Registration No. 33-6836; 811-04722
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
-----------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 21 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 23 |X|
(Check appropriate box or boxes.)
------------------------------
EASTCLIFF FUNDS, INC.
------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
1400 Peavey Building
730 Second Avenue South
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
1400 Peavey Building Foley & Lardner
730 Second Avenue South 777 East Wisconsin Avenue
Minneapolis, Minnesota 55402 Milwaukee, Wisconsin 53202
-------------------------------------- --------------------------
(Name and Address of Agent for Service)
------------------------------
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective.
It is proposed that this filing become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
|X| on October 31, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] on (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] on (date) pursuant to paragraph (a) (2) of Rule 485
<PAGE>
P R O S P E C T U S
OCTOBER 31, 2000
(EASTCLIFF FUNDS LOGO)
Eastcliff Total Return Fund
Eastcliff Growth Fund
Eastcliff Emerging
Growth Fund
Eastcliff Regional Small
Capitalization Value Fund
Eastcliff Contrarian
Value Fund
NO-LOAD MUTUAL FUNDS
PROSPECTUS OCTOBER 31, 2000
(EASTCLIFF FUNDS LOGO)
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:
o Eastcliff Total Return Fund o Eastcliff Regional Small
o Eastcliff Growth Fund Capitalization Value Fund
o Eastcliff Emerging Growth Fund o Eastcliff Contrarian Value 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.
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.
EASTCLIFF FUNDS
1400 Peavey Building
730 Second Avenue South
Minneapolis, Minnesota 55402
(612) 336-1444
TABLE OF CONTENTS
QUESTIONS EVERY INVESTOR SHOULD ASK
BEFORE INVESTING IN THE EASTCLIFF FUNDS 2
FEES AND EXPENSES 10
INVESTMENT OBJECTIVES AND STRATEGIES 12
MANAGEMENT OF THE FUNDS 14
THE FUNDS' SHARE PRICE 17
PURCHASING SHARES 17
REDEEMING SHARES 19
EXCHANGING SHARES 22
DIVIDENDS, DISTRIBUTIONS AND TAXES 22
FINANCIAL HIGHLIGHTS 22
SHARE PURCHASE APPLICATION CENTERFOLD
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. However, the Total Return Fund, consistent with its
investment objective, may also invest mainly in debt securities or in both
common stocks and debt securities. 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 mainly in common stocks most of the time.
However, because it is a flexible fund, it may also invest mainly in bonds
and other debt securities (such as notes, debentures, bills or money market
instruments), or in both common stocks and debt securities. 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 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 or corporate
debt securities rated A or better by a nationally recognized rating agency.
The debt securities the Total Return Fund purchases usually have maturities
of under 10 years. When implementing its asset allocation strategy, the
Total Return Fund 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 stocks as an
asset class will perform better than debt securities of varying maturities.
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 $3.0 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).
Like the Growth Fund, the Emerging Growth Fund invests in companies that
have the potential for above-average future earnings growth. Most of these
companies compete in new and emerging markets and often have exciting new
products to offer. The portfolio manager of the Emerging Growth Fund looks
for the "rising stars" in all industries. 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 which our portfolio managers
believe to be undervalued. We believe this investment approach 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 will invest at least 65%
of its total assets 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. Our portfolio manager looks for undervalued companies
with shareholder oriented management teams that are employing strategies to
grow the company's value.
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 predominantly invests in larger small capitalization companies and mid-
cap companies. These are companies having a market capitalization between
$1.0 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.
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:
<TABLE>
TOTAL EMERGING REGIONAL SMALL CONTRARIAN
RETURN FUND GROWTH FUND GROWTH FUND CAPITALIZATION VALUE FUND VALUE FUND
----------- ----------- ------------ ------------------------- ----------
<S> <C> <C> <C> <C>
o Market Risk o Market Risk o Market Risk o Market Risk o Market Risk
o Growth o Growth o Smaller o Smaller o Value
Investing Risk Investing Risk Capitalization Capitalization Investing Risk
o Interest Companies Risk Companies Risk
Rate Risk o Growth o Value
o Credit Risk Investing Risk Investing Risk
o Prepayment Risk o Regional
o Asset Allocation Risk Concentration Risk
</TABLE>
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. From time to time "value"
investing falls out of favor with investors. During those periods,
these Funds' relative performance may suffer.
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 falls when interest rates rise. Longer term obligations are
usually more sensitive to interest rate changes than shorter term
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.
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 fluctuate 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 did not commence operations until September 30, 1999 and therefore does
not have a complete calendar year of performance to report.) The Emerging
Growth Fund's 2000 year-to-date total return is 12.15% (January 1, 2000
through the quarter ended September 30, 2000). 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.
EASTCLIFF TOTAL RETURN FUND
(TOTAL RETURN PER CALENDAR YEAR)
1995 23.19%
1996 20.48%
1997 30.04%
1998 38.69%
1999 25.12%
Note: During the five 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 2000 year to date total return is -5.21% (January 1, 2000
through the quarter ended September 30, 2000).
The bar chart does not disclose performance information for the 1990-
1994 calendar years because the investment adviser to the Total Return
Fund was Fiduciary Management, Inc.
AVERAGE ANNUAL TOTAL RETURNS PAST
(FOR THE PERIODS ENDING DECEMBER 31, 1999) PAST YEAR 5 YEARS
------------------------------------------ --------- -------
Eastcliff Total Return Fund*<F1> 25.12% 27.35%
S&P 500**<F2> 21.04% 28.55%
Lehman Brothers Intermediate
Corporate Bond Index ***<F3> -2.23% 7.28%
*<F1> The table does not disclose performance information from January
1, 1990 through December 31, 1994 because the investment adviser
to the Total Return Fund was Fiduciary Management, Inc.
**<F2> The S&P 500 is the Standard & Poor's Composite Index of 500
Stocks, a widely recognized unmanaged index of common stock
prices.
***<F3> 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.
EASTCLIFF GROWTH FUND
(TOTAL RETURN PER CALENDAR YEAR)
1996 16.85%
1997 22.40%
1998 29.23%
1999 19.07%
Note: During the four 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 2000 year to date total return is 7.35% (January 1, 2000
through the quarter ended September 30, 2000).
SINCE THE INCEPTION
AVERAGE ANNUAL TOTAL RETURNS OF THE FUND
(FOR THE PERIODS ENDING DECEMBER 31, 1999) PAST YEAR (JULY 1, 1995)
------------------------------------------ --------- --------------
Eastcliff Growth Fund 19.07% 21.36%
S&P 500 21.04% 26.99%
EASTCLIFF REGIONAL SMALL CAPITALIZATION VALUE FUND
(TOTAL RETURN PER CALENDAR YEAR)
1997 21.08%
1998 (3.86%)
1999 0.05%
Note: During the three 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 2000 year to date total return is -1.81% (January 1, 2000
through the quarter ended September 30, 2000).
SINCE THE INCEPTION
AVERAGE ANNUAL TOTAL RETURNS OF THE FUND
(FOR THE PERIODS ENDING DECEMBER 31, 1999) PAST YEAR (SEPTEMBER 16, 1996)
------------------------------------------ --------- --------------------
Eastcliff Regional Small
Capitalization Value Fund 0.05% 7.54%
Russell 2000 Index*<F4> 21.26% 14.04%
*<F4> 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.
EASTCLIFF CONTRARIAN VALUE FUND
(TOTAL RETURN PER CALENDAR YEAR)
1998 (9.07%)
1999 (0.68%)
Note: During the two year period shown on the bar chart, the Fund's highest
total return for a quarter was 16.48% (quarter ended June 30, 1999) and
the lowest total return for a quarter was -17.29% (quarter ended
September 30, 1998).
The Fund's 2000 year to date total return is 11.86% (January 1, 2000
through the quarter ended September 30, 2000).
SINCE THE INCEPTION
AVERAGE ANNUAL TOTAL RETURNS OF THE FUND
(FOR THE PERIODS ENDING DECEMBER 31, 1999) PAST YEAR (DECEMBER 30, 1997)
------------------------------------------ --------- -------------------
Eastcliff Contrarian Value Fund -0.68% -4.82%
Russell Midcap Index*<F5> 18.23% 14.22%
*<F5> 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.
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.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE> EASTCLIFF
EASTCLIFF EASTCLIFF REGIONAL
TOTAL EASTCLIFF EMERGING SMALL EASTCLIFF
RETURN GROWTH GROWTH CAPITALIZATION CONTRARIAN
FUND FUND FUND VALUE FUND VALUE FUND
------- ------- ------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as a
Percentage of offering price) No Sales No Sales No Sales No Sales No Sales
Charge Charge Charge Charge Charge
Maximum Deferred Sales
Charge (Load) No Deferred No Deferred No Deferred No Deferred No Deferred
Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends And Distributions No Sales No Sales No Sales No Sales No Sales
Charge Charge Charge Charge Charge
Redemption Fee None(1)<F6> None(1)<F6> None(1)<F6> None(1)<F6> None(1)<F6>
Exchange Fee None None None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Management Fees 1.00% 1.00% 1.00% 1.00% 1.00%
Distribution and/or
Service (12b-1) Fees 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses 0.40% 0.54% 0.70% 0.33% 0.77%
Total Annual Fund
Operating Expenses 1.40%(2)<F7> 1.54%(2)<F7> 1.70%(2)<F7> 1.33%(2)<F7> 1.77%(2)<F7>
</TABLE>
(1)<F6> Our transfer agent charges a fee of $12.00 for each wire redemption.
(2)<F7> Each of the Funds 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.
EASTCLIFF TOTAL RETURN FUND 1.30%
EASTCLIFF GROWTH FUND 1.30%
EASTCLIFF EMERGING GROWTH FUND 1.30%
EASTCLIFF REGIONAL SMALL CAPITALIZATION VALUE FUND 1.30%
EASTCLIFF CONTRARIAN VALUE FUND 1.30%
Our investment adviser may discontinue these reimbursements at any
time, but will not do so prior to June 30, 2001.
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 $143 $443 $766 $1,680
Eastcliff Growth Fund $157 $486 $839 $1,835
Eastcliff Emerging Growth Fund $173 $536 $923 $2,009
Eastcliff Regional Small
Capitalization Value Fund $135 $421 $729 $1,601
Eastcliff Contrarian Value Fund $180 $557 $959 $2,084
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 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 (such as bonds, notes,
debentures, bills, or money market instruments), or in both common stocks or
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. By "focused" we mean investing in a
limited number of stocks. Usually each of the Eastcliff Funds will hold stocks
of less than 70 companies. They are not "closet indexers." ("Closet indexers"
are portfolio managers that purport to actively manage a portfolio but actually
manage it in such a way that its returns will be substantially similar to an
index.)
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 stocks 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
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 Management focused on shareholder value
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 increaseEASTCLIFF
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
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 per
share 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
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:
1400 Peavey Building
730 Second Avenue South
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 Emerging 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 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 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, 2000, 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
Winslow Capital Management, Inc. has been an investment adviser since 1992,
and as of June 30, 2000 managed approximately $800 million 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 1987.
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, 2000 managed approximately $120 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, 2000, managed approximately $350 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.
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, 2000 managed approximately $1.4 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.
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 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. They will process purchase
and redemption orders that they receive AFTER the close of regular trading at
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
o All accounts $1,000
B. EXISTING ACCOUNTS
o Dividend
reinvestment No Minimum
o Automatic
Investment Plan $ 50
o 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 $25 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
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, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53202
ABA #042000013
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,
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, 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
three day settlement basis.
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:
o 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.
o Use procedures and impose restrictions that may be in addition to, or
different from, those applicable to investors purchasing shares directly
from the Funds.
o 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.
o 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.
o 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 receipt 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. Shares of the Funds are not
available to residents in certain states and have not been registered for sale
outside of the United States.
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.
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 and execute a stock power exactly as your shares are
registered.
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.
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:
o Firstar Mutual Fund Services, LLC receives your written request in
proper form with all required information.
o Firstar Mutual Fund Services, LLC receives your authorized telephone
request with all required information.
o 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
o 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.
o 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.
o 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:
o The redemption may result in a taxable gain.
o 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.
o The Funds may delay the payment of redemption proceeds for up to seven
days in all cases.
o 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).
o 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.
o 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.
o 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.
o 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.
o 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.
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 generally
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 Emerging 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.
<TABLE>
EASTCLIFF TOTAL RETURN FUND
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C. <C> <C> <C>
Net asset value, beginning of year $23.36 $21.50 $16.86 $14.62 $11.96
Income from investment operations:
Net investment (loss) income (0.13) 0.10 0.23 0.23 0.09
Net realized and unrealized gains on investments 4.11 4.28 5.19 3.47 2.90
------ ------ ------ ------ ------
Total from investment operations 3.98 4.38 5.42 3.70 2.99
Less distributions:
Dividends from net investment income (0.02) (0.17) (0.25) (0.12) (0.17)
Distributions from net realized gains (3.73) (2.35) (0.53) (1.34) (0.16)
------ ------ ------ ------ ------
Total from distributions (3.75) (2.52) (0.78) (1.46) (0.33)
------ ------ ------ ------ ------
Net asset value, end of year $23.59 $23.36 $21.50 $16.86 $14.62
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total investment return 20.8% 21.7% 33.3% 28.1% 25.4%
Supplemental data and ratios:
Net assets, end of year (000s) $24,186 $25,002 $25,454 $21,626 $17,799
Ratio of expenses (after reimbursement)
to average net assets(1)<F8> 1.3% 1.3% 1.3% 1.3% 1.3%
Ratio of net investment (loss) income
to average net assets(2)<F9> (0.6%) 0.4% 1.2% 1.5% 0.7%
Portfolio turnover rate 46.7% 32.9% 38.4% 58.3% 95.1%
</TABLE>
(1)<F8> 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%, 1.4%, 1.4%, 1.5% and 1.6% for the years ended
June 30, 2000, 1999, 1998, 1997 and 1996, respectively.
(2)<F9> The ratios of net investment (loss) income to average net assets prior
to the Adviser's expense limitation undertaking for the years ended
June 30, 2000, 1999, 1998, 1997 and 1996 would have been (0.7%), 0.3%,
1.1%, 1.3% and 0.4%, respectively.
<TABLE>
EASTCLIFF GROWTH FUND
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C. <C> <C> <C>
Net asset value, beginning of year $15.60 $17.85 $13.92 $12.56 $10.00
Income from investment operations:
Net investment loss(1)<F10> (0.08) (0.18) (0.15) (0.14) (0.08)
Net realized and unrealized gains on investments 2.52 1.15 4.71 1.50 2.64
------ ------ ------ ------ ------
Total from investment operations 2.44 0.97 4.56 1.36 2.56
Less distributions:
Dividend from net investment income -- -- -- -- --
Distributions from net realized gains (6.42) (3.22) (0.63) -- --
------ ------ ------ ------ ------
Total from distributions (6.42) (3.22) (0.63) -- --
------ ------ ------ ------ ------
Net asset value, end of year $11.62 $15.60 $17.85 $13.92 $12.56
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total investment return 22.5% 8.0% 33.9% 10.8% 25.6%
Supplemental data and ratios:
Net assets, end of year (000s) $12,151 $43,374 $56,594 $46,389 $46,193
Ratio of expenses (after reimbursement)
to average net assets(2)<F11> 1.3% 1.3% 1.3% 1.3% 1.3%
Ratio of net investment loss
to average net assets(3)<F12> (0.7%) (0.7%) (0.9%) (1.0%) (0.8%)
Portfolio turnover rate 123.9% 86.3% 93.3% 54.3% 40.3%
</TABLE>
(1)<F10> In 2000, net investment loss per share was calculated using average
shares outstanding. In prior years, net investment loss per share was
calculated using ending balances prior to consideration of adjustments
for permanent book and tax differences.
(2)<F11> 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 1.5%, 1.3% and 1.4% for the years ended June 30, 2000,
1997 and 1996, respectively.
(3)<F12> The ratios of net investment loss to average net assets prior to the
Adviser's expense limitation undertaking for the years ended June 30,
2000, 1997 and 1996 would have been (0.9%), (1.0%) and (0.9%),
respectively.
EASTCLIFF EMERGING GROWTH FUND
9/30/99(1)<F13>
TO 6/30/00
-----------
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment loss (0.06)
Net realized and unrealized gains on investments 2.97
------
Total from investment operations 2.91
Less distributions:
Dividend from net investment income --
Distribution from net realized gains (0.14)
------
Total from distributions (0.14)
------
Net asset value, end of period $12.77
------
------
Total investment return 29.2%(2)<F14>
Supplemental data and ratios:
Net assets, end of period (000s) $11,491
Ratio of expenses (after reimbursement)
to average net assets(4)<F16> 1.3%(3)<F15>
Ratio of net investment loss to average net assets(5)<F17> (0.8%)(3)<F15>
Portfolio turnover rate 91.5%
(1)<F13> Commencement of Operations.
(2)<F14> Not annualized.
(3)<F15> Annualized.
(4)<F16> 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 1.7%(3) for the period September 30, 1999 to June 30,
2000.
(5)<F17> The ratio of net investment income to average net assets prior to the
Adviser's expense limitation undertaking for the period September 30,
1999 to June 30, 2000 would have been (1.2%)(3), respectively.
<TABLE>
EASTCLIFF REGIONAL SMALL CAPITALIZATION VALUE FUND
FOR THE YEARS ENDED JUNE 30,
------------------------------------ 9/16/96(1)<F18>
2000 1999 1998 TO 6/30/97
------ ------ ------ -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $13.28 $13.56 $12.23 $10.00
Income from investment operations:
Net investment income (loss) 0.01 (0.03) (0.01) 0.02
Net realized and unrealized (losses)
gains on investments (1.58) (0.14) 1.43 2.23
------ ------ ------ ------
Total from investment operations (1.57) (0.17) 1.42 2.25
Less distributions:
Dividends from net investment income -- -- (0.00) (0.02)
Distributions from net realized gains (0.09) (0.11) (0.09) --
------ ------ ------ ------
Total from distributions (0.09) (0.11) (0.09) (0.02)
------ ------ ------ ------
Net asset value, end of period $11.62 $13.28 $13.56 $12.23
------ ------ ------ ------
------ ------ ------ ------
Total investment return (11.8%) (1.2%) 11.7% 22.5%(2)<F19>
Supplemental data and ratios:
Net assets, end of period (000s) $36,731 $53,810 $62,139 $29,231
Ratio of expenses (after reimbursement)
to average net assets(4)<F21> 1.3% 1.3% 1.3% 1.3%(3)<F20>
Ratio of net investment income (loss)
to average net assets(5)<F22> 0.1% (0.2%) (0.1%) 0.3%(3)<F20>
Portfolio turnover rate 57.3% 29.2% 35.5% 29.4%
</TABLE>
(1)<F18> Commencement of Operations
(2)<F19> Not annualized.
(3)<F20> Annualized.
(4)<F21> 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 1.6%(3) for the year ending June 30, 2000 and
for the period September 16, 1996 to June 30, 1997, respectively.
(5)<F22> The ratios of net investment income to average net assets prior to the
Adviser's expense limitation undertaking for the year ending June 30,
2000 and for the period September 16, 1996 to June 30, 1997 would have
been 0.1% and (0.0%)(3), respectively.
<TABLE>
EASTCLIFF CONTRARIAN VALUE FUND
YEARS ENDED JUNE 30,
--------------------- 12/30/97(1)<F23>
2000 1999 TO 6/30/98
------ ------ --------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.47 $10.41 $10.00
Income from investment operations:
Net investment income(4)<F26> 0.08 0.09 0.04
Net realized and unrealized (losses) gains on investments (0.70) (0.66) 0.37
------ ------ ------
Total from investment operations (0.62) (0.57) 0.41
Less distributions:
Dividends from net investment income (0.11) (0.07) --
Distributions from net realized gains -- (0.30) --
------ ------ ------
Total from distributions (0.11) (0.37) --
------ ------ ------
Net asset value, end of period $ 8.74 $ 9.47 $10.41
------ ------ ------
------ ------ ------
Total investment return (6.5%) (5.3%) 4.1%(2)<F24>
Supplemental data and ratios:
Net assets, end of period (000s) $5,568 $13,829 $19,569
Ratio of expenses (after reimbursement)
to average net assets(5)<F27> 1.3% 1.3% 1.3%(3)<F25>
Ratio of net investment income
to average net assets(6)<F28> 0.9% 0.9% 0.7%(3)<F25>
Portfolio turnover rate 42.5% 45.0% 13.6%
</TABLE>
(1)<F23> Commencement of Operations.
(2)<F24> Not annualized.
(3)<F25> Annualized.
(4)<F26> In 2000, net investment income per share was calculated using average
shares outstanding. In prior periods, net investment income per share
was calculated using ending balances prior to consideration of
adjustments for permanent book and tax differences.
(5)<F27> 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 1.8%, 1.5% and 1.5%(3), for the years ended June 30,
2000 and 1999 and for the period December 30, 1997 to June 30, 1998,
respectively.
(6)<F28> The ratios of net investment income to average net assets prior to the
Adviser's expense limitation undertaking for the years ended
June 30, 2000 and 1999 and for the period December 30,1997 to June 30,
1998 would have been 0.4%, 0.7% and 0.5%(3), respectively.
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.
1400 PEAVEY BUILDING
730 SECOND AVENUE SOUTH
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 1-202-942-8090 for information on the
operations of the Public Reference Room.) Reports and other information about
the Eastcliff Funds are also available on the EDGAR Database 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 electronic
request at the following E-mail address: [email protected] or 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.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION October 31, 2000
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
October 31, 2000. Requests for copies of the prospectus should be made in
writing to Eastcliff Funds, Inc., 1400 Peavey Building, 730 Second Avenue South,
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, 2000 of Eastcliff Funds, Inc. (File No.
811-4722) as filed with the Securities and Exchange Commission on August 23,
2000:
o Statement of Assets and Liabilities (Eastcliff Total Return Fund
only)
o Schedule of Investments (Eastcliff Total Return Fund only)
o Statements of Net Assets (Eastcliff Growth Fund, Eastcliff
Emerging Growth Fund, Eastcliff Regional Small Capitalization
Value Fund and Eastcliff 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.
1400 Peavey Building
730 Second Avenue South
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............................21
INVESTMENT ADVISER, PORTFOLIO MANAGERS AND ADMINISTRATOR......................22
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE..............................26
DISTRIBUTION OF SHARES........................................................31
RETIREMENT PLANS..............................................................32
AUTOMATIC INVESTMENT PLAN.....................................................35
REDEMPTION OF SHARES..........................................................35
SYSTEMATIC WITHDRAWAL PLAN....................................................35
ALLOCATION OF PORTFOLIO BROKERAGE.............................................36
CUSTODIAN.....................................................................38
TAXES.........................................................................38
SHAREHOLDER MEETINGS..........................................................39
CAPITAL STRUCTURE.............................................................41
INDEPENDENT ACCOUNTANTS.......................................................42
DESCRIPTION OF SECURITIES RATINGS.............................................42
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated October 31, 2000 and, if given or made,
such information or representations may not be
The Statement of Additional Information does not constitute an offer to
sell securities. relied upon as having been authorized by Eastcliff Funds, Inc.
-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) the Growth Fund may invest for hedging purposes up
to 5% of its net assets in put or call options and each of the Growth Fund and
the Emerging Growth Fund may invest for hedging purposes up to 5% of its net
assets in 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
<PAGE>
the period while such Fund seeks to enforce its rights thereto; (b) possible
decreased levels of income during this period; and (c) expenses of enforcing its
rights.
4. None of the Funds will make investments for the purpose of
exercising control or management of any company.
5. None of the Funds will purchase securities of any issuer (other
than the United States or an agency or instrumentality of the United States) if,
as a result of such purchase, such Fund would hold more than 10% of any class of
securities, including voting securities, of such issuer or more than 5% of such
Fund's assets, taken at current value, would be invested in securities of such
issuer, except that up to 25% of the assets of each of the 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
-2-
<PAGE>
Fund and the Contrarian Value Fund will not invest more than 10% of its total
assets, in securities of issuers which have a record of less than three years of
continuous operation, including the operation of any predecessor business of a
company which came into existence as a result of a merger, consolidation,
reorganization or purchase of substantially all of the assets of such
predecessor business.
The following investment limitation is not fundamental, and may be
changed without shareholder approval.
1. None of the Funds will purchase securities of other investment
companies except (a) as part of a plan of merger, consolidation or
reorganization approved by the shareholders of such Fund; (b) securities of
money market mutual funds; or (c) securities of registered closed-end investment
companies on the open market where no commission or profit results, other than
the usual and customary broker's commission. No purchases described in (b) and
(c) will be made if as a result of such purchase such Fund would hold more than
3% of any class of securities, including voting securities, of any registered
investment company or more than 5% of such Fund's assets, taken at current
value, would be invested in the securities of any registered investment company
or in securities of registered closed-end investment companies.
The aforementioned percentage restrictions on investment or
utilization of assets refer to the percentage at the time an investment is made.
If these restrictions are adhered to at the time an investment is made, and such
percentage subsequently changes as a result of changing market values or some
similar event, no violation of a Fund's investment restrictions will be deemed
to have occurred.
INVESTMENT CONSIDERATIONS
The Prospectus describes the Funds' principal investment strategies
and risks. This section expands upon that discussion and also describes
non-principal investment strategies and risks.
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.
-3-
<PAGE>
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 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.
-4-
<PAGE>
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 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
-5-
<PAGE>
rating to reflect changes in the economy or in the condition of the issuer that
affect the market value of the security. Consequently, credit ratings are used
only as a preliminary indicator of investment quality.
Liquidity and Valuation. A Fund may have difficulty disposing of
certain low-rated securities because there may be a thin trading market for such
securities. Because not all dealers maintain markets in all low-rated
securities, there is no established retail secondary market for many of these
securities. The Funds anticipate that such securities could be sold only to a
limited number of dealers or institutional investors. To the extent a secondary
trading market does exist, it is generally not as liquid as the secondary market
for higher rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security, and accordingly, the net
asset value of a particular Fund and its ability to dispose of particular
securities when necessary to meet its liquidity needs, or in response to a
specific economic event, or an event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities may also make it more difficult for a Fund to obtain accurate
market quotations for purposes of valuing their respective portfolios. Market
quotations are generally available on many low-rated issues only from a limited
number of dealers and may not necessarily represent firm bids of such dealers or
prices for actual sales. During periods of thin trading, the spread between bid
and asked prices is likely to increase significantly. In addition, adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high-yield securities,
especially in a thinly-traded market.
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
-6-
<PAGE>
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 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
-7-
<PAGE>
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 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
-8-
<PAGE>
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.
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 cash or liquid securities in an amount sufficient to
meet its purchase commitments. The purpose and effect of such maintenance 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
-9-
<PAGE>
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 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
-10-
<PAGE>
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 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
-11-
<PAGE>
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 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 cash or liquid securities 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
-12-
<PAGE>
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 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
-13-
<PAGE>
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 the
amounts prescribed. Securities so set aside 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 setting aside of a portion of
the applicable Fund's assets could impede portfolio management or such Fund's
ability to meet redemption requests or other current obligations.
Special Risks of Hedging and Income Enhancement Strategies.
Participation in the options or futures markets involves investment risks and
transactions costs to which the Growth Fund, the 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
-14-
<PAGE>
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.
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 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
-15-
<PAGE>
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 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.
During the fiscal year ended June 30, 2000, the annual portfolio turnover rate
for the Growth Fund was higher than in the preceding two fiscal years because of
increased sales of securities which were necessary to meet redemption requests.
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,
-16-
<PAGE>
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:
CONLEY BROOKS, JR.*
------------------
1450 Peavey Building
730 Second Avenue South
Minneapolis, Minnesota 55402
(PRESIDENT AND A DIRECTOR OF THE CORPORATION)
Mr. Brooks, age 54, 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 47, has been General Counsel 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 55, 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.
---------------
* 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.
-17-
<PAGE>
A. SKIDMORE THORPE
------------------
1350 Peavey Building
730 Second Avenue South
Minneapolis, Minnesota 55402
(A DIRECTOR OF THE CORPORATION)
Mr. Thorpe, age 71, 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*
---------------
1400 Peavey Building
730 Second Avenue South
Minneapolis, Minnesota 55402
(VICE PRESIDENT AND A DIRECTOR OF THE CORPORATION)
Mr. Welch, age 62, 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.
DONALD S. WILSON*
-----------------
225 East Mason Street
Milwaukee, Wisconsin 53202
(A DIRECTOR OF THE CORPORATION)
Mr. Wilson, age 57, 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.
-18-
<PAGE>
JOHN A. CLYMER
--------------
1400 Peavey Building
730 Second Avenue South
Minneapolis, Minnesota 55402
(VICE PRESIDENT, SECRETARY AND TREASURER OF THE CORPORATION)
Mr. Clymer, age 52, 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
---------------
1400 Peavey Building
730 Second Avenue South
Minneapolis, Minnesota 55402
(VICE PRESIDENT OF THE CORPORATION)
Mr. Boren, age 54, has been a Managing Director of Resource Trust
Company since December, 1995. 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.
JOANN GRANDCHAMP
----------------
1400 Peavey Building
730 Second Avenue South
Minneapolis, Minnesota 55402
(VICE PRESIDENT AND ASSISTANT SECRETARY OF THE CORPORATION)
Ms. Grandchamp, age 47, has been employed at Resource Capital
Advisers, Inc. in various capacities since May, 1999. Currently, she is the
Compliance Specialist for Resource Capital Advisers, Inc. Prior to joining
Resource Capital Advisers, Inc., Ms. Grandchamp was employed as a securities
trader for General Mills, Inc. Ms. Grandchamp has been a Vice President and
Assistant Secretary of the Corporation since August, 2000.
-19-
<PAGE>
PATRICE J. NEVERETT
-------------------
249 Royal Palm Way
Suite 400
Palm Beach, Florida 33480
(VICE PRESIDENT OF THE CORPORATION)
Ms. Neverett, age 47, 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.
RHONDA T. OMLIE
---------------
1400 Peavey Building
730 Second Avenue South
Minneapolis, Minnesota 55402
(VICE PRESIDENT OF THE CORPORATION)
Ms. Omlie, age 42, is a Senior Vice President of Resource Trust
Company. She has been employed at Resource Trust Company in various capacities
since 1985. Ms. Omlie has been a Vice President of the Corporation since
September, 2000.
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, 2000:
<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 $0 $0 $0 $0
A. Skidmore Thorpe $500 $0 $0 $500
E. Thomas Welch $0 $0 $0 $0
Donald S. Wilson $0 $0 $0 $0
Rolf Engh $3,000 $0 $0 $3,000
</TABLE>
The Corporation, the Adviser and each of the investment advisory firms
that serve as portfolio managers for the Funds have adopted codes of ethics
pursuant to Rule 17j-1 under the Act. Each code of ethics permits personnel
subject thereto to invest in securities, including securities that may be
purchased or held by the Funds. Each code of ethics generally
-20-
<PAGE>
prohibits, among other things, persons subject thereto from purchasing or
selling securities if they know at the time of such purchase or sale that the
security is being considered for purchase or sale by a Fund or is being
purchased or sold by a Fund.
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
As of September 30, 2000, all officers and directors of the
Corporation as a group (11 persons) beneficially owned 887 shares of the Total
Return Fund (which constituted 0.08% of its then outstanding shares), 2,464
shares of the Growth Fund (which constituted 0.25% of its then outstanding
shares), 2,598 shares of the Regional Small Capitalization Value Fund (which
constituted 0.08% of its then outstanding shares), 1,210 shares of the
Contrarian Value Fund (which constituted 0.23% of its then outstanding shares)
and 163 shares of the Emerging Growth Fund (which constituted 0.02% of its then
outstanding shares).
As of September 30, 2000, the sole beneficial holder of more than 5%
of the Total Return Fund's then outstanding shares was Resource Trust Company,
1400 Peavey Building, 730 Second Avenue South, Minneapolis, Minnesota 55402,
which owned 881,208 shares, or 82.80% of the total shares of such Fund then
outstanding.
As of September 30, 2000, the beneficial holders of more than 5% of
the Growth Fund's then outstanding shares were Resource Trust Company, 1400
Peavey Building 730 Second Avenue South, Minneapolis, Minnesota 55402, which
owned 551,227 shares of such Fund (constituting 55.02% of its then outstanding
shares), Rochester Area Foundation, U.S. Bank, N.A. Custodian, P.O. Box 64010,
St. Paul, MN 55164, which owned 79,674 shares of such Fund (constituting 7.95%
of its then outstanding shares, Peter R. Kitchak, 135 West Point Road,
Excelsior, MN 55331, who owned 65,563 shares of such Fund (constituting 6.54% of
its then outstanding shares), and Minnesota Masonic Homes, 11501 Masonic Home
Drive, Bloomington, MN 55437, which owned 53,109 shares of such Fund
(constituting 5.30% of its then outstanding shares).
As of September 30, 2000, the beneficial holders of more than 5% of
the Regional Small Capitalization Value Fund's then outstanding shares were
Resource Trust Company, 1400 Peavey Building, 730 Second Avenue South,
Minneapolis, Minnesota 55402, which owned 868,397 shares of such Fund
(constituting 28.25% 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 614,126
shares of such Fund (constituting 19.98% of its then outstanding shares), and
Wells Fargo Bank MN, NA, P. O. Box 1533, Minneapolis, MN 55480, which owned
285,495 shares of such Fund (constituting 9.29% of its then outstanding shares).
As of September 30, 2000, the beneficial holders of more than 5% of
the Contrarian Value Fund's then outstanding shares were Resource Trust Company,
1400 Peavey Building, 730 Second Avenue South, Minneapolis, MN 55402, which
owned 419,039 shares, (constituting 79.07% of its then outstanding shares), and
Hollybrook & Co. and Allbrook & Co., affiliates of Conley Brooks, Jr., which
owned 85,583 shares of such Fund (constituting 16.15% of its then outstanding
shares).
-21-
<PAGE>
As of September 30, 2000, the beneficial holders of more than 5% of
the Emerging Growth Fund's then outstanding shares were Gail M. Knappenberger &
Sharyn W. Knappenberger, 601 Carlson Parkway, Suite 950, Minnetonka, MN 55305,
who owned 504,016 shares of such Fund (constituting 55.66% of its then
outstanding shares) and the National Bank of Commerce, FBO Lincoln Community
Foundation, P.O. Box 82408, Lincoln, NE 68501, which owned 228,584 shares of
such Fund (constituting 25.24% of its then outstanding shares). Resource Trust
Company, a Minnesota corporation, is the parent company of Resource Capital
Advisers, Inc., the investment adviser to each of the Funds.
The Corporation and the Total Return Fund, the Growth Fund, the
Regional Small Capitalization Value Fund and the Contrarian Value Fund, but not
the Emerging Growth Fund, are controlled by Resource Trust Company. Resource
Trust Company owns sufficient shares of the Total Return Fund, the Growth Fund
and the Contrarian 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. Gail and Sharyn Knappenberger control
the Emerging Growth Fund and own sufficient shares to approve or disapprove all
matters brought solely before the shareholders of the Emerging Growth Fund. 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 and a one bank
holding company. Both Resource Trust Company and Resource Companies, Inc. have
been in business as such for more than five years. 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.
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.
-22-
<PAGE>
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, 2000, 1999 and 1998
the Total Return Fund paid the Adviser advisory fees of $246,156, $251,628 and
$236,368, respectively. During the fiscal years ended June 30, 2000, 1999 and
1998, the Growth Fund paid the Adviser advisory fees of $180,988, $417,074 and
$512,180, respectively. During the fiscal years ended June 30, 2000, 1999 and
1998 the Regional Small Capitalization Value Fund paid the Adviser advisory fees
of $454,869, $499,521 and $544,391, respectively. The Contrarian Value Fund did
not begin operations until December 30, 1997. During the fiscal years ended June
30, 2000 and 1999 and during the period from December 30, 1997 through June 30,
1998, the Contrarian Value Fund paid the Adviser advisory fees of $88,879,
$158,237 and $90,399, respectively. The Emerging Growth Fund did not begin
operations until September 30, 1999. During the period from September 30, 1999
to June 30, 2000 the Emerging Growth Fund paid the Adviser advisory fees of
$64,153.
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 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,
2001, and did so for the fiscal years ended June 30, 2000, 1999 and 1998 for
each of the Funds operating at such times. Each of WCM, KB and Sasco has agreed
to reimburse the
-23-
<PAGE>
Adviser in an amount equal to 60% of the reimbursement made by the Adviser with
respect to the Growth Fund, Emerging Growth Fund and Contrarian Value Fund,
respectively. 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, 2000, 1999 and
1998, the Adviser reimbursed the Total Return Fund $25,106, $25,397 and $27,489,
respectively, for excess expenses. During the fiscal years ended June 30, 2000,
1999 and 1998, the Adviser reimbursed the Growth Fund $44,949, $0 and $0,
respectively, for excess expenses. During the fiscal years ended June 30, 2000,
1999 and 1998, the Adviser reimbursed the Regional Small Capitalization Value
Fund $36,888, $0 and $0, respectively, for excess expenses. The Contrarian Value
Fund did not begin operations until December 30, 1997. During the fiscal years
ended June 30, 2000 and 1999 and during the period from December 30, 1997
through June 30, 1998, the Adviser reimbursed the Contrarian Value Fund $41,277,
$37,434 and $17,544, respectively, for excess expenses. The Emerging Growth Fund
did not begin operations until September 30, 1999. During the period from
September 30, 1999 to June 30, 2000 the Adviser reimbursed the Emerging Growth
Fund $25,631 for excess expenses.
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 portfolio manager will not necessarily exhibit all
of the criteria to the same degree. Portfolio managers are paid by the Adviser
(not the Funds).
-24-
<PAGE>
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, 2000, 1999
and 1998, the Total Return Fund paid the Administrator $48,889, $49,530 and
$47,236, respectively, pursuant to such Fund's Administration Agreement. During
the fiscal years ended June 30, 2000, 1999 and 1998, the Growth Fund paid the
Administrator $34,162, $70,745 and $76,677, respectively, pursuant to such
Fund's Administration Agreement. During the fiscal years ended June 30, 2000,
1999 and 1998, the Regional Small Capitalization Value Fund paid the
Administrator $68,994, $72,409 and $77,094, respectively pursuant to such Fund's
Administration Agreement. The Contrarian Value Fund did not commence operations
until December 30, 1997. During the fiscal years ended June 30, 2000 and 1999
and during the period from December 30, 1997 through June 30, 1998, the
Contrarian Value Fund paid the Administrator $17,776, $31,647 and $18,080,
respectively, pursuant to such Fund's Administration Agreement. The Emerging
Growth Fund did not commence operations until September 30, 1999. During the
period from September 30, 1999 through June 30, 2000 the Emerging Growth Fund
paid the Administrator $12,831 pursuant to such Fund's Administration Agreement.
The respective Management Agreements and Sub-Advisory Agreements of
each of the Funds will remain in effect as long as its continuance is
specifically approved at least annually (i) by the Board of Directors of the
Corporation, or, in the case of the Management Agreements, by the vote of a
majority (as defined in the Act) of the outstanding shares of the applicable
Fund, and (ii) by the vote of a majority of the directors of the Corporation who
are not parties to the Management Agreement or Sub-Advisory Agreement relating
to the
-25-
<PAGE>
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 market quotations are readily available. Any securities for which
there are no readily available
-26-
<PAGE>
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 all income dividends and capital
gains, calculating the ending value of the investment at the net
-27-
<PAGE>
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, 2000 and for the period
from the Fund's commencement of operations (December 30, 1986) through June 30,
2000 were 20.83%, 25.81%, 17.27% and 16.47%, respectively. (From December 17,
1987 until December 31, 1994 Fiduciary Management, Inc. was the investment
adviser to the Total Return Fund.) The Growth Fund's average annual compounded
returns for the one-year and five-year periods ended June 30, 2000 were 22.55%
and 19.85%, respectively, and for the period from the Growth Fund's commencement
of operations (July 1, 1995) through June 30, 2000 was 19.85%. The Regional
Small Capitalization Value Fund's average annual compounded return for the
one-year period ended June 30, 2000 was -11.82%, and for the period from the
Regional Small Capitalization Value Fund's commencement of operations (September
16, 1996) through June 30, 2000 was 4.75%. The Contrarian Value Fund's average
annual compounded return for the one-year period ended June 30, 2000 was -6.52%,
and for the period from the Contrarian Value Fund's commencement of operations
(December 30, 1997) through June 30, 2000 was -3.21%. The Emerging Growth Fund's
total return for the period from September 30, 1999 through June 30, 2000 was
29.21%.
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,
2000, assuming reinvestment of all dividends and distributions. (From December
17, 1987 until December 31, 1994 Fiduciary Management, Inc. was the investment
adviser to the Total Return Fund.)
-28-
<PAGE>
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
December 31, 1998 61,321 +513.2
December 31, 1999 76,722 +667.2
June 30, 2000 78,282 +682.8
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, 2000, 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
December 31, 1999 23,903 +139.0
June 30, 2000 24,711 +147.1
-29-
<PAGE>
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, 2000, 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
December 31, 1999 12,703 +27.0
June 30, 2000 11,923 +19.2
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,
2000, 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
December 31, 1999 9,059 -9.41
June 30, 2000 9,217 -7.83
The results below show the value of an assumed initial investment in
the Emerging Growth Fund of $10,000 made on September 30, 1999 through June 30,
2000, assuming reinvestment of all dividends and distributions.
Value of $10,000 Cumulative % Change
Date Investment (i.e. total return)
---- ---------------- -------------------
December 31, 1999 $12,992 +29.92%
June 30, 2000 12,921 +29.21
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
-30-
<PAGE>
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, 2001. 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 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.
-31-
<PAGE>
While the Plan is in effect, the selection and nomination of directors
who are not interested persons of the Corporation will be committed to the
discretion of the directors of the Corporation who are not interested persons of
the Corporation. The Board of Directors of the Corporation must review the
amount and purposes of expenditures pursuant to the Plan quarterly as reported
to it by a distributor, if any, or officers of the Corporation. The Plan will
continue in effect for as long as its continuance is specifically approved at
least annually by the Board of Directors, including the Rule 12b-1 Directors.
None of the Funds incurred any distribution costs pursuant to the Plan during
the fiscal year ended June 30, 2000.
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 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
-32-
<PAGE>
Traditional IRA reduce the allowable contribution under a Roth IRA, and
contributions to a Roth IRA reduce the allowable contribution to a Traditional
IRA.
Education IRA. In an Education IRA, contributions are made to an IRA
maintained on behalf of a beneficiary under age 18. The maximum annual
contribution is $500 per beneficiary. The contributions are not tax deductible
when made. However, if amounts are used for certain educational purposes,
neither the contributor nor the beneficiary of the IRA are taxed upon
distribution. The beneficiary is subject to income (and possibly penalty taxes)
on amounts withdrawn from an Education IRA that are not used for qualified
educational purposes. Shareholders whose income exceeds certain limits are
ineligible to contribute to an Education IRA.
Under current IRS regulations, an IRA applicant must be furnished a
disclosure statement containing information specified by the IRS. The applicant
generally has the right to revoke his account within seven days after receiving
the disclosure statement and obtain a full refund of his contributions. The
custodian may, in its discretion, hold the initial contribution uninvested until
the expiration of the seven-day revocation period. The custodian does not
anticipate that it will exercise its discretion but reserves the right to do so.
Simplified Employee Pension Plan
A Traditional IRA may also be used in conjunction with a Simplified
Employee Pension Plan ("SEP-IRA"). A SEP-IRA is established through execution of
Form 5305-SEP together with a Traditional IRA established for each eligible
employee. Generally, a SEP-IRA allows an employer (including a self-employed
individual) to purchase shares with tax deductible contributions, not exceeding
annually for any one participant, 15% of compensation (disregarding for this
purpose compensation in excess of $170,000 per year). The $170,000 compensation
limit applies for 2000 and is adjusted periodically for cost of living
increases. A number of special rules apply to SEP Plans, including a requirement
that contributions generally be made on behalf of all employees of the employer
(including for this purpose a sole proprietorship or partnership) who satisfy
certain minimum participation requirements.
SIMPLE IRA
An IRA may also be used in connection with a SIMPLE Plan established
by the shareholder's employer (or by a self-employed individual). When this is
done, the IRA is known as a SIMPLE IRA, although it is similar to a Traditional
IRA with the exceptions described below. Under a SIMPLE Plan, the shareholder
may elect to have his or her employer make salary reduction contributions of up
to $6,000 per year to the SIMPLE IRA. The $6,000 limit applies for 2000 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)
-33-
<PAGE>
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 $10,500 annually (as adjusted for
cost-of-living increases) although lower limits may apply as a result of
non-discrimination requirements incorporated into the plan. The Corporation has
received an opinion letter from the IRS holding that the form of the prototype
defined contribution retirement plan is acceptable under Section 401 of the
Code. The maximum annual contribution that may be allocated to the account of
any participant is generally the lesser of $30,000 or 25% of compensation
(earned income). Compensation in excess of $170,000 (as periodically indexed for
cost-of-living increases) is disregarded for this purpose. The maximum amount
that is deductible by the employer depends upon whether the employer adopts both
the profit sharing and money purchase components of the plan, or only one
component.
Retirement Plan Fees
Firstar Bank, N.A., Milwaukee, Wisconsin, serves as trustee or
custodian of the retirement plans. Firstar Bank, 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
($25 maximum per taxpayer identification number); $15 for transferring to a
successor trustee or custodian; $15 for distribution(s) to a participant; and
$15 for refunding any
-34-
<PAGE>
contribution in excess of the deductible limit. The fee schedule of Firstar
Bank, 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.
REDEMPTION OF SHARES
The right to redeem shares of the Funds will be suspended for any
period during which the New York Stock Exchange is closed because of financial
conditions or any other extraordinary reason and may be suspended for any period
during which (a) trading on the New York Stock Exchange is restricted pursuant
to rules and regulations of the Securities and Exchange Commission, (b) the
Securities and Exchange Commission has by order permitted such suspension, or
(c) an emergency, as defined by rules and regulations of the Securities and
Exchange Commission, exists as a result of which it is not reasonably
practicable for the Funds to dispose of their securities or fairly to determine
the value of their net assets.
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
-35-
<PAGE>
of a particular Fund with the Corporation and appoints it as his agent to effect
redemptions of shares of such Fund held in his account for the purpose of making
monthly or quarterly withdrawal payments of a fixed amount to him out of his
account. To utilize the Systematic Withdrawal Plan, the shares cannot be held in
certificate form. The Systematic Withdrawal Plan does not apply to shares of any
Fund held in Individual Retirement Accounts or 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
-36-
<PAGE>
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. "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 $7,130 on transactions having a total market value
of $6,703,149, $17,544 on transactions having a total market value of
$17,137,464 and $24,215 on transactions having a total marked value of
$24,842,543 for the fiscal years ended June 30, 1998, 1999 and 2000,
respectively. During the fiscal years ended June 30, 1998, 1999, and 2000, the
Growth Fund paid brokerage commissions of $75,062 on transactions having a total
market value of $60,131,748, $97,106 on transactions having a total market value
of $61,555,579 and $59,594 on transactions having a total market value of
$46,760,831, respectively. During the fiscal years ended June 30, 1998, 1999 and
2000 the Regional Small Capitalization Value Fund paid brokerage commissions of
$77,720 on transactions having a market value of $34,327,567, $62,797 on
transactions having a total market value of $24,551,852 and $92,579 on
transactions having a total market value of $32,693,373, respectively. The
Contrarian Value Fund did not commence operations until December 30, 1997.
During the period from December 30, 1997
-37-
<PAGE>
through June 30, 1998, the Contrarian Value Fund paid brokerage commissions of
$40,438 on transactions having a total market value of $22,255,053 and for the
fiscal years ended June 30, 1999 and 2000 paid $34,597 on transactions having a
market value of $16,927,593 and $34,906 on transactions having a total market
value of $14,407,820, respectively. The Emerging Growth Fund did not commence
operations until September 30, 1999. During the period from September 30, 1999
through June 30, 2000 the Emerging Growth Fund paid brokerage commissions of
$7,776 on transactions having a total market value of $3,058,514. All of the
brokers to whom commissions were paid by the Total Return Fund, the Growth Fund,
the Regional Small Capitalization Value Fund, the Contrarian Value Fund and the
Emerging Growth Fund provided research services to the Adviser.
CUSTODIAN
Firstar Bank, N.A., 615 East Michigan Street, Milwaukee, Wisconsin
53202, acts as custodian for the Funds. As such, Firstar Bank, 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, 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, N.A., also acts as the Funds' transfer agent and dividend
disbursing agent. Its address is 615 East Michigan Street, Milwaukee, Wisconsin
53202.
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
-38-
<PAGE>
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.
From time to time the Funds may elect to treat a portion of earnings
and profits included in shareholder redemptions as part of the Funds' dividend
paid deduction.
At June 30, 2000 the Contrarian Value Fund had a $2,034,554 capital
loss carryover which expires June 30, 2008. To the extent that the Contrarian
Value Fund realizes future net capital gains, those gains will be offset by any
unused capital loss carryover.
Any dividend or capital gains distribution paid shortly after a
purchase of shares will have the effect of reducing the per share net asset
value of such shares by the amount of the dividend or distribution. Furthermore,
if the net asset value of the shares immediately after a dividend or
distribution is less than the cost of such shares to the shareholder, the
dividend or distribution will be taxable to the shareholder even though it
results in a return of capital to him.
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.
-39-
<PAGE>
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 (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.
-40-
<PAGE>
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 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.
-41-
<PAGE>
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.
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.
-42-
<PAGE>
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC Bonds are regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, they are outweighed by
large uncertainties or major risk exposures to adverse conditions.
Moody's Investors Service, Inc Bond Ratings.
-------------------------------------------
Aaa - Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large, or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
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.
-43-
<PAGE>
Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each of the
foregoing generic rating classifications. The modifier 1 indicates that the
company ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the company
ranks in the lower end of its generic rating category.
Standard & Poor's Commercial Paper Ratings. A Standard & Poor's
commercial paper rating is a current assessment of the likelihood of timely
payment of debt considered short-term in the relevant market. Ratings are graded
into several categories, ranging from A-1 for the highest quality obligations to
D for the lowest. The three highest categories are as follows:
A-1. This highest category indicates that the degree of safety
regarding timely payment is strong. Those issuers determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
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.
-44-
<PAGE>
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
"AAA" This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
"AA" A preferred stock issue rated "AA" also qualifies as a
high-quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
"AAA."
"A" An issued rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
"BBB" An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make payments
for a preferred stock in this category than for issues in the "A" category.
"BB," "B," "CCC" Preferred stock rated "BB," "B," and "CCC" are
regarded, on balance, as predominately speculative with respect to the issuer's
capacity to pay 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.
-45
<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.(4)
(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. (4)
(d)(x) Sub-Advisory Agreement among Eastcliff Emerging Growth Fund,
Resource Capital Advisers, Inc. and KB Growth Advisors, LLC.
(4)
(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, N.A.).(2)
(g)(ii) Custodian Agreement between Eastcliff Growth Fund and
Firstar Trust Company (predecessor to Firstar Bank, N.A.)(2)
(g)(iii) Custodian Agreement between Eastcliff Regional Small
Capitalization Value Fund and Firstar Trust Company
(predecessor to Firstar Bank, N.A.).(2)
(g)(iv) Custodian Agreement between Eastcliff Contrarian Value Fund
and Firstar Trust Company (predecessor to Firstar Bank,
N.A.).(3)
(g)(v) Custodian Agreement between Eastcliff Emerging Growth Fund
and Firstar Bank Milwaukee, N.A. (predecessor to Firstar
Bank, N.A.) (4)
(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. (4)
(i) Opinion of Foley & Lardner, counsel for Registrant.
(j) Consent of PricewaterhouseCoopers LLP.
(k) None
(l) Subscription Agreement.(2)
S-2
<PAGE>
(m)(i) Amended and Restated Servicing and Distribution Plan of
Eastcliff Funds, Inc.(2)
(m)(ii) Servicing and Distribution Agreement.(2)
(n) None.
(p)(i) Code of Ethics of Eastcliff Funds, Inc.
(p)(ii) Code of Ethics of Resource Companies, Inc., Resource Trust
Company and Resource Capital Advisers, Inc.
(p)(iii) Code of Ethics of Palm Beach Investment Advisers, Inc.
(p)(iv) Code of Ethics of Winslow Capital Management, Inc.
(p)(v) Code of Ethics of Woodland Partners LLC.
(p)(vi) Code of Ethics of Sasco Capital, Inc.
(p)(vii) Code of Ethics of KB Growth Advisors, LLC.
--------------------
(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.
(4) Previously filed as an exhibit to Amendment No. 22 to Registrant's
Registration Statement on Form N-1A and incorporated by reference thereto.
Amendment No. 22 was filed on July 15, 1999 and its accession number is
0000897069-99-000376.
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, the Eastcliff
Contrarian Value Fund and the Eastcliff Emerging Growth 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.
S-3
<PAGE>
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 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
S-4
<PAGE>
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
7.03 Allowance of Expenses. Expenses, including attorneys' fees, incurred
in the preparation of and/or presentation of the defense of a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding as authorized in the manner
provided in Sections 180.0853 or 180.0856 of the Wisconsin Business Corporation
Law and in accordance with the requirements of the Securities and Exchange
Commission upon receipt of an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be determined
that he or she is entitled to be indemnified by the corporation as authorized in
this by-law.
7.04 Additional Rights to Indemnification. The indemnification provided by
this by-law shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under these by-laws, any agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors 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
S-5
<PAGE>
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.
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
Incorporated by reference to pages 16 through 22 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, 1400 Peavey Building, 730 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.
S-6
<PAGE>
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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amended Registration Statement under
Rule 485(b) under the Securities Act and has duly caused this Amended
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Minneapolis and State of Minnesota on the 16th
day of October, 2000.
EASTCLIFF FUNDS, INC.
(Registrant)
By: /s/ Conley Brooks, Jr.
-----------------------------------
Conley Brooks, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Name Title Date
---- ----- ----
/s/ Conley Brooks, Jr. Principal Executive, October 16, 2000
------------------------------- Financial and
Conley Brooks, Jr. Accounting Officer
and Director
/s/ E. Thomas Welch Vice President and October 16, 2000
------------------------------- Director
E. Thomas Welch
Director October __, 2000
-------------------------------
John J. Fauth
/s/ A. Skidmore Thorpe Director October 16, 2000
-------------------------------
A. Skidmore Thorpe
/s/ Donald S. Wilson Director October 23, 2000
-------------------------------
Donald S. Wilson
/s/ Rolf Engh Director October 16, 2000
-------------------------------
Rolf Engh
S-8
<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.*
(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
_______________
* Incorporated by reference
Exhibit Index - Page 1
<PAGE>
Exhibit No. Exhibit
----------- -------
(g)(i) Custodian Agreement between Eastcliff Total Return Fund
(formerly Fiduciary Total Return Fund) and Firstar Trust
Company (predecessor to Firstar Bank, N.A.)*
(g)(ii)) Custodian Agreement between Eastcliff Growth Fund and
Firstar Trust Company (predecessor to Firstar Bank, N.A.)*
(g)(iii) Custodian Agreement between Eastcliff Regional Small
Capitalization Value Fund and Firstar Trust Company
(predecessor to Firstar Bank, N.A.)*
(g)(iv) Custodian Agreement between Eastcliff Contrarian Value Fund
and Firstar Trust Company (predecessor to Firstar Bank,
N.A.)*
(g)(v) Custodian Agreement between Eastcliff Emerging Growth Fund
and Firstar Bank Milwaukee, N.A. (predecessor to Firstar
Bank, N.A.)*
(h)(i) Administrative Agreement, including addendum, between
Eastcliff Total Return Fund (formerly Fiduciary Total Return
Fund) and Fiduciary Management, Inc.*
(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
(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) None
_______________
* Incorporated by reference.
Exhibit Index - Page 2
<PAGE>
Exhibit No. Exhibit
----------- -------
(p)(i) Code of Ethics of Eastcliff Funds, Inc.
(p)(ii) Code of Ethics of Resource Companies, Inc., Resource Trust
Company and Resource Capital Advisers, Inc.
(p)(iii) Code of Ethics of Palm Beach Investment Advisers, Inc.
(p)(iv) Code of Ethics of Winslow Capital Management, Inc.
(p)(v) Code of Ethics of Woodland Partners LLC
(p)(vi) Code of Ethics of Sasco Capital, Inc.
(p)(vii) Code of Ethics of KB Growth Advisors LLC
--------
Exhibit Index - Page 3
