appreciate and investors could lose money.
The Eastcliff Funds invest mainly in common stocks of United States
companies. However, the Total Return Fund, consistent with its investment
objective, may also invest mainly in debt securities. Each of the Eastcliff
Funds, in response to adverse market, economic, political or other conditions,
may take temporary defensive positions. This means a Fund will invest some or
all of its assets in money market instruments (like U.S. Treasury Bills,
commercial paper or repurchase agreements). The Eastcliff Funds will not be able
to achieve their investment objectives of capital appreciation or growth to the
extent that they invest in money market instruments since these securities earn
interest but do not appreciate in value. Also these investments will usually
have a lower yield than the longer term debt securities in which the Total
Return Fund may invest. When a Fund is not taking a temporary defensive
position, it still will hold some cash and money market instruments so that it
can pay its expenses, satisfy redemption requests or take advantage of
investment opportunities.
Each of the Eastcliff Funds is diversified. All of our portfolio managers
take a "focused" approach to investing. They are not "closet indexers." Usually
each of the Eastcliff Funds will hold stocks of less than 70 companies.
Our portfolio managers are patient investors. The Eastcliff Funds do not
attempt to achieve their investment objectives by active and frequent trading of
common stocks.
Eastcliff Total Return Fund
The portfolio manager for the Total Return Fund utilizes a "top down"
investment approach when it determines the portion of the Total Return Fund's
assets to be allocated to stocks and the portion to be allocated to bonds and
other debt securities. The portfolio manager reviews the economic outlook, the
direction in which inflation and interest rates are expected to move and the
level of securities prices to determine the probability that common stock as an
asset class will perform better than debt securities of varying maturities.
After the portfolio manager has determined the appropriate allocations
among asset classes, it selects individual investments. When purchasing common
stocks for the Total Return Fund, the portfolio manager takes a "bottom-up"
approach to identifying companies that have the potential for above average
growth. When purchasing bonds and other debt securities for the Total Return
Fund, the portfolio manager takes a "top-down" approach to determine the desired
maturity of the Fund's portfolio of debt securities and the allocation between
U.S. government securities and corporate debt securities.
The portfolio manager employs a sell discipline pursuant to which it will:
o Sell or reduce a position as part of its asset allocation process
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o Sell an entire position when fundamentals are deteriorating
o Reduce or sell an entire position when it finds a better investment to
replace it
Eastcliff Growth Fund
When purchasing stocks for the Growth Fund, the portfolio manager looks for
companies having some or all of the following attributes:
o Consistent and sustainable future growth of revenue and earnings
o Low financial leverage with strong cash flow
o High return on equity/low debt-to-total capital
o Significant management ownership
o Dominant market leader
The portfolio manager takes a "bottom-up" investment approach when selecting
investments for the Growth Fund. This means it bases investment decisions on
company specific factors, not general economic conditions. The portfolio manager
also employs a sell discipline pursuant to which it will:
o Trim back a position which exceeds 5% of the Growth Fund
o Sell an entire position when fundamentals are deteriorating
o Reduce or sell an entire position when it finds a better investment to
replace it
o Trim back a position after a strong relative price increase
Eastcliff Emerging Growth Fund
When purchasing stocks for the Emerging Growth Fund, the portfolio manager
identifies companies early in their public company existence. Most of these
companies compete in new and emerging markets and often have exciting new
products to offer. When selecting investments for the Emerging Growth Fund, the
portfolio manager emphasizes a "bottom-up" approach to look for companies with
long-term growth potential whose earnings the portfolio manager expects to grow
at least 15% per year. The portfolio manager also emphasizes a sell discipline
pursuant to which it will:
o Trim back a position which exceeds 5% of the Emerging Growth Fund
o Reduce or sell an entire position when it finds a better investment to
replace it
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o Sell all or substantially all of a position when fundamentals
deteriorate or where there is a change in one or more factors which
led to the original investment decision
Eastcliff Regional Small Capitalization Value Fund
When purchasing stocks for the Regional Small Capitalization Value Fund,
the portfolio manager utilizes a bottom-up investment approach. The portfolio
manager looks for undervalued companies with shareholder oriented management
teams that are employing strategies to grow the company's value. These companies
typically include:
o Companies undergoing fundamental change through new management teams
or different strategies
o "Early stage" companies with solutions to large problems
The portfolio manager also employs a sell discipline pursuant to which it will:
o Sell a position when the price of the stock exceeds the company's
intrinsic value
o Sell a position when it has diminished confidence that management will
execute its stated strategy
Eastcliff Contrarian Value Fund
When purchasing stocks for the Contrarian Value Fund, the portfolio manager
utilizes a bottom-up investment approach. The portfolio manager looks for
companies that both are selling at a substantial discount to their private
market value and have restructuring and turnaround potential. The portfolio
manager looks for companies where there is the potential for:
o Doubling of earnings over a three-year period
o Significant price appreciation over a three-year period
The portfolio manager employs a sell discipline similar to the sell
discipline of the portfolio manager for the Regional Small Capitalization Value
Fund pursuant to which it will:
o Sell a position when the price of the stock reaches the portfolio
manager's target price
o Sell a position when it has diminished confidence that management can
execute the turnaround strategy
o Sell a position when key management departs
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MANAGEMENT OF THE FUNDS
Resource Capital Advisers, Inc. is the Investment Adviser to the Funds.
Resource Capital Advisers, Inc. (the "Adviser") is the investment adviser
to each of the Eastcliff Funds. The Adviser's address is:
900 Second Avenue South
300 International Centre
Minneapolis, MN 55402
As the investment adviser to the Funds, the Adviser:
o Provides or oversees the provision of all general management and
administration, investment advisory and portfolio management, and
general services for the Funds
o Develops the investment programs, selects portfolio managers and
monitors the portfolio managers' investment programs and results
During the last fiscal year, each of the Total Return Fund, the Growth Fund, the
Regional Small Capitalization Value Fund and the Contrarian Value Fund paid the
Adviser an annual investment advisory fee equal to 1.00% of its average net
assets. (The investment advisory fee paid by the Total Return Fund is reduced to
0.75% with respect to average net assets in excess of $30 million.) The Emerging
Growth Fund (which will commence operations on September 30, 1999) will pay the
Adviser an annual advisory fee equal to 1.00% of its average net assets.
The Adviser was organized in 1984 and is the investment adviser to
individuals and institutional clients. It is a wholly-owned subsidiary of
Resource Trust Company, a Minnesota state bank. Resource Trust Company is a
wholly-owned subsidiary of Resource Companies, Inc.
Each of the Funds have Different Portfolio Managers
The investment portfolio of each of the Eastcliff Funds is managed by a
different sub-adviser. We refer to the sub-advisers as "portfolio managers."
Each portfolio manager has complete discretion to purchase and sell portfolio
securities for the Fund for which it is acting as portfolio manager within such
Fund's investment objectives, restrictions and policies, and specific
strategies, if any, developed by the Adviser. The Adviser employs and terminates
portfolio managers, subject to approval of the Board of Directors of the
Eastcliff Funds.
The employment of a new portfolio manager for a Fund currently requires the
prior approval of the shareholders of that Fund. The Fund may request an order
of the Securities and Exchange Commission exempting the Funds from the
requirement for shareholder approval of new portfolio managers. The Securities
and Exchange Commission
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might not grant the request. However, if an order is granted, the Funds will
notify shareholders of any change in portfolio managers.
The Adviser pays the fees of each portfolio manager. These fees are based
on a percentage of Fund assets under management; there are no performance or
incentive fees. The portfolio managers for all of the Funds, except the Total
Return Fund, receive a fee equal to 0.60% of the average net assets of the Fund
for which it serves as portfolio manager. The portfolio manager for the Total
Return Fund receives a fee equal to 0.40% of the first $30 million of that
Fund's average net assets and 0.30% of that Fund's average net assets in excess
of $30 million.
In selecting portfolio managers, the Adviser evaluates quantitatively and
qualitatively the portfolio manager's skills and results in managing assets for
specific asset classes, investment styles and strategies. The Adviser evaluates
the risks and returns of the portfolio managers' investment style over an entire
market cycle. The Adviser does not consider short-term investment performance,
by itself, to be a controlling factor in selecting or terminating a portfolio
manager.
Eastcliff Total Return Fund
Palm Beach Investment Advisers, LLC is the portfolio manager to the Total
Return Fund. Its address is:
249 Royal Palm Way
Suite 400
Palm Beach, FL 33480
Palm Beach Investment Advisers, LLC and its predecessors have managed
equity and fixed income portfolios for individual and institutional clients
since 1990 and, as of June 30, 1999, managed approximately $300 million in
assets. Palm Beach Investment Advisers, LLC is controlled by the Adviser.
Patrice J. Neverett, Executive Vice President and Chief Investment Officer of
Palm Beach Investment Advisers, LLC is primarily responsible for the day-to-day
management of the Total Return Fund's portfolio. Ms. Neverett has been employed
by Palm Beach Investment Advisers, LLC and its predecessors in various
capacities since 1990.
Eastcliff Growth Fund
Winslow Capital Management, Inc. is the portfolio manager to the Growth
Fund. Its address is:
4720 IDS Tower
80 South Eighth Street
Minneapolis, MN 55402
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<PAGE>
Winslow Capital Management, Inc. has been an investment adviser since 1992,
and as of June 30, 1999 managed approximately $1.3 billion in assets. Clark J.
Winslow, the President and Chief Executive Officer of Winslow Capital
Management, Inc., is primarily responsible for the day-to-day management of the
Growth Fund's portfolio. Mr. Winslow has served as President, Chief Executive
Officer and a portfolio manager of Winslow Capital Management, Inc. since 1992.
Prior to that time, he was senior vice president and portfolio manager at
Alliance Capital Management from 1987 to 1992, and portfolio manager at John W.
Bristol & Co. from 1980 to 1997.
Eastcliff Emerging Growth Fund
KB Growth Advisors, LLC is the portfolio manager to the Emerging Growth
Fund. It's address is:
601 Carlson Parkway
Suite 950
Minnetonka, MN 55305
KB Growth Advisors, LLC has been an investment adviser since 1998, and as
of June 30, 1999 managed approximately $40 million in assets. Gail M.
Knappenberger, Chairman and Chief Executive Officer of KB Growth Advisors, LLC,
is primarily responsible for the day-to-day management of the Emerging Growth
Fund's portfolio. Mr. Knappenberger has served as Chairman and Chief Executive
Officer of KB Growth Advisors, LLC since its inception in 1998. Prior to that
time, he was Executive Vice President and a portfolio manager of Winslow Capital
Management, Inc. from 1993 to 1998, and President and a portfolio manager of
Jundt Associates, Inc. from 1984 to 1993.
Eastcliff Regional Small Capitalization Value Fund
Woodland Partners, LLC is the portfolio manager to the Regional Small
Capitalization Value Fund. Its address is:
60 South Sixth Street
Suite 3750
Minneapolis, MN 55402
Woodland Partners, LLC has been an investment adviser since 1996, and as of
June 30, 1999, managed approximately $500 million in assets. Richard W. Jensen,
Elizabeth M. Lilly and Richard J. Rinkoff are primarily responsible for the
day-to-day management of the Regional Small Capitalization Value Fund's
portfolio. Mr. Jensen, Ms. Lilly and Mr. Rinkoff each have been portfolio
managers and one-third owners of Woodland Partners, LLC since 1996. Prior to
that time, they were employed by First Asset Management, a division of First
Bank National Association (now U.S. Bank National Association), Mr. Jensen since
1967, Ms. Lilly since 1992 and Mr. Rinkoff since 1977.
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<PAGE>
Eastcliff Contrarian Value Fund
Sasco Capital, Inc. is the portfolio manager to the Contrarian Value Fund.
Its address is:
10 Sasco Hill Road
Fairfield, CT 06430
Sasco Capital, Inc. has been an investment adviser since 1985, and as of
June 30, 1999 managed approximately $1.8 billion in assets. Bruce Bottomly, Lee
Garcia and Daniel Leary are primarily responsible for the day-to-day management
of the Contrarian Value Fund's portfolio. They have been portfolio managers and
Managing Directors of Sasco Capital, Inc. since its inception in 1986.
Historical Performance of Investment Advisory Accounts Managed by Sasco
We are providing historical performance data of investment advisory
accounts managed by Sasco Capital, Inc. (the "Sasco Accounts") measured against
a relevant broad-based market index. The Sasco Accounts include all portfolios
managed by Sasco Capital, Inc. with objectives, strategies and techniques
substantially similar to those employed by the Contrarian Value Fund. (Since
January 1, 1998 the Sasco Accounts have included the Contrarian Value Fund.) All
performance data presented is historical and investors should not consider this
performance data as an indication of the future performance of the Contrarian
Value Fund or the results an individual investor might achieve by investing in
the Contrarian Value Fund. Investors should not rely on the historical
performance when making an investment decision.
All returns are time-weighted total rates of return and include the
reinvestment of dividends and interest. The performance information for the
Sasco Accounts are net of investment advisory fees and expenses. The average
fees and expenses of the Sasco Accounts were less than the annual expenses for
the Contrarian Value Fund. The performance of the Sasco Accounts would have been
lower had the Sasco Accounts incurred higher fees and expenses. Except for the
Contrarian Value Fund, the Sasco Accounts were not subject to certain investment
limitations, diversification requirements and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results of the composite.
All information presented is based on data supplied by Sasco Capital, Inc.
or from statistical services, reports or other sources believed by Sasco
Capital, Inc. to be reliable. This information has not been verified by any
third party and is unaudited.
-18-
<PAGE>
Compounded Annual Rates of Return
(For the Period Ended June 30, 1999)
10 Years 5 Years 3 Years 1 Year
-------- ------- ------- ------
Sasco Accounts 12.81% 17.13% 10.25% -5.42%
Russell Midcap Index 15.97% 20.92% 19.60% 11.31%
Please remember that past performance is not necessarily indicative of
future performance. Investors should also be aware that other performance
calculation methods may produce different results, and that comparisons of
investment results should consider qualitative circumstances and should be made
only for portfolios with generally similar investment objectives.
Year 2000
The Funds are addressing the "Year 2000" issue. The "Year 2000" issue stems
from the use of a two-digit format to define the year in certain date-sensitive
computer application systems rather than the use of a four digit format. As a
result, date-sensitive software programs could recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major systems or
process failures or the generation of erroneous data, which would lead to
disruptions in the Funds' business operations.
The Funds have no application systems of their own and are entirely
dependent on their service providers' systems and software. The Funds are
working with their service providers (including the Adviser, the portfolio
managers, their administrator, transfer agent and custodian) to identify and
remedy any Year 2000 issues. However, the Funds cannot guarantee that all Year
2000 issues will be identified and remedied, and the failure to successfully
identify and remedy all Year 2000 issues could result in an adverse impact on
the Funds. The Year 2000 issue could also have a negative impact on the
companies in which the Funds invest, which could hurt the Funds' investment
returns.
THE FUNDS' SHARE PRICE
The price at which investors purchase shares of each Fund and at which
shareholders redeem shares of each Fund is called its net asset value. Each Fund
calculates its net asset value as of the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m. Eastern Time) on each day the New York
Stock Exchange is open for trading. The New York Stock Exchange is closed on
holidays and weekends. Each Fund calculates its net asset value based on the
market prices of the securities (other than money market instruments) it holds.
Each Fund values most money market instruments it holds at their amortized cost.
Each Fund will process purchase orders that it receives and accepts and
redemption orders that it receives prior to the close of regular trading on a
day that the New York Stock Exchange is open at the net asset value determined
later that day. It will process purchase orders that it receives and accepts and
redemption orders that it receives after the close of regular trading at
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<PAGE>
the net asset value determined at the close of regular trading on the next day
the New York Stock Exchange is open.
PURCHASING SHARES
How to Purchase Shares from the Funds
1. Read this Prospectus carefully.
2. Determine how much you want to invest keeping in mind the following
minimums:
a. New accounts
* All accounts $1,000
b. Existing accounts
* Dividend reinvestment No Minimum
* Automatic Investment Plan $ 50
* All other accounts $ 100
3. Complete the Purchase Application accompanying this Prospectus, carefully
following the instructions. For additional investments, complete the
remittance form attached to your individual account statements. (The Funds
have additional Purchase Applications and remittance forms if you need
them.) If you have any questions, please call 1-800-595-5519 or
1-414-765-4124.
4. Make your check payable to the full name of the Eastcliff Fund you intend
to purchase. All checks must be drawn on U.S. banks. The Funds will not
accept cash or third party checks. Firstar Mutual Fund Services, LLC, the
Funds' transfer agent, will charge a $20 fee against a shareholder's
account for any payment check returned for insufficient funds. The
shareholder will also be responsible for any losses suffered by a Fund as a
result.
5. Send the application and check to:
BY FIRST CLASS MAIL
Eastcliff Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
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<PAGE>
BY OVERNIGHT DELIVERY SERVICE
OR EXPRESS MAIL
Eastcliff Funds
c/o Firstar Mutual Fund Services, LLC
3rd Floor
615 East Michigan Street
Milwaukee, WI 53202-5207
Please do not send letters by overnight delivery service or express mail to the
Post Office Box address.
If you wish to open an account by wire, please call 1-800-595-5519 or
1-414-765-4124 prior to wiring funds in order to obtain a confirmation number
and to ensure prompt and accurate handling of funds. You should wire Funds to:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53202
ABA #075000022
Credit:
Firstar Mutual Fund Services, LLC
Account #112-952-137
Further Credit:
(name of Fund to be purchased)
(shareholder registration)
(shareholder account number, if known)
You should then send a properly signed Purchase Application marked
"FOLLOW-UP" to either of the addresses listed above. Please remember that
Firstar Bank Milwaukee, N.A. must receive your wired funds prior to the close of
regular trading on the New York Stock Exchange for you to receive same day
pricing. The Funds and Firstar Bank Milwaukee, N.A. are not responsible for the
consequences of delays resulting from the banking or Federal Reserve Wire
system, or from incomplete wiring instructions.
Purchasing Shares from Broker-dealers, Financial Institutions and Others
Some broker-dealers may sell shares of the Eastcliff Funds. These
broker-dealers may charge investors a fee either at the time of purchase or
redemption. The fee, if charged, is retained by the broker-dealer and not
remitted to the Funds or the Adviser. Some broker-dealers may purchase and
redeem shares on a T+3 settlement basis.
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<PAGE>
The Funds may enter into agreements with broker-dealers, financial
institutions or other service providers ("Servicing Agents") that may include
the Funds as investment alternatives in the programs they offer or administer.
Servicing agents may:
* Become shareholders of record of the Funds. This means all requests to
purchase additional shares and all redemption requests must be sent
through the Servicing Agent. This also means that purchases made
through Servicing Agents are not subject to the Funds' minimum
purchase requirements.
* Use procedures and impose restrictions that may be in addition to, or
different from, those applicable to investors purchasing shares
directly from the Funds.
* Charge fees to their customers for the services they provide them.
Also, the Funds and/or the Adviser may pay fees to Servicing Agents to
compensate them for the services they provide their customers.
* Be allowed to purchase shares by telephone with payment to follow the
next day. If the telephone purchase is made prior to the close of
regular trading on the New York Stock Exchange, it will receive same
day pricing.
* Be authorized to accept purchase orders on behalf of the Funds. This
means that a Fund will process the purchase order at the net asset
value which is determined following the Servicing Agent's acceptance
of the customer's order.
If you decide to purchase shares through Servicing Agents, please carefully
review the program materials provided to you by the Servicing Agent. When you
purchase shares of the Funds through a Servicing Agent, it is the responsibility
of the Servicing Agent to place your order with the Fund on a timely basis. If
the Servicing Agent does not, or if it does not pay the purchase price to the
Funds within the period specified in its agreement with the Funds, it may be
held liable for any resulting fees or losses.
Other Information about Purchasing Shares of the Funds
The Funds may reject any Purchase Application for any reason. The Funds
will not accept purchase orders made by telephone unless they are from a
Servicing Agent which has an agreement with the Fund.
The Funds will not issue certificates evidencing shares purchased unless
the investor makes a written request for a certificate. The Funds will send
investors a written confirmation for all purchases of shares, whether or not
evidenced by certificates.
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<PAGE>
The Funds offer an automatic investment plan allowing shareholders to make
purchases on a regular and convenient basis. The Funds also offer the following
retirement plans:
o Traditional IRA
o Roth IRA
o Education IRA
o SEP-IRA
o Simple IRA
o 401(k) Plan
o 403 (b)(7) Custodial Accounts
Investors can obtain further information about the automatic investment
plan and the retirement plans by calling the Funds at 1-800-595-5519. The
Eastcliff Funds recommend that investors consult with a competent financial and
tax advisor regarding the retirement plans before investing through them.
REDEEMING SHARES
How to Redeem (Sell) Shares by Mail
1. Prepare a letter of instruction containing:
o the name of the Fund(s)
o account number(s)
o the amount of money or number of shares being redeemed
o the name(s) on the account
o daytime phone number
o additional information that the Funds may require for redemptions
by corporations, executors, administrators, trustees, guardians,
or others who hold shares in a fiduciary or representative
capacity. Please contact the Funds' transfer agent, Firstar
Mutual Fund Services, LLC, in advance, at 1-800-595-5519 or
1-414-765-4124 if you have any questions.
2. Sign the letter of instruction exactly as the shares are registered.
Joint ownership accounts must be signed by all owners.
3. If there are certificates representing your shares, enclose the
certificates or execute a stock power exactly as your shares are
registered.
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<PAGE>
4. Have the signatures guaranteed by a commercial bank or trust company
in the United States, a member firm of the New York Stock Exchange or
other eligible guarantor institution in the following situations:
o The redemption proceeds are to be sent to a person other than the
person in whose name the shares are registered
o The redemption proceeds are to be sent to an address other than
the address of record
A notarized signature is not an acceptable substitute for a signature
guarantee.
5. Send the letter of instruction to:
BY FIRST CLASS MAIL
Eastcliff Funds
c/o Firstar Mutual Fund Services, LLC
Shareholder Services Center
P. O. Box 701
Milwaukee, WI 53201-0701
BY OVERNIGHT DELIVERY SERVICE
OR EXPRESS MAIL
Eastcliff Funds
c/o Firstar Mutual Fund Services, LLC
3rd Floor
615 East Michigan Street
Milwaukee, WI 53202-5207
Please do not send letters of instruction by overnight delivery service or
express mail to the Post Office Box address.
How to Redeem (Sell) Shares by Telephone
1. Instruct Firstar Mutual Fund Services, LLC that you want the option of
redeeming shares by telephone. This can be done by completing the
appropriate section on the Purchase Application. If you have already
opened an account, you may write to Firstar Mutual Fund Services, LLC
requesting this option. When you do so, please sign the request
exactly as your account is registered and have the signatures
guaranteed. Shares held in retirement plans and shares represented by
certificates cannot be redeemed by telephone.
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<PAGE>
2. Assemble the same information that you would include in the letter of
instruction for a written redemption request.
3. Call Firstar Mutual Fund Services, LLC at 1-800-595-5519 or
1-414-765-4124. Please do not call the Fund or the Adviser.
How to Redeem (Sell) Shares through Servicing Agents
If your shares are held by a Servicing Agent, you must redeem your shares
through the Servicing Agent. Contact the Servicing Agent for instructions on how
to do so.
Redemption Price
The redemption price per share you receive for redemption requests is the
next determined net asset value after:
* Firstar Mutual Fund Services, LLC receives your written request in
proper form with all required information.
* Firstar Mutual Fund Services, LLC receives your authorized telephone
request with all required information.
* A Servicing Agent that has been authorized to accept redemption
requests on behalf of the Funds receives your request in accordance
with its procedures.
Payment of Redemption Proceeds
* For those shareholders who redeem shares by mail, Firstar Mutual Fund
Services, LLC will mail a check in the amount of the redemption
proceeds no later than the seventh day after it receives the
redemption request in proper form with all required information.
* For those shareholders who redeem by telephone, Firstar Mutual Fund
Services, LLC will mail a check in the amount of the redemption
proceeds no later than the seventh day after it receives the
redemption request, or transfer the redemption proceeds to your
designated bank account if you have elected to receive redemption
proceeds by either Electronic Funds Transfer or wire. An Electronic
Funds Transfer generally takes up to 3 business days to reach the
shareholder's account whereas Firstar Mutual Fund Services, LLC
generally wires redemption proceeds on the business day following the
calculation of the redemption price. However, the Funds may direct
Firstar Mutual Fund Services, LLC to pay the proceeds of a telephone
redemption on a date no later than the seventh day after the
redemption request.
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<PAGE>
* For those shareholders who redeem shares through Servicing Agents, the
Servicing Agent will transmit the redemption proceeds in accordance
with its redemption procedures.
Other Redemption Considerations
When redeeming shares of the Funds, shareholders should consider the
following:
* The redemption may result in a taxable gain.
* Shareholders who redeem shares held in an IRA must indicate on their
redemption request whether or not to withhold federal income taxes. If
not, these redemptions, as well as redemptions of other retirement
plans not involving a direct rollover to an eligible plan, will be
subject to federal income tax withholding.
* The Funds may delay the payment of redemption proceeds for up to seven
days in all cases.
* If you purchased shares by check, the Funds may delay the payment of
redemption proceeds until they are reasonably satisfied the check has
cleared (which may take up to 15 days from the date of purchase).
* Firstar Mutual Fund Services, LLC will send the proceeds of telephone
redemptions to an address or account other than that shown on its
records only if the shareholder has sent in a written request with
signatures guaranteed.
* The Funds reserve the right to refuse a telephone redemption request
if they believe it is advisable to do so. The Funds and Firstar Mutual
Fund Services, LLC may modify or terminate their procedures for
telephone redemptions at any time. Neither the Funds nor Firstar
Mutual Fund Services, LLC will be liable for following instructions
for telephone redemption transactions that they reasonably believe to
be genuine, provided they use reasonable procedures to confirm the
genuineness of the telephone instructions. They may be liable for
unauthorized transactions if they fail to follow such procedures.
These procedures include requiring some form of personal
identification prior to acting upon the telephone instructions and
recording all telephone calls. During periods of substantial economic
or market change, you may find telephone redemptions difficult to
implement. If a shareholder cannot contact Firstar Mutual Fund
Services, LLC by telephone, he or she should make a redemption request
in writing in the manner described earlier.
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<PAGE>
* Firstar Mutual Fund Services, LLC currently charges a fee of $12 when
transferring redemption proceeds to your designated bank account by
wire but does not charge a fee when transferring redemption proceeds
by Electronic Funds Transfer.
* If your account balance falls below $500 because you redeem shares,
you will be given 60 days to make additional investments so that your
account balance is $500 or more. If you do not, the Funds may close
your account and mail the redemption proceeds to you.
* The Funds may pay redemption requests "in kind." This means that the
Funds may pay redemption requests entirely or partially with
securities rather than with cash.
EXCHANGING SHARES
Shares of any of the Eastcliff Funds may be exchanged for shares of any
other Eastcliff Fund at their relative net asset values. You may have a taxable
gain or loss as a result of an exchange because the Internal Revenue Code treats
an exchange as a sale of shares.
How to Exchange Shares
1. Read this Prospectus carefully.
2. Determine the number of shares you want to exchange keeping in mind
that exchanges are subject to a $1,000 minimum.
3. Write to Eastcliff Funds, c/o Firstar Mutual Fund Services, LLC, 3rd
Floor, P. O. Box 701, Milwaukee, Wisconsin 53201-0701.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each of the Eastcliff Funds distributes substantially all of its net
investment income and substantially all of its capital gains annually. You have
four distribution options:
o All Reinvestment Option - Both dividend and capital gains
distributions will be reinvested in additional Fund shares.
o Partial Reinvestment Option - Dividends will be paid in cash and
capital gains distributions will be reinvested in additional Fund
shares.
o Partial Reinvestment Option - Dividends will be reinvested in
additional Fund shares and capital gains distributions will be paid in
cash.
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<PAGE>
o All Cash Option - Both dividend and capital gains distributions will
be paid in cash.
You may make this election on the Purchase Application. You may change your
election by writing to Firstar Mutual Fund Services, LLC or by calling
1-800-595-5519.
Each Fund's distributions, whether received in cash or additional shares of
the Fund, may be subject to federal and state income tax. These distributions
may be taxed as ordinary income and capital gains (which may be taxed at
different rates depending on the length of time the Fund holds the assets
generating the capital gains). The Eastcliff Growth Fund, the Eastcliff Emerging
Growth Fund, the Eastcliff Regional Small Capitalization Value Fund and the
Eastcliff Contrarian Value Fund expect that their distributions will consist
primarily of long-term capital gains. The Eastcliff Total Return Fund expects
that its distributions will consist of both ordinary income and long-term
capital gains.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand a
Fund's financial performance for the past five fiscal years of operations for
the Eastcliff Total Return Fund and for the period of its operations for each of
the Eastcliff Growth Fund, Eastcliff Regional Small Capitalization Value Fund
and Eastcliff Contrarian Value Fund. Certain information reflects financial
results for a single Fund share. The total returns in the tables represent the
rate that an investor would have earned on an investment in a Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by
PricewaterhouseCoopers LLP, whose report, along with the Funds' financial
statements, are included in the Annual Report which is available upon request.
The Eastcliff Emerging Growth Fund will commence operations on September 30,
1999.
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<PAGE>
<TABLE>
Eastcliff Total Return Fund
<CAPTION>
For the Years Ended June 30,
10/1/94 to
1999 1998 1997 1996 6/30/95(1)
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $21.50 $ 16.86 $ 14.62 $11.96 $ 11.92
Income from investment operations:
Net investment income....................... 0.23 0.23 0.09 0.14
-----
Net realized and unrealized gains
on investments ............................ 5.19 3.47 2.90 0.71
------ ------- ------- ------- -------
Total from investment operations............ 5.42 3.70 2.99 0.85
------ ------- ------- ------- -------
Less distributions:
Dividends from net investment
income..................................... (0.17) (0.25) (0.12) (0.17) (0.14)
Distributions from net
realized gains ............................ (2.35) (0.53) (1.34) (0.16)` (0.67)
------ ------- ------- ------- -------
Total from distributions.................... (2.52) (0.78) (1.46) (0.33) (0.81)
------ ------- ------- ------- -------
Net asset value, end of period ............. $ $ 21.50 $ 16.86 $ 14.62 $ 11.96
====== ======= ======= ======= =======
Total investment return(2) ................. % 33.3% 28.1% 25.4% 10.4%(3)
Supplemental data and ratios:
Net assets, end of period (000s)............ $_____ $25,454 $21,626 $17,799 $15,806
Ratio of expenses (after reimbursement)
to average net assets(4).................... 1.3% 1.3% 1.3% 1.3% 1.5%(3)
Ratio of net investment income
to average net assets(5)................... _____% 1.2% 1.5% 0.7% 2.5%(3)
Portfolio turnover rate .................... _____% 38.4% 58.3% 95.1% 89.4%
- ---------------
(1) Prior to October 1, 1994, the Fund's fiscal year ended on September 30.
(2) Effective December 31, 1994, the Fund changed investment advisers from Fiduciary Management, Inc. to Resource Capital Advisers,
Inc.
(3) Annualized.
(4) Computed after giving effect to the Adviser's expense limitation undertaking. If the Fund had paid all of its expenses, the
ratios would have been ___%, 1.4%, 1.5%, 1.6% and 2.6% (annualized) for the years ended June 30, 1999, 1998, 1997 and 1996, and
for the period from October 1, 1994 to June 30, 1995, respectively.
(5) The ratios of net investment income to average net assets prior to the Adviser's expense limitation undertaking for the years
ended June 30, 1999, 1998, 1997 and 1996, and for the period from October 1,1994 to June 30, 1995 would have been ___%, 1.1%,
1.3%, 0.4% and 1.4% (annualized), respectively.
</TABLE>
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<PAGE>
Eastcliff Growth Fund
For the Years Ended June 30,
1999 1998 1997 1996(1)
Net asset value, beginning
of period................................... $17.85 $13.92 $12.56 $10.00
Income from investment operations:
Net investment loss(2) ..................... (___) (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..................................... -- -- -- --
---- ---- ----- ----
Distributions from net
realized gains ............................ (3.22) (0.63) -- --
----- ----- ----- ----
Total from distributions.................... (3.22) (0.63) -- --
----- ----- ----- ----
Net asset value, end of period ............. $17.85 $13.92 $12.56
===== ====== ====== ======
Total investment return .................... % 33.9% 10.8% 25.6%
Supplemental data and ratios:
Net assets, end of period (000s)............ _____ $56,594 $46,389 $46,193
Ratio of expenses to average
net assets(3).............................. ___% 1.3% 1.3% 1.3%
Ratio of net investment loss
to average net assets(4)................... (___%) (0.9%) (1.0%) (0.8%)
Portfolio turnover rate .................... ____% 93.3% 54.3% 40.3%
- ---------------
(1) The Fund commenced operations on July 1, 1995.
(2) Net investment loss per share is calculated using ending balances prior
to consideration of adjustments for permanent book and tax differences.
(3) Computed after giving effect to the Adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios would
have been 1.3% and 1.4% for the years ended June 30, 1997 and 1996,
respectively.
(4) The ratios of net investment loss to average net assets prior to the
Adviser's expense limitation undertaking for the years ended June 30,
1997 and 1996 would have been (1.0%) and (0.9%), respectively.
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<PAGE>
Eastcliff Regional Small Capitalization Value Fund
For the Years Ended June 30,
9/16/96(1)
1999 1998 to 6/30/97
---- ---- ----------
Net asset value, beginning
of period................................... $13.56 $12.23 $10.00
Income from investment operations:
Net investment (loss) income ............... (0.__) (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 ............................ (0.11) (0.09) --
------ ----- ----
Total from distributions.................... (0.11) (0.09) (0.02)
------ ----- ------
Net asset value, end of period ............. $ $13.56 $12.23
====== ====== ======
Total investment return .................... ( %) 11.7% 22.5%(2)
Supplemental data and ratios:
Net assets, end of period (000s)............ $_____ $62,139 $29,231
Ratio of expenses (after reimbursement)
to average net assets(4)................... 1.3% 1.3% 1.3%(3)
Ratio of net investment (loss) income
to average net assets(5)................... (0.__%) (0.1%) 0.3%(3)
Portfolio turnover rate .................... % 35.5% 29.4%
- ---------------
(1) Commencement of Operations
(2) Not annualized.
(3) Annualized.
(4) Computed after giving effect to the Adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratio would have
been 1.6% (annualized) for the period September 16, 1996 to June 30, 1997.
(5) The ratio of net investment income to average net assets prior to the
Adviser's expense limitation undertaking for the period September 16, 1996
to June 30, 1997 would have been (0.0%) (annualized).
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<PAGE>
Eastcliff Contrarian Value Fund
Year Ended 12/30/97(1)
6/30/99 to 6/30/98
Net asset value, beginning
of period................................... $10.41 $10.00
Income from investment operations:
Net investment income ...................... 0.04
Net realized and unrealized (loss) gain on
investments................................. ( ) 0.37
------ ------
Total from investment operations............ ( ) 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 ............. $ $10.41
====== ======
Total investment return .................... ( %) 4.1%(2)
Supplemental data and ratios:
Net assets, end of period (000s)............ $_____ $19,569
Ratio of expenses (after reimbursement)
to average net assets(4)................... 1.3% 1.3%(3)
Ratio of net investment income
to average net assets(5)................... 0.__% 0.7%(3)
Portfolio turnover rate..................... ___% 13.6%
- ---------------
(1) Commencement of Operations.
(2) Not annualized.
(3) Annualized.
(4) Computed after giving effect to the Adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios would
have been ___% and 1.5% (annualized), for the year ended June 30, 1999 and
for the period December 30, 1997 to June 30, 1998, respectively.
(5) The ratios of net investment income to average net assets prior to the
Adviser's expense limitation undertaking for the year ended June 30,1999
and for the period December 30,1997 to June 30, 1998 would have been 0.__%
and 0.5% (annualized), respectively.
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<PAGE>
To learn more about the Eastcliff Funds you may want to read the Eastcliff
Funds' Statement of Additional Information (or "SAI") which contains additional
information about the Funds. The Eastcliff Funds have incorporated by reference
the SAI into the Prospectus. This means that you should consider the contents of
the SAI to be part of the Prospectus.
You also may learn more about the Eastcliff Funds' investments by reading
the Eastcliff Funds' annual and semi-annual reports to shareholders. The annual
report includes a discussion of the market conditions and investment strategies
that significantly affected the performance of the Funds during their last
fiscal year.
The SAI and the annual and semi-annual reports are all available to
shareholders and prospective investors without charge, simply by calling
1-800-595-5519.
Prospective investors and shareholders who have questions about the
Eastcliff Funds may also call the above number or write to the following
address:
Eastcliff Funds, Inc.
900 Second Avenue South
300 International Centre
Minneapolis, MN 55402
The general public can review and copy information about the Eastcliff
Funds (including the SAI) at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. (Please call 1-800-SEC-0330 for information
on the operations of the Public Reference Room.) Reports and other information
about the Eastcliff Funds are also available at the Securities and Exchange
Commission's Internet site at http://www.sec.gov and copies of this information
may be obtained, upon payment of a duplicating fee, by writing to:
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
Please refer to the Eastcliff Funds' Investment Company Act File No.
811-04722, when seeking information about the Eastcliff Funds from the
Securities and Exchange Commission.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION September 30, 1999
FOR THE EASTCLIFF FUNDS
Eastcliff Total Return Fund Eastcliff Regional Small Capitalization
Eastcliff Growth Fund Value Fund
Eastcliff Emerging Growth Fund Eastcliff Contrarian Value Fund
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus of Eastcliff Funds, Inc. dated September
30, 1999. Requests for copies of the prospectus should be made in writing to
Eastcliff Funds, Inc., 900 Second Avenue South, 300 International Centre,
Minneapolis, Minnesota 55402, Attention: Corporate Secretary, or by calling
(612) 336-1444.
The following financial statements are incorporated by reference to the
Annual Report, dated June 30, 1999 of Eastcliff Funds, Inc. (File No. 811-4722)
as filed with the Securities and Exchange Commission on August __, 1999:
o Statement of Assets and Liabilities (Growth Fund only)
o Schedule of Investments (Growth Fund only)
o Statements of Net Assets (Total Return Fund, Regional Small
Capitalization Value Fund and Contrarian Value Fund only)
o Statements of Operations
o Statements of Changes in Net Assets
o Financial Highlights
o Notes to the Financial Statements
o Report of Independent Accountants
EASTCLIFF FUNDS, INC.
900 Second Avenue South
300 International Centre
Minneapolis, Minnesota 55402
<PAGE>
EASTCLIFF FUNDS, INC.
Table of Contents
Page No.
GENERAL INFORMATION AND HISTORY.............................................1
INVESTMENT RESTRICTIONS.....................................................1
INVESTMENT CONSIDERATIONS...................................................3
DIRECTORS AND OFFICERS OF THE CORPORATION..................................16
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS.........................20
INVESTMENT ADVISER, PORTFOLIO MANAGERS AND ADMINISTRATOR...................21
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE...........................25
DISTRIBUTION OF SHARES.....................................................29
RETIREMENT PLANS...........................................................30
AUTOMATIC INVESTMENT PLAN..................................................33
SYSTEMATIC WITHDRAWAL PLAN.................................................33
ALLOCATION OF PORTFOLIO BROKERAGE..........................................34
CUSTODIAN..................................................................36
TAXES......................................................................36
SHAREHOLDER MEETINGS.......................................................37
CAPITAL STRUCTURE..........................................................38
INDEPENDENT ACCOUNTANTS....................................................39
DESCRIPTION OF SECURITIES RATINGS..........................................39
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated September 30, 1999 and, if given or made,
such information or representations may not be relied upon as having been
authorized by Eastcliff Funds, Inc.
The Statement of Additional Information does not constitute an offer to
sell securities.
i
<PAGE>
GENERAL INFORMATION AND HISTORY
Eastcliff Funds, Inc., a Wisconsin corporation incorporated on May 23, 1986
(the "Corporation"), is an open-end management investment company consisting of
five diversified portfolios, Eastcliff Total Return Fund (the "Total Return
Fund"), Eastcliff Growth Fund (the "Growth Fund"), Eastcliff Emerging Growth
Fund (the "Emerging Growth Fund"), Eastcliff Regional Small Capitalization Value
Fund (the "Regional Small Capitalization Value Fund") and Eastcliff Contrarian
Value Fund (the "Contrarian Value Fund") (collectively, the "Eastcliff Funds" or
the "Funds"). The Corporation is registered under the Investment Company Act of
1940 (the "Act"). The Corporation was called "Fiduciary Total Return Fund, Inc."
prior to December 23, 1994.
INVESTMENT RESTRICTIONS
Each of the Funds has adopted the following investment restrictions which
are matters of fundamental policy. Each Fund's fundamental investment policies
cannot be changed without approval of the holders of the lesser of: (i) 67% of
that Fund's shares present or represented at a shareholders' meeting at which
the holders of more than 50% of such shares are present or represented; or (ii)
more than 50% of the outstanding shares of that Fund.
1. None of the Funds will purchase securities on margin, participate in a
joint-trading account, sell securities short, or write or invest in put or call
options, except that (a) each of the Growth Fund and the Emerging Growth Fund
may invest for hedging purposes up to 5% of its net assets in put or call
options and options on futures contracts and up to 5% of its net assets in
futures contracts, (b) each of the Emerging Growth Fund, the Regional Small
Capitalization Value Fund and the Contrarian Value Fund may write or invest in
put and call options to the extent permitted by the Act; and (c) the Emerging
Growth Fund may sell securities short to the extent permitted by the Act. No
Fund's investments in warrants, valued at the lower of cost or market, will
exceed 5% of the value of such Fund's net assets.
2. None of the Funds will borrow money or issue senior securities, except
for temporary bank borrowings (not in excess of 5% of the value of its net
assets) or for emergency or extraordinary purposes, and none of the Funds will
pledge any of its assets, except to secure borrowings and only to an extent not
greater than 10% of the value of such Fund's net assets.
3. None of the Funds will lend money (except by purchasing publicly
distributed debt securities or entering into repurchase agreements provided that
repurchase agreements maturing in more than seven days plus all other illiquid
securities will not exceed 10% (15% for the Emerging Growth Fund) of such Fund's
net assets) or will lend its portfolio securities. A repurchase agreement
involves a sale of securities to a Fund with the concurrent agreement of the
seller to repurchase the securities at the same price plus an amount equal to an
agreed upon interest rate, within a specified time. In the event of a bankruptcy
or other default of a seller of a repurchase agreement, such Fund could
experience both delays in liquidating the underlying securities and losses,
including: (a) possible decline in value of the collateral during the period
while such Fund seeks to enforce its rights thereto; (b) possible decreased
levels of income during this period; and (c) expenses of enforcing its rights.
<PAGE>
4. None of the Funds will make investments for the purpose of exercising
control or management of any company.
5. None of the Funds will purchase securities of any issuer (other than the
United States or an agency or instrumentality of the United States) if, as a
result of such purchase, such Fund would hold more than 10% of any class of
securities, including voting securities, of such issuer or more than 5% of such
Fund's assets, taken at current value, would be invested in securities of such
issuer, except that up to 25% of the assets of each of the Emerging Growth Fund,
the Regional Small Capitalization Value Fund and the Contrarian Value Fund may
be invested without regard to these limitations.
6. None of the Funds will concentrate more than 25% of the value of its net
assets, determined at the time an investment is made, exclusive of government
securities, in securities issued by companies primarily engaged in the same
industry.
7. None of the Funds will acquire or retain any security issued by a
company, an officer or director of which is an officer or director of the
Corporation or an officer, director or other affiliated person of any Fund's
investment adviser.
8. None of the Funds will acquire or retain any security issued by a
company if any of the directors or officers of the Corporation, or directors,
officers or other affiliated persons of any Fund's investment adviser,
beneficially own more than 1/2% of such company's securities and all of the
above persons owning more than 1/2% own together more than 5% of its securities.
9. None of the Funds will act as an underwriter or distributor of
securities other than shares of the Corporation and none of the Funds, other
than the Emerging Growth Fund and the Contrarian Value Fund, may purchase any
securities which are restricted from sale to the public without registration
under the Securities Act of 1933, as amended.
10. None of the Funds will purchase oil, gas or other mineral leases or any
interest in any oil, gas or any other mineral exploration or development
program.
11. None of the Funds will purchase or sell real estate, real estate
mortgage loans or real estate limited partnerships.
12. None of the Funds will purchase or sell commodities or commodities
contracts, except that the Growth Fund and the Emerging Growth Fund may invest
in futures contracts and options on future contracts to the extent set forth in
Investment Restriction No. 1 above.
13. The Total Return Fund will not invest more than 5% of its total assets,
and each of the Growth Fund, the Emerging Growth Fund, the Regional Small
Capitalization Value Fund and the Contrarian Value Fund will not invest more
than 10% of its total assets, in securities of issuers which have a record of
less than three years of continuous operation, including the operation of any
predecessor business of a company which came into existence as a
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<PAGE>
result of a merger, consolidation, reorganization or purchase of substantially
all of the assets of such predecessor business.
The following investment limitation is not fundamental, and may be changed
without shareholder approval.
1. None of the Funds will purchase securities of other investment companies
except (a) as part of a plan of merger, consolidation or reorganization approved
by the shareholders of such Fund; (b) securities of money market mutual funds;
or (c) securities of registered closed-end investment companies on the open
market where no commission or profit results, other than the usual and customary
broker's commission. No purchases described in (b) and (c) will be made if as a
result of such purchase such Fund would hold more than 3% of any class of
securities, including voting securities, of any registered investment company or
more than 5% of such Fund's assets, taken at current value, would be invested in
the securities of any registered investment company or in securities of
registered closed-end investment companies.
INVESTMENT CONSIDERATIONS
Money Market Instruments
Each of the Funds may invest in cash and money market securities. The Funds
may do so when taking a temporary defensive position or to have assets available
to pay expenses, satisfy redemption requests or take advantage of investment
opportunities. The money market securities in which they invest include U.S.
Treasury Bills, commercial paper, commercial paper master notes and repurchase
agreements.
The Funds may invest in commercial paper or commercial paper master notes
rated, at the time of purchase, within the highest rating category by a
nationally recognized statistical rating organization (NRSRO). Commercial paper
master notes are demand instruments without a fixed maturity bearing interest at
rates that are fixed to known lending rates and automatically adjusted when such
lending rates change.
The Funds may enter into repurchase agreements with banks that are Federal
Reserve Member banks and non-bank dealers of U.S. government securities which,
at the time of purchase, are on the Federal Reserve Bank of New York's list of
primary dealers with a capital base greater than $100 million. When entering
into repurchase agreements, a Fund will hold as collateral an amount of cash or
government securities at least equal to the market value of the securities that
are part of the repurchase agreement. A repurchase agreement involves the risk
that a seller may declare bankruptcy or default. In such event a Fund may
experience delays, increased costs and a possible loss.
Investment Grade Investments
Each of the Funds may invest in U.S. government securities and
publicly distributed corporate bonds and debentures to generate current income
(with respect to the
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<PAGE>
Total Return Fund) and possible capital gains at those times when its portfolio
manager believes such securities offer opportunities for long-term growth of
capital, such as during periods of declining interest rates when the market
value of such securities generally rises. The Funds will limit their investments
in non-convertible bonds and debentures to those which have been assigned one of
the three highest ratings of either Standard & Poor's Corporation (AAA, AA and
A) or Moody's Investors Service, Inc. (Aaa, Aa and A). In the event a bond or
debenture is downgraded after investment, the Fund may retain such security
unless it is rated less than investment grade (i.e., less than BBB by Standard &
Poor's or Baa by Moody's). If a non-convertible bond or debenture is downgraded
below investment grade, a Fund will promptly dispose of such bond or debenture,
unless its portfolio manager believes it disadvantageous to the Fund to do so.
Convertible Low-Rated Securities
Each of the Funds may also invest in convertible securities (debt
securities or preferred stocks of corporations which are convertible into or
exchangeable for common stocks). A Fund's portfolio manager will select only
those convertible securities for which it believes (a) the underlying common
stock is a suitable investment for the Fund and (b) a greater potential for
total return exists by purchasing the convertible security because of its higher
yield and/or favorable market valuation. Each of the Funds may invest up to 5%
of its net assets in convertible debt securities rated less than investment
grade. Debt securities rated less than investment grade are commonly referred to
as "junk bonds."
Corporate obligations rated less than investment grade (hereinafter
referred to as "low-rated securities") are commonly referred to as "junk bonds",
and while generally offering higher yields than investment grade securities with
similar maturities, involve greater risks, including the possibility of default
or bankruptcy. They are regarded as predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal. The special risk
considerations in connection with investments in low-rated securities are
discussed below.
Effect of Interest Rates and Economic Changes. The low-rated security
market is relatively new and its growth paralleled a long economic expansion. As
a result, it is not clear how this market may withstand a prolonged recession or
economic downturn. Such a prolonged economic downturn could severely disrupt the
market for and adversely affect the value of low-rated securities.
Interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
low-rated securities tend to reflect individual corporate developments to a
greater extent than do higher rated securities, which react primarily to
fluctuations in the general level of interest rates. Low-rated securities also
tend to be more sensitive to economic conditions than higher-rated securities.
As a result, they generally involve more credit risks than securities in the
higher-rated categories. During an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of low-rated securities may
experience financial stress and may
-4-
<PAGE>
not have sufficient revenues to meet their payment obligations. The issuer's
ability to service its debt obligations may also be adversely affected by
specific corporate developments, or the issuer's inability to meet specific
projected business forecasts or the unavailability of additional financing. The
risk of loss due to default by an issuer of low-rated securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a low-rated security defaulted, the
applicable Fund might incur additional expenses in seeking recovery. Periods of
economic uncertainty and changes would also generally result in increased
volatility in the market prices of low-rated securities and thus in the
applicable Fund's net asset value.
As previously stated, the value of a low-rated security generally will
decrease in a rising interest rate market, and accordingly, so normally will the
applicable Fund's net asset value. If such Fund experiences unexpected net
redemptions in such a market, it may be forced to liquidate a portion of its
portfolio securities without regard to their investment merits. Due to the
limited liquidity of low-rated securities (discussed below), the Fund may be
forced to liquidate these securities at a substantial discount. Any such
liquidation would reduce the Fund's asset base over which expenses could be
allocated and could result in a reduced rate of return for the Fund.
Payment Expectations. Low-rated securities typically contain redemption,
call or prepayment provisions which permit the issuer of such securities
containing such provisions to, at their discretion, redeem the securities.
During periods of falling interest rates, issuers of low-rated securities are
likely to redeem or prepay the securities and refinance them with debt
securities with a lower interest rate. To the extent an issuer is able to
refinance the securities or otherwise redeem them, the applicable Fund may have
to replace the securities with a lower yielding security which would result in
lower returns for the Fund.
Credit Ratings. Credit ratings issued by credit rating agencies evaluate
the safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of low-rated securities and therefore
may not fully reflect the true risks of an investment. In addition, credit
rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the security. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
Liquidity and Valuation. A Fund may have difficulty disposing
of certain low-rated securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all low-rated
securities, there is no established retail secondary market for many of these
securities. The Funds anticipate that such securities could be sold only to a
limited number of dealers or institutional investors. To the extent a secondary
trading market does exist, it is generally not as liquid as the secondary market
for higher rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security, and accordingly, the net
asset value of a particular Fund and its ability to dispose of particular
securities when necessary to meet its liquidity needs, or in response to a
specific economic event, or an event such as a deterioration in the
creditworthiness of the
-5-
<PAGE>
issuer. The lack of a liquid secondary market for certain securities may also
make it more difficult for a Fund to obtain accurate market quotations for
purposes of valuing their respective portfolios. Market quotations are generally
available on many low-rated issues only from a limited number of dealers and may
not necessarily represent firm bids of such dealers or prices for actual sales.
During periods of thin trading, the spread between bid and asked prices is
likely to increase significantly. In addition, adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield securities, especially in a thinly-traded
market.
Government Obligations
Each of the Funds may invest in a variety of U.S. Treasury obligations,
including bills, notes and bonds. These obligations differ only in terms of
their interest rates, maturities and time of issuance. The Funds may also invest
in other securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities.
Obligations of certain agencies and instrumentalities, such as the
Government National Mortgage Association ("GNMA"), are supported by the full
faith and credit of the U.S. Treasury. Others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; and others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Student Loan Marketing Association are supported
only by the credit of the agency or instrumentality that issues them. There is
no guarantee that the U.S. Government will provide financial support to its
agencies or instrumentalities, now or in the future, if it is not obligated to
do so by law.
Mortgage-Backed and Asset-Backed Securities
Each of the Funds may purchase residential and commercial mortgage-backed
as well as other asset-backed securities (collectively called "asset-backed
securities") that are secured or backed by automobile loans, installment sale
contracts, credit card receivables or other assets and are issued by entities
such as GNMA, FNMA, Federal Home Loan Mortgage Corporation ("FHLMC"), commercial
banks, trusts, financial companies, finance subsidiaries of industrial
companies, savings and loan associations, mortgage banks and investment banks.
These securities represent interests in pools of assets in which periodic
payments of interest and/or principal on the securities are made, thus, in
effect passing through periodic payments made by the individual borrowers on the
assets that underlie the securities, net of any fees paid to the issuer or
guarantor of the securities. The average life of these securities varies with
the maturities and the prepayment experience of the underlying instruments.
There are a number of important differences among the agencies and
instrumentalities of the U.S. government that issue mortgage-backed securities
and among the securities that they issue. Mortgage-backed securities guaranteed
by GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as
-6-
<PAGE>
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-backed securities issued by FNMA include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of FNMA and are not backed by or entitled to the full faith and
credit of the United States, but are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-backed securities issued
by the FHLMC include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress. Freddie Macs are not guaranteed
by the United States or by any Federal Home Loan Bank and do not constitute a
debt or obligation of the United States or of any Federal Home Loan Bank.
Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
Each of the Funds may also purchase mortgage-backed securities structured
as CMOs. CMOs are issued in multiple classes and their relative payment rights
may be structured in many ways. In many cases, however, payments of principal
are applied to the CMO classes in order of their respective maturities, so that
no principal payments will be made on a CMO class until all other classes having
an earlier maturity date are paid in full. The classes may include accrual
certificates (also known as "Z-Bonds"), which do not accrue interest at a
specified rate until other specified classes have been retired and are converted
thereafter to interest-paying securities. They may also include planned
amortization classes ("PACs") which generally require, within certain limits,
that specified amounts of principal be applied to each payment date, and
generally exhibit less yield and market volatility than other classes. The
classes may include "IOs" which pay distributions consisting solely or primarily
for all or a portion of the interest in an underlying pool of mortgages or
mortgage-backed securities. "POs" which pay distributions consisting solely or
primarily of all or a portion of principal payments made from the underlying
pool of mortgages or mortgage-backed securities, and "inverse floaters" which
have a coupon rate that moves in the reverse direction to an applicable index.
Investments in CMO certificates can expose the Funds to
greater volatility and interest rate risk than other types of mortgage-backed
obligations. Among tranches of CMOs, inverse floaters are typically more
volatile than fixed or adjustable rate tranches of CMOs. Investments in inverse
floaters could protect a Fund against a reduction in income due to a decline in
interest rates. A Fund would be adversely affected by the purchase of an inverse
floater in the event of an increase in interest rates because the coupon rate
thereon will
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<PAGE>
decrease as interest rates increase, and like other mortgage-backed securities,
the value of an inverse floater will decrease as interest rates increase. The
cash flows and yields on IO and PO classes are extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying pool of
mortgage loans or mortgage-backed securities. For example, a rapid or slow rate
of principal payments may have a material adverse effect on the yield to
maturity of IOs or POs, respectively. If the underlying assets experience
greater than anticipated prepayments of principal, the holder of an IO may incur
substantial losses irrespective of its rating. Conversely, if the underlying
assets experience slower than anticipated prepayments of principal, the yield
and market value for the holders of a PO will be affected more severely than
would be the case with a traditional mortgage-backed security. Prepayments on
mortgage-backed securities generally increase with falling interest rates and
decrease with rising interest rates. Prepayments are also influenced by a
variety of other economic and social factors.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected may reduce yield to maturity, while a prepayment rate that is slower
than expected may have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments may increase, while slower than expected prepayments may
decrease, yield to maturity.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage loans. Like other fixed income securities,
when interest rates rise the value for an asset-backed security generally will
decline; however, when interest rates decline, the value of an asset-backed
security with prepayment features may not increase as much as that of other
fixed income securities.
Asset-backed securities may involve certain risks that are not presented by
mortgage-backed securities. These risks arise primarily from the nature of the
underlying assets (i.e., credit card and automobile loan receivables as opposed
to real estate mortgages). Non-mortgage asset-backed securities do not have the
benefit of the same security interest in the collateral as mortgage-backed
securities. Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which have given debtors the right to reduce the balance due on
the credit cards. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is the risk that the purchaser would
acquire an interest superior to that of the holders of related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there is
a possibility that payments on the receivables together with recoveries on
repossessed collateral may not, in some cases, be able to support payments on
these securities.
-8-
<PAGE>
Asset-backed securities may be subject to greater risk of default during
periods of economic downturn than other instruments. Also, while the secondary
market for asset-backed securities is ordinarily quite liquid, in times of
financial stress the secondary market may not be as liquid as the market for
other types of securities, which could cause a Fund to experience difficulty in
valuing or liquidating such securities.
When-Issued and Delayed-Delivery Transactions
Each of the Funds may purchase securities on a when-issued or
delayed-delivery basis. When such a transaction is negotiated, the purchase
price is fixed at the time the purchase commitment is made, but delivery of and
payment for the securities takes place at a later date. A Fund will not accrue
income with respect to securities purchased on a when-issued or delayed-delivery
basis prior to their stated delivery date. Pending delivery of the securities,
each Fund will maintain in a segregated account cash or liquid securities in an
amount sufficient to meet its purchase commitments. The purpose and effect of
such segregation is to prevent the Fund from gaining investment leverage from
such transactions. The purchase of securities on a when-issued or
delayed-delivery basis exposes a Fund to risk because the securities may
decrease in value prior to delivery. The Funds will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with their investment objectives and not for the purpose
of investment leverage. A seller's failure to deliver securities to a Fund could
prevent the Fund from realizing a price or yield considered to be advantageous.
Preferred Stocks
Each of the Funds may invest in preferred stocks. Preferred stocks have a
preference over common stocks in liquidation (and generally dividends as well)
but are subordinated to the liabilities of the issuer in all respects. As a
general rule, the market value of preferred stocks with a fixed dividend rate
and no conversion element varies inversely with interest rates and perceived
credit risks while the market price of convertible preferred stock generally
also reflects some element of conversion value. Because preferred stock is
junior to debt securities and other obligations of the issuer, deterioration in
the credit qualify of the issuer will cause greater changes in the value of a
preferred stock than in a more senior debt security with similarly stated yield
characteristics. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions.
Hedging Instruments
Each of the Growth Fund and the Emerging Growth Fund may invest up to 5% of
its net assets in put or call options and options on futures contracts and up to
5% of its net assets in futures contracts. Each of the Emerging Growth Fund, the
Regional Small Capitalization Value Fund and the Contrarian Value Fund may
purchase put and call options on equity securities and on stock indices and
write covered call options on equity securities owned by the Fund, provided not
more than 5% of the Fund's net assets will be invested in put
-9-
<PAGE>
and call options and the premiums received by the Fund with respect to unexpired
call options written by the Fund will not exceed 5% of the Fund's net assets.
Generally the foregoing investments will be effected during periods of
anticipated market weakness and, in any event, will not result in leveraging of
the applicable Fund's portfolio.
Futures Contracts. When the Growth Fund or the Emerging Growth Fund
purchases a futures contract, it agrees to purchase a specified underlying
instrument at a specified future date. When the Growth Fund or the Emerging
Growth Fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and sale
will take place is fixed when the Fund enters into the contract. Futures can be
held until their delivery dates, or can be closed out before then if a liquid
secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a Fund's exposure to positive and negative price
fluctuations in the underlying instrument, much as if the Fund had purchased the
underlying instrument directly. When a Fund sells a futures contract, by
contrast, the value of its future position will tend to move in a direction
contrary to the market. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
Futures Margin Payments. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the contract
is held until the delivery date. However, both the purchaser and seller are
required to deposit "initial margin" with a futures broker, known as a Futures
Commission Merchant ("FCM"), when the contract is entered into. Initial margin
deposits are equal to a percentage of the contract's value. If the value of
either party's position declines, that party will be required to make additional
"variation margin" payments to settle the change in value on a daily basis. The
party that has a gain may be entitled to receive all or a portion of this
amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of the investment limitations of the Growth
Fund or the Emerging Growth Fund. In the event of the bankruptcy of an FCM that
holds margin on behalf of a Fund, such Fund may be entitled to return of margin
owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Fund.
Purchasing Put and Call Options. By purchasing a put option, a
Fund obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). The Growth
Fund and the Emerging Growth Fund may purchase options on futures contracts, as
well as options on equity securities and stock indices. The Regional Small
Capitalization Value Fund and the Contrarian Value Fund may purchase options on
equity securities and on stock indices. A Fund may terminate its position in a
put option it has purchased by allowing it to expire or by exercising the
option. If the option is allowed to expire, the Fund will lose the entire
premium it paid. If a Fund exercises the option, it
-10-
<PAGE>
completes the sale of the underlying instrument at the strike price. Such Fund
may also terminate a put option position by closing it out in the secondary
market at its current price, if a liquid secondary market exists. The buyer of a
put option can expect to realize a gain if security prices fall substantially.
However, if the underlying instrument's price does not fall enough to offset the
cost of purchasing the option, a put buyer can expect to suffer a loss (limited
to the amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer attempts to participate in potential price increases of the
underlying instrument with risk limited to the cost of the option if security
prices fall. At the same time, the buyer can expect to suffer a loss if security
prices do not rise sufficiently to offset the cost of the option. Only exchange
listed options will be acquired.
Stock Index Options. Stock index options are put options and call options
on various stock indexes. In most respects, they are identical to listed options
on common stocks. The primary difference between stock options and index options
occurs when index options are exercised. In the case of stock options, the
underlying security, common stock, is delivered. However, upon the exercise of
an index option, settlement does not occur by delivery of the securities
comprising the index. The option holder who exercises the index option receives
an amount of cash if the closing level of the stock index upon which the option
is based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the stock index and the exercise price
of the option expressed in dollars times a specified multiple. A stock index
fluctuates with changes in the market value of the stocks included in the index.
For example, some stock index options are based on a broad market index, such as
the Standard & Poor's 500 or the Value Line Composite Index, or a narrower
market index, such as the Standard & Poor's 100. Indexes also may be based on an
industry or market segment, such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. Options on stock indexes are currently traded on
the following exchanges: the Chicago Board Options Exchange, the New York Stock
Exchange, the American Stock Exchange, the Pacific Stock Exchange, and the
Philadelphia Stock Exchange.
Writing Call and Put Options. When a Fund writes a call option, it receives
a premium and agrees to sell the related investments to a purchaser of the call
during the call period (usually not more than nine months) at a fixed exercise
price (which may differ from the market price of the related investments)
regardless of market price changes during the call period. If the call is
exercised, the Fund forgoes any gain from an increase in the market price over
the exercise price. When writing an option on a futures contract the Growth Fund
or the Emerging Growth Fund will be required to make margin payments to an FCM
as described above for futures contracts.
To terminate its obligations on a call which it has written, a
Fund may purchase a call in a "closing purchase transaction." (As discussed
above, the Funds may also purchase
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<PAGE>
calls other than as part of such closing transactions.) A profit or loss will be
realized depending on the amount of option transaction costs and whether the
premium previously received is more or less than the price of the call
purchased. A profit may also be realized if the call lapses unexercised, because
the Fund retains the premium received. Any such profits are considered
short-term gains for federal income tax purposes and, when distributed, are
taxable as ordinary income.
Writing calls generally is a profitable strategy if prices remain the same
or fall. Through receipt of the option premium, a call writer mitigates the
effects of a price decline. At the same time, because a call writer must be
prepared to deliver the underlying instrument in return for the strike price,
even if its current value is greater, a call writer gives up some ability to
participate in security price increases.
When a Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of a premium, the
Fund assumes the obligation to pay the strike price for the option's underlying
instrument if the other party to the option chooses to exercise it. The Growth
Fund and the Emerging Growth Fund may only write covered puts and the Regional
Small Capitalization Value Fund and the Contrarian Value Fund currently will not
write put options. For a put to be covered, the Growth Fund or the Emerging
Growth Fund must maintain in a segregated account cash or high-quality,
short-term readily marketable obligations equal to the option price. A profit or
loss will be realized depending on the amount of option transaction costs and
whether the premium previously received is more or less than the put purchased
in a closing purchase transaction. A profit may also be realized if the put
lapses unexercised because the Fund retains the premium received. Any such
profits are considered short-term gains for federal income tax purposes and,
when distributed, are taxable as ordinary income.
Combined Option Positions. The Growth Fund, the Emerging Growth Fund, the
Regional Small Capitalization Value Fund and the Contrarian Value Fund may
purchase and write options (subject to the limitations discussed above) in
combination with each other to adjust the risk and return characteristics of the
overall position. For example, a Fund may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
Correlation of Price Changes. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the applicable Fund's current or
anticipated investments. The Growth Fund, the Emerging Growth Fund, the Regional
Small Capitalization Value Fund and the Contrarian Value Fund may invest in
options and (with respect to the Growth Fund and the Emerging Growth Fund only)
futures contracts based on securities which differ from the
-12-
<PAGE>
securities in which it typically invests. This involves a risk that the options
or futures position will not track the performance of the Fund's investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instrument match the applicable
Fund's investments well. Options and future prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. The Growth Fund, the Emerging Growth Fund,
the Regional Small Capitalization Value Fund and the Contrarian Value Fund may
purchase or sell options and (with respect to the Growth Fund and Emerging
Growth Fund only) futures contracts with a greater or less value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in historical volatility between the contract and the
securities, although this may not be successful in all cases. If price changes
in the applicable Fund's options or futures positions are poorly correlated with
its other investments, the positions may fail to produce anticipated gains or
result in losses that are not offset by gains in other investments. Successful
use of these techniques requires skills different from those needed to select
portfolio securities.
Liquidity of Options and Futures Contracts. There is no assurance a liquid
secondary market will exist for any particular option or futures contract at any
particular time. Options may have relatively low trading volume and liquidity if
their strike prices are not close to the underlying instruments' current price.
In addition, exchanges may establish daily price fluctuation limits for options
and futures contracts, and may halt trading if a contract's price moves upward
or downward more than the limit in a given day. On volatile trading days when
the price fluctuation limit is reached or a trading halt is imposed, it may be
impossible for a Fund to enter into new positions or close out existing
positions. If the secondary market for a contract is not liquid because of price
fluctuation limits or otherwise, it could prevent prompt liquidation of
unfavorable positions, and potentially could require the applicable Fund to
continue to hold a position until delivery or expiration regardless of changes
in its value. As a result, such Fund's access to other assets held to cover its
options or futures positions could also be impaired.
Asset Coverage for Futures and Option Positions. The Funds will comply with
guidelines established by the Securities and Exchange Commission with respect to
coverage of options and futures strategies by mutual funds, and if the
guidelines so require will set aside cash or liquid securities in a segregated
custodial account in the amount prescribed. Securities held in a segregated
account cannot be sold while the futures or option strategy is outstanding,
unless they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a portion of the applicable Fund's assets could
impede portfolio management or such Fund's ability to meet redemption requests
or other current obligations.
-13-
<PAGE>
Special Risks of Hedging and Income Enhancement Strategies. Participation
in the options or futures markets involves investment risks and transactions
costs to which the Growth Fund, the Emerging Growth Fund, the Regional Small
Capitalization Value Fund or the Contrarian Value Fund, as applicable, would not
be subject absent the use of these strategies. In particular, the loss from
investing in futures contracts is potentially unlimited. If the applicable
Fund's portfolio manager(s)' prediction of movements in the direction of the
securities and interest rate markets are inaccurate, the adverse consequences to
such Fund may leave such Fund in a worse position than if such strategies were
not used. Risks inherent in the use of futures contracts and options on futures
contracts include: (1) dependence on the portfolio manager(s)' ability to
predict correctly movements in the direction of interest rates, securities
prices and currency markets; (2) imperfect correlation between the price of
options and futures contracts and options thereon and movements in the prices of
the securities being hedged; (3) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities; (4)
the possible absence of a liquid secondary market for any particular instrument
at any time; and (5) the possible need to defer closing out certain hedged
positions to avoid adverse tax consequences.
Foreign Securities
The Total Return Fund and the Emerging Growth Fund may invest up to 25% and
the Growth Fund and the Contrarian Value Fund up to 20% of their respective
assets in foreign securities. Such investments may involve risks which are in
addition to the usual risks inherent in domestic investments. The value of a
Fund's foreign investments may be significantly affected by changes in currency
exchange rates, and a Fund may incur costs in converting securities denominated
in foreign currencies to U.S. dollars. In many countries, there is less publicly
available information about issuers than is available in the reports and ratings
published about companies in the United States. Additionally, foreign companies
may not be subject to uniform accounting, auditing and financial reporting
standards. Dividends and interest on foreign securities may be subject to
foreign withholding taxes, which would reduce a Fund's income without providing
a tax credit for a Fund's shareholders. Each Fund will limit such investments to
securities of foreign issuers domiciled in Australia and the non-communist
nations of Western Europe, North America and Eastern Asia. There is the
possibility of expropriation, confiscatory taxation, currency blockage or
political or social instability which could affect investments in those nations.
Foreign securities include sponsored and unsponsored American Depository
Receipts ("ADRs"). ADRs typically are issued by a U.S. bank or trust company and
evidence ownership of underlying securities issued by a foreign corporation.
Unsponsored ADRs differ from sponsored ADRs in that the establishment of
unsponsored ADRs are not approved by the issuer of the underlying securities. As
a result, available information concerning the issuer may not be as current or
reliable as the information for sponsored ADRs, and the price of unsponsored
ADRs may be more volatile.
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<PAGE>
Short Sales
The Emerging Growth Fund may seek to realize additional gains through
effecting short sales in securities. Short selling involves the sale of borrowed
securities. At the time a short sale is effected, the Emerging Growth Fund
incurs an obligation to replace the security borrowed at whatever its price may
be at the time it purchases it for delivery to the lender. The price at such
time may be more or less than the price at which the security was sold by the
Emerging Growth Fund. Until the security is replaced, the Emerging Growth Fund
is required to pay the lender amounts equal to any dividend or interest which
accrue during the period of the loan. To borrow the security, the Emerging
Growth Fund also may be required to pay a premium, which would increase the cost
of the security sold. The proceeds of the short sale will be retained by the
broker, to the extent necessary to meet margin requirements, until the short
position is closed. Until the Emerging Growth Fund closes its short position or
replaces the borrowed security, it will: (a) maintain a segregated account
containing cash or liquid securities at such a level that the amount deposited
in the account plus the amount deposited with the broker as collateral will
equal the current value of the security sold short; or (b) otherwise cover its
short position.
Warrants and Rights
Each Fund may invest up to 5% of its net assets in warrants or rights,
valued at the lower of cost or market, which entitle the holder to buy
securities during a specific period of time. A Fund will make such investments
only if the underlying securities are deemed appropriate by the Fund's portfolio
manager for inclusion in that Fund's portfolio. Additionally, the Total Return
Fund will purchase warrants or rights only if they are sold as a unit with
another equity or debt security. Included in the 5% amount, but not to exceed 2%
of net assets, are warrants and rights whose underlying securities are not
traded on principal domestic or foreign exchanges. Warrants and rights acquired
by a Fund in units or attached to securities are not subject to these
restrictions.
Illiquid Securities
Each of the Funds may invest up to 10% (15% for the Emerging Growth Fund)
of its net assets in securities for which there is no readily available market
("illiquid securities"). This limitation includes certain securities whose
disposition would be subject to legal restrictions ("restricted securities")
which may be purchased by the Emerging Growth Fund and the Contrarian Value Fund
but not the other Funds. However, certain restricted securities that may be
resold pursuant to Rule 144A under the Securities Act may be considered liquid.
The Board of Directors of the Corporation has delegated to Resource Capital
Advisers, Inc. (the "Adviser") the day-to-day determination of the liquidity of
a security although it has retained oversight and ultimate responsibility for
such determinations. Although no definite quality criteria are used, the Board
of Directors has directed the Adviser to consider such factors as (i) the nature
of the market for a security (including the institutional private resale
markets); (ii) the terms of these securities or other instruments allowing for
the disposition to a third party or the issuer thereof (e.g. certain repurchase
obligations and
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<PAGE>
demand instruments); (iii) and availability of market quotations; and (iv) other
permissible factors.
Restricted securities may be sold in privately negotiated or other exempt
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. When registration is required,
a Fund may be obligated to pay all or part of the registration expenses and a
considerable time may elapse between the decision to sell and the sale date. If,
during such period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than the price which prevailed when it decided to
sell. Restricted securities will be priced at fair value as determined in good
faith by the Board of Directors.
Portfolio Turnover
The Funds do not trade actively for short-term profits. However, if the
objectives of the Funds would be better served, short-term profits or losses may
be realized from time to time. The annual portfolio turnover rate indicates
changes in a Fund's portfolio and is calculated by dividing the lesser of
purchases or sales of portfolio securities (excluding securities having
maturities at acquisition of one year or less) for the fiscal year by the
monthly average of the value of the portfolio securities (excluding securities
having maturities at acquisition of one year or less) owned by the Fund during
the fiscal year. The annual portfolio turnover rate may vary widely from year to
year depending upon market conditions and prospects. Increased portfolio
turnover necessarily results in correspondingly heavier transaction costs (such
as brokerage commissions or mark-ups or mark-downs) which the Fund must pay and
increased realized gains (or losses) to investors. Distributions to shareholders
of realized gains, to the extent that they consist of net short-term capital
gains, will be considered ordinary income for federal income tax purposes.
DIRECTORS AND OFFICERS OF THE CORPORATION
As a Wisconsin corporation, the business and affairs of the Corporation are
managed by its officers under the direction of its Board of Directors. The name,
age, address, principal occupation(s) during the past five years and other
information with respect to each of the directors and officers of the
Corporation are as follows:
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<PAGE>
CONLEY BROOKS, JR.*
- ------------------
900 Second Avenue South
Suite 300
Minneapolis, Minnesota 55402
(PRESIDENT AND A DIRECTOR OF THE CORPORATION)
Mr. Brooks, age 53, has been President of Brooks Associates, Inc., an asset
and investment management firm, since 1982. He has been Chairman of the Board of
Resource Companies, Inc. since 1992 and was elected CEO in 1998. Resource
Companies, Inc. is a bank holding company which owns Resource Trust Company
(where Mr. Brooks has also been CEO since 1998), the corporate parent of
Resource Capital Advisers, Inc. Mr. Brooks has been President and a director of
the Corporation since December, 1994.
ROLF ENGH
- ---------
1101 S. 3rd St.
Minneapolis, Minnesota 55415
(A DIRECTOR OF THE CORPORATION)
Mr. Engh, age 45, has been General Counsel, Vice President-International
Sales, General Manager Color Corp. and Corporate Secretary of The Valspar
Corporation, a paint manufacturing company, since 1993. Mr. Engh has been a
director of the Corporation since July, 1998.
JOHN J. FAUTH
- -------------
3100 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
(A DIRECTOR OF THE CORPORATION)
Mr. Fauth, age 54, has been Chairman and Chief Executive Officer of The
Churchill Companies, a private investment company, since April, 1982. Mr. Fauth
has been a director of the Corporation since December, 1994. He is also a
director of Kinnard Investments, Inc.
- ---------------
* Messrs. Brooks, Welch and Wilson are directors who are "interested persons" of
the Fund as that term is defined in the Investment Company Act of 1940.
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<PAGE>
A. SKIDMORE THORPE
- ------------------
4900 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
(A DIRECTOR OF THE CORPORATION)
Mr. Thorpe, age 70, is a private investor; he has been Chairman of Andrus
California Timberland Partnerships, a private investment firm, since 1988. Mr.
Thorpe has been a director of the Corporation since December, 1994.
E. THOMAS WELCH*
- ---------------
900 Second Avenue South
Suite 300
Minneapolis, Minnesota 55402
(VICE PRESIDENT AND A DIRECTOR OF THE CORPORATION)
Mr. Welch, age 61, has been President and Managing Director of Resource
Trust Company since 1984, President of Resource Companies, Inc. since January,
1990 and Chief Operating Officer of Resource Capital Advisers, Inc. since
February, 1992. He has served as Vice President and a director of the
Corporation since December, 1994. Mr. Welch is also a director of Casino Magic.
DONALD S. WILSON*
- ----------------
225 East Mason Street
Milwaukee, Wisconsin 53202
(A DIRECTOR OF THE CORPORATION)
Mr. Wilson, age 56, co-founded Fiduciary Management, Inc., a Milwaukee,
Wisconsin, investment advisory firm, in 1980 and has served as a director and in
various executive capacities since that time, including as President and
Treasurer since 1987. Mr. Wilson has served in various capacities with the
Corporation since its inception in 1986. He has been a director of the
Corporation since 1987. From 1986 through December, 1994, Mr. Wilson served as
Vice President and Assistant Secretary of the Corporation, and from December,
1994 through June, 1997, he served as Secretary and Treasurer of the
Corporation. Mr. Wilson also serves as a director of Fiduciary Capital Growth
Fund, Inc. and FMI Funds, Inc.
- ---------------
* Messrs. Brooks, Welch and Wilson are directors who are "interested persons" of
the Fund as that term is defined in the Investment Company Act of 1940.
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<PAGE>
JOHN A. CLYMER
- --------------
900 Second Avenue South
Suite 300
Minneapolis, Minnesota 55402
(VICE PRESIDENT, SECRETARY AND TREASURER OF THE CORPORATION)
Mr. Clymer, age 51, has been a Managing Director of Resource Trust Company
and President of Resource Capital Advisers, Inc. since 1994. Prior to joining
the Resource Companies, he was president of Minnesota Mutual Life Insurance
Company, and had held various positions within Minnesota Mutual Life Insurance
Company since 1972. Mr. Clymer has served as a Vice President of the Corporation
since June, 1996 and as Secretary and Treasurer of the Corporation since June,
1997. Mr. Clymer is a director of Hanover Capital Mortgage Holdings, Inc., a
real estate investment trust, and WTC Industries, Inc.
A. RODNEY BOREN
- ---------------
900 Second Avenue South
Suite 300
Minneapolis, Minnesota 55402
(VICE PRESIDENT OF THE CORPORATION)
Mr. Boren, age 53, has been a Managing Director of Resource Trust Company
since January, 1996. Prior to joining Resource Trust Company, he was with
Norwest Bank since 1974, most recently serving as Executive Vice President,
Norwest Institutional Trust Services, from 1990 to 1995. Mr. Boren served as an
Investment Officer of the Corporation from February, 1996 to June, 1997 and has
served as Vice President of the Corporation since June, 1997.
SARAH A. HILLESHEIM
- -------------------
900 Second Avenue South
Suite 300
Minneapolis, Minnesota 55402
(VICE PRESIDENT AND ASSISTANT SECRETARY OF THE CORPORATION)
Ms. Hillesheim, age 38, has been employed at Resource Capital Advisers,
Inc. in various capacities since 1994. From November 1992 until June 1994, she
was employed at the Center for Diagnostic Imaging. Ms. Hillesheim has been a
Vice President and Assistant Secretary of the Corporation since November, 1995.
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<PAGE>
PATRICE J. NEVERETT
- -------------------
249 Royal Palm Way
Suite 400
Palm Beach, Florida 33480
(VICE PRESIDENT OF THE CORPORATION)
Ms. Neverett, age 46, has been Executive Vice President and Senior
Portfolio Manager of Palm Beach Investment Advisers, LLC. since 1990. Ms.
Neverett is the Investment Manager of the Eastcliff Total Return Fund.
The Corporation's standard method of compensating directors is to pay each
director who is not an officer of the Corporation a fee of $500 for each meeting
of the Board of Directors attended. The table below sets forth the compensation
paid by the Corporation to each of the current directors of the Corporation
during the fiscal year ended June 30, 1999:
<TABLE>
COMPENSATION TABLE
<CAPTION>
Total
Pension or Retirement Estimated Annual Compensation
Name of Aggregate Compensation Benefits Accrued As Benefits Upon from Corporation
Person from Corporation Part of Fund Expenses Retirement Paid to Directors
------ ---------------- --------------------- ---------- -----------------
<S> <C> <C> <C> <C>
Conley Brooks, Jr. $0 $0 $0 $0
John J. Fauth $1,500 $0 $0 $1,500
A. Skidmore Thorpe $1,500 $0 $0 $1,500
E. Thomas Welch $0 $0 $0 $0
Donald S. Wilson $0 $0 $0 $0
Rolf Engh $1,000 $0 $0 $1,000
</TABLE>
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
As of June 30, 1999, all officers and directors of the Corporation as a
group (10 persons) beneficially owned 10,458 shares of the Total Return Fund
(which constituted 0.98% of its then outstanding shares), 80,060 shares of the
Growth Fund (which constituted 2.88% of its then outstanding shares), 189,274
shares of the Regional Small Capitalization Value Fund (which constituted 4.67%
of its then outstanding shares) and 80,610 shares of the Contrarian Value Fund
(which constituted 5.52% of its then outstanding shares). (The Emerging Growth
Fund will commence operations on September 30, 1999.) As of June 30, 1999, the
sole beneficial holder of more than 5% of the Total Return Fund's then
outstanding shares was Resource Trust Company, Suite 300, 900 Second Avenue
South, Minneapolis, Minnesota 55402, which owned 890,914 shares, or 83.24% of
the total shares of such Fund then outstanding. As of June 30, 1999, the sole
beneficial holder of more than 5% of the Growth
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<PAGE>
Fund's then outstanding shares were Resource Trust Company, Suite 300, 900
Second Avenue South, Minneapolis, Minnesota 55402, which owned 2,396,490 shares
of such Fund (constituting 86.19% of its then outstanding shares). As of June
30, 1999, the beneficial holders of more than 5% of the Regional Small
Capitalization Value Fund's then outstanding shares were Resource Trust Company,
Suite 300, 900 Second Avenue South, Minneapolis, Minnesota 55402, which owned
1,504,458 shares of such Fund (constituting 37.13% of its then outstanding
shares), U.S. Bank, N.A., 180 E. 5th St., P.O. Box 64488, St. Paul, Minnesota
55164-0488, which owned 807,102 shares of such Fund (constituting 19.92% of its
then outstanding shares), and Norwest Bank MN, NA, P. O. Box 1533, Minn, MN
55480, which owned 273,149 shares of such Fund (constituting 6.74% of its then
outstanding shares). As of June 30, 1999, the sole beneficial holder of more
than 5% of the Contrarian Value Fund's then outstanding shares was Resource
Trust Company, 900 Second Avenue South, Minn, MN 55402, which owned 1,359,178
shares, or 93.13% of the total shares of such Fund then outstanding. Resource
Trust Company, a Minnesota corporation, is the parent company of Resource
Capital Advisers, Inc., the investment adviser to each of the Funds.
The Total Return Fund, the Growth Fund, the Regional Small Capitalization
Value Fund, the Contrarian Value Fund and the Corporation are controlled by
Resource Trust Company. Resource Trust Company owns sufficient shares of the
Total Return Fund, the Growth Fund, the Contrarian Value Fund and, with U.S.
Bank, N.A., the Regional Small Capitalization Value Fund to approve or
disapprove all matters brought before shareholders of such Funds, including the
election of directors of the Corporation and the approval of auditors. The
Corporation does not control any person.
INVESTMENT ADVISER, PORTFOLIO MANAGERS AND ADMINISTRATOR
The investment adviser to each of the Funds is Resource Capital Advisers,
Inc. (the "Adviser"), the portfolio manager to the Total Return Fund is Palm
Beach Investment Advisers, LLC ("PBIA"), the portfolio manager to the Growth
Fund is Winslow Capital Management, Inc. ("WCM"), the portfolio manager of the
Emerging Growth Fund is KB Growth Advisors, LLC ("KB"), the portfolio manager to
the Regional Small Capitalization Value Fund is Woodland Partners LLC ("WP") and
the portfolio manager to the Contrarian Value Fund is Sasco Capital, Inc.
("Sasco"). The Adviser is a wholly-owned subsidiary of Resource Trust Company, a
Minnesota state bank. Resource Trust Company is a wholly-owned subsidiary of
Resource Companies, Inc., a Minnesota corporation. The Adviser's executive
officers include E. Thomas Welch, Chief Operating Officer, John A. Clymer,
President, Compliance Officer and Chief Investment Officer, and Dan W. Melcher,
Chief Financial Officer. The directors of the Adviser are E. Thomas Welch,
Conley Brooks, Jr. and Lyman E. Wakefield, Jr. PBIA is controlled by the
Adviser. WCM is controlled by Clark J. Winslow, its President, Chief Executive
Officer, and principal shareholder. KB is controlled by Gail Knappenberger, its
Chairman and principal owner. WP is owned in equal parts by Richard W. Jensen,
Elizabeth M. Lilly and Richard J. Rinkoff. Sasco is owned by Hoda Bibi, Bruce
Bottomley, Lee Garcia and Daniel Leary.
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Pursuant to separate investment advisory agreements entered into between
the Funds and the Adviser (the "Management Agreements"), the Adviser provides
consulting, investment and administrative services to each of the Funds. The
specific investments for each Fund will be made by one or more portfolio
managers selected for such Fund by the Adviser. The Adviser has overall
responsibility for assets under management, provides overall investment
strategies and programs for the Funds, selects portfolio managers, allocates
assets among the portfolio managers and monitors and evaluates the portfolio
managers' performance. The Adviser and each of the Funds enter into separate
sub-advisory agreements with such Fund's portfolio managers. The Adviser also
provides each of the Funds with office space, equipment and personnel necessary
to operate and administer such Fund's business and to supervise the provision of
services by third parties such as the transfer agent and the custodian. During
the fiscal years ended June 30, 1999, 1998 and 1997 the Total Return Fund paid
the Adviser advisory fees of $251,628, $236,368 and $191,191, respectively.
During the fiscal years ended June 30, 1999, 1998 and 1997, the Growth Fund paid
the Adviser advisory fees of $417,074, $512,180 and $454,388, respectively. The
Regional Small Capitalization Value Fund did not begin operations until
September 16, 1996. During the fiscal years ended June 30, 1999 and 1998 and
during the period from September 16, 1996 through June 30, 1997, the Regional
Small Capitalization Value Fund paid the Adviser advisory fees of $499,521,
$544,391 and $144,375, respectively. The Contrarian Value Fund did not begin
operations until December 30, 1997. During the fiscal year ended June 30, 1999
and during the period from December 30, 1997 through June 30, 1998, the
Contrarian Value Fund paid the Adviser advisory fees of $158,237 and $90,399.
The Emerging Growth Fund will commence operations on September 30, 1999.
The Funds pay all of their own expenses not assumed by the Adviser or their
administrator including, without limitation, the cost of preparing and printing
their registration statements required under the Securities Act of 1933 and the
Act and any amendments thereto, the expense of registering their shares with the
Securities and Exchange Commission and in the various states, the printing and
distribution costs of prospectuses mailed to existing investors, reports to
investors, reports to government authorities and proxy statements, fees paid to
directors who are not interested persons of the Adviser, interest charges,
taxes, legal expenses, association membership dues, auditing services, insurance
premiums, brokerage commissions and expenses in connection with portfolio
transactions, fees and expenses of the custodian of the Funds' assets, printing
and mailing expenses and charges and expenses of dividend disbursing agents,
accounting services agents, registrars and stock transfer agents.
The Adviser has undertaken to reimburse each Fund to the extent that the
aggregate annual operating expenses exceed that percentage of the daily net
assets of such Fund for such year, as determined by valuations made as of the
close of each business day of the year, which is the most restrictive percentage
provided by the state laws of the various states in which the shares of such
Fund are qualified for sale or, if the states in which the shares of such Fund
are qualified for sale impose no such restrictions, 2%. As of the date of this
Statement of Additional Information the shares of the Funds are not qualified
for sale in any state which imposes an expense limitation. Notwithstanding the
most restrictive applicable expense limitation of state securities commissions
set forth above or the terms of the Management
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Agreements, the Adviser has voluntarily agreed to reimburse each of the Funds
for expenses in excess of 1.3% of such Fund's average daily net assets during
the fiscal year ending June 30, 2000, and did so for the fiscal years ended June
30, 1999, 1998 and 1997 for each of the Funds operating at such times. Each Fund
monitors its expense ratio on a monthly basis. If the accrued amount of the
expenses of a Fund exceeds the expense limitation, such Fund creates an account
receivable from the Adviser for the amount of such excess. In such a situation
the monthly payment of the Adviser's fee will be reduced by the amount of such
excess, subject to adjustment month by month during the balance of such Fund's
fiscal year if accrued expenses thereafter fall below this limit. During the
fiscal years ended June 30, 1999, 1998 and 1997, the Adviser reimbursed the
Total Return Fund $25,397, $27,489 and $35,832, respectively, for excess
expenses. During the fiscal years ended June 30, 1999, 1998 and 1997, the
Adviser reimbursed the Growth Fund $0, $0 and $14,325, respectively, for excess
expenses. The Regional Small Capitalization Value Fund did not begin operations
until September 16, 1996. During the fiscal years ended June 30, 1999 and 1998
and during the period from September 16, 1996 through September 30, 1997, the
Adviser reimbursed the Regional Small Capitalization Value Fund $0, $0 and
$45,235, respectively, for excess expenses. The Contrarian Value Fund did not
begin operations until December 30, 1997. During the fiscal year ended June 30,
1999 and during the period from December 30, 1997 through June 30, 1998, the
Adviser reimbursed the Contrarian Value Fund $_______ and $17,544, respectively,
for excess expenses. The Emerging Growth Fund will commence operations on
September 30, 1999.
As of the date hereof, PBIA is the sole portfolio manager of the Total
Return Fund, WCM is the sole portfolio manager of the Growth Fund, KB is the
sole portfolio manager for the Emerging Growth Fund, WP is the sole portfolio
manager of the Regional Small Capitalization Value Fund and Sasco is the sole
portfolio manager of the Contrarian Value Fund. Each of PBIA, WCM, KB, WP and
Sasco has entered into a separate sub-advisory contract with the applicable Fund
and the Adviser (the Sub-Advisory Agreements"). Pursuant to their respective
Sub-Advisory Agreements, each of the portfolio managers makes specific portfolio
investments in accordance with such Fund's investment objective and the
portfolio manager's investment approach and strategies.
Portfolio managers of the Funds, including PBIA, WCM, KB, WP and Sasco, are
employed and may be terminated by the Adviser subject to prior approval by the
Board of Directors of the Corporation. The employment of a new portfolio manager
currently requires the prior approval of the shareholders of the applicable
Fund. The Corporation, however, may request an order of the Securities and
Exchange Commission exempting the Funds from the requirements under the
Investment Company Act of 1940 relating to shareholder approval of new portfolio
managers. There can be no assurance that the Corporation will request such an
order, or, if requested, that such an order will be granted with respect to the
Funds. Selection and retention criteria for portfolio managers include: (i)
their historical performance records; (ii) consistent performance in the context
of the markets and preservation of capital in declining markets; (iii)
organizational stability and reputation; (iv) the quality and depth of
investment personnel; and (v) the ability of the portfolio manager to apply its
approach consistently. Each
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portfolio manager will not necessarily exhibit all of the criteria to the same
degree. Portfolio managers are paid by the Adviser (not the Funds).
The portfolio managers' activities are subject to general supervision by
the Adviser and the Board of Directors of the Corporation. Although the Adviser
and the Board do not evaluate the investment merits of the portfolio managers'
specific securities selections, they do review the performance of each portfolio
manager relative to the selection criteria.
The administrator to each of the Funds is Fiduciary Management, Inc. (the
"Administrator"), 225 East Mason Street, Milwaukee, Wisconsin 53202. The
Administrator is controlled by Mr. Wilson and Ted D. Kellner. Pursuant to
separate administration agreements entered into between each of the Funds and
the Administrator (the "Administration Agreements"), the Administrator prepares
and maintains the books, accounts and other documents required by the Act,
calculates the Fund's net asset value, responds to shareholder inquiries,
prepares the Fund's financial statements and excise tax returns, prepares
reports and filings with the Securities and Exchange Commission and with state
Blue Sky authorities, furnishes statistical and research data, clerical,
accounting and bookkeeping services and stationery and office supplies, keeps
and maintains the Fund's financial accounts and records and generally assists in
all aspects of the Fund's operations. The Administrator at its own expense and
without reimbursement from any of the Funds, furnishes office space and all
necessary office facilities, equipment and executive personnel for performing
the services required to be performed by it under the Administration Agreements.
For the foregoing, the Administrator receives from each of the Funds a fee of
0.2% per annum on the first $25,000,000 of the daily net assets of such Fund,
0.1% per annum on the next $20,000,000 of the daily net assets of such Fund and
0.05% per annum of the daily net assets of such Fund over $45,000,000, subject
to a fiscal year minimum of $20,000. The Administrator separately charges the
Funds for blue sky filings. During the fiscal years ended June 30, 1999, 1998
and 1997, the Total Return Fund paid the Administrator $49,530 $47,236 and
$38,238, respectively, pursuant to such Fund's Administration Agreement. During
the fiscal years ended June 30, 1999, 1998 and 1997, the Growth Fund paid the
Administrator $70,745, $76,677 and $75,438, respectively, pursuant to such
Fund's Administration Agreement. The Regional Small Capitalization Value Fund
did not commence operations until September 16, 1996. During the fiscal years
ended June 30, 1999 and 1998 and during the period from September 16, 1996
through June 30, 1997, the Regional Small Capitalization Value Fund paid the
Administrator $72,409, $77,094 and $28,875, respectively pursuant to such Fund's
Administration Agreement. The Contrarian Value Fund did not commence operations
until December 30, 1997. During the fiscal year ended June 30, 1999 and during
the period from December 30, 1997 through June 30, 1998, the Contrarian Value
Fund paid the Administrator $31,647 and $18,080, respectively, pursuant to such
Fund's Administration Agreement. The Emerging Growth Fund will commence
operations on September 30, 1999.
The respective Management Agreements and Sub-Advisory
Agreements of each of the Funds will remain in effect as long as its continuance
is specifically approved at least annually (i) by the Board of Directors of the
Corporation, or, in the case of the Management Agreements, by the vote of a
majority (as defined in the Act) of the outstanding shares of the
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applicable Fund, and (ii) by the vote of a majority of the directors of the
Corporation who are not parties to the Management Agreement or Sub-Advisory
Agreement relating to the applicable Fund or interested persons of the Adviser
or applicable Portfolio Manager, cast in person at a meeting called for the
purpose of voting on such approval. The Administration Agreements will remain in
effect until terminated. Each of the Management Agreements provides that it may
be terminated at any time without the payment of any penalty, by the Board of
Directors of the Corporation or by vote of a majority of the applicable Fund's
shareholders, on sixty days written notice to the Adviser and by the Adviser on
the same notice to the applicable Fund, and that it shall be automatically
terminated if it is assigned. Each of the Sub-Advisory Agreements provides that
it may be terminated by any party upon giving 30 days written notice to the
other parties and that it shall be automatically terminated if it is assigned.
Each of the Administration Agreements provides that it may be terminated at any
time without the payment of any penalty by the Board of Directors of the
Corporation on ninety days written notice to the Administrator and by the
Administrator on the same notice to the applicable Fund.
The Management Agreements, the Sub-Advisory Agreements and the
Administration Agreements provide that the Adviser, PBIA, WCM, KB, WP and Sasco
and the Administrator, as the case may be, shall not be liable to either of the
Funds or their shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations or duties. The
Management Agreements, the Sub-Advisory Agreements and the Administration
Agreements also provide that the Adviser, PBIA, WCM, KB, WP and Sasco, and the
Administrator, and their respective officers, directors and employees, may
engage in other businesses, devote time and attention to any other business
whether of a similar or dissimilar nature, and render services to others.
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
The net asset value of each Fund will be determined as of the close of
regular trading (currently 4:00 P.M. Eastern Time) on each day the New York
Stock Exchange is open for trading. The New York Stock Exchange is open for
trading Monday through Friday except New Year's Day, Dr. Martin Luther King, Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, if any of the aforementioned
holidays falls on a Saturday, the New York Stock Exchange will not be open for
trading on the preceding Friday and when any such holiday falls on a Sunday, the
New York Stock Exchange will not be open for trading on the succeeding Monday,
unless unusual business conditions exist, such as the ending of a monthly or the
yearly accounting period. The New York Stock Exchange may also be closed on
national days of mourning.
The per share net asset value of each Fund is determined by dividing the
total value of such Fund's net assets (i.e. its assets less its liabilities) by
the total number of its shares outstanding at that time. Securities traded on
any national stock exchange or quoted on the Nasdaq National Market System will
be valued on the basis of the last sale price on the date of valuation or, in
the absence of any sales on that date, the most recent bid price. Other
securities will be valued by an independent pricing service at the most recent
bid price, if
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<PAGE>
market quotations are readily available. Any securities for which there are no
readily available market quotations and other assets will be valued at their
fair value as determined in good faith by the Corporation's Board of Directors.
Each of the Funds may provide from time to time, in advertisements, reports
to shareholders and other communications with shareholders, its average annual
compounded rate of return. A Fund's average annual compounded rate of return
refers to the rate of return which, if applied to an initial investment in such
Fund at the beginning of a stated period and compounded over the period, would
result in the redeemable value of the investment in such Fund at the end of the
stated period. The calculation assumes reinvestment of all dividends and
distributions and reflects the effect of all recurring fees. Each Fund may also
provide "aggregate" total return information for various periods, representing
the cumulative change in value of an investment in a Fund for a specific period
(again reflecting changes in share price and assuming reinvestment of dividends
and distributions).
Any total rate of return quotation for a particular Fund will be for a
period of three or more months and will assume the reinvestment of all dividends
and capital gains distributions which were made by such Fund during that period.
Any period total rate of return quotation of a Fund will be calculated by
dividing the net change in value of a hypothetical shareholder account
established by an initial payment of $1,000 at the beginning of the period by
1,000. The net change in the value of a shareholder account is determined by
subtracting $1,000 from the product obtained by multiplying the net asset value
per share at the end of the period by the sum obtained by adding (A) the number
of shares purchased at the beginning of the period plus (B) the number of shares
purchased during the period with reinvested dividends and distributions. Any
average annual compounded total rate of return quotation of a Fund will be
calculated by dividing the redeemable value at the end of the period (i.e., the
product referred to in the preceding sentence) by $1,000. A root equal to the
period, measured in years, in question is then determined and 1 is subtracted
from such root to determine the average annual compounded total rate of return.
The foregoing computation may also be expressed by the following formula:
P(1+T)n = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the stated periods at the end of the
stated periods.
Total return is the cumulative rate of investment growth which assumes that
income dividends and capital gains are reinvested. It is determined by assuming
a hypothetical investment at the net asset value at the beginning of the period,
adding in the reinvestment of
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<PAGE>
all income dividends and capital gains, calculating the ending value of the
investment at the net asset value as of the end of the specified time period,
subtracting the amount of the original investment, and dividing this amount by
the amount of the original investment. This calculated amount is then expressed
as a percentage by multiplying by 100.
The Total Return Fund's average annual compounded returns for the one-year,
five-year and ten-year periods ended June 30, 1999 and for the period from the
Fund's commencement of operations (December 30, 1986) through June 30, 1999 were
21.72%, 23.93%, 15.91% and 16.13%, respectively. The Growth Fund's average
annual compounded return for the one-year period ended June 30, 1999 was 8.22%,
and for the period from the Growth Fund's commencement of operations (July 1,
1995) through June 30, 1999 was 19.18%. The Regional Small Capitalization Value
Fund's average annual compounded return for the one-year period ended June 30,
1999 was -1.17%, and for the period from the Regional Small Capitalization Value
Fund's commencement of operations (September 16, 1996) through June 30, 1999 was
11.44%. The Contrarian Value Fund's average annual compounded return for the
one-year period ended June 30, 1999 was -5.29%, and for the period from the
Contrarian Value Fund's commencement of operations (December 30, 1997) through
June 30, 1999 was-0.94%. The Emerging Growth Fund will commence operations on
September 30, 1999.
The results below show the value of an assumed initial investment in the
Total Return Fund of $10,000 made on December 30, 1986 through June 30, 1999,
assuming reinvestment of all dividends and distributions.
Value of $10,000 Cumulative % Change
Date Investment (i.e. total return)
- ---- ---------------- -------------------
December 31, 1986 $ 10,000 ---
December 31, 1987 11,225 +12.2%
December 31, 1988 13,554 +35.5
December 31, 1989 15,341 +53.4
December 31, 1990 14,663 +46.6
December 31, 1991 19,070 +90.7
December 31, 1992 21,052 +110.5
December 31, 1993 23,381 +133.8
December 31, 1994 22,909 +129.1
December 31, 1995 28,221 +182.2
December 31, 1996 34,000 +240.0
December 31, 1997 44,214 +342.1
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Value of $10,000 Cumulative % Change
Date Investment (i.e. total return)
- ---- ---------------- -------------------
December 31, 1998 61,321 +513.2
June 30, 1999 64,787 +547.9
The results below show the value of an assumed initial investment in the
Growth Fund of $10,000 made on June 30, 1995 through June 30, 1999, assuming
reinvestment of all dividends and distributions.
Value of $10,000 Cumulative % Change
Date Investment (i.e. total return)
- ---- ---------------- -------------------
December 31, 1995 $ 10,860 + 8.6%
December 31, 1996 12,690 +26.9
December 31, 1997 15,533 +55.3
December 31, 1998 20,074 +100.7
June 30, 1999 20,164 +101.6
The results below show the value of an assumed initial investment in the
Regional Small Capitalization Value Fund of $10,000 made on September 16, 1996
through June 30, 1999, assuming reinvestment of all dividends and distributions.
Value of $10,000 Cumulative % Change
Date Investment (i.e. total return)
- ---- ---------------- -------------------
December 31, 1996 $ 10,908 + 9.1%
December 31, 1997 13,207 +32.1
December 31, 1998 12,697 +27.0
June 30, 1999 13,522 +35.2
The results below show the value of an assumed initial investment in the
Contrarian Value Fund of $10,000 made on December 30, 1997 through June 30,
1999, assuming reinvestment of all dividends and distributions.
Value of $10,000 Cumulative % Change
Date Investment (i.e. total return)
- ---- ---------------- -------------------
December 31, 1997 $10,030 +0.3%
December 31, 1998 9,120 -8.8%
June 30, 1999 9,860 -1.4%
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The foregoing performance results are based on historical earnings and
should not be considered as representative of the performance of the Total
Return Fund, the Growth Fund, the Regional Small Capitalization Value Fund, the
Contrarian Value Fund or the Emerging Growth Fund in the future. Such
performance results also reflect reimbursements made by the Adviser to keep
total fund operating expenses at or below 1.3% of average daily net assets. An
investment in each of the Total Return Fund, the Growth Fund, the Emerging
Growth Fund, the Regional Small Capitalization Value Fund and the Contrarian
Value Fund will fluctuate in value and at redemption its value may be more or
less than the initial investment.
Each of the Funds may compare its performance to other mutual funds with
similar investment objectives and to the industry as a whole, as reported by
Morningstar, Inc. and Lipper Analytical Services, Inc., Money, Forbes, Business
Week and Barron's magazines; and The Wall Street Journal. (Morningstar, Inc. and
Lipper Analytical Services, Inc. are independent ranking services that rank over
1,000 mutual funds based upon total return performance.) Each of the Funds may
also compare its performance to the Dow Jones Industrial Average, Nasdaq
Composite Index, Nasdaq Industrials Index, Value Line Composite Index, the S&P
500 Index, S&P 400 Mid-Cap Growth Index, S&P 600 Small Cap Growth Index, Lehman
Intermediate Corporate Bond Index, Russell 1000 Growth Index, Russell 2000
Index, Russell 2000 Growth Index, Russell Midcap Index and the Consumer Price
Index. Such comparisons may be made in advertisements, shareholder reports or
other communications to shareholders.
DISTRIBUTION OF SHARES
Each of the Funds has adopted a Distribution Plan (the "Plan") in
anticipation that such Fund will benefit from the Plan through increased sales
of shares, thereby reducing such Fund's expense ratio and providing an asset
size that allows the Adviser greater flexibility in management. The Plan
provides that each Fund may incur certain costs which may not exceed a maximum
amount equal to 1% per annum of such Fund's average daily net assets. However,
each of the Funds presently intends not to utilize the Plan or pay any 12b-1
fees during the fiscal year ending June 30, 2000. Payments made pursuant to the
Plan may only be used to pay distribution expenses incurred in the current year.
Amounts paid under the Plan by a Fund may be spent by such Fund on any
activities or expenses primarily intended to result in the sale of shares of
such Fund, including but not limited to, advertising, compensation for sales and
sales marketing activities of financial institutions and others, such as dealers
or distributors, shareholder account servicing, the printing and mailing of
prospectuses to other than current shareholders, and the printing and mailing of
sales literature. Distribution expenses will be authorized by the officers of
the Corporation as the Funds do not currently employ a distributor. To the
extent any activity financed by the Plan is one which a Fund may finance without
a 12b-1 plan, such Fund may also make payments to finance such activity outside
of the Plan and not be subject to its limitations.
The Plan may be terminated by any Fund at any time by a vote
of the directors of the Corporation who are not interested persons of the
Corporation and who have no direct
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or indirect financial interest in the Plan or any agreement related thereto (the
"Rule 12b-1 Directors") or by a vote of a majority of the outstanding shares of
such Fund. Messrs. Engh, Fauth and Thorpe are currently the Rule 12b-1
Directors. Any change in the Plan that would materially increase the
distribution expenses of a particular Fund provided for in the Plan requires
approval of the shareholders of such Fund and the Board of Directors, including
the Rule 12b-1 Directors.
While the Plan is in effect, the selection and nomination of directors who
are not interested persons of the Corporation will be committed to the
discretion of the directors of the Corporation who are not interested persons of
the Corporation. The Board of Directors of the Corporation must review the
amount and purposes of expenditures pursuant to the Plan quarterly as reported
to it by a distributor, if any, or officers of the Corporation. The Plan will
continue in effect for as long as its continuance is specifically approved at
least annually by the Board of Directors, including the Rule 12b-1 Directors.
None of the Funds incurred any distribution costs pursuant to the Plan during
the fiscal year ended June 30, 1999.
RETIREMENT PLANS
Each of the Funds offers the following retirement plans that may be funded
with purchases of shares of such Fund and may allow investors to reduce their
income taxes:
Individual Retirement Accounts
Individual shareholders may establish their own Individual Retirement
Account ("IRA"). Each of the Funds currently offers a Traditional IRA, a Roth
IRA and an Education IRA, that can be adopted by executing the appropriate
Internal Revenue Service ("IRS") Form.
Traditional IRA. In a Traditional IRA, amounts contributed to the IRA may
be tax deductible at the time of contribution depending on whether the
shareholder is an "active participant" in an employer-sponsored retirement plan
and the shareholder's income. Distributions from a Traditional IRA will be taxed
at distribution except to the extent that the distribution represents a return
of the shareholder's own contributions for which the shareholder did not claim
(or was not eligible to claim) a deduction. Distributions prior to age 59-1/2
may be subject to an additional 10% tax applicable to certain premature
distributions. Distributions must commence by April 1 following the calendar
year in which the shareholder attains age 70-l/2. Failure to begin distributions
by this date (or distributions that do not equal certain minimum thresholds) may
result in adverse tax consequences.
Roth IRA. In a Roth IRA, amounts contributed to the IRA are
taxed at the time of contribution, but distributions from the IRA are not
subject to tax if the shareholder has held the IRA for certain minimum periods
of time (generally, until age 59-1/2). Shareholders whose incomes exceed certain
limits are ineligible to contribute to a Roth IRA. Distributions that do not
satisfy the requirements for tax-free withdrawal are subject to income taxes
(and possibly penalty taxes) to the extent that the distribution exceeds the
shareholder's contributions to the IRA. The minimum distribution rules
applicable to Traditional IRAs do
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<PAGE>
not apply during the lifetime of the shareholder. Following the death of the
shareholder, certain minimum distribution rules apply.
For Traditional and Roth IRAs, the maximum annual contribution generally is
equal to the lesser of $2,000 or 100% of the shareholder's compensation (earned
income). An individual may also contribute to a Traditional IRA or Roth IRA on
behalf of his or her spouse provided that the individual has sufficient
compensation (earned income). Contributions to a Traditional IRA reduce the
allowable contribution under a Roth IRA, and contributions to a Roth IRA reduce
the allowable contribution to a Traditional IRA.
Education IRA. In an Education IRA, contributions are made to an IRA
maintained on behalf of a beneficiary under age 18. The maximum annual
contribution is $500 per beneficiary. The contributions are not tax deductible
when made. However, if amounts are used for certain educational purposes,
neither the contributor nor the beneficiary of the IRA are taxed upon
distribution. The beneficiary is subject to income (and possibly penalty taxes)
on amounts withdrawn from an Education IRA that are not used for qualified
educational purposes. Shareholders whose income exceeds certain limits are
ineligible to contribute to an Education IRA.
Under current IRS regulations, an IRA applicant must be furnished a
disclosure statement containing information specified by the IRS. The applicant
generally has the right to revoke his account within seven days after receiving
the disclosure statement and obtain a full refund of his contributions. The
custodian may, in its discretion, hold the initial contribution uninvested until
the expiration of the seven-day revocation period. The custodian does not
anticipate that it will exercise its discretion but reserves the right to do so.
Simplified Employee Pension Plan
A Traditional IRA may also be used in conjunction with a Simplified
Employee Pension Plan ("SEP-IRA"). A SEP-IRA is established through execution of
Form 5305-SEP together with a Traditional IRA established for each eligible
employee. Generally, a SEP-IRA allows an employer (including a self-employed
individual) to purchase shares with tax deductible contributions, not exceed
annually for any one participant, 15% of compensation (disregarding for this
purpose compensation in excess of $160,000 per year). The $160,000 compensation
limit applies for 1999 and is adjusted periodically for cost of living
increases. A number of special rules apply to SEP Plans, including a requirement
that contributions generally be made on behalf of all employees of the employer
(including for this purpose a sole proprietorship or partnership) who satisfy
certain minimum participation requirements.
SIMPLE IRA
An IRA may also be used in connection with a SIMPLE Plan
established by the shareholder's employer (or by a self-employed individual).
When this is done, the IRA is known as a SIMPLE IRA, although it is similar to a
Traditional IRA with the exceptions described below. Under a SIMPLE Plan, the
shareholder may elect to have his or her
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<PAGE>
employer make salary reduction contributions of up to $6,000 per year to the
SIMPLE IRA. The $6,000 limit applies for 1999 and is adjusted periodically for
cost of living increases. In addition, the employer will contribute certain
amounts to the shareholder's SIMPLE IRA, either as a matching contribution to
those participants who make salary reduction contributions or as a non-elective
contribution to all eligible participants whether or not making salary reduction
contributions. A number of special rules apply to SIMPLE Plans, including (1) a
SIMPLE Plan generally is available only to employers with fewer than 100
employees; (2) contributions must be made on behalf of all employees of the
employer (other than bargaining unit employees) who satisfy certain minimum
participation requirements; (3) contributions are made to a special SIMPLE IRA
that is separate and apart from the other IRAs of employees; (4) the
distribution excise tax (if otherwise applicable) is increased to 25% on
withdrawals during the first two years of participation in a SIMPLE IRA; and (5)
amounts withdrawn during the first two years of participation may be rolled over
tax-free only into another SIMPLE IRA (and not to a Traditional IRA or to a Roth
IRA). A SIMPLE IRA is established by executing Form 5304-SIMPLE together with an
IRA established for each eligible employee.
403(b)(7) Custodial Account
A 403(b)(7) Custodial Account is available for use in conjunction with the
403(b)(7) program established by certain educational organizations and other
organizations that are exempt from tax under 501(c)(3) of the Internal Revenue
Code, as amended (the "Code"). Amounts contributed to the custodial account in
accordance with the employer's 403(b)(7) program will be invested on a
tax-deductible basis in shares of any Fund. Various contribution limits apply
with respect to 403(b)(7) arrangements.
Defined Contribution Retirement Plan (401(k))
A prototype defined contribution plan is available for employers who wish
to purchase shares of any Fund with tax deductible contributions. The plan
consists of both profit sharing and money purchase pension components. The
profit sharing component includes a Section 401(k) cash or deferred arrangement
for employers who wish to allow eligible employees to elect to reduce their
compensation and have such amounts contributed to the plan. The limit on
employee salary reduction contributions is $10,000 annually (as adjusted for
cost-of-living increases) although lower limits may apply as a result of
non-discrimination requirements incorporated into the plan. The Company has
received an opinion letter from the IRS holding that the form of the prototype
defined contribution retirement plan is acceptable under Section 401 of the
Code. The maximum annual contribution that may be allocated to the account of
any participant is generally the lesser of $30,000 or 25% of compensation
(earned income). Compensation in excess of $160,000 (as periodically indexed for
cost-of-living increases) is disregarded for this purpose. The maximum amount
that is deductible by the employer depends upon whether the employer adopts both
the profit sharing and money purchase components of the plan, or only one
component.
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Retirement Plan Fees
Firstar Bank Milwaukee, N.A., Milwaukee, Wisconsin, serves as trustee or
custodian of the retirement plans. Firstar Bank Milwaukee, N.A. invests all cash
contributions, dividends and capital gains distributions in shares of the
appropriate Fund. For such services, the following fees are charged against the
accounts of participants; $12.50 annual maintenance fee per participant account;
$15 for transferring to a successor trustee or custodian; $15 for
distribution(s) to a participant; and $15 for refunding any contribution in
excess of the deductible limit. The fee schedule of Firstar Bank Milwaukee, N.A.
may be changed upon written notice.
Requests for information and forms concerning the retirement plans should
be directed to the Corporation. Because a retirement program may involve
commitments covering future years, it is important that the investment objective
of the Funds be consistent with the participant's retirement objectives.
Premature withdrawal from a retirement plan will result in adverse tax
consequences. Consultation with a competent financial and tax adviser regarding
the retirement plans is recommended.
AUTOMATIC INVESTMENT PLAN
Shareholders wishing to invest fixed dollar amounts in a particular Fund
monthly or quarterly can make automatic purchases in amounts of $50 or more on
any day they choose by using the Corporation's Automatic Investment Plan. If
such day is a weekend or holiday, such purchase shall be made on the next
business day. There is no service fee for participating in this Plan. To use
this service, the shareholder must authorize the transfer of funds from their
checking account or savings account by completing the Automatic Investment Plan
application included as part of the share purchase application. Additional
application forms may be obtained by calling the Corporation's office at (612)
336-1444. The Automatic Investment Plan must be implemented with a financial
institution that is a member of the Automated Clearing House. The Corporation
reserves the right to suspend, modify or terminate the Automatic Investment Plan
without notice.
The Automatic Investment Plan is designed to be a method to implement
dollar cost averaging. Dollar cost averaging is an investment approach providing
for the investment of a specific dollar amount on a regular basis thereby
precluding emotions dictating investment decisions. Dollar cost averaging does
not insure a profit nor protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
The Corporation has available to shareholders a Systematic Withdrawal Plan,
pursuant to which a shareholder who owns shares of any Fund worth at least
$10,000 at current net asset value may provide that a fixed sum will be
distributed to him at regular intervals. To participate in the Systematic
Withdrawal Plan, a shareholder deposits his shares of a particular Fund with the
Corporation and appoints it as his agent to effect redemptions of shares of such
Fund held in his account for the purpose of making monthly or quarterly
withdrawal payments of a fixed amount to him out of his account. To utilize the
Systematic
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Withdrawal Plan, the shares cannot be held in certificate form. The Systematic
Withdrawal Plan does not apply to shares of any Fund held in Individual
Retirement Accounts or retirement plans. An application for participation in the
Systematic Withdrawal Plan is included as part of the share purchase
application. Additional application forms may be obtained by calling the
Corporation's office at (612) 336-1444.
The minimum amount of a withdrawal payment is $100. These payments will be
made from the proceeds of periodic redemption of shares of a particular Fund in
the account at net asset value. Redemptions will be made on such day (no more
than monthly) as a shareholder chooses or, if that day is a weekend or holiday,
on the next business day. Participation in the Systematic Withdrawal Plan
constitutes an election by the shareholder to reinvest in additional shares of
the such Fund, at net asset value, all income dividends and capital gains
distributions payable by the Corporation on shares held in such account, and
shares so acquired will be added to such account. The shareholder may deposit
additional shares of such Fund in his account at any time.
Withdrawal payments cannot be considered as yield or income on the
shareholder's investment, since portions of each payment will normally consist
of a return of capital. Depending on the size or the frequency of the
disbursements requested, and the fluctuation in the value of the applicable
Fund's portfolio, redemptions for the purpose of making such disbursements may
reduce or even exhaust the shareholder's account.
The shareholder may vary the amount or frequency of withdrawal payments,
temporarily discontinue them, or change the designated payee or payee's address,
by notifying Firstar Mutual Fund Services, LLC, the Funds' transfer agent.
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities are made (i) for the
Total Return by the Adviser and PBIA; (ii) for the Growth Fund by the Adviser
and WCM; (iii) for the Emerging Growth Fund by the Adviser and KB; (iv) for the
Regional Small Capitalization Value Fund by the Adviser and WP; and (v) for the
Contrarian Value Fund by the Adviser and Sasco; in each case subject to review
by the Corporation's Board of Directors. In placing purchase and sale orders for
portfolio securities for the Funds, it is the policy of the Adviser, PBIA, WCM,
KB, WP and Sasco to seek the best execution of orders at the most favorable
price in light of the overall quality of brokerage and research services
provided, as described in this and the following paragraph. In selecting brokers
to effect portfolio transactions, the determination of what is expected to
result in best execution at the most favorable price involves a number of
largely judgmental considerations. Among these are the evaluation by the
Adviser, PBIA, WCM, KB, WP and/or Sasco of the broker's efficiency in executing
and clearing transactions, block trading capability (including the broker's
willingness to position securities) and the broker's financial strength and
stability. The most favorable price to a Fund means the best net price without
regard to the mix between purchase or sale price and commission, if any.
Over-the-counter securities are generally purchased and sold directly with
principal market makers who retain the difference in their cost in the security
and its selling price (i.e.
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"markups" when the market maker sells a security and "markdowns" when the market
maker buys a security). In some instances, the Adviser, PBIA, WCM, KB, WP or
Sasco may feel that better prices are available from non-principal market makers
who are paid commissions directly. Each of the Funds may place portfolio orders
with broker-dealers who recommend the purchase of such Fund's shares to clients
if the Adviser, PBIA, WCM, KB, WP or Sasco, as the case may be, believes the
commissions and transaction quality are comparable to that available from other
brokers and may allocate portfolio brokerage on that basis.
In allocating brokerage business for the Funds, the Adviser, PBIA, WCM, KB,
WP and Sasco also take into consideration the research, analytical, statistical
and other information and services provided by the broker, such as general
economic reports and information, reports or analyses of particular companies or
industry groups, market timing and technical information, and the availability
of the brokerage firm's analysts for consultation. While each of the Adviser,
PBIA, WCM, KB, WP and Sasco believes these services have substantial value, they
are considered supplemental to the efforts of the Adviser, PBIA, WCM, KB, WP or
Sasco in the performance of its duties under the applicable Management Agreement
or Sub-Advisory Agreement. Other clients of the Adviser, PBIA, WCM, KB, WP or
Sasco may indirectly benefit from the availability of these services to the
Adviser, PBIA, WCM, KB, WP or Sasco, and the Funds may indirectly benefit from
services available to the Adviser, PBIA, WCM, KB, WP or Sasco as a result of
transactions for other clients. Each of the Management Agreements and
Sub-Advisory Agreements provides that the Adviser, PBIA, WCM, KB, WP or Sasco,
as the case may be, may cause the applicable Fund to pay a broker which provides
brokerage and research services to the Adviser, PBIA, WCM, KB, WP or Sasco, a
commission for effecting a securities transaction in excess of the amount
another broker would have charged for effecting the transaction, if the Adviser,
PBIA, WCM, KB, WP or Sasco determines in good faith that such amount of
commission is reasonable in relation to the value of brokerage and research
services provided by the executing broker viewed in terms of either the
particular transaction or the overall responsibilities of the Adviser, PBIA,
WCM, KB, WP or Sasco with respect to the applicable Fund and the other accounts
as to which it exercises investment discretion. Brokerage commissions paid by
the Total Return Fund totaled $19,854 on transactions having a total market
value of $15,590,327, $7,130 on transactions having a total market value of
$6,703,149 and $17,544 on transactions having a total market value of
$17,137,464 for the fiscal years ended June 30, 1997, 1998 and 1999,
respectively. During the fiscal years ended June 30, 1997, 1998, and 1999, the
Growth Fund paid brokerage commissions of $43,545 on transactions having a total
market value of $25,936,201, $75,062 on transactions having a total market value
of $60,131,748 and $97,106 on transactions having a total market value of
$61,555,579, respectively. The Regional Small Capitalization Value Fund did not
commence operations until September 16, 1996. During the period from September
16, 1996 through June 30, 1997, the Regional Small Capitalization Value Fund
paid brokerage commissions of $50,392 on transactions having a total market
value of $15,758,909, and for the fiscal years ended June 30, 1998 and 1999 paid
$77,720 on transactions having a market value of $34,327,567 and $62,797 on
transactions having a total market value of $24,551,852, respectively. The
Contrarian Value Fund did not commence operations until December 30, 1997.
During the period from December 30, 1997 through June 30, 1998, The Contrarian
Value Fund paid brokerage Commission of $40,438 on transactions having a total
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market value of $22,255,053 and for the fiscal year ended June 30, 1999 paid
$34,597 on transactions having a market value of $16,927,593. All of the brokers
to whom commissions were paid by the Total Return Fund, the Growth Fund, the
Regional Small Capitalization Value Fund and the Contrarian Value Fund provided
research services to the Adviser. The Emerging Growth Fund will commence
operations on September 30, 1999.
CUSTODIAN
Firstar Bank Milwaukee, N.A., 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as custodian for the Funds. As such, Firstar Bank
Milwaukee, N.A. holds all securities and cash of the Funds, delivers and
receives payment for securities sold, receives and pays for securities
purchased, collects income from investments and performs other duties, all as
directed by officers of the Corporation. Firstar Bank Milwaukee, N.A. does not
exercise any supervisory function over the management of the Funds, the purchase
and sale of securities or the payment of distributions to shareholders. Firstar
Mutual Fund Services LLC, an affiliate of Firstar Bank Milwaukee, N.A., also
acts as the Funds' transfer agent and dividend disbursing agent.
TAXES
Each of the Funds will endeavor to qualify for and elect tax treatment
applicable to a regulated investment company under Subchapter M of the Internal
Revenue Code.
Each of the Funds has so qualified in each of its fiscal years. If a Fund
fails to qualify as a regulated investment company under Subchapter M in any
fiscal year, it will be treated as a corporation for federal income tax
purposes. As such, the Fund would be required to pay income taxes on its net
investment income and net realized capital gains, if any, at the rates generally
applicable to corporations. Shareholders of a Fund that did not qualify as a
regulated investment company under Subchapter M would not be liable for income
tax on the Fund's net investment income or net realized capital gains in their
individual capacities. Distributions to shareholders, whether from the Fund's
net investment income or net realized capital gain, would be treated as taxable
dividends to the extent of accumulated earnings and profits of the Fund.
Each of the Funds intends to distribute substantially all of its net
investment income and net capital gains each fiscal year. Dividends from each
Fund's net investment income, including short-term capital gains, are taxable to
shareholders as ordinary income, while distributions from each Fund's net
realized long-term capital gains are taxable as long-term capital gains
regardless of the shareholder's holding period for the shares. Such dividends
and distributions are taxable to shareholders, whether received in cash or
additional shares of a Fund. A portion of the income distributions of the Funds
may be eligible for the 70% dividends-received deduction for domestic corporate
shareholders.
Any dividend or capital gains distribution paid shortly after a purchase of
shares will have the effect of reducing the per share net asset value of such
shares by the amount of the dividend or distribution. Furthermore, if the net
asset value of the shares immediately after
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a dividend or distribution is less than the cost of such shares to the
shareholder, the dividend or distribution will be taxable to the shareholder
even though it results in a return of capital to him.
Redemptions of shares will generally result in a capital gain or loss for
income tax purposes. Such capital gain or loss will be long term or short term,
depending upon the holding period. However, if a loss is realized on shares held
for six months or less, and the shareholder received a capital gain distribution
during that period, then such loss is treated as a long-term capital loss to the
extent of the capital gain distribution received.
Each Fund may be required to withhold Federal income tax at a rate of 31%
("backup withholding") from dividend payments and redemption proceeds if a
shareholder fails to furnish such Fund with his social security number or other
tax identification number and certify under penalty of perjury that such number
is correct and that he is not subject to backup withholding due to the under
reporting of income. The certification form is included as part of the share
purchase application and should be completed when the account is opened.
This section is not intended to be a complete discussion of present or
proposed federal income tax laws and the effect of such laws on an investor.
Investors may also be subject to state and local taxes. Investors are urged to
consult with their respective advisers for a complete review of the tax
ramifications of an investment in a Fund.
SHAREHOLDER MEETINGS
The Wisconsin Business Corporation Law permits registered investment
companies, such as the Corporation, to operate without an annual meeting of
shareholders under specified circumstances if an annual meeting is not required
by the Act. The Corporation has adopted the appropriate provisions in its bylaws
and, at its discretion, may not hold an annual meeting in any year in which none
of the following matters is required to be acted upon by the shareholders under
the Act: (i) election of directors; (ii) approval of an investment advisory
agreement; (iii) ratification of the selection of auditors; and (iv) approval of
a distribution agreement.
The Corporation's bylaws also contain procedures for the removal of
directors by its shareholders. At any meeting of shareholders, duly called and
at which a quorum is present, the shareholders may, by the affirmative vote of
the holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors to
fill any resulting vacancies for the unexpired terms of removed directors.
Upon the written request of the holders of shares entitled to not less than
ten percent (10%) of all the votes entitled to be cast at such meeting, the
Secretary of the Corporation shall promptly call a special meeting of
shareholders for the purpose of voting upon the question of removal of any
director. Whenever ten or more shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at least
one percent
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(1%) of the total outstanding shares, whichever is less, shall apply to the
Corporation's Secretary in writing, stating that they wish to communicate with
other shareholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by a form of communication and
request which they wish to transmit, the Secretary shall within five business
days after such application either: (1) afford to such applicants access to a
list of the names and addresses of all shareholders as recorded on the books of
the Corporation; or (2) inform such applicants as to the approximate number of
shareholders of record and the approximate cost of mailing to them the proposed
communication and form of request.
If the Secretary elects to follow the course specified in clause (2) of the
last sentence of the preceding paragraph, the Secretary, upon the written
request of such applicants, accompanied by a tender of the material to be mailed
and of the reasonable expenses of mailing, shall, with reasonable promptness,
mail such material to all shareholders of record at their addresses as recorded
on the books unless within five business days after such tender the Secretary
shall mail to such applicants and file with the Securities and Exchange
Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Board of Directors to the effect
that in their opinion either such material contains untrue statements of fact or
omits to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion.
After opportunity for hearing upon the objections specified in the written
statement so filed, the Securities and Exchange Commission may, and if demanded
by the Board of Directors or by such applicants shall, enter an order either
sustaining one or more of such objections or refusing to sustain any of them. If
the Securities and Exchange Commission shall enter an order refusing to sustain
any of such objections, or if, after the entry of an order sustaining one or
more of such objections, the Securities and Exchange Commission shall find,
after notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Secretary shall mail copies
of such material to all shareholders with reasonable promptness after the entry
of such order and the renewal of such tender.
CAPITAL STRUCTURE
The Corporation's authorized capital consists of 10,000,000,000 shares of
Common Stock of which 300,000,000 are allocated to the Total Return Fund,
300,000,000 are allocated to the Growth Fund, 300,000,000 are allocated to the
Emerging Growth Fund, 300,000,000 are allocated to the Regional Small
Capitalization Value Fund and 300,000,000 are allocated to the Contrarian Value
Fund. Each share outstanding entitles the holder to one vote. Generally shares
are voted in the aggregate and not by each Fund, except where class voting by
each Fund is required by Wisconsin law or the Act (e.g., a change in investment
policy or approval of an investment advisory agreement).
The shares of each Fund have the same preferences, limitations and rights,
except that all consideration received from the sale of shares of each Fund,
together with all
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income, earnings, profits and proceeds thereof, belong to that Fund and are
charged with the liabilities in respect of that Fund and of that Fund's share of
the general liabilities of the Corporation in the proportion that the total net
assets of the Fund bears to the total net assets of all of the Funds. However
the Board of Directors of the Corporation may, in its discretion direct that any
one or more general liabilities of the Corporation be allocated among the Funds
on a different basis. The net asset value per share of each Fund is based on the
assets belonging to that Fund less the liabilities charged to that Fund, and
dividends are paid on shares of each Fund only out of lawfully available assets
belonging to that Fund. In the event of liquidation or dissolution of the
Corporation, the shareholders of each Fund will be entitled, out of the assets
of the Corporation available for distribution, to the assets belonging to such
Fund.
There are no conversion or sinking fund provisions applicable to the shares
of any Fund, and the holders have no preemptive rights and may not cumulate
their votes in the election of directors. Consequently the holders of more than
50% of the Corporation's shares voting for the election of directors can elect
the entire Board of Directors, and in such event, the holders of the remaining
shares voting for the election of directors will not be able to elect any person
or persons to the Board of Directors.
The shares of each Fund are redeemable and are freely transferable. All
shares issued and sold by the Corporation will be fully paid and nonassessable,
except as provided in Section 180.0622(2)(b) of the Wisconsin Business
Corporation Law. Fractional shares of each Fund entitle the holder to the same
rights as whole shares of such Fund.
The Corporation will not issue certificates evidencing shares purchased
unless so requested in writing. Where certificates are not issued, the
shareholder's account will be credited with the number of shares purchased,
relieving shareholders of responsibility for safekeeping of certificates and the
need to deliver them upon redemption. Written confirmations are issued for all
purchases of shares of each Fund. Any shareholder may deliver certificates to
Firstar Mutual Fund Services, LLC and direct that his account be credited with
the shares. A shareholder may direct Firstar Mutual Fund Services, LLC at any
time to issue a certificate for his shares without charge.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Suite 1500,
Milwaukee, Wisconsin 53202, currently serves as the independent accountants for
the Corporation and has so served since the fiscal year ended September 30,
1989.
DESCRIPTION OF SECURITIES RATINGS
Each of the Funds may invest in various securities assigned ratings of
either Standard & Poor's Corporation or Moody's Investors Service, Inc. A brief
description of the ratings symbols and their meanings follows.
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Standard & Poor's Corporation Bond Ratings. A Standard & Poor's corporate
debt rating is a current assessment of the creditworthiness of an obligor with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers of lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform any audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights;
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in the higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC Bonds are regarded, on balance, as predominately speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of speculation and
CC the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, they are outweighed by large
uncertainties or major risk exposures to adverse conditions.
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Moody's Investors Service, Inc Bond Ratings.
-------------------------------------------
Aaa - Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large, or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations;
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
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Moody's applies numerical modifiers 1, 2 and 3 in each of the foregoing
generic rating classifications. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
Standard & Poor's Commercial Paper Ratings. A Standard & Poor's commercial
paper rating is a current assessment of the likelihood of timely payment of debt
considered short-term in the relevant market. Ratings are graded into several
categories, ranging from A-1 for the highest quality obligations to D for the
lowest. The three highest categories are as follows:
A-1. This highest category indicates that the degree of safety regarding
timely payment is strong. Those issuers determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However the relative degree of safety is not as high as for
issuers designated "A-1".
A-3. Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying a higher designation.
Standard & Poor's Preferred Stock Ratings. A Standard & Poor's preferred
stock rating is an assessment of the capacity and willingness of an issuer to
pay preferred stock dividends and any applicable sinking fund obligations. A
preferred stock rating differs from a bond rating inasmuch as it is assigned to
an equity issue, which issue is intrinsically different from, and subordinated
to, a debt issue. Therefore, to reflect this difference, the preferred stock
rating symbol will normally not be higher than the bond rating symbol assigned
to, or that would be assigned to, the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
I. Likelihood of payment -- capacity and willingness of the issuer to meet
the timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
"AAA" This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
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"AA" A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA."
"A" An issued rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
"BBB" An issue rated "BBB" is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
"BB," "B," "CCC" Preferred stock rated "BB," "B," and "CCC" are regarded,
on balance, as predominately speculative with respect to the issuer's capacity
to pay preferred stock obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest degree of speculation. While such issues will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
-43-
<PAGE>
OTHER INFORMATION
Item 23. Exhibits
(a) Registrant's Restated Articles of Incorporation, as amended.(2)
(a)(i) Articles of Amendment relating to Series E Common Stock of
Eastcliff Funds, Inc.
(b) Registrant's By-Laws, as amended. (2)
(c) None
(d)(i) Investment Advisory Agreement between Eastcliff Total Return
Fund and Resource Capital Advisers, Inc.(2)
(d)(ii) Investment Advisory Agreement between Eastcliff Growth Fund
and Resource Capital Advisers, Inc.(2)
(d)(iii) Sub-Advisory Agreement among Eastcliff Growth Fund, Resource
Capital Advisers, Inc. and Winslow Capital Management, Inc.(2)
(d)(iv) Sub-Advisory Agreement among Eastcliff Total Return Fund,
Resource Capital Advisers, Inc. and Palm Beach Investment
Advisers, Inc.(2)
(d)(v) Investment Advisory Agreement between Eastcliff Regional Small
Capitalization Value Fund and Resource Capital Advisers, Inc.(1)
(d)(vi) Sub-Advisory Agreement among Eastcliff Regional Small
Capitalization Value Fund, Resource Capital Advisers, Inc. and
Woodland Partners LLC.(1)
(d)(vii) Investment Advisory Agreement between Eastcliff Contrarian
Value Fund and Resource Capital Advisers, Inc.(3)
(d)(viii) Sub-Advisory Agreement among Eastcliff Contrarian Value
Fund, Resource Capital Advisers, Inc. and Sasco Capital, Inc.(3)
(d)(ix) Investment Advisory Agreement between Eastcliff Emerging
Growth Fund and Resource Capital Advisers, Inc.
(d)(x) Sub-Advisory Agreement among Eastcliff Emerging Growth Fund,
Resource Capital Advisers, Inc. and KB Growth Advisors, LLC.
(e) None
S-1
<PAGE>
(f) None
(g)(i) Custodian Agreement between Eastcliff Total Return Fund
(formerly Fiduciary Total Return Fund) and Firstar Trust Company
(predecessor to Firstar Bank Milwaukee, N.A.).(2)
(g)(ii) Custodian Agreement between Eastcliff Growth Fund and Firstar
Trust Company (predecessor to Firstar Bank Milwaukee, N.A.)(2)
(g)(iii) Custodian Agreement between Eastcliff Regional Small
Capitalization Value Fund and Firstar Trust Company (predecessor
to Firstar Bank Milwaukee, N.A.).(2)
(g)(iv) Custodian Agreement between Eastcliff Contrarian Value Fund
and Firstar Trust Company (predecessor to Firstar Bank Milwaukee,
N.A.).(3)
(g)(v) Custodian Agreement between Eastcliff Emerging Growth Fund and
Firstar Bank Milwaukee, N.A.
(h)(i) Administrative Agreement, including addendum, between Eastcliff
Total Return Fund (formerly Fiduciary Total Return Fund) and
Fiduciary Management, Inc.(2)
(h)(ii) Administrative Agreement, including addendum, between
Eastcliff Growth Fund and Fiduciary Management, Inc.(2)
(h)(iii) Administrative Agreement, including addendum, between
Eastcliff Regional Small Capitalization Value Fund and Fiduciary
Management, Inc.(1)
(h)(iv) Administrative Agreement, including addendum, between
Eastcliff Contrarian Value Fund and Fiduciary Management, Inc.(3)
(h)(v) Administrative Agreement, including addendum, between Eastcliff
Emerging Growth Fund and Fiduciary Management, Inc.
(i) Opinion of Foley & Lardner, counsel for Registrant (to be filed
by amendment).
(j) Consent of PricewaterhouseCoopers LLP.
(k) None
S-2
<PAGE>
(l) Subscription Agreement.(2)
(m)(i) Amended and Restated Servicing and Distribution Plan of
Eastcliff Funds, Inc.(2)
(m)(ii) Servicing and Distribution Agreement.(2)
(n) Financial Data Schedule.
(o) None.
- --------------------
(1) Previously filed as an exhibit to Amendment No. 15 to Registrant's
Registration Statement on Form N-1A and incorporated by reference thereto.
Amendment No. 15 was filed on July 3, 1996 and its accession number is
0000897069-96-000189.
(2) Previously filed as an exhibit to Amendment No. 18 to Registrant's
Registration Statement on Form N-1A and incorporated by reference thereto.
Amendment No. 18 as filed on October 1, 1997 and its accession number is
0000897069-97-000403.
(3) Previously filed as an exhibit to Amendment No. 19 to Registrant's
Registration Statement on Form N-1A and incorporated by reference thereto.
Amendment No. 19 was filed on October 16, 1997 and its accession number is
0000897069-97-000415.
Item 24. Persons Controlled by or under Common Control with Registrant
The Registrant, the Eastcliff Total Return Fund, the Eastcliff Growth Fund,
the Eastcliff Regional Small Capitalization Value Fund and the Eastcliff
Contrarian Value Fund are controlled by Resource Trust Company. Resource Trust
Company is controlled by Resource Companies, Inc. Resource Companies, Inc. is a
bank holding company which, in addition to controlling Resource Trust Company,
controls Resource Capital Advisers, Inc.
Item 25. Indemnification
Pursuant to the authority of the Wisconsin Business Corporation Law,
Registrant's Board of Directors has adopted the following By-Law which is in
full force and effect and has not been modified or canceled:
Article VII
INDEMNIFICATION
7.01 Provision of Indemnification. The corporation shall indemnify all of
its corporate representatives against expenses, including attorney's fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil, criminal,
administrative, or legislative, no matter by
S-3
<PAGE>
whom brought, or in any appeal in which they or any of them are made parties or
a party by reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interests of the corporation and with
respect to any criminal proceeding, he had no reasonable cause to believe his
conduct was unlawful provided that the corporation shall not indemnify corporate
representatives in relation to matters as to which any such corporate
representative shall be adjudged in such action, suit or proceeding to be liable
for gross negligence, willful misfeasance, bad faith, reckless disregard of the
duties and obligations involved in the conduct of his office, or when
indemnification is otherwise not permitted by the Wisconsin Business Corporation
Law.
7.02 Determination of Right to Indemnification. In the absence of an
adjudication which expressly absolves the corporate representative, or in the
event of a settlement, each corporate representative shall be indemnified
hereunder only if a determination that indemnification of the corporate
representative is proper because he has met the applicable standard of conduct
set forth in Section 7.01. Such determination shall be made: (i) by the board of
directors, by a majority vote of a quorum which consists of directors who were
not parties to the action, suit or proceeding nor interested persons of the
corporation as defined in Section 2(a)(19) of the Investment Company Act of
1940; (ii) if the required quorum is not obtainable or if a quorum of
disinterested directors so direct, by independent legal counsel in a written
opinion; or (iii) by the shareholders. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person was guilty of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties and obligations involved in the conduct of his
or her office, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
7.03 Allowance of Expenses. Expenses, including attorneys' fees, incurred
in the preparation of and/or presentation of the defense of a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding as authorized in the manner
provided in Sections 180.0853 or 180.0856 of the Wisconsin Business Corporation
Law and in accordance with the requirements of the Securities and Exchange
Commission upon receipt of an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be determined
that he or she is entitled to be indemnified by the corporation as authorized in
this by-law.
7.04 Additional Rights to Indemnification. The indemnification provided by
this by-law shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under these by-laws, any agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to
S-4
<PAGE>
the benefit of the heirs, executors and administrators of such a person subject
to the limitations imposed from time to time by the Investment Company Act of
1940, as amended.
7.05 Insurance. This corporation shall have power to purchase and maintain
insurance on behalf of any corporate representative against any liability
asserted against him or her and incurred by him or her in such capacity or
arising out of his or her status as such, whether or not the corporation would
have the power to indemnify him or her against such liability under this by-law,
provided that no insurance may be purchased or maintained to protect any
corporate representative against liability for gross negligence, willful
malfeasance, bad faith, or reckless disregard of the duties and obligations
involved in the conduct of his or her office.
7.06 Definitions. "Corporate Representative" means an individual who is or
was a director, officer, agent or employee of the corporation or who serves or
served another corporation, partnership, joint venture, trust or other
enterprise in one of these capacities at the request of the corporation and who,
by reason of his or her position, is, was or is threatened to be made a party to
a proceeding described herein.
In reference to Article VII, Section 7.01 of the By-laws, Section 180.0851
of the Wisconsin Business Corporation Law provides for mandatory indemnification
(a) if a corporate representative was successful on the merits or otherwise in
the defense of a proceeding, and (b) if the corporate representative was not
successful on the merits or otherwise but the liability incurred was not the
result of a breach or failure to perform a duty which constituted any of the
following: (1) a willful failure to deal fairly with the corporation or its
shareholders in connection with a matter in which the corporate representative
has a material conflict of interest; (2) a violation of criminal law, unless the
corporate representative had reasonable cause to believe his or her conduct was
lawful or no reasonable cause to believe his or her conduct was unlawful; (3) a
transaction from which the corporate representative derived an improper personal
profit; or (4) willful misconduct.
Insofar as indemnification for and with respect to liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer or controlling person or
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
S-5
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
Incorporated by reference to pages 16 through 24 of the Statement of
Additional Information pursuant to Rule 411 under the Securities Act of 1933.
Item 27. Principal Underwriters
Registrant has no principal underwriters.
Item 28. Location of Accounts and Records
All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the physical possession of Registrant's Administrator,
Fiduciary Management, Inc., at its corporate offices, 225 East Mason Street,
Milwaukee, Wisconsin 53202, Registrant's investment adviser, Resource Capital
Advisers, Inc., at its corporate offices, 300 International Centre, 900 Second
Avenue South, Minneapolis, Minnesota 55402, the Eastcliff Growth Fund's
portfolio manager, Winslow Capital Management, Inc., at its corporate offices,
4720 IDS Tower, 80 South Eighth Street, Minneapolis, Minnesota 55402, the
Eastcliff Regional Small Capitalization Value Fund's portfolio manager, Woodland
Partners LLC, at its offices, 60 South Sixth Street, Suite 3750, Minneapolis,
Minnesota 55402, the Eastcliff Emerging Growth Fund's portfolio manager, KB
Growth Advisors, LLC, at its offices, 601 Carlson Parkway, Suite 950,
Minnetonka, Minnesota 55305, or Registrant's transfer agent, Firstar Mutual Fund
Services, LLC, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
Item 29. Management Services
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
Item 30. Undertakings
Registrant undertakes to provide its Annual Report to Shareholders upon
request without charge to any recipient of a Prospectus.
S-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amended
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Minneapolis and State of Minnesota on the 12th
day of July, 1999.
EASTCLIFF FUNDS, INC.
(Registrant)
By:/s/ Conley Brooks, Jr.
Conley Brooks, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this Amended
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Name Title Date
---- ----- ----
/s/ Conley Brooks, Jr. Principal Executive, July 12, 1999
- ------------------------------------ Financial and
Conley Brooks, Jr. Accounting Officer
and Director
/s/ E. Thomas Welch Vice President and July 12, 1999
- ------------------------------------ Director
E. Thomas Welch
/s/ John J. Fauth Director July 12, 1999
- ------------------------------------
John J. Fauth
/s/ A. Skidmore Thorpe Director July 12, 1999
- ------------------------------------
A. Skidmore Thorpe
/s/ Donald S. Wilson Director July 7, 1999
- ------------------------------------
Donald S. Wilson
/s/ Rolf Engh Director July 12, 1999
Rolf Engh
S-7
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit
----------- -------
(a)(i) Registrant's Restated Articles of Incorporation, as amended*
(a)(ii) Articles of Amendment relating to Series E Common Stock of
Eastcliff Funds, Inc.
(b) Registrant's By-Laws, as amended*
(c) None
(d)(i) Investment Advisory Agreement between Eastcliff Total Return Fund
(formerly Fiduciary Total Return Fund) and Resource Capital Advisers,
Inc.*
(d)(ii)) Investment Advisory Agreement between Eastcliff Growth Fund and
Resource Capital Advisers, Inc. *
(d)(iii) Sub-Advisory Agreement among Eastcliff Growth Fund, Resource
Capital Advisers, Inc. and Winslow Capital Management, Inc. *
(d)(iv) Sub-Advisory Agreement among Eastcliff Total Return Fund, Resource
Capital Advisers, Inc. and Palm Beach Investment Advisers, LLC. *
(d)(v) Investment Advisory Agreement between Eastcliff Regional Small
Capitalization Value Fund and Resource Capital Advisers, Inc. *
(d)(vi) Sub-Advisory Agreement among Eastcliff Regional Small
Capitalization Value Fund, Resource Capital Advisers, Inc. and
Woodland Partners LLC*
(d)(vii) Investment Advisory Agreement between Eastcliff Contrarian Value
Fund and Resource Capital Advisers, Inc.*
_______________
* Incorporated by reference.
Exhibit Index - Page 1
<PAGE>
Exhibit No. Exhibit
----------- -------
(d)(viii) Sub-Advisory Agreement among Eastcliff Contrarian Value Fund,
Resource Capital Advisers, Inc. and Sasco Capital, Inc.*
(d)(ix) Investment Advisory Agreement between Eastcliff Emerging Growth
Fund and Resource Capital Advisers, Inc.
(d)(x) Sub-Advisory Agreement among Eastcliff Emerging Growth Fund,
Resource Capital Advisers, Inc. and KB Growth Advisors, LLC
(e) None
(f) None
(g)(i) Custodian Agreement between Eastcliff Total Return Fund (formerly
Fiduciary Total Return Fund) and Firstar Trust Company (predecessor to
Firstar Bank Milwaukee, N.A.)*
(g)(ii)) Custodian Agreement between Eastcliff Growth Fund and Firstar
Trust Company (predecessor to Firstar Bank Milwaukee, N.A.)*
(g)(iii) Custodian Agreement between Eastcliff Regional Small
Capitalization Value Fund and Firstar Trust Company (predecessor to
Firstar Bank Milwaukee, N.A.)*
(g)(iv) Custodian Agreement between Eastcliff Contrarian Value Fund and
Firstar Trust Company (predecessor to Firstar Bank Milwaukee, N.A.)*
(g)(v) Custodian Agreement between Eastcliff Emerging Growth Fund and
Firstar Bank Milwaukee, N.A.
(h)(i) Administrative Agreement, including addendum, between Eastcliff
Total Return Fund (formerly Fiduciary Total Return Fund) and Fiduciary
Management, Inc.*
_______________
* Incorporated by reference.
Exhibit Index - Page 2
<PAGE>
Exhibit No. Exhibit
----------- -------
(h)(ii)) Administrative Agreement, including addendum, between Eastcliff
Growth Fund and Fiduciary Management, Inc. *
(h)(iii) Administrative Agreement, including addendum, between Eastcliff
Regional Small Capitalization Value Fund and Fiduciary Management,
Inc. *
(h)(iv) Administrative Agreement, including addendum, between Eastcliff
Contrarian Value Fund and Fiduciary Management, Inc.*
(h)(v) Administrative Agreement, including addendum, between Eastcliff
Emerging Growth Fund and Fiduciary Management, Inc.
(i) Opinion of Foley & Lardner, Counsel for Registrant to be filed by
amendment)
(j) Consent of PricewaterhouseCoopers LLP
(k) None
(l) Subscription Agreement*
(m)(i) Amended and Restated Servicing and Distribution Plan of Eastcliff
Funds, Inc. *
(m)(ii) Servicing and Distribution Agreement*
(n) Financial Data Schedule
(o) None
_______________
* Incorporated by reference.
Exhibit Index - Page 3
ARTICLES OF AMENDMENT
relating to
SERIES E COMMON STOCK
of
EASTCLIFF FUNDS, INC.
-------------------------------------------
Pursuant to Sections 180-0602 and 180.1002
Of the Wisconsin Business Corporation Law
-------------------------------------------
I, Conley Brooks, Jr., President of Eastcliff Funds, Inc., a corporation
organized and existing under the Wisconsin Business Corporation Law (the
"Corporation"), in accordance with the provisions of Sections 180.0602 and
180.1002 thereof, DO HEREBY CERTIFY THAT:
A. Pursuant to the authority conferred upon the Board of Directors of the
Corporation by its Restated Articles of Incorporation, and in accordance with
Sections 180.0602 and 180.1002 of the Wisconsin business Corporation Law, said
Board of Directors adopted resolutions on May 24, 1999, creating a new series of
shares of Common Stock of the Corporation, designated as "Series E Common
Stock".
B. Said resolution of the Board of Directors of the Corporation creating
the series designated as "Series E Common Stock" provides that said series shall
have such designation and number of shares and such preferences, limitations and
relative rights as are set forth in the paragraphs below:
Series E Common Stock
1. Designation and Amount. The Corporation is authorized to issue a
series of Common Stock, which is hereby designated as "Series E Common
Stock" ("Eastcliff Emerging Growth Fund" or such other name designated by
the Board of Directors). The Series E Common Stock of the Corporation shall
consist of Three Hundred Million (300,000,000) shares.
2. Preferences, Limitations and Relative Rights. Shares of Series E
Common Stock shall have the preferences, limitations and relative rights of
a "Series" of Common Stock as set forth in Article IV.B. of the
Corporation's Restated Articles of Incorporation.
3. Other Terms. Shares of Series E Common Stock shall be subject to
the other terms, provisions and restrictions set forth in the Restated
Articles of
<PAGE>
Incorporation with respect to the shares of a Series of Common Stock of the
Corporation.
* * *
C. No shares of Series E Common Stock have been issued as of the date
hereof.
D. The amendment creating the Series E Common Stock was adopted by the
Board of Directors of the Corporation in accordance with Section 180.1002 of the
Wisconsin Business Corporation Law and shareowner action was not required.
IN WITNESS WHEREOF, the undersigned has executed and subscribed these
Articles of Amendment on behalf of the Corporation and does affirm the foregoing
as true this ____ day of July, 1999.
By:________________________________
Conley Brooks, Jr.
President
- -----------------------
This instrument was drafted by and should be returned to Richard L. Teigen
of the firm of Foley & Lardner, 777 East Wisconsin Avenue, Milwaukee, Wisconsin
53202.
2
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT ("Agreement"), made this 1st day of
October, 1999, between EASTCLIFF FUNDS, INC., a Wisconsin corporation (the
"Company"), and RESOURCE CAPITAL ADVISERS, INC., a Minnesota corporation (the
"Adviser").
W I T N E S S E T H :
WHEREAS, the Company is currently registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 (the "Act") as an
open-end management investment company consisting of four series, the Eastcliff
Total Return Fund, the Eastcliff Growth Fund, the Eastcliff Regional Small
Capitalization Value Fund and Eastcliff Contrarian Value Fund;
WHEREAS, the Adviser provides investment advisory services to the Eastcliff
Total Return Fund, the Eastcliff Growth Fund, the Eastcliff Regional Small
Capitalization Value Fund and the
Eastcliff Contrarian Value Fund;
WHEREAS, the Company is in the process of creating a fifth
series, the Eastcliff Emerging Growth Fund (the "Fund"); and
WHEREAS, the Company desires to retain the Adviser, which is
an investment adviser registered under the Investment Advisers Act of 1940, as
the investment adviser for the Fund.
<PAGE>
NOW, THEREFORE, the Company and the Adviser do mutually promise and agree
as follows:
1. Employment. The Company hereby employs the Adviser to manage the
investment and reinvestment of the assets of the Fund and to administer its
business and administrative operations, subject to the direction of the Board of
Directors of the Company (the "Board of Directors") and the officers of the
Company, for the period and on the terms set forth in this Agreement. The
Adviser hereby accepts such employment for the compensation herein provided and
agrees during such period to render the services and to assume the obligations
herein set forth.
2. Authority of the Adviser. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Company or
the Fund in any way or otherwise be deemed an agent of the Company or the Fund.
However, one or more shareholders, officers, directors or employees of the
Adviser may serve as directors and/or officers of the Company, but without
compensation or reimbursement of expenses for such services from the Company.
Nothing herein contained shall be deemed to require the Company to take any
action contrary to its Articles of Incorporation, as amended, restated or
supplemented, or any applicable statute or regulation, or to relieve or deprive
the Board of Directors of its responsibility for and control of the affairs of
the Fund.
3. Obligations of and Services to be Provided by the Adviser. The Adviser
undertakes to provide the services hereinafter set forth and to assume the
following obligations:
2
<PAGE>
A. Management and Administrative Services.
(1) The Adviser shall furnish to the Company adequate office space,
which may be space within the offices of the Adviser or in such other place
as may be agreed upon from time to time, and all office furnishings,
facilities and equipment as may be reasonably required for performing
services relating to advisory, research, asset allocation, portfolio
manager selection and evaluation activities and otherwise managing and
administering the business and operations of the Fund.
(2) The Adviser shall employ or provide and compensate the executive,
administrative, secretarial and clerical personnel necessary to supervise
the provision of the services set forth in sub-paragraph 3(A)(1) and shall
bear the expense of providing such services, except as provided in Section
4 of this Agreement. The Adviser shall also compensate all officers and
employees of the Company who are officers or employees of the Adviser or
its affiliated companies.
B. Investment Management Services.
(1) The Adviser shall, subject to and in accordance with the
investment objective and policies of the Fund and any directions which the
Board of Directors may issue to the Adviser, have overall responsibility
for the general management and investment of the assets and securities
portfolios of the Fund.
(2) The Adviser may delegate its investment responsibilities under
sub-paragraph 3(B)(1) with respect to the Fund or segments thereof to one
or more
3
<PAGE>
persons or companies ("Portfolio Manager[s]") pursuant to an agreement
between the Adviser, the Company and each such Portfolio Manager
("Sub-Advisory Agreement"). Each Sub-Advisory Agreement may provide that
the Portfolio Manager, subject to the control and supervision of the Board
of Directors and the Adviser, shall have full investment discretion for the
Fund and shall make all determinations with respect to the investment of
the Fund's assets assigned to the Portfolio Manager and the purchase and
sale of portfolio securities with those assets, and such steps as may be
necessary to implement its decision. Any delegation of duties pursuant to
this paragraph shall comply with any applicable provisions of Section 15 of
the Act, except to the extent permitted by any exemptive order of the
Securities and Exchange Commission or similar relief. Adviser shall not be
responsible or liable for the investment merits of any decision by a
Portfolio Manager to purchase, hold or sell a security for the Fund's
portfolio.
(3) The Adviser shall develop overall investment programs and
strategies for the Fund, or segments thereof, shall revise such programs as
necessary, and shall monitor and report periodically to the Board of
Directors concerning the implementation of the programs.
(4) The Adviser shall research and evaluate Portfolio Managers and
shall advise the Board of Directors of the Company of the Portfolio
Managers which the Adviser believes are best-suited to invest the assets of
the Fund; shall monitor and evaluate the investment performance of each
Portfolio Manager;
4
<PAGE>
shall determine the portion of the Fund's assets to be managed by each
Portfolio Manager; shall recommend changes or additions of Portfolio
Managers when appropriate; and shall coordinate the investment activities
of the Portfolio Managers.
(5) The Adviser shall be solely responsible for paying the fees of
each Portfolio Manager.
(6) The Adviser shall render to the Board of Directors such periodic
reports concerning the business and investments of the Fund as the Board of
Directors shall reasonably request.
C. Provision of Information Necessary for Preparation of Securities
Registration Statements, Amendments and Other Materials.
The Adviser will make available and provide financial, accounting and
statistical information required by the Fund for the preparation of registration
statements, reports and other documents required by federal and state securities
laws, and with such information as the Fund may reasonably request for use in
the preparation of such documents or of other materials necessary or helpful for
the underwriting and distribution of the Fund's shares.
D. Provision of Personnel.
The Adviser shall make available its officers and employees to the Board of
Directors and officers of the Company for consultation and discussions regarding
the administration and management of the Company and its investment activities.
4. Expenses. The Adviser shall not be required to pay any expenses of the
Fund except as provided herein; provided, however, that if the aggregate annual
operating
5
<PAGE>
expenses, including the Adviser's fee and the fees paid to the Fund's
Administrator but excluding all federal, state and local taxes, interest,
brokerage commissions and other costs incurred in connection with the purchase
or sale of portfolio securities and extraordinary items, in any year exceed that
percentage of the average net assets of the Fund for such year, as determined by
valuations made as of the close of each business day of the year, which is the
most restrictive percentage provided by the state laws of the various states in
which the Fund's shares are qualified for sale or, if the states in which the
Fund's shares are qualified for sale impose no such restrictions, 2%, then the
Adviser's fee shall be reduced as hereinafter provided. The expenses of the
Fund's operations borne by the Fund include by way of illustration and not
limitation, directors fees paid to those directors who are not officers of the
Company, the costs of preparing and printing registration statements required
under the Securities Act of 1933 and the Act (and amendments thereto), the
expense of registering its shares with the Securities and Exchange Commission
and in the various states, the printing and distribution cost of prospectuses
mailed to existing shareholders, the cost of stock certificates (if any),
director and officer liability insurance, reports to shareholders, reports to
government authorities and proxy statements, interest charges, taxes, legal
expenses, salaries of administrative and clerical personnel, association
membership dues, auditing and accounting services, insurance premiums, brokerage
and other expenses connected with the execution of portfolio securities
transactions, fees and expenses of the custodian of the Fund's assets, expenses
of calculating the net asset value and repurchasing and redeeming shares,
printing and mailing expenses, charges and expenses of dividend disbursing
agents, registrars and stock transfer agents and the cost of keeping all
necessary shareholder records and accounts.
6
<PAGE>
The Company shall monitor the expense ratio of the Fund on a monthly basis.
If the accrued amount of the expenses of the Fund exceeds the expense limitation
established herein, the Company shall create an account receivable from the
Adviser in the amount of such excess. In such a situation the monthly payment of
the Adviser's fee will be reduced by the amount of such excess, subject to
adjustment month by month during the balance of the Company's fiscal year if
accrued expenses thereafter fall below the expense limitation.
5. Compensation of the Adviser. For the services to be rendered by the
Adviser hereunder, the Company, through and on behalf of the Fund, shall pay to
the Adviser an advisory fee, paid monthly, based on the average net asset value
of the Fund, as determined by valuations made as of the close of each business
day of the month. The advisory fee shall be 1/12 of 1.0% of the average daily
net asset value of the Fund. For any month in which this Agreement is not in
effect for the entire month, such fee shall be reduced proportionately on the
basis of the number of calendar days during which it is in effect and the fee
computed upon the average net asset value of the business days during which it
is so in effect.
6. Ownership of Shares of the Fund. The Adviser shall not take an ownership
position in the Fund, and shall not permit any of its shareholders, officers,
directors or employees to take a long or short position in the shares of the
Fund, except for the purchase of shares of the Fund for investment purposes at
the same price as that available to the public at the time of purchase or in
connection with the initial capitalization of the Fund.
7. Exclusivity. The services of the Adviser to the Fund hereunder are not
to be deemed exclusive and the Adviser shall be free to furnish similar services
to others as long as
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the services hereunder are not impaired thereby. Although the Adviser has agreed
to permit the Company to use the name "Eastcliff", if it so desires, it is
understood and agreed that the Adviser reserves the right to use and to permit
other persons, firms or corporations, including investment companies, to use
such name. During the period that this Agreement is in effect, and except as
herein provided, the Adviser shall be the Fund's sole investment adviser.
8. Liability. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Fund or to
any shareholder of the Fund for any act or omission in the course of, or
connected with, rendering services hereunder, or for any losses that may be
sustained in the purchase, holding or sale of any security.
9. Brokerage Commissions. The Adviser, subject to the control and direction
of the Board of Directors, and any Portfolio Managers, subject to the control
and direction of the Board of Directors and the Adviser, shall have authority
and discretion to select brokers and dealers to execute portfolio transactions
for the Fund and for the selection of the markets on or in which the
transactions will be executed. The Adviser or the Portfolio Managers may cause
the Fund to pay a broker-dealer which provides brokerage and research services,
as such services are defined in Section 28(e) of the Securities Exchange Act of
1934 (the "Exchange Act"), to the Adviser or the Portfolio Managers a commission
for effecting a securities transaction in excess of the amount another
broker-dealer would have charged for effecting such transaction, if the Adviser
or the Portfolio Manager determines in good faith that such amount of commission
is reasonable in relation to the value of brokerage and research services
provided by the executing broker-dealer viewed in terms of either that
particular transaction or
8
<PAGE>
his overall responsibilities with respect to the accounts as to which he
exercises investment discretion (as defined in Section 3(a)(35) of the Exchange
Act). The Adviser shall provide such reports as the Board of Directors may
reasonably request with respect to each Fund's total brokerage and the manner in
which that brokerage was allocated.
10. Code of Ethics. The Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the Act and has provided the
Company with a copy of the code of ethics and evidence of its adoption. Upon the
written request of the Company, the Adviser shall permit the Company to examine
the reports required to be made by the Adviser pursuant to Rule 17j-1(c)(1).
11. Amendments. This Agreement may be amended by the mutual consent of the
parties; provided, however, that in no event may it be amended without the
approval of the Board of Directors in the manner required by the Act, and, if
required by the Act, by the vote of the majority of the outstanding voting
securities of the Fund, as defined in the Act.
12. Termination. This Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Directors or by a vote of the majority
of the outstanding voting securities of the Fund, as defined in the Act, upon
giving sixty (60) days' written notice to the Adviser. This Agreement may be
terminated by the Adviser at any time upon the giving of sixty (60) days'
written notice to the Company. This Agreement shall terminate automatically in
the event of its assignment (as defined in Section 2(a)(4) of the Act). Subject
to prior termination as hereinbefore provided, this Agreement shall continue in
effect for an initial period beginning as of the date hereof and ending October
1, 2001 and indefinitely thereafter, but only so long as the continuance after
such initial period is
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<PAGE>
specifically approved annually by (i) the Board of Directors or by the vote of
the majority of the outstanding voting securities of the Company, as defined in
the Act, and (ii) the Board of Directors in the manner required by the Act,
provided that any such approval may be made effective not more than sixty (60)
days thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day first above written.
RESOURCE CAPITAL ADVISERS, INC.
(the "Adviser")
By:_________________________________
John A. Clymer, President
EASTCLIFF FUNDS, INC.
(the "Company")
By:_________________________________
Conley Brooks, Jr., President
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<PAGE>
SUB-ADVISORY AGREEMENT
EASTCLIFF EMERGING GROWTH FUND
THIS SUB-ADVISORY AGREEMENT, made this 1st day of October, 1999, by and
among EASTCLIFF FUNDS, INC., a Wisconsin corporation (the "Company"), RESOURCE
CAPITAL ADVISERS, INC., a Minnesota corporation (the "Adviser"), and KB GROWTH
ADVISORS, LLC, a Minnesota limited liability company (the "Portfolio Manager").
W I T N E S S E T H :
The Company is a diversified open-end management investment company
registered as an investment company under the Investment Company Act of 1940
(the "Act"), and subject to the rules and regulations promulgated thereunder.
The Company's authorized shares of Common Stock are presently divided into five
series designated as Series A, Series B, Series C, Series D and Series E,
respectively, each of which constitutes a separate investment portfolio or fund
with different investment objectives and policies. Each share of a fund
represents an undivided interest in the assets, subject to the liabilities,
allocated to that portfolio. The Series E Common Stock comprises the Eastcliff
Emerging Growth Fund (the "Fund").
The Adviser acts as the "investment adviser" to the Fund (as defined in
Section 2(a)(20) of the Act) pursuant to the terms of an Investment Advisory
Agreement. The Adviser is responsible for the day-to-day management and overall
administration of the Fund and the coordination of investment of the Fund's
assets in portfolio securities. However, specific portfolio purchases and sales
for the Fund's investment portfolio, or a portion thereof, are to
<PAGE>
be made by advisory organizations recommended and selected by the Adviser,
subject to the approval of the Board of Directors of the Company.
WHEREAS, the Adviser and the Company desire to retain the Portfolio Manager
as the investment adviser and portfolio manager for the Fund
NOW, THEREFORE, the Company, the Adviser and the Portfolio Manager do
mutually promise and agree as follows:
1. Employment. The Adviser being duly authorized hereby appoints and
employs the Portfolio Manager as a discretionary portfolio manager to the Fund
for those assets of the Fund which the Adviser determines to assign to the
Portfolio Manager (those assets being referred to as the "Fund Account"), for
the period and on the terms set forth in this Agreement. The Portfolio Manager
hereby accepts the appointment as a discretionary portfolio manager and agrees
to use its best professional judgment to make timely investment decisions for
the Fund with respect to the investments of the Fund Account in accordance with
the provisions of this Agreement.
2. Authority of the Portfolio Manager. The Portfolio Manager shall for all
purposes herein be deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Company or the Fund in any way or otherwise be deemed an agent of
the Company or the Fund.
3. Portfolio Management Services of Portfolio Manager. Portfolio Manager is
hereby employed and authorized to select portfolio securities for investment by
the Fund, to purchase and sell securities of the Fund Account, and upon making
any purchase or sale
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<PAGE>
decision, to place orders for the execution of such portfolio transactions in
accordance with paragraphs 5 and 6 hereof and such operational procedures as may
be agreed to from time to time by the Portfolio Manager and the Company or the
Adviser (the "Operational Procedures"). In providing portfolio management
services to the Fund Account, Portfolio Manager shall be subject to such
investment restrictions as are set forth in the Act and the rules thereunder,
the Internal Revenue Code, applicable state securities laws, the supervision and
control of the Board of Directors of the Company, such specific instructions as
the Board of Directors may adopt and communicate to Portfolio Manager, the
investment objectives, policies and restrictions of the Fund furnished pursuant
to paragraph 4, the provisions of Schedule A hereto and instructions from the
Adviser. Portfolio Manger is not authorized by the Company to take any action,
including the purchase or sale of securities for the Fund Account, in
contravention of any restriction, limitation, objective, policy or instruction
described in the previous sentence. Portfolio Manager shall maintain on behalf
of the Fund the records listed in Schedule A hereto (as amended from time to
time). At the Company's or the Adviser's reasonable request, Portfolio Manager
will consult with Company or with the Adviser with respect to any decision made
by it with respect to the investments of the Fund Account.
4. Investment Objectives, Policies and Restrictions. The Company will
provide Portfolio Manager with a statement of the investment objectives,
policies and restrictions applicable to the Fund and any specific investment
restrictions applicable to the Fund as established by the Company, including
those set forth in its registration statement
3
<PAGE>
under the Act and the Securities Act of 1933. Company retains the right, on
written notice to Portfolio Manager from Company or Adviser, to modify any such
objectives, policies or restrictions in any manner at any time.
5. Transaction Procedures. All transactions will be consummated by payment
to or delivery by Firstar Bank Milwaukee, N.A. (the "Custodian"), or such
depositories or agents as may be designated by the Custodian in writing, as
custodian for the Fund, of all cash and/or securities due to or from the Fund
Account, and Portfolio Manager shall not have possession or custody thereof or
any responsibility or liability with respect thereto. Portfolio Manager shall
advise Custodian and confirm in writing to Company and to the Fund's
administrator, Fiduciary Management, Inc., or any other designated agent of
Company, all transactions for the Fund Account executed by it with brokers and
dealers at the time and in the manner as set forth in the Operational
Procedures. Portfolio Manager shall issue to the Custodian such instructions as
may be appropriate in connection with the settlement of any transaction
initiated by Portfolio Manager. Company shall be responsible for all custodial
arrangements and the payment of all custodial charges and fees, and, upon giving
proper instructions to the Custodian, Portfolio Manager shall have no
responsibility or liability with respect to custodial arrangements or the acts,
omissions or other conduct of the Custodian, except that it shall be the
responsibility of the Portfolio Manager to take appropriate action if the
Custodian fails to confirm in writing proper execution of the instructions.
4
<PAGE>
6. Proxies. The Portfolio Manager will vote all proxies solicited by or
with respect to the issuers of securities in which assets of the Fund Account
may be invested from time to time.
7. Compensation of the Portfolio Manager. The compensation of Portfolio
Manager for its services under this Agreement shall be calculated and paid by
Adviser in accordance with the attached Schedule B. Pursuant to the provisions
of the Investment Advisory Agreement between Company and Adviser, Adviser is
solely responsible for the payment of fees to Portfolio Manager, and Portfolio
Manager agrees to seek payment of its fees solely from Adviser.
8. Other Investment Activities of Portfolio Manager. Company acknowledges
that Portfolio Manager or one or more of its affiliates may have investment
responsibilities or render investment advice to or perform other investment
advisory services for other individuals or entities and that Portfolio Manager,
its affiliates or any of its or their directors, officers, agents or employees
may buy, sell or trade in any securities for its or their respective accounts
("Affiliated Accounts"). Subject to the provisions of paragraph 3 hereof,
Company agrees that Portfolio Manager or its affiliates may give advice or
exercise investment responsibility and take such other action with respect to
other Affiliated Accounts which may differ from the advice given or the timing
or nature of action taken with respect to the Fund Account, provided that
Portfolio Manager acts in good faith, and provided further, that it is Portfolio
Manager's policy to allocate, within its reasonable discretion, investment
opportunities to the Fund Account over a period of time on a fair and equitable
basis relative to
5
<PAGE>
the Affiliated Accounts, taking into account the investment objectives and
policies of the Fund and any specific investment restrictions applicable
thereto. Company acknowledges that one or more of the Affiliated Accounts may at
any time hold, acquire, increase, decrease, dispose of or otherwise deal with
positions in investments in which the Fund Account may have an interest from
time to time, whether in transactions which involve the Fund Account or
otherwise. Portfolio Manager shall have no obligation to acquire for the Fund
Account a position in any investment which any Affiliated Account may acquire,
and Company shall have no first refusal, co-investment or other rights in
respect of any such investment, either for the Fund Account or otherwise.
9. Certificate of Authority. Company, Adviser and Portfolio Manager shall
furnish to each other from time to time certified copies of the resolutions of
their Boards of Directors or executive committees, as the case may be,
evidencing the authority of officers and employees who are authorized to act on
behalf of Company, the Fund Account, the Portfolio Manager and/or Adviser.
10. Liability. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of Portfolio Manager, Portfolio Manager shall not be liable for any act or
omission in the course of, or connected with, rendering services hereunder, or
for any losses that may be sustained in the purchase, holding or sale of any
security.
11. Brokerage Commissions. The Adviser, subject to the control and
direction of the Board of Directors of the Company, and the Portfolio Manager,
subject to the
6
<PAGE>
control and direction of the Board of Directors of the Company and the Adviser,
shall have authority and discretion to select brokers and dealers to execute
portfolio transactions initiated by the Portfolio Manager for the Fund and for
the selection of the markets on or in which the transactions will be executed.
The Adviser or the Portfolio Manager may cause the Fund to pay a broker-dealer
which provides brokerage and research services, as such services are defined in
Section 28(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), to
the Adviser or the Portfolio Manager a commission for effecting a securities
transaction in excess of the amount another broker-dealer would have charged for
effecting such transaction, if the Adviser or the Portfolio Manager determines
in good faith that such amount of commission is reasonable in relation to the
value of brokerage and research services provided by the executing broker-dealer
viewed in terms of either that particular transaction or his overall
responsibilities with respect to the accounts as to which he exercises
investment discretion (as defined in Section 3(a)(35) of the Exchange Act). The
Portfolio Manager shall provide such reports as the Board of Directors of the
Company or the Adviser may reasonably request with respect to the Fund's total
brokerage and the manner in which that brokerage was allocated.
12. Confidentiality. Subject to the duty of Portfolio Manager and Company
to comply with applicable law, including any demand of any regulatory or taxing
authority having jurisdiction, the parties hereto shall treat as confidential
all information pertaining to the Fund Account and the actions of Portfolio
Manager and Company in respect thereto.
13. Representations, Warranties and Agreements of Company. Company
represents, warrants and agrees that:
7
<PAGE>
A. Portfolio Manager has been duly appointed by the Board of Directors of
Company to provide investment services to the Fund Account as contemplated
hereby.
B. Company will deliver to Portfolio Manager a true and complete copy of
its then current prospectus and statement of additional information as effective
from time to time and such other documents or instruments governing the
investment of the Fund Account and such other information as is necessary for
Portfolio Manager to carry out its obligations under this Agreement.
14. Representations, Warranties and Agreements of Portfolio Manager.
Portfolio Manager represents, warrants and agrees that:
A. Portfolio Manager is registered as an "investment adviser" under the
Investment Advisers Act of 1940 ("Advisers Act"); or is a "bank" as defined in
Section 202(a)(2) of the Advisers Act or an "insurance company" as defined in
Section 202(a)(2) of the Advisers Act.
B. Portfolio Manager will maintain, keep current and preserve on behalf of
Company, in the manner required or permitted by the Act, the records identified
in Schedule A. Portfolio Manager agrees that such records (unless otherwise
indicated on Schedule A) are the property of Company, and will be surrendered to
the Company promptly upon request.
C. Portfolio Manager will complete such reports concerning purchases or
sales of securities on behalf of the Fund Account as the Adviser or Company may
from time to time require to ensure compliance with the Act, the Internal
Revenue Code and applicable state securities laws.
8
<PAGE>
D. Portfolio Manager will adopt a written code of ethics complying with the
requirements of Rule 17j-1 under the Act and will provide Company with a copy of
the code of ethics and evidence of its adoption. Upon the written request of
Company, Portfolio Manager shall permit Company, its employees or its agents to
examine the reports required to be made to Portfolio Manager by Rule
17j-1(c)(1).
E. Portfolio Manager will promptly after filing with the Securities and
Exchange Commission an amendment to its Form ADV furnish a copy of such
amendment to each Company and the Adviser
F. Portfolio Manager will immediately notify Company and the Adviser of the
occurrence of any event which would disqualify Portfolio Manager from serving as
an investment adviser of an investment company pursuant to Section 9(a) of the
Act or otherwise.
15. Amendments. This Agreement may be amended by the mutual consent of the
parties; provided, however, that in no event may it be amended without the
approval of the Board of Directors in the manner required by the Act.
16. Termination. This Agreement may be terminated at any time, without the
payment of any penalty, by any party hereto immediately upon written notice to
the others in the event of a breach of any provision hereof by the party so
notified, or otherwise, upon giving thirty (30) days' written notice to the
others, but any such termination shall not affect the status, obligations or
liabilities of any party hereto to the others. This Agreement shall terminate
automatically in the event of its assignment (as defined in Section 2(a)(4) of
the Act). Subject to prior termination as hereinbefore provided, this Agreement
shall continue in effect
9
<PAGE>
for an initial period beginning as of the date hereof and ending October 1, 2001
and indefinitely thereafter, but only so long as the continuance after such
initial period is specifically approved annually by the Board of Directors of
the Company in the manner required by the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day first above written.
EASTCLIFF FUNDS, INC.
(the "Company")
By:_________________________________
Conley Brooks, Jr., President
RESOURCE CAPITAL ADVISERS, INC.
(the "Adviser")
By:_________________________________
John A. Clymer, President
KB GROWTH ADVISORS, LLC
(the "Portfolio Manager")
By:_________________________________
Gail M. Knappenberger
10
<PAGE>
SCHEDULE A
RECORDS TO BE MAINTAINED BY THE PORTFOLIO MANAGER
1. (1940 Act Rule 31a-1(b)(5) and (6)). A record of each brokerage order, and
all other portfolio purchases and sales, given by the Portfolio Manager on
behalf of the Fund for, or in connection with, the purchase or sale of
securities, whether executed or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any modifications or
cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf of the Fund.
2. (1940 Act Rule 31a-1(b)(9)). A record for each fiscal quarter, completed
within ten (10) days after the end of the quarter, showing specifically the
basis or bases upon which the allocation of orders for the purchase and
sale of portfolio securities to named brokers or dealers was effected, and
the division of brokerage commissions or other compensation on such
purchase and sale orders. Such record:
A. Shall include the consideration given to:
(i) the sale of shares of the Fund by brokers or dealers.
(ii) The supplying of services or benefits by brokers or dealers to:
(a) The Fund,
(b) The Adviser,
(c) The Portfolio Manager, and
(d) Any person other than the foregoing.
(iii)Any other consideration other than the technical qualifications
of the brokers and dealers as such.
B. Shall show the nature of the services or benefits made available.
11
<PAGE>
C. Shall describe in detail the application of any general or specific
formula or other determinant used in arriving at such allocation of
purchase and sale orders and such division of brokerage commissions or
other compensation.
D. The name of the person responsible for making the determination of
such allocation and such division of brokerage commissions or other
compensation.
3. (1940 Act Rule 31a-1(b)(10)). A record in the form of an appropriate
memorandum identifying the person or persons, committees or groups
authorizing the purchase or sale of portfolio securities. Where an
authorization is made by a committee or group, a record shall be kept of
the names of its members who participate in the authorization. There shall
be retained as part of this record: any memorandum, recommendation or
instruction supporting or authorizing the purchase or sale of portfolio
securities and such other information as is appropriate to support the
authorization.1
4. (1940 Act Rule 31a-1(f)). Such accounts, books and other documents as are
required to be maintained by registered investment advisers by rule adopted
under Section 204 of the Investment Advisers Act of 1940, to the extent
such records are necessary or appropriate to record the Portfolio Manager's
transactions with respect to the Fund Account.
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1 Such information might include: the current Form 10-K, annual and quarterly
reports, press releases, reports by analysts and from brokerage firms
(including their recommendation; i.e., buy, sell, hold) or any internal
reports or portfolio adviser reviews).
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<PAGE>
SCHEDULE B
FEE SCHEDULE
For its services to the Fund, the Adviser shall pay the Portfolio Manager a
fee, paid monthly, based on the average net asset value of the Fund, as
determined by valuations made as of the close of each business day of the month.
The fee shall be 1/12 of 0.6% of the average daily net asset value of the Fund.
The fee shall be pro-rated for any month during which the Agreement is in
effect for only a portion of the month.
CUSTODIAN AGREEMENT
THIS AGREEMENT made on October 1, 1999, between Eastcliff Emerging Growth
Fund, a Wisconsin corporation (hereinafter called the ("Fund"), and FIRSTAR BANK
MILWAUKEE, NA, a corporation organized under the laws of the State of Wisconsin
(hereinafter called "Custodian"),
WHEREAS, the Fund desires that its securities and cash shall be hereafter
held and administered by Custodian pursuant to the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Fund and Custodian agree as follows:
1. Definitions
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Fund by any two of the
President, a Vice President, the Secretary and the Treasurer of the Fund, or any
other persons duly authorized to sign by the Board of Directors.
The word "Board" shall mean Board of Directors of Eastcliff Emerging Growth
Fund.
2. Names, Titles, and Signatures of the Fund's Officers
An officer of the Fund will certify to Custodian the names and signatures
of those persons authorized to sign the officers' certificates described in
Section 1 hereof, and the names of the members of the Board of Directors,
together with any changes which may occur from time to time.
3. Receipt and Disbursement of Money
A. Custodian shall open and maintain a separate account or accounts in the
name of the Fund, subject only to draft or order by Custodian acting pursuant to
the terms of this Agreement. Custodian shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of the Fund. Custodian shall make payments of cash to, or for the
account of, the Fund from such cash only:
(a) for the purchase of securities for the portfolio of the Fund upon the
delivery of such securities to Custodian, registered in the name of
the Fund or of the nominee of Custodian referred to in Section 7 or in
proper form for transfer;
<PAGE>
(b) for the purchase or redemption of shares of the common stock of the
Fund upon delivery thereof to Custodian, or upon proper instructions
from the Eastcliff Emerging Growth Fund;
(c) for the payment of interest, dividends, taxes, investment adviser's
fees or operating expenses (including, without limitation thereto,
fees for legal, accounting, auditing and custodian services and
expenses for printing and postage);
(d) for payments in connection with the conversion, exchange or surrender
of securities owned or subscribed to by the Fund held by or to be
delivered to Custodian; or
(e) for other proper corporate purposes certified by resolution of the
Board of Directors of the Fund.
Before making any such payment, Custodian shall receive (and may rely upon)
an officers' certificate requesting such payment and stating that it is for a
purpose permitted under the terms of items (a), (b), (c), or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Fund issues appropriate oral or
facsimile instructions to Custodian and an appropriate officers' certificate is
received by Custodian within two business days thereafter.
B. Custodian is hereby authorized to endorse and collect all checks, drafts
or other orders for the payment of money received by Custodian for the account
of the Fund.
C. Custodian shall, upon receipt of proper instructions, make federal funds
available to the Fund as of specified times agreed upon from time to time by the
Fund and the custodian in the amount of checks received in payment for shares of
the Fund which are deposited into the Fund's account.
4. Segregated Accounts
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account(s) for and on behalf of the portfolio, into which
account(s) may be transferred cash and/or securities.
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<PAGE>
5. Transfer, Exchange, Redelivery, etc. of Securities
Custodian shall have sole power to release or deliver any securities of the
Fund held by it pursuant to this Agreement. Custodian agrees to transfer,
exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Fund upon receipt
by Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone or
other securities and cash whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization or readjustment, or
otherwise;
(e) upon conversion of such securities pursuant to their terms into other
securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary securities
for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of the
Fund upon delivery thereof to Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by Custodian pursuant to items (a), (b), (d),
(e), (f), and (g), securities or cash receivable in exchange therefore shall be
deliverable to Custodian.
Before making any such transfer, exchange or delivery, Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an officers' certificate
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made, provided, however, that an officers' certificate need not precede
any such transfer, exchange or delivery of a money market instrument, or any
other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Fund issues appropriate oral or
facsimile
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<PAGE>
instructions to Custodian and an appropriate officers' certificate is received
by Custodian within two business days thereafter.
6. Custodian's Acts Without Instructions
Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other income
items held by it for the account of the Fund which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of the Fund; (b) collect interest and cash dividends received, with notice to
the Fund, for the account of the Fund; (c) hold for the account of the Fund
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; and (d) execute, as agent on behalf of
the Fund, all necessary ownership certificates required by the Internal Revenue
Code or the Income Tax Regulations of the United States Treasury Department or
under the laws of any state now or hereafter in effect, inserting the Fund's
name on such certificates as the owner of the securities covered thereby, to the
extent it may lawfully do so.
7. Registration of Securities
Except as otherwise directed by an officers' certificate, Custodian shall
register all securities, except such as are in bearer form, in the name of a
registered nominee of Custodian as defined in the Internal Revenue Code and any
Regulations of the Treasury Department issued hereunder or in any provision of
any subsequent federal tax law exempting such transaction from liability for
stock transfer taxes, and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. Custodian shall use its best efforts to the end that the
specific securities held by it hereunder shall be at all times identifiable in
its records.
The Fund shall from time to time furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee, any securities which it
may hold for the account of the Fund and which may from time to time be
registered in the name of the Fund.
8. Voting and Other Action
Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of the Fund, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall deliver, or cause to be executed and delivered, to the
Corporation all notices, proxies and proxy soliciting materials with relation to
such securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
4
<PAGE>
9. Transfer Tax and Other Disbursements
The Fund shall pay or reimburse Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.
Custodian shall execute and deliver such certificates in connection with
securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exemptable transfers and/or deliveries of any such securities.
10. Concerning Custodian
Custodian shall be paid as compensation for its services pursuant to this
Agreement such compensation as may from time to time be agreed upon in writing
between the two parties. Until modified in writing, such compensation shall be
as set forth in Exhibit A attached hereto.
Custodian shall not be liable for any action taken in good faith upon any
certificate herein described or certified copy of any resolution of the Board,
and may rely on the genuineness of any such document which it may in good faith
believe to have been validly executed.
The Fund agrees to indemnify and hold harmless Custodian and its nominee
from all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assessed against it or by its nominee in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct. Custodian is authorized to charge any account of the Fund for such
items.
In the event of any advance of cash for any purpose made by Custodian
resulting from orders or instructions of the Fund, or in the event that
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security therefore.
Custodian agrees to indemnify and hold harmless Fund from all charges,
expenses, assessments, and claims/liabilities (including counsel fees) incurred
or assessed against it in connection with the performance of this agreement,
except such as may arise from the Fund's own negligent action, negligent failure
to act, or willful misconduct.
5
<PAGE>
11. Subcustodians
Custodian is hereby authorized to engage another bank or trust company as a
Subcustodian for all or any part of the Fund's assets, so long as any such bank
or trust company is a bank or trust company organized under the laws of any
state of the United States, having an aggregate capital, surplus and undivided
profit, as shown by its last published report, of not less than Two Million
Dollars ($2,000,000) and provided further that, if the Custodian utilizes the
services of a Subcustodian, the Custodian shall remain fully liable and
responsible for any losses caused to the Fund by the Subcustodian as fully as if
the Custodian was directly responsible for any such losses under the terms of
the Custodian Agreement.
Notwithstanding anything contained herein, if the Fund requires the
Custodian to engage specific Subcustodians for the safekeeping and/or clearing
of assets, the Fund agrees to indemnify and hold harmless Custodian from all
claims, expenses and liabilities incurred or assessed against it in connection
with the use of such Subcustodian in regard to the Fund's assets, except as may
arise from its own negligent action, negligent failure to act or willful
misconduct.
12. Reports by Custodian
Custodian shall furnish the Fund periodically as agreed upon with a
statement summarizing all transactions and entries for the account of the Fund.
Custodian shall furnish to the Fund, at the end of every month, a list of the
portfolio securities showing the aggregate cost of each issue. The books and
records of Custodian pertaining to its actions under this Agreement shall be
open to inspection and audit at reasonable times by officers of, and of auditors
employed by, the Fund.
13. Termination or Assignment
This Agreement may be terminated by the Fund, or by Custodian, on ninety
(90) days notice, given in writing and sent by registered mail to Custodian at
Firstar Bank Milwaukee, NA, 615 East Michigan Street, Milwaukee, Wisconsin
53202, or to the Fund at 900 Second Avenue South, 300 International Centre,
Minneapolis, Minnesota 55402, as the case may be. Upon any termination of this
Agreement, pending appointment of a successor to Custodian or a vote of the
shareholders of the Fund to dissolve or to function without a custodian of its
cash, securities and other property, Custodian shall not deliver cash,
securities or other property of the Fund to the Fund, but may deliver them to a
bank or trust company of its own selection, having an aggregate capital, surplus
and undivided profits, as shown by its last published report of not less than
Two Million Dollars ($2,000,000) as a Custodian for the Fund to be held under
terms similar to those of this Agreement, provided, however, that Custodian
shall not be required to make any such delivery or payment until full payment
shall have been made by the Fund of all liabilities constituting a charge on or
against the properties then held by Custodian or on or against Custodian, and
until full payment shall have been made to Custodian of all its fees,
compensation, costs and expenses, subject to the provisions of Section 10 of
this Agreement.
6
<PAGE>
This Agreement may not be assigned by Custodian without the consent of the
Fund, authorized or approved by a resolution of its Board of Directors.
14. Deposits of Securities in Securities Depositories
No provision of this Agreement shall be deemed to prevent the use by
Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Board of Directors of the Fund approves by resolution the
use of such central securities clearing agency or securities depository.
15. Records
To the extent that Custodian in any capacity prepares or maintains any
records required to be maintained and preserved by the Fund pursuant to the
provisions of the Investment Company Act of 1940, as amended, or the rules and
regulations promulgated thereunder, Custodian agrees to make any such records
available to the Fund upon request and to preserve such records for the periods
prescribed in Rule 31a-2 under the Investment Company Act of 1940, as amended.
16. Notices
Notices of any kind to be given by either party to the other party shall be
in writing and shall be duly given if mailed or delivered to the address set
forth above.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and their respective corporate seals to be affixed hereto as of the
date first above-written by their respective officers thereunto duly authorized.
Executed in several counterparts, each of which is an original.
Attest: FIRSTAR BANK MILWAUKEE, NA
By___________________________________
__________________________________ Vice President
Assistant Secretary
Attest: EASTCLIFF EMERGING GROWTH FUND
__________________________________ By___________________________________
7
<PAGE>
ADMINISTRATIVE AGREEMENT
Agreement (the "Agreement") made this 1st day of October, 1999, between
Eastcliff Funds, Inc. (the "Company"), and Fiduciary Management, Inc., a
Wisconsin corporation (the "Administrator").
W I T N E S S E T H:
WHEREAS, the Company is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 (the "Act") as an open-end
management investment company consisting of multiple series or funds; and
WHEREAS, the Company desires to retain the Administrator to perform the
following management-related services for the Eastcliff Emerging Growth Fund
(the "Fund") and the Administrator desires to perform such services for the
Fund.
NOW, THEREFORE, the Company and the Administrator do mutually promise and
agree as follows:
1. Employment. The Company employs the Administrator to be the
Administrator for the Fund for the period and on the terms set forth in this
Agreement. The Administrator hereby accepts such employment for the compensation
herein provided and agrees during such period to render the services and to
assume the obligations herein set forth.
2. Authority and Duties of the Administrator. The Administrator shall
perform the following management-related services for the Fund:
a. Prepare and maintain the books, accounts and other documents specified
in Rule 31a-1, under the Act in accordance with the requirements of
Rule 31a-1 and Rule 31a-2 under the Act;
b. Calculate the Fund's net asset value in accordance with the provisions
of the Company's Restated Articles of Incorporation, as amended, and
its Registration Statement;
c. Prepare the financial statements contained in reports to stockholders
of the Fund;
d. Prepare reports to and filings with the Securities and Exchange
Commission (other than the Company's Registration Statement on Form
N-1A);
e. Furnish statistical and research data, clerical, accounting and
bookkeeping services and stationery and office supplies; and
f. Prepare and file with the appropriate state securities authorities
required compliance filings and monitor and maintain such state
registrations; and
<PAGE>
g. Keep and maintain the Fund's financial accounts and records, and
generally assist in all aspects of the Fund's operations to the extent
agreed to by the Administrator and the Company.
The Administrator shall not act, and shall not be required to act, as an
investment adviser to the Fund and shall not have any authority to supervise the
investment or reinvestment of the cash, securities or other property comprising
the Fund's assets or to determine what securities or other property may be
purchased or sold by the Fund. The Administrator shall for all purposes herein
be deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Company or
the Fund in any way or otherwise be deemed an agent of the Company or the Fund.
3. Expenses. Except as indicated below the Administrator, at its own
expense and without reimbursement from the Fund, shall furnish office space, and
all necessary office facilities, equipment and executive personnel for
performing the services required to be performed by it under this Agreement. The
Administrator shall not be required to pay any expenses of the Fund. The
expenses of the Fund's operations borne by the Fund include by way of
illustration and not limitation, directors fees paid to those directors who are
not interested persons of the Company, as defined in the Act, the professional
costs of preparing and the costs of printing its registration statements
required under the Securities Act of 1933 and the Act (and amendments thereto),
the expense of registering its shares with the Securities and Exchange
Commission and in the various states, the printing and distribution cost of
prospectuses mailed to existing shareholders, the cost of stock certificates,
director and officer liability insurance, the printing and distribution costs of
reports to stockholders, reports to government authorities and proxy statements,
interest charges, taxes, legal expenses, association membership dues, auditing
services, insurance premiums, brokerage and other expenses connected with the
execution of portfolio securities transactions, fees and expenses of the
custodian of the Fund's assets, printing and mailing expenses and charges and
expenses of dividend disbursing agents, registrars and stock transfer agents.
The Fund shall reimburse the Administrator for its proportionate share of the
Price Waterhouse Blue 2 annual maintenance and support charge.
4. Compensation of the Administrator. For the services to be rendered by
the Administrator hereunder, the Fund shall pay to the Administrator an
administration fee, paid monthly, based on the average net assets of the Fund,
as determined by valuations made as of the close of each business day of the
month. The administration fee shall be 1/12 of 0.2% of such net assets up to and
including $25,000,000, 1/12 of 0.1% of the next $20,000,000 of daily net assets
and 1/12 of 0.05% of the daily net assets in excess of $45,000,000; provided,
however, that the minimum fee payable by the Fund shall be $20,000 annually. For
any month in which this Agreement is not in effect for the entire month, such
fee shall be reduced proportionately on the basis of the number of calendar days
during which it is in effect and the fee computed upon the net assets of the
business days during which it is so in effect. For any
2
<PAGE>
fiscal year, in which this Agreement is not in effect for the entire year, the
minimum fee shall be reduced proportionately on the basis of the number of
calendar days during which it is in effect.
In addition to the above fees the Fund shall pay to the Administrator
annually a fee of $100 for each state in which shares of the Fund are qualified
for sale, a fee of $80 for each state in which the Fund is registered as an
issuer-dealer and a fee of $50 for each agent registration maintained on behalf
of the Fund, none of which fees shall be reduced if registrations are maintained
for less than an entire fiscal year.
5. Exclusivity. The services of the Administrator to the Fund hereunder are
not to be deemed exclusive and the Administrator shall be free to furnish
similar services to others as long as the services hereunder are not impaired
thereby. During the period that this Agreement is in effect, the Administrator
shall be the Fund's sole administrator.
6. Liability. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of the Administrator, the Administrator shall not be subject to liability to the
Fund or to any shareholder of the Fund for any act or omission in the course of,
or connected with, rendering services hereunder, or for any losses that may be
sustained in the purchase, holding or sale of any security.
7. Amendments and Termination. This Agreement may be amended by the mutual
consent of the parties. This Agreement may be terminated at any time, without
the payment of any penalty, by the board of directors of the Company upon the
giving of ninety (90) days' written notice to the Administrator. This Agreement
may be terminated by the Administrator at any time upon the giving of ninety
(90) days' written notice to the Company. Upon termination of the Agreement the
Administrator shall deliver to the Company all books, accounts and other
documents then maintained by it pursuant to Section 2 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day first above written.
FIDUCIARY MANAGEMENT, INC.
(the "Administrator")
By:_____________________________
President
EASTCLIFF FUNDS, INC.
(the "Company")
By:_____________________________
President
3
<PAGE>
October 1, 1999
Fiduciary Management, Inc.
225 East Mason Street
Milwaukee, Wisconsin 53202
Gentlemen:
Pursuant to Section 2(g) of the Administrative Agreement dated October 1,
1999 you are hereby authorized to perform the following ministerial services in
connection with the Eastcliff Emerging Growth Fund (the "Fund") investments in
commercial paper master notes and repurchase agreements purchased through
Firstar Trust Co. Prior to 10:30 a.m. on each day the New York Stock Exchange is
open for trading you will review the activity account statement for the Fund for
the previous business day provided to you by Firstar Bank Milwaukee, N.A. and a
list of the securities transactions to be settled by the Fund on such date. Such
list of securities transactions will be compiled by you from information
supplied to you by the Fund's investment adviser.
After reviewing such list and statement you will subtract [the sum obtained
by adding (the purchase price and related commissions and expenses to be paid by
the Fund in connection with all purchases of securities by the Fund to be
settled on such date) to (the amounts to be paid to honor redemption requests,
if any, received by Firstar Mutual Fund Services, LLC on the previous business
day)] from [the sum obtained by adding (the proceeds to be received from all
sales of securities of the Fund to be settled on such date) to (the amounts
received pursuant to all purchase orders, if any, received by Firstar Mutual
Fund Services, LLC on the previous business day)].
The Fund's investment adviser has determined that if the result of such
subtraction is a positive number, the remainder shall be invested to the extent
allowed by the Fund's prospectus in the commercial paper master notes or
repurchase agreements then offered by Firstar Bank Milwaukee, N.A. bearing the
highest rates of interest. In the event that one or more commercial paper master
notes bear the same rate of interest, the order of preference in investing shall
be based on the assets of the issuers, with the issuer having the most assets
being given the highest preference. Investments in the commercial paper master
notes of any issuer may not exceed 5% of such Fund's total assets on the date of
purchase.
The Fund's investment adviser has determined that if the result of such
subtractions is a negative number, the deficiency shall be obtained by selling
the commercial paper master notes or repurchase agreement then held by the Fund
bearing the lowest rates of interest. In the event that one or more commercial
paper master notes bear the same rate of interest, the order of preference in
selling shall be the inverse of the order set forth in the preceding paragraph.
4
<PAGE>
You are instructed to notify Firstar Bank Milwaukee, N.A. each day prior to
10:30 a.m. of the commercial paper master notes or repurchase agreement to be
purchased and sold by the Fund as determined above.
If the amount to be invested exceeds the amount which can be invested as
provided above, you will so inform the Fund's investment adviser who will tell
you how the excess should be invested.
These instructions will remain in effect unless and until you are notified
by the Fund's investment adviser to the contrary.
Very truly yours,
EASTCLIFF FUNDS, INC.
By:___________________________
President
Accepted and agreed to
FIDUCIARY MANAGEMENT, INC.
By:____________________________
President
5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 19 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated July 24, 1998, relating to the financial
statements and financial highlights appearing in the June 30, 1998 Annual Report
to Shareholders of Eastcliff Growth Fund, Eastcliff Total Return Fund, Eastcliff
Regional Small Capitalization Value Fund and Eastcliff Contrarian Value Fund
(four of five portfolios constituting Eastcliff Funds, Inc.), portions of which
are incorporated by reference into the Registration Statement. We also consent
to the reference to us under the heading "Independent Accountants" in the
Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
- -------------------------------
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
July 13, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements of Eastcliff Funds, Inc. as of and for the year ended June 30, 1998
and is qulaified in its entirety by reference to such financial statements
</LEGEND>
<CIK> 0000796227
<NAME> EASTCLIFF FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> EASTCLIFF TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 13,248
<INVESTMENTS-AT-VALUE> 25,383
<RECEIVABLES> 95
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,478
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24
<TOTAL-LIABILITIES> 24
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,995
<SHARES-COMMON-STOCK> 1,184
<SHARES-COMMON-PRIOR> 1,283
<ACCUMULATED-NII-CURRENT> 109
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,215
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,135
<NET-ASSETS> 25,454
<DIVIDEND-INCOME> 197
<INTEREST-INCOME> 391
<OTHER-INCOME> 0
<EXPENSES-NET> 307
<NET-INVESTMENT-INCOME> 281
<REALIZED-GAINS-CURRENT> 1,219
<APPREC-INCREASE-CURRENT> 5324
<NET-CHANGE-FROM-OPS> 6824
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 322
<DISTRIBUTIONS-OF-GAINS> 680
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 163
<NUMBER-OF-SHARES-REDEEMED> 303
<SHARES-REINVESTED> 41
<NET-CHANGE-IN-ASSETS> 3828
<ACCUMULATED-NII-PRIOR> 150
<ACCUMULATED-GAINS-PRIOR> 676
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 236
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 334
<AVERAGE-NET-ASSETS> 23,641
<PER-SHARE-NAV-BEGIN> 16.86
<PER-SHARE-NII> .23
<PER-SHARE-GAIN-APPREC> 5.19
<PER-SHARE-DIVIDEND> .25
<PER-SHARE-DISTRIBUTIONS> .53
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.50
<EXPENSE-RATIO> 1.3
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements of Eastcliff Funds, Inc. as of and for the year ended June 30, 1998
and is qulaified in its entirety by reference to such financial statements
</LEGEND>
<CIK> 0000796227
<NAME> EASTCLIFF FUNDS, INC.
<SERIES>
<NUMBER> 2
<NAME> EASTCLIFF GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 39,047
<INVESTMENTS-AT-VALUE> 56,699
<RECEIVABLES> 12,038
<ASSETS-OTHER> 13
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68,750
<PAYABLE-FOR-SECURITIES> 12,058
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 98
<TOTAL-LIABILITIES> 12,156
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,457
<SHARES-COMMON-STOCK> 3,171
<SHARES-COMMON-PRIOR> 3,331
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,485
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,652
<NET-ASSETS> 56,594
<DIVIDEND-INCOME> 149
<INTEREST-INCOME> 68
<OTHER-INCOME> 0
<EXPENSES-NET> 666
<NET-INVESTMENT-INCOME> (449)
<REALIZED-GAINS-CURRENT> 13,570
<APPREC-INCREASE-CURRENT> 1,782
<NET-CHANGE-FROM-OPS> 14,903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2019
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 327
<NUMBER-OF-SHARES-REDEEMED> 628
<SHARES-REINVESTED> 141
<NET-CHANGE-IN-ASSETS> 10,205
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1622)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 512
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 666
<AVERAGE-NET-ASSETS> 51,230
<PER-SHARE-NAV-BEGIN> 13.92
<PER-SHARE-NII> (.15)
<PER-SHARE-GAIN-APPREC> 4.71
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .63
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.85
<EXPENSE-RATIO> 1.3
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements of Eastcliff Funds, Inc. as of and for the year ended June 30, 1998
and is qulaified in its entirety by reference to such financial statements
</LEGEND>
<CIK> 0000796227
<NAME> EASTCLIFF FUNDS, INC.
<SERIES>
<NUMBER> 3
<NAME> EASTCLIFF REGIONAL SMALL CAPITALIZATION VALUE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 54,149
<INVESTMENTS-AT-VALUE> 62,186
<RECEIVABLES> 56
<ASSETS-OTHER> 16
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 62,258
<PAYABLE-FOR-SECURITIES> 8
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 111
<TOTAL-LIABILITIES> 119
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,593
<SHARES-COMMON-STOCK> 4,582
<SHARES-COMMON-PRIOR> 2,390
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 509
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,037
<NET-ASSETS> 62,139
<DIVIDEND-INCOME> 398
<INTEREST-INCOME> 237
<OTHER-INCOME> 0
<EXPENSES-NET> 707
<NET-INVESTMENT-INCOME> (72)
<REALIZED-GAINS-CURRENT> 655
<APPREC-INCREASE-CURRENT> 4057
<NET-CHANGE-FROM-OPS> 4640
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14
<DISTRIBUTIONS-OF-GAINS> 241
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4074
<NUMBER-OF-SHARES-REDEEMED> 1,901
<SHARES-REINVESTED> 19
<NET-CHANGE-IN-ASSETS> 32,908
<ACCUMULATED-NII-PRIOR> 14
<ACCUMULATED-GAINS-PRIOR> 163
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 544
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 707
<AVERAGE-NET-ASSETS> 54,569
<PER-SHARE-NAV-BEGIN> 12.23
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 1.43
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .09
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.56
<EXPENSE-RATIO> 1.3
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements of Eastcliff Funds, Inc. as of and for the year ended June 30, 1998
and is qulaified in its entirety by reference to such financial statements
</LEGEND>
<CIK> 0000796227
<NAME> EASTCLIFF FUNDS, INC.
<SERIES>
<NUMBER> 4
<NAME> EASTCLIFF CONTRARIAN FUND
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> DEC-30-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 19,260
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<ACCUMULATED-NII-CURRENT> 69
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<OVERDISTRIBUTION-GAINS> 0
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<NET-INVESTMENT-INCOME> 67
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<APPREC-INCREASE-CURRENT> 364
<NET-CHANGE-FROM-OPS> 657
<EQUALIZATION> 0
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<NET-CHANGE-IN-ASSETS> 19,569
<ACCUMULATED-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
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<AVERAGE-NET-ASSETS> 18,029
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .04
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<PER-SHARE-NAV-END> 10.41
<EXPENSE-RATIO> 1.3
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
