<PAGE>
CNI CHARTER FUNDS
LARGE CAP GROWTH EQUITY FUND
LARGE CAP VALUE EQUITY FUND
CORPORATE BOND FUND
GOVERNMENT BOND FUND
CALIFORNIA TAX EXEMPT BOND FUND
Supplement dated March 21, 2000
To the Institutional Class Prospectus dated January 12, 2000
THIS SUPPLEMENT PROVIDES DIFFERENT INFORMATION FROM THAT CONTAINED IN THE
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION WITH THE OTHER INFORMATION
CONTAINED IN THE PROSPECTUS.
Under the heading "DECLARING AND PAYING DIVIDENDS" beginning on page 28 of
the prospectus, the second sentence has been deleted and replaced to read as
follows:
For the Large Cap Growth Fund and the Large Cap Value Fund, we will declare
and pay dividends, if any, on the last business day of each calendar
quarter, and pay net capital gain, if any, in the last quarter of each
calendar year.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
CNI CHARTER FUNDS
LARGE CAP GROWTH EQUITY FUND
LARGE CAP VALUE EQUITY FUND
CORPORATE BOND FUND
GOVERNMENT BOND FUND
CALIFORNIA TAX EXEMPT BOND FUND
Supplement dated March 21, 2000
To the Class A Prospectus dated January 12, 2000
THIS SUPPLEMENT PROVIDES DIFFERENT INFORMATION FROM THAT CONTAINED IN THE
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION WITH THE OTHER INFORMATION
CONTAINED IN THE PROSPECTUS.
Under the heading "DECLARING AND PAYING DIVIDENDS" beginning on page 28 of
the prospectus, the second sentence has been deleted and replaced to read as
follows:
For the Large Cap Growth Fund and the Large Cap Value Fund, we will declare
and pay dividends, if any, on the last business day of each calendar
quarter, and pay net capital gain, if any, in the last quarter of each
calendar year.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
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PART B
STATEMENT OF ADDITIONAL INFORMATION
CNI CHARTER PRIME MONEY MARKET FUND
CNI CHARTER GOVERNMENT MONEY MARKET FUND
CNI CHARTER CALIFORNIA TAX EXEMPT MONEY MARKET FUND
---------------------------------------------------------------------
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
CNI CHARTER FUNDS
400 North Roxbury Drive, Beverly Hills, California 90210
PRIME MONEY MARKET FUND
(formerly, the Money Market Fund)
GOVERNMENT MONEY MARKET FUND
(formerly, the Government Fund)
CALIFORNIA TAX EXEMPT MONEY MARKET FUND
(formerly, the California Tax Exempt Fund)
Institutional Class, Class A and Class S of Shares
February 29, 2000
This Statement of Additional Information is not a prospectus. You should read it
in conjunction with the Prospectuses dated February 29, 2000, which may be
amended from time to time, for the Prime Money Market Fund (the "Prime Money
Fund"), Government Money Market Fund (the "Government Money Fund") and the
California Tax Exempt Money Market Fund (the "California Money Fund"). The Prime
Money Fund, the Government Money Fund and the California Money Fund are
collectively referred to in this Statement of Additional Information as the
"Funds." The Funds are diversified investment portfolios of the CNI Charter
Funds (the "Trust"), an open-end, management investment company. The Trust was
formerly called the Berkeley Funds. Audited financial statements for the
relevant periods ended October 31, 1999 for each Fund, and October 31, 1998 for
the Prime Money Fund, as contained in the Annual Report to Shareholders of those
Funds for the fiscal year ended October 31, 1999, are incorporated herein by
reference.
To obtain a free copy of the above-referenced prospectuses, please contact SEI
Investments Fund Management (the "Transfer Agent") at 1-888-889-0799.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT TECHNIQUES..........................................................2
INVESTMENT RESTRICTIONS.......................................................11
RISK CONSIDERATIONS...........................................................14
MANAGEMENT OF THE TRUST.......................................................20
PORTFOLIO TRANSACTIONS AND TURNOVER...........................................26
DISTRIBUTION AND TAXES........................................................27
SHARE PRICE CALCULATION.......................................................31
YIELD.........................................................................31
DISTRIBUTION PLANS............................................................33
SHAREHOLDER SERVICE AGREEMENTS................................................35
EXPENSES......................................................................35
GENERAL INFORMATION...........................................................37
PRINCIPAL HOLDERS OF SECURITIES...............................................38
PURCHASE AND REDEMPTION OF SHARES.............................................40
OTHER INFORMATION.............................................................41
APPENDIX - RATINGS OF INVESTMENT SECURITIES....................................i
</TABLE>
<PAGE>
INVESTMENT TECHNIQUES
PRIME MONEY FUND
The Fund invests exclusively in the following types of U.S. dollar-denominated
money market instruments, which are deemed to mature in 397 days or less in
accordance with federal securities regulations and which the Investment Manager
has determined present minimal credit risk:
- Certificates of deposit, time deposits, notes and bankers'
acceptances of U.S. domestic banks (including their foreign
branches), Canadian chartered banks, U.S. branches of foreign
banks and foreign branches of foreign banks having total
assets of $5 billion or greater.
- Commercial paper, including asset-backed commercial paper,
rated in one of the two highest rating categories by Moody's
Investors Services ("Moody's), Standard and Poor's Corporation
("S&P"), Duff and Phelps Credit Rating Co. ("Duff"), Fitch
Investors Service, Inc. ("Fitch"), or any other nationally
recognized statistical rating organization ("NRSRO"); or
commercial paper or notes of issuers with an unsecured debt
issue outstanding currently rated in one of the two highest
rating categories by any NRSRO where the obligation is on the
same or a higher level of priority and collateralized to the
same extent as the rated issue.
- Other corporate obligations such as publicly traded bonds,
debentures, and notes rated in one of the two highest rating
categories by any NRSRO and other similar securities which, if
unrated by any NRSRO, are determined by the Investment
Manager, using guidelines approved by the Trust's Board of
Trustees of the Trust (the "Board of Trustees" or the
"Board"), to be at least equal in quality to one or more of
the above referenced securities.
- Obligations of, or guaranteed by, the U.S. or Canadian
governments, their agencies or instrumentalities.
- Repurchase agreements involving obligations that are suitable
for investment under the categories listed above.
<PAGE>
GOVERNMENT MONEY FUND
It is a fundamental policy of the Government Money Fund to invest, under normal
conditions, in (1) U.S. Treasury obligations; (2) obligations issued or
guaranteed as to principal and interest by the agencies or instrumentalities of
the U.S. Government; and (3) repurchase agreements involving these obligations.
CALIFORNIA MONEY FUND
It is a fundamental policy of the California Money Fund to invest, under normal
conditions, at least 80% of its net assets in municipal securities that produce
interest that, in the opinion of bond counsel, is exempt from federal income
tax. The California Money Fund will also invest, under normal conditions, at
least 80% of its net assets in securities the interest on which is not a
preference item for purposes of the federal alternative minimum tax (the "AMT").
Under normal conditions, at least 65% of the California Money Fund's assets will
be invested in municipal obligations the interest on which is exempt from
California state personal income tax. These constitute municipal obligations of
the State of California and its political subdivisions of municipal authorities
and municipal obligations issued by territories or possessions of the United
States. The California Money Fund may invest, under normal conditions, up to 20%
of its net assets in (1) municipal securities the interest on which is a
preference item for purposes of the AMT (although the California Money Fund has
no present intention of investing in such securities); and (2) taxable
investments.
The Investment Manager or the California Money Fund's Subadviser will not invest
25% or more of the California Money Fund's assets in municipal securities the
interest on which is derived from revenues of similar type projects. This
restriction does not apply to municipal securities in any of the following
categories: public housing authorities; general obligations of states and
localities; state and local housing finance authorities or municipal utilities
systems.
PERMITTED INVESTMENTS
ASSET-BACKED COMMERCIAL PAPER. The Prime Money Fund and the California Money
Fund can invest a portion of its assets in asset-backed commercial paper and
other Eligible Securities (as that term is defined below). The credit quality of
most asset-backed commercial paper depends primarily on the credit quality of
the assets underlying such securities, how well the entity issuing the security
is insulated from the credit risk of the originator (or any other affiliated
entities), and the amount and quality of any credit support provided to the
securities.
The Prime Money Fund and the California Money Fund each intends to obtain
repayment of asset-backed commercial paper from an identified pool of assets
including automobile receivables, credit-card receivables, and other types of
assets. Asset-backed commercial paper is issued by a special purpose vehicle
(usually a corporation) that has been established for the purpose of issuing the
commercial paper and purchasing the underlying pool of assets. The issuer of
commercial paper bears the direct risk of prepayment on the receivables
constituting the underlying pool of assets.
To lessen the effect of failures by obligors on these underlying assets to make
payments, such securities may contain elements of credit support. Credit support
for asset-backed securities may
<PAGE>
be based on the underlying assets or credit enhancements provided by a third
party. Credit enhancement techniques include letters of credit, insurance
bonds, limited guarantees and over-collateralization.
Credit support falls into two classes: liquidity protection and protection
against ultimate default on the underlying assets. Liquidity protection refers
to the provision of advances, generally by the entity administering the pool of
assets, to ensure that scheduled payments on the underlying pool are made in a
timely fashion. Protection against ultimate default ensures payment on at least
a portion of the assets in the pool. This protection may be provided through
guarantees, insurance policies, letters of credit obtained from third parties,
various means of structuring the transaction, or a combination of such
approaches. The degree of credit support provided on each issue is based
generally on historical information respecting the level of credit risk
associated with such payments. Delinquency or loss in excess of that anticipated
could adversely affect the return on an investment in an asset-backed security.
ASSET-BACKED SECURITIES. The Prime Money Fund and the California Money Fund may
invest in asset-backed securities. These types of securities represent a direct
or indirect participation in, or are secured by and payable from, pools of
assets, such as motor vehicle installment sales contracts, installment loan
contracts, leases of various types of real and personal property, and
receivables from revolving credit (e.g., credit card) agreements. Payments or
distributions of principal and interest on asset-backed securities may be
supported by credit enhancements, such as various forms of cash collateral
accounts or letters of credit. These securities are subject to the risk of
prepayment. Prepayments of principal of asset-backed securities affect the
average life of the asset-backed securities in a fund's portfolio. The level of
interest rates and other factors, including general economic conditions, affect
prepayments. In periods of rising interest rates, the prepayment rate tends to
decrease, lengthening the average life of a pool of asset-backed securities. In
periods of falling interest rates, the prepayment rate tends to increase,
shortening the average life of a pool. Reinvestment of prepayments may occur at
higher or lower interest rates than the original investment, affecting a fund's
yield. Thus, asset-backed securities may have less potential for capital
appreciation in periods of falling interest rates than other fixed-income
securities of comparable duration, although they may have a comparable risk of
decline in market value in periods of rising interest rates. Payment of
principal and interest may be largely dependent upon the cash flows generated by
the assets backing the securities.
BANK NOTES. The Prime Money Fund and the California Money Fund may invest in
bank notes, which are unsecured promissory notes representing debt obligations
that are issued by banks in large denominations.
BANKERS' ACCEPTANCES. The Prime Money Fund and the California Money Fund may
invest in bankers' acceptances. Bankers' acceptances are bills of exchange or
time drafts drawn on and accepted by a commercial bank. Corporations issue
bankers' acceptances to finance the shipment and storage of goods. Maturities
are generally six months or less.
CERTIFICATES OF DEPOSIT. The Prime Money Fund and the California Money Fund may
invest in certificates of deposit. Certificates of deposit are interest-bearing
instruments with specific maturities. They are issued by banks and savings and
loan institutions in exchange for
<PAGE>
the deposit of funds and normally can be traded in the secondary market prior
to maturity. Certificates of deposit with penalties for early withdrawal will
be considered illiquid.
COMMERCIAL PAPER. The Prime Money Fund and the California Money Fund may invest
in commercial paper and other securities that are issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act") ("Section
4(2) paper"). Federal securities laws restrict the disposition of Section 4(2)
paper. Section 4(2) paper generally is sold to institutional investors, such as
the Prime Money Fund and the California Money Fund, who agree that they are
purchasing the paper for investment and not for public distribution. Any resale
of Section 4(2) paper by the purchaser must be in an exempt transaction and may
only be accomplished in accordance with Rule 144A under the Securities Act.
Section 4(2) paper normally may be resold to other institutional investors such
as the Prime Money Fund and the California Money Fund through or with the
assistance of the issuer or investment dealers who make a market in the Section
4(2) paper, thus providing liquidity. Because it is not possible to predict with
assurance exactly how this market for Section 4(2) paper sold and offered under
Rule 144A will continue to develop, the Investment Manager, or a Subadviser,
pursuant to guidelines approved by the Board, will monitor investments of the
Prime Money Fund and the California Money Fund in these securities, focusing on
such important factors as, among others, valuation, liquidity and availability
of information.
EURODOLLAR CERTIFICATES OF DEPOSIT AND FOREIGN SECURITIES. The Prime Money Fund
may invest in Eurodollar certificates of deposit and foreign securities. Before
investing in Eurodollar certificates of deposit, the Prime Money Fund will
consider their marketability, possible restrictions on international currency
transactions, and any regulations imposed by the domicile country of the foreign
issuer. Eurodollar certificates of deposit may not be subject to the same
regulatory requirements as certificates of deposit issued by U.S. banks, and
associated income may be subject to the imposition of foreign taxes, including
withholding taxes.
Investments in securities of foreign issuers or securities principally traded
overseas may involve certain special risks due to foreign economic, political,
and legal developments, including expropriation of assets or nationalization,
imposition of withholding taxes on dividend or interest payments, and possible
difficulty in obtaining and enforcing judgments against foreign entities.
Furthermore, issuers of foreign securities are subject to different, often less
comprehensive, accounting, reporting, and disclosure requirements than domestic
issuers. The securities of some foreign companies and foreign securities markets
are less liquid and at times more volatile than securities of comparable U.S.
companies and U.S. securities markets. Foreign brokerage commissions and other
fees are also generally higher than in the United States. There are also special
tax considerations which apply to securities of foreign issuers and securities
principally traded overseas. All such securities will be U.S. dollar
denominated.
FIXED INCOME SECURITIES. The Funds may invest in fixed income securities. Fixed
income securities are debt obligations issued by corporations, municipalities
and other borrowers. The market value of the Funds' fixed income investments
will change in response to interest rate changes and other factors. During
periods of falling interest rates, the values of outstanding fixed income
securities generally rise. Conversely, during periods of rising interest
<PAGE>
rates, the values of such securities generally decline. Changes by recognized
rating agencies in the rating of any fixed income security and in the ability
of an issuer to make payments of interest and principal also affect the value
of these investments. Changes in the value of portfolio securities will not
necessarily affect cash income derived from these securities, but will affect
the Funds' net asset value.
INVESTMENT COMPANY SHARES. The Funds may invest in shares of other investment
companies to the extent permitted by applicable law and subject to certain
restrictions set forth in this Statement of Additional Information. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Funds. The Funds' purchase of such investment company
securities results in the layering of expenses, such that shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying Fund
expenses. Under applicable regulations, the Funds are prohibited from acquiring
the securities of another investment company if, as a result of such
acquisition: (1) a Fund owns more than 3% of the total voting stock of the other
company; (2) securities issued by any one investment company represent more than
5% of a Fund's total assets; or (3) securities (other than treasury stock)
issued by all investment companies represent more than 10% of the total assets
of the Fund.
MUNICIPAL SECURITIES. The California Money Fund may invest in municipal
securities. Municipal securities consist of (1) debt obligations issued by or on
behalf of public authorities to obtain funds to be used for various public
facilities, for refunding outstanding obligations, for general operating
expenses and for lending such funds to other public institutions and facilities,
and (2) certain private activity and industrial development bonds issued by or
on behalf of public authorities to obtain funds to provide for the construction,
equipment, repair or improvement of privately operated facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the venues of a project or facility,
tolls from a toll bridge, for example. Certificates of participation represent
an interest in an underlying obligation or commitment such as an obligation
issued in connection with a leasing arrangement. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment.
Municipal notes include general obligation notes, tax anticipation notes,
revenue anticipation notes, bond anticipation notes, certificates of
indebtedness, demand notes and construction loan notes and participation
interests in municipal notes. Municipal bonds include general obligation bonds,
revenue or special obligation bonds, private activity and industrial development
bonds and participation interests in municipal bonds.
MUNICIPAL LEASES. The California Money Fund may invest in municipal leases. The
California Money Fund may invest in instruments, or participations in
instruments, issued in connection with lease obligations or installment purchase
contract obligations of municipalities ("municipal lease obligations"). Although
municipal lease obligations do not constitute general obligations of the issuing
municipality, such lease obligations are ordinarily backed by a municipality's
covenant to budget for, appropriate funds for, and make the payments due under
<PAGE>
the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses, which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose in the relevant years. Municipal leases
will be treated as liquid only if they satisfy criteria set forth in guidelines
established by the Board of Trustees, and there can be no assurance that a
market will exist or continue to exist for any municipal lease obligations.
MUNICIPAL NOTES. The California Money Fund may invest in municipal notes.
Municipal notes consist of general obligation notes, tax anticipation notes
(notes sold to finance working capital needs of the issuer in anticipation of
receiving taxes on a future date), revenue anticipation notes (notes sold to
provide needed cash prior receipt of expected non-tax revenues from a specific
source), bond anticipation notes, tax and revenue anticipation notes,
certificates of indebtedness, demand notes and construction loan notes. The
maturities of the instruments at the time of issue will generally range from
three months to one year.
MUNICIPAL BONDS. The California Money Fund may invest in municipal bonds.
Municipal bonds are debt obligations issued to obtain funds for various public
purposes. The California Money Fund may purchase private activity or industrial
development bonds if the interest paid is exempt from federal income tax. These
bonds are issued by or on behalf of public authorities to raise money to finance
various privately-owned or -operated facilities for business and manufacturing,
housing, sports, and pollution control. These bonds are also used to finance
public facilities such as airports, mass transit systems, ports, parking or
sewage or solid waste disposal facilities, as well as certain other categories.
The payment of the principal and interest on such bonds is dependent solely on
the ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment.
REPURCHASE AGREEMENTS. The Funds may engage in repurchase agreements. Repurchase
agreements are agreements under which securities are acquired from a securities
dealer or bank subject to resale on an agreed upon date and at an agreed upon
price which includes principal and interest. The Funds or their agents will have
actual or constructive possession of the securities held as collateral for the
repurchase agreement. The Funds bear a risk of loss in the event the other party
defaults on its obligations and the Funds are delayed or prevented from
exercising their right to dispose of the collateral securities, or if the Funds
realize a loss on the sale of the collateral securities. The Investment Manager
or a Fund's Subadviser will enter into repurchase agreements on behalf of a Fund
only with financial institutions deemed to present minimal risk of bankruptcy
during the term of the agreement based on guidelines established and
periodically reviewed by the Board of Trustees. These guidelines currently
permit the Funds to enter into repurchase agreements with any bank the
Investment Manager or a Fund's Subadviser may recommend if it determines such
bank to be creditworthy. Repurchase agreements are considered to be loans
collateralized by the underlying security. Repurchase agreements entered into by
the Funds will provide that the underlying security at all times shall have a
value at least equal to 102% of the price stated in the agreement. This
underlying security will be marked to market daily. The Investment Manager
and/or a Fund's Subadviser will monitor compliance with this requirement. Under
all repurchase agreements entered into by the Funds, the Custodian or its agent
must take possession of the underlying collateral. However, if the seller
defaults, a Fund could realize a loss on the sale of the underlying security to
the extent
<PAGE>
the proceeds of the sale are less than the resale price. In addition, even
though the Bankruptcy Code provides protection for most repurchase
agreements, if the seller should be involved in bankruptcy or insolvency
proceedings, a Fund may incur delays and costs in selling the security and
may suffer a loss of principal and interest if the Fund is treated as an
unsecured creditor. Repurchase agreements, in some circumstances, may not be
tax exempt.
RULE 144A SECURITIES. The Prime Money Fund and the California Money Fund may
invest in Rule 144A securities. Rule 144A under the Securities Act establishes a
safe harbor from the registration requirements of the Securities Act for resales
of certain securities to qualified institutional buyers. Institutional markets
for restricted securities sold pursuant to Rule 144A in many cases provide both
readily ascertainable values for restricted securities and the ability to
liquidate an investment to satisfy share redemption orders. Such markets might
include automated systems for the trading, clearance and the settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. An
insufficient number of qualified buyers interested in purchasing Rule 144A
eligible restricted securities, however, could adversely affect the
marketability of such portfolio securities and result in a Fund's inability to
dispose of such securities promptly or at favorable prices.
The Board of Trustees may, in the future, delegate the function of making
day-to-day determination of liquidity to the Investment Manager or a Subadviser
pursuant to guidelines approved by the Board. The Investment Manager or a
Subadviser will take into account a number of factors in reaching liquidity
decisions, including, but not limited to: (1) the frequency of trades for the
security, (2) the number of dealers that quote prices for the security, (3) the
number of dealers that have undertaken to make a market in the security, (4) the
number of other potential purchasers, and (5) the nature of the security and how
trading is effected (e.g., the time needed to see the security, how bids are
solicited, and the mechanics of transfer.) To the extent the Investment Manager
or a Subadviser, according to the guidelines approved by the Board, determines a
Rule 144A eligible security to be liquid, such a security would not be subject
to percentage limit restriction of the Prime Money Fund and the California Money
Fund on illiquid securities investment.
STANDBY COMMITMENTS AND PUT TRANSACTIONS. The Government Money Fund and the
California Money Fund reserves the right to engage in standby commitments and
put transactions. The Investment Manager and the Subadvisers have the authority
to purchase securities at a price which would result in a yield to maturity
lower than that generally offered by the seller at the time of purchase when it
can simultaneously acquire the right to sell the securities back to the seller,
the issuer, or a third party (the "writer") at an agreed-upon price at any time
during a stated period or on a certain date. Such a right is generally denoted
as a "standby commitment" or a "put." The purpose of engaging in transactions
involving puts is to maintain flexibility and liquidity to permit a fund to meet
redemptions and remain as fully invested as possible in municipal securities.
The right to put the securities depends on the writer's ability to pay for the
securities at the time the put is exercised. The Government Money Fund and the
California Money Fund will limit put transactions to institutions that the
Investment Manager or a Subadviser believes present minimum credit risks. The
Investment Manager or a Subadviser would use its best efforts to initially
determine and continue to monitor the financial strength of the sellers of the
options by evaluating their financial statements and
<PAGE>
such other information as is available in the marketplace. It may, however,
be difficult to monitor the financial strength of the writers because
adequate current financial information may not be available. In the event
that any writer is unable to honor a put for financial reasons, a fund would
be a general creditor (i.e., on a parity with all other unsecured creditors)
of the writer. Furthermore, particular provisions of the contract between a
fund and the writer may excuse the writer from repurchasing the securities.
For example, a change in the published rating of the underlying securities or
any similar event that has an adverse effect on the issuer's credit or a
provision in the contract that the put will not be exercised except in
certain special cases, such as to maintain portfolio liquidity. A fund can,
however, at any time sell the underlying portfolio security in the open
market or wait until the portfolio security matures, at which time it should
realize the full par value of the security.
The securities purchased subject to a put may be sold to third persons at any
time even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the writer.
Sale of the securities to third parties or lapse of time with the put
unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, a fund could seek to negotiate terms for the
extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to a fund, it could, of course, sell the security. The maturity of
the underlying security will generally be different from that of the put.
TAX EXEMPT COMMERCIAL PAPER. The Prime Money Fund and California Money Fund may
invest in tax exempt commercial paper. Tax exempt commercial paper is unsecured
short-term obligations issued by a government or political sub-division.
TIME DEPOSITS. The Prime Money Fund and California Money Fund may invest in time
deposits. Time deposits are non-negotiable receipts issued by a bank in exchange
for the deposit of funds. Like a certificate of deposit, a time deposit earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
U.S. GOVERNMENT AGENCY OBLIGATIONS. The Funds may invest in U.S. agency
obligations. Various agencies of the U.S. Government issue obligations,
including, the Export/Import Bank of the United States, Farmers Home
Administration, Federal Farm Credit Bank, Federal Housing Administration,
Government National Mortgage Association ("GNMA"), Maritime Administration,
Small Business Administration, and the Tennessee Valley Authority. The Funds may
purchase securities guaranteed by GNMA, which represent participation in
Veterans Administration and Federal Housing Administration backed mortgage
pools. Obligations of instrumentalities of the U.S. Government include
securities issued by, among others, Federal Home Loan Banks, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks,
Federal National Mortgage Association, and the U.S. Postal Service. Some of
these securities are supported by the full faith and credit of the U.S. Treasury
(i.e., GNMA), and others are supported by the right of the issuer to borrow from
the Treasury. The agencies or instrumentalities of the U.S. Government may
guarantee the payment of principal at the maturity of an obligation. Thus, in
the event of a default prior to maturity, there might not be a market and thus
no means of realizing the value of the obligation prior to maturity.
<PAGE>
U.S. TREASURY OBLIGATIONS. U.S. Treasury Obligations consist of bills, notes and
bonds issued by the U.S. Treasury as well as separately traded interest and
principal component parts of such obligations, known as Separately Traded
Registered Interest and Principal Securities ("STRIPS"), that are transferable
through the federal book-entry system. STRIPS are sold as zero coupon
securities, which means that they are sold at a substantial discount and
redeemed at face value at their maturity date without interim cash payments of
interest or principal. This discount is accreted over the life of the security,
and such accretion will constitute the income earned on the security for both
accounting and tax purposes. Because of these features, such securities may be
subject to greater interest rate volatility than interest paying investments.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Funds may invest in variable and
floating rate instruments. Certain of the obligations purchased by the Funds may
carry variable or floating rates of interest and may involve a conditional or
unconditional demand feature. Such obligations may include variable amount
master demand notes. Such instruments bear interest at rates which are not
fixed, but which vary with changes in specified market rates or indices. The
interest rates on these securities may be reset daily, weekly, quarterly or at
some other interval, and may have a floor or ceiling on interest rate changes.
There is a risk that the current interest rate on such obligations may not
accurately reflect existing market interest rates. A demand instrument with a
demand notice period exceeding seven days may be considered illiquid if there is
no secondary market for such security.
WHEN-ISSUED SECURITIES. The Funds may invest in when-issued securities. These
securities involve the purchase of debt obligations on a when-issued basis, in
which case delivery and payment normally take place within 45 days after the
date of commitment to purchase. These securities are subject to market
fluctuation due to changes in market interest rates, and it is possible that the
market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed. Delivery of
and payment for these securities may occur a month or more after the date of the
purchase commitment. Each Fund will maintain with the custodian a separate
account with liquid securities or cash in an amount at least equal to these
commitments. The interest rate realized on these securities is fixed as of the
purchase date, and no interest accrues to the Funds before settlement. Although
each Fund generally purchases securities on a when-issued or forward commitment
basis with the intention of actually acquiring securities for its portfolio,
each Fund may dispose of a when-issued security or forward commitment prior to
settlement if the Investment Manager or a Fund's Subadviser deems it appropriate
to do so.
The Funds will only make commitments to purchase obligations on a when-issued
basis with the intention of actually acquiring the securities, but may sell them
before the settlement date. The when-issued securities are subject to market
fluctuation, and no interest accrues to the purchaser during this period. The
payment obligation and the interest rate that will be received on the securities
are each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case
there could be an unrealized loss at the time of delivery.
ILLIQUID SECURITIES. No Fund will purchase illiquid securities, including time
deposits and repurchase agreements maturing in more than seven days, if, as a
result of the purchase, more
<PAGE>
than 10% of the Fund's net assets valued at the time of the transaction are
invested in such securities. Each Fund will monitor the level of liquidity
and take appropriate action, if necessary, to attempt to maintain adequate
liquidity. The investment policy on the purchase of illiquid securities is
nonfundamental.
BORROWING POLICY. The Funds may not borrow money except as a temporary measure
for extraordinary or emergency purposes, and then only in an amount up to
one-third of the value of total assets in order to meet redemption requests
without immediately selling any portfolio securities. The Funds will not borrow
for leverage purposes or purchase securities or make investments while
borrowings are outstanding. If for any reason the current value of the total
assets of a Fund falls below an amount equal to three times the amount of
indebtedness for money borrowed, the Fund will, within three days, (not
including Sundays and holidays), reduce its indebtedness to the extent necessary
to meet that limitation. Any borrowings under this provision will not be
collateralized.
INVESTMENT RESTRICTIONS
Except as otherwise noted with an *, the restrictions below are nonfundamental
and can be changed without approval of the holders of a majority of the
outstanding voting securities (as defined in the Investment Company Act of 1940,
as amended (the "Investment Company Act")) of the Funds. The Funds may not:
(1) Subject to the provisions of Rule 2a-7 under the Investment
Company Act, purchase securities of any issuer (other than
obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities) if, as a result thereof, more
than 5% of the value of its assets would be invested in the
securities of such issuer.
(2) Purchase more than 10% of any class of securities of any
issuer. All debt securities and all preferred stocks are each
considered as one class.
(3) *Concentrate 25% or more of the value of its total assets in
any one industry; provided, however, that a Fund may invest up
to 100% of its assets in certificates of deposit or bankers'
acceptances issued by domestic branches of U.S. banks and U.S.
branches of foreign banks (which the Fund has determined to be
subject to the same regulation as U.S. banks), or obligations
of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities in accordance with its investment objective
and policies.
(4) Enter into repurchase agreements if, as a result thereof, more
than 10% of its net assets valued at the time of the
transaction would be subject to repurchase agreements maturing
in more than seven days and invested in securities restricted
as to disposition under the
<PAGE>
federal securities laws (except
commercial paper issued under Section 4(2) of the Securities
Act). The Funds will invest no more than 10% of net assets in
illiquid securities.
(5) *Invest in commodities or commodity contracts, futures
contracts, real estate or real estate limited partnerships,
although it may invest in securities which are secured by real
estate and securities of issuers which invest or deal in real
estate.
(6) Invest for the purpose of exercising control or management of
another issuer.
(7) Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization, or
acquisition of assets, or as may otherwise be permitted by a
Fund's prospectus and the Investment Company Act.
(8) *Make loans to others (except through the purchase of debt
obligations or repurchase agreements in accordance with its
investment objectives and policies).
(9) *Borrow money, except as a temporary measure for extraordinary
or emergency purposes, and then only in an amount up to
one-third of the value of its total assets in order to meet
redemption requests without immediately selling any portfolio
securities. A Fund will not borrow for leverage purposes or
purchase securities or make investments while borrowings are
outstanding. Any borrowings by a Fund will not be
collateralized. If for any reason the current value of the
total assets of a Fund falls below an amount equal to three
times the amount of indebtedness for money borrowed, the Fund
will, within three business days, reduce its indebtedness to
the extent necessary to meet that limitation.
(10) Write, purchase or sell puts, calls or combinations thereof
except as otherwise noted in this Statement of Additional
Information.
(11) Make short sales of securities or purchase any securities on
margin, except to obtain such short-term credits as may be
necessary for the clearance of transactions.
(12) *Underwrite securities issued by others, except to the extent
it may be deemed to be an underwriter under the federal
securities laws in connection with the disposition of
securities from its investment portfolio.
(13) *Issue senior securities as defined in the Investment Company
Act.
<PAGE>
(14) Invest in interests or leases in oil, gas or other mineral
exploration or development programs.
Except for restrictions (3), (4) and (9), if a percentage restriction is adhered
to at the time of investment, a later increase in percentage resulting from a
change in values or net or total assets will not be considered a violation of
that restriction.
The Funds will only purchase securities that the Investment Manager and/or a
Fund's Subadviser has determined, according to procedures approved by the Board
and factors set forth in Rule 2a-7 under the Investment Company Act, present
minimal credit risk and are First Tier or Second Tier Securities (otherwise
referred to as "Eligible Securities"). An Eligible Security is:
(1) a security with a remaining maturity of 397 days or less: (a)
that is rated by an NRSRO (currently Moody's, S&P, Duff,
Fitch, Thomson BankWatch or, with respect to debt issued by
banks, bank holding companies, United Kingdom building
societies, broker-dealers and broker-dealers' parent
companies, and bank-supported debt, IBCA Limited and its
affiliate, IBCA, Inc.) in one of the two highest rating
categories for short-term debt obligations (two NRSROs are
required but one rating suffices if only one NRSRO rates the
security), or (b) that itself was unrated by any NRSRO, but
was issued by an issuer that has outstanding a class of
short-term debt obligations (or any security within that
class) meeting the requirements of subparagraph 1(a) above
that is of comparable priority and security;
(2) a security that at the time of issuance was a long-term
security but has a remaining maturity of 397 days or less, and
whose issuer received a rating within one of the two highest
rating categories from the requisite NRSROs for short-term
debt obligations with respect to a class of short-term debt
obligations (or any security within that class) that is now
comparable in priority and security with the subject security;
(3) a security that at the time of issuance was a long-term
security but has a remaining maturity of 397 days or less, and
whose issuer received a rating within one of the three highest
rating categories from the requisite NRSROs for long-term debt
obligations; or
(4) a security not rated by an NRSRO but deemed by the Investment
Manager, pursuant to guidelines adopted by the Board of
Trustees, to be of comparable quality to securities described
in (1) and (2) above and to represent minimal credit risk.
A First Tier Security is any Eligible Security that (1) carries (or if other
relevant securities issued by its issuer carry) top NRSRO ratings from at least
two NRSROs (a single top rating suffices if only one NRSRO rates the security),
(2) has been determined by the Investment Manager or the
<PAGE>
Fund's Subadviser, pursuant to guidelines adopted by the Board, to be of
comparable quality to such a security, (3) is a security issued by a
registered investment company that is a money market fund, or (4) is a U.S.
government security (a "Government security"). A Second Tier Security is any
other Eligible Security.
Each Fund will limit its investments in the First Tier Securities of any one
issuer to no more than 5% of its total assets (repurchase agreements
collateralized by non-Government securities will be taken into account when
making this calculation); provided, however, that (1) the California Money
Fund may invest up to 25% of the value of its assets without regard to this
restriction as permitted by Rule 2a-7 under the Investment Company Act, and
(2) each of the Prime Money Fund and the Government Money Fund may invest up
to 25% of the value of its assets without regard to this restriction for a
period of up to three business days as permitted by Rule 2a-7, provided that
neither such Fund may invest in the securities of more than one issuer in
accordance with the foregoing proviso at any time. Moreover, a Fund's total
holdings of Second Tier Securities will not exceed 5% of its total assets, with
investment in the Second Tier Securities of any one issuer being limited to the
greater of 1% of a Fund's total assets or $1 million. In addition, the
underlying securities involved in repurchase agreements collateralized by
non-Government securities will be First Tier Securities at the time the
repurchase agreements are executed.
RISK CONSIDERATIONS
GENERAL RISKS TO CONSIDER
The Funds' portfolios will be affected by general changes in interest rates that
will result in increases or decreases in the market value of the obligations
held by the Funds. The market value of the obligations in the Funds' portfolios
can be expected to vary inversely to changes in prevailing interest rates.
Investors also should recognize that, in periods of declining interest rates,
the Funds' yields will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates, the Funds' yields will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to the Funds from the continuous sale of their shares will likely be
invested in portfolio instruments producing lower yields than the balance of the
portfolios, thereby reducing the Funds' current yields. In periods of rising
interest rates, the opposite can be expected to occur. In addition, securities
in which the Funds may invest may not yield as high a level of current income as
might be achieved by investing in securities with less liquidity and safety and
longer maturities.
The value of commercial paper and other securities in the Funds' portfolios may
be adversely affected by the inability of the issuers (or related supporting
institutions) to make principal or interest payments on the obligations in a
timely manner. As discussed above, the Funds will invest in securities which the
Investment Manager or a Fund's Subadviser has determined, according to
procedures approved by the Board, and factors set forth under Rule 2a-7 under
the Investment Company Act, to present minimal credit risk. The ratings assigned
to commercial paper and other corporate obligations, as well as the guidelines
approved by the Board, are intended to enable the Investment Manager or a Fund's
Subadviser to minimize the credit risk with respect to the securities in the
Funds' portfolios, but there can be no absolute assurance that the Investment
Manager or the Subadviser will be successful in this regard. If issuer defaults
nevertheless occur respecting a sufficiently large portion of a Fund's
portfolios, the Fund may be unable to maintain stable net asset values of $1.00
per share.
The Funds' performance also may be affected by changes in market or economic
conditions and other circumstances affecting the financial services industry.
Government regulation of banks, savings and loan associations, and finance
companies may limit both the amounts and types of
<PAGE>
loans and other financial commitments these entities can make and the
interest rates and fees they can charge. The profitability of the financial
services industry, which is largely dependent on the availability and cost of
capital funds, has fluctuated in response to volatility in interest rate
levels. In addition, the financial services industry is subject to risks
resulting from general economic conditions and the potential exposure to
credit losses.
CALIFORNIA MONEY FUND - SPECIFIC RISKS
The ability of issuers to pay interest on, and repay principal of, California
municipal securities ("California Municipal Securities") may be affected by (1)
amendments to the California Constitution and related statutes that limit the
taxing and spending authority of California government entities, and related
civil actions, (2) a wide variety of California laws and regulations, and (3)
the general financial condition of the State of California.
There could be economic, business or political developments that might affect
all Municipal Securities of a similar type. To the extent that a significant
portion of the California Money Fund's assets are invested in Municipal
Securities payable from revenues on similar projects, the California Money Fund
will be subject to the risks presented by such projects to a greater extent than
it would be if the California Money Fund's assets were not so invested.
Moreover, in seeking to attain its investment objective the California Money
Fund may invest all or any part of its assets in Municipal Securities which are
industrial development bonds.
Under normal conditions, the California Money Fund will be fully invested in
obligations which produce income exempt from federal income tax and California
state personal income tax. Accordingly, the California Money Fund will have
considerable investments in California Municipal Securities. As a result, the
California Money Fund will be more susceptible to factors which adversely affect
issuers of California obligations than a mutual fund which does not have as
great a concentration in California municipal obligations.
An investment in the California Money Fund will be affected by the many factors
that affect the financial condition of the State of California. For example,
financial difficulties of the State of California, its counties, municipalities
and school districts that hinder efforts to borrow and credit ratings are
factors which may affect the California Money Fund.
The California Money Fund's concentration in California municipal bonds may
expose shareholders to additional risks. In particular, the California Money
Fund will be vulnerable to any development in California's economy that may
weaken or jeopardize the ability of California municipal-bond issuers to pay
interest and principal on their bonds. Although the California Money Fund's
objective is to provide income exempt from federal and California State personal
income taxes, some of its income may be subject to the alternative minimum tax.
HISTORICAL PERSPECTIVE. The information set forth below is a general summary
intended to give a recent historical description. It is not a discussion of any
specific factors that may affect any particular issuer of California Municipal
Securities. The information is not intended to indicate continuing or future
trends in the condition, financial or otherwise, of the State of California.
Such information is derived from official statements utilized in connection with
securities offerings of the State of California that have come to the attention
of the Trust and
<PAGE>
were available prior to the date of this Statement of Additional Information.
Such information has not been independently verified by the California Money
Fund.
Because the California Money Fund expects to invest substantially all of its
assets in California Municipal Securities, it will be susceptible to a number of
complex factors affecting the issuers of California Municipal Securities,
including national and local political, economic, social, environmental and
regulatory policies and conditions. The California Money Fund cannot predict
whether or to what extent such factors or other factors may affect the issuers
of California Municipal Securities, the market value or marketability of such
securities or the ability of the respective issuers of such securities acquired
by the California Money Fund to pay interest on, or principal of, such
securities. The creditworthiness of obligations issued by local California
issuers may be unrelated to the creditworthiness of obligations issued by the
State of California, and there is no responsibility on the part of the State of
California to make payments on such local obligations. There may be specific
factors that are applicable in connection with investment in the obligations of
particular issuers located within California, and it is possible the California
Money Fund will invest in obligations of particular issuers as to which such
specific factors are applicable.
From mid-1990 to late 1993, California suffered the most severe recession in the
State since the 1930s. Construction, manufacturing (especially aerospace),
exports and financial services, among other industries, were severely affected.
Since the start of 1994, however, California's economy has been on performing
strongly. The unemployment rate, while still higher than the national average,
fell to an average of 5.9% during 1998, compared to over 10 percent during the
recession, and to 4.8% in November, 1999. Many of the new jobs were created in
such industries as computer services, software design, motion pictures and high
technology manufacturing. Business services, export trade and other
manufacturing also experienced growth.
Certain of the State's significant industries, such as high technology, are
sensitive to economic disruptions in their export markets and the State's rate
of economic growth, therefore, could be adversely affected by any such
disruption. A significant downturn in U.S. stock market prices could adversely
affect California's economy by reducing household spending and business
investment, particularly in the important high technology sector. Moreover, a
large and increasing share of the State's General Fund revenue in the form of
income and capital gains taxes is directly related to, and would be adversely
affected by a significant downturn in the performance of, the stock markets.
The recession severely affected State revenues while the State's health and
welfare costs were increasing. Consequently, the State had a lengthy period of
budget imbalance; the State's accumulated budget deficit approached $2.8 billion
at its peak at June 30, 1993. A consequence of the large budget deficits has
been that the State depleted its available cash resources and had to use a
series of external borrowings to meet its cash needs. With the end of the
recession, the State's financial condition improved in the fiscal years
beginning 1995-96, with a combination of better than expected revenues, slowdown
in growth of social welfare programs, and continued spending restraint. The
accumulated budget deficit from the recession years was eliminated. No deficit
borrowing has occurred at the end of the last four fiscal years and the State's
cash flow
<PAGE>
borrowing was limited to $1.7 billion in 1998-99. The State issued $1.0
billion of revenue anticipation notes for the 1999-2000 fiscal year.
On June 29, 1999, the Governor of California signed the 1999-2000 Budget Act.
The Budget Act estimated General Fund revenues and transfers of $63.0 billion,
and contained expenditures totaling $63.7 billion. The Budget Act also contained
expenditures of $16.1 billion from special funds and $1.5 billion from bond
funds. The Administration estimated a budget reserve balance at June 30, 2000,
of approximately $881 million. Not included in this amount was an additional
$300 million which (after the Governor's vetoes) was "set aside" to provide
funds for employee salary increases (to be negotiated in bargaining with
employee unions), and for litigation reserves. The Budget Act anticipates normal
cash flow borrowing during the fiscal year. Continued State economic expansion
and large revenue increases enabled the Governor and State legislature to
provide increases in spending programs in the 1999-2000 budget. These included
large increases in education and health and human services funding.
The Governor's 2000-2001 proposed budget provides for total State spending of
$85.1 billion (excluding expenditures of federal funds and selected bond funds),
an increase of 3.7% from the current year. Approximately 80% of this total is
from the General Fund and 20% from special funds. The proposed budget assumes
that General Fund revenues will total $68.2 billion in 2000-01, a 4.7% increase
from the current year. General Fund expenditures are proposed to be $68.8
billion, an increase of 4.5%. After accounting for various set-asides, the
year-end reserve is estimated to be $1.2 billion, or about 1.8% of total 2000-01
General Fund revenues.
The foregoing discussion of the 1999-00 fiscal year budget and the proposed
1999-00 fiscal year budget is based in large part on statements made in a recent
"preliminary official statement" distributed by the State of California. In that
document, the State indicated that its discussion of the fiscal year budget is
based on estimates and projections of revenues and expenditures for the current
fiscal year and must not be construed as statements of fact. The State noted
further that the estimates and projections are based upon various assumptions
which may be affected by numerous factors, including future economic conditions
in the state and the nation, and that there can be no assurance that the
estimates will be achieved.
Because of the State's continuing budget problems, the State's General
Obligation bonds were downgraded in July 1994 to A1 from Aa by Moody's, to A
from A+ by Standard & Poor's, and to A from AA by Fitch. All three rating
agencies expressed uncertainty in the State's ability to balance the budget by
1996. However, in 1996, citing California's improving economy and budget
situation, both Fitch and Standard & Poor's raised their ratings from A to A+.
In October 1997, Fitch raised its rating from A+ to AA- referring to
California's fundamental strengths, the extent of economic recovery and the
return of financial stability. In October 1998, Moody's raised its rating from
A1 to Aa3 citing the State's continuing economic recovery and a number of
actions taken to improve the State's credit condition, including the rebuilding
of cash and budget reserves. In August 1999, Standard & Poor's raised its rating
from A+ to AA- citing the State's strong economic performance and its return to
structural fiscal balance.
CONSTITUTIONAL AND STATUTORY LIMITATIONS. Article XIII A of the California
Constitution (which resulted from the voter approved Proposition 13 in 1978)
limits the taxing powers of California public agencies. With certain exceptions,
the maximum ad valorem tax on
<PAGE>
real property cannot exceed one percent of the "full cash value" of the
property; Article XIII A also effectively prohibits the levying of any other
ad valorem property tax for general purposes. One exception to Article XIII A
permits an increase in ad valorem taxes on real property in excess of one
percent for certain bonded indebtedness approved by two-thirds of the voters
voting on the proposed indebtedness. The "full cash value" of property may be
adjusted annually to reflect increases (not to exceed two percent) or
decreases, in the consumer price index or comparable local data, or to
reflect reductions in property value caused by substantial damage,
destruction or other factors, or when there is a "change in ownership" or
"new construction".
Constitutional challenges to Article XIII A to date have been unsuccessful. In
1992, the United States Supreme Court ruled that notwithstanding the disparate
property tax burdens that Proposition 13 might place on otherwise comparable
properties, those provisions of Proposition 13 do not violate the Equal
Protection Clause of the United States Constitution. In response to the
significant reduction in local property tax revenue caused by the passage of
Proposition 13, the State enacted legislation to provide local governments with
increased expenditures from the General Fund.
During the severe recession California experienced from 1991 to 1993, the State
legislature eliminated significant components of its aid to local governments.
The State has since increased aid to local governments and reduced certain
mandates for local services. Whether legislation will be enacted in the future
to either increase or reduce the redistribution of State revenues to local
governments, or to make them less dependent on State budget decisions, cannot be
predicted.
Article XIII B of the California Constitution generally limits the amount of
appropriations of the State and of local governments to the amount of
appropriations of the entity for such prior year, adjusted for changes in the
cost of living, population and the services that the government entity has
financial responsibility for providing. To the extent the "proceeds of taxes" of
the State and/or local government exceed its appropriations limit, the excess
revenues must be rebated. Certain expenditures, including debt service on
certain bonds and appropriations for qualified capital outlay projects, are not
included in the appropriations limit.
In 1986, California voters approved an initiative statute known as Proposition
62. This initiative further restricts the ability of local governments to raise
taxes and allocate approved tax receipts. While some decisions of the California
Courts of Appeal have held that portions of Proposition 62 are unconstitutional,
the California Supreme Court has upheld the Proposition 62 requirement that
special taxes be approved by a two-thirds vote of the voters voting in an
election on the issue. This decision may invalidate other taxes that have been
imposed by local governments in California and make it more difficult for local
governments to raise taxes. In 1988 and 1990, California voters approved
initiatives known as Proposition 98 and Proposition 111, respectively. These
initiatives changed the State's appropriations limit under Article XIII B to (1)
require that the State set aside a prudent reserve fund for public education,
and (2) guarantee a minimum level of State funding for public elementary and
secondary schools and community colleges.
In November 1996, California voters approved Proposition 218. The initiative
applied the provisions of Proposition 62 to all entities, including charter
cities. It requires that all taxes for
<PAGE>
general purposes obtain a simple majority popular vote and that taxes for
special purposes obtain a two-thirds majority vote. Prior to the
effectiveness of Proposition 218, charter cities could levy certain taxes
such as transient occupancy taxes and utility user's taxes without a popular
vote. Proposition 218 will also limit the authority of local governments to
impose property-related assessments, fees and charges, requiring that such
assessments be limited to the special benefit conferred and prohibiting their
use for general governmental services. Proposition 218 also allows voters to
use their initiative power to reduce or repeal previously authorized taxes,
assessments, fees and charges.
The effect of constitutional and statutory changes and of budget developments on
the ability of California issuers to pay interest and principal on their
obligations remains unclear, and may depend on whether a particular bond is a
general obligation or limited obligation bond (limited obligation bonds being
generally less affected). There is no assurance that any California issuer will
make full or timely payments of principal or interest or remain solvent. For
example, in December 1994, Orange County filed for bankruptcy.
Certain tax-exempt securities in which the California Money Fund may invest may
be obligations payable solely from the revenues of specific institutions, or may
be secured by specific properties, which are subject to provisions of California
law that could adversely affect the holders of such obligations. For example,
state law may adversely affect the revenues of California health care
institutions, and does limit the remedies of a creditor secured by a mortgage or
deed of trust on real property.
In addition, it is impossible to predict the time, magnitude, or location of a
major earthquake or its effect on the California economy. In January 1994, a
major earthquake struck the Los Angeles area, causing significant damage in a
four-county area. The possibility exists that another such earthquake could
create a major dislocation of the California economy.
The California Money Fund's concentration in California Municipal Securities
provides a greater level of risk than a fund that is diversified across numerous
states and municipal entities.
<PAGE>
MANAGEMENT OF THE TRUST
OFFICERS AND TRUSTEES
The Board of Trustees is responsible for overseeing the management of the Trust.
The officers and trustees of the Trust, their principal occupations during the
past five years, and their affiliations, if any, with the Investment Manager are
as follows:
<TABLE>
<CAPTION>
Principal Occupation For
Name Age Position With The Trust The Past Five Years
<S> <C> <C> <C>
Irwin G. Barnet, Esq. 61 Trustee An attorney and a principal of
Sanders, Barnet, Goldman, Simons Sanders, Barnet, Goldman, Simons
& Mosk & Mosk, a law firm
1901 Avenue of the Stars, Suite 850
Los Angeles, California 90067
Maria D. Hummer, Esq.* 54 Trustee An attorney with Manatt, Phelps
Manatt, Phelps & Phillips, LLP & Phillips and Chair of the Land
11355 West Olympic Boulevard Use Section of that law firm.
Los Angeles, California 90064
Victor Meschures, CPA 61 Trustee A Certified Public Accountant
Meschures, Campeas, Thompson & with Meschures, Campeas,
Snyder, LLP Thompson & Snyder, LLP, an
760 North La Cienega Boulevard accounting firm
Los Angeles, California 90069
William R. Sweet 61 Trustee Retired; formerly, Executive
81 Tiburon Road Vice President, The Bank of
Tiburon, California 94920 California (1985-1996)
James R. Wolford 45 Trustee Senior Vice President and Chief
Forecast Commercial Real Estate Services, Inc. Operating Officer
3602 Inland Empire Blvd. (2000-present); Senior Vice
Suite A-105 President and Chief Financial
Ontario, CA 91764 Officer, Bixby ranch Company, a
real estate company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation For
Name Age Position With The Trust The Past Five Years
<S> <C> <C> <C>
Mark Nagle 39 President and Chief Executive President, Vice President and
SEI Investments Officer Controller, Funds Accounting;
One Freedom Valley Drive Vice President of the
Oaks, Pennsylvania 19456 Administrator and Distributor
(1996-Present); BiSYS Fund
Services, Vice President of Fund
Accounting (1995-1996); Fidelity
Investments, Senior Vice
President (1981-1995).
Christopher Salfi 35 Controller and Chief Accounting Director of SEI
SEI Investments Investments Operating Officer Investments Mutual Fund
One Freedom Valley Drive Services, Fund Accounting
Oaks, Pennsylvania 19456 Director, Fund Accounting
Manager (1994-Present);
Investment Accounting Manager
(1993-1994).
Lydia A. Gavalis, Esq. 35 Vice President and Assistant Vice President and Assistant
SEI Investments Secretary Secretary of the Administrator
One Freedom Valley Drive and the Distributor
Oaks, Pennsylvania 19456 (1998-Present); Assistant
General Counsel and Director of
Arbitration, Philadelphia Stock
Exchange (1989-1998)
Lynda J. Striegel, Esq. 50 Vice President and Assistant Vice President and Assistant
SEI Investments Secretary Secretary of the Administrator
One Freedom Valley Drive and Distributor (1998-Present);
Oaks, Pennsylvania 19456 Senior Asset Management Counsel,
Barnett Banks, Inc. (1997-1998);
Partner, Groom and Nordberg,
Chartered (1996-1997); Associate
General Counsel, Riggs Bank,
N.A. (1991-1995).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation For
Name Age Position With The Trust The Past Five Years
<S> <C> <C> <C>
James R. Foggo, Esq. 35 Vice President and Assistant Vice President and Assistant
SEI Investments Secretary Secretary of the Administrator
One Freedom Valley Drive and Distributor (1998-Present);
Oaks, Pennsylvania 19456 Associate, Paul Weiss, Rifkind,
Wharton & Garrison (1998);
Associate, Baker & McKenzie
(1995-1998); Associate,
Battle Fowler LLP (1993-1995).
Kevin P. Robins, Esq. 38 Vice President and Assistant Senior Vice President and
SEI Investments Secretary General Counsel of the
One Freedom Valley Drive Administrator and Distributor
Oaks, Pennsylvania 19456 (1994-Present)
</TABLE>
*This individual is considered an interested person of the Trust as defined in
Section 2(a)(19) of the Investment Company Act.
The address of each individual listed above, unless otherwise indicated, is 400
North Roxbury Drive, Beverly Hills, California 90210.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Name of Person, Position Aggregate Pension or Estimated Annual Total Compensation
Compensation from Retirement Benefits Upon From Fund and Fund
the Trust Benefits Accrued Retirement Complex Paid to
As Part of Fund Trustees
Expenses
<S> <C> <C> <C> <C>
Irwin G. Barnet $3,000 N/A N/A $3,000
Trustee
Maria D. Hummer $3,000 N/A N/A $3,000
Trustee
Victor Meschures $3,000 N/A N/A $3,000
Trustee
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name of Person, Position Aggregate Pension or Estimated Annual Total Compensation
Compensation from Retirement Benefits Upon From Fund and Fund
the Trust Benefits Accrued Retirement Complex Paid to
As Part of Fund Trustees
Expenses
<S> <C> <C> <C> <C>
William R. Sweet $3,000 N/A N/A $3,000
Trustee
James R. Wolford $3,000 N/A N/A $3,000
Trustee
</TABLE>
INVESTMENT MANAGER
The Trust and City National Bank have entered into an Investment Management
Agreement (the "Management Agreement") as of April 1, 1999, regarding the Funds.
The Investment Manager provides a continuous investment program including
general investment and economic advice regarding the Funds' investment
strategies, manages the Funds' investment portfolios and provides other services
necessary to the operation of the Funds and the Trust. The Investment Manager is
exempt from registering as an investment adviser under the Investment Advisers
Act of 1940, as amended, because of its status as a bank. City National Bank,
founded in the early 1950's, is a federally chartered commercial bank with
approximately $13.8 billion in assets under administration and $4.2 billion in
assets under management, as of January 31, 2000. It is a wholly-owned subsidiary
of City National Corporation, a New York Stock Exchange listed company.
The Investment Management Agreement will be in effect for a two-year term from
its effective date, and thereafter will continue in effect for one-year terms,
subject to annual approval by: (1) the Board or (2) a vote of the majority (as
defined in the Investment Company Act) of the outstanding voting securities of
the Fund. In either event, the continuance must also be approved by a majority
of the Trustees who are not parties to the Investment Management Agreement, or
interest persons (as defined in the Investment Company Act) of any such party,
by vote cast in person at a meeting called for the purpose of voting on such
approval. The Investment Management Agreement may be terminated at any time upon
60-days notice by either party, or by a majority vote of the outstanding shares
of a Fund, and will terminate automatically upon assignment (as defined in the
Investment Company Act).
Pursuant to the Investment Management Agreement, the Investment Manager is
entitled to receive as an annual fee, payable monthly, of 0.25% of average daily
net assets from the Prime Money Fund, 0.27% of average daily net assets from the
California Money Fund and 0.26% of average daily net assets from the Government
Money Fund.
The Investment Manager provides the Funds with investment management services,
including the selection, appointment, and supervision of the Subadvisers. The
Investment Manager may, in the future, and after having secured the necessary
SEC approval, change a Subadviser according to certain procedures without
soliciting shareholders' approval.
<PAGE>
The Investment Management Agreement allows the Investment Manager to voluntarily
waive its fees payable under the Investment Management Agreement and to
reimburse all or a portion of a Fund's expenses. The Investment Management
Agreement further provides that the Investment Manager may seek reimbursement of
these amounts within a three-year period following such reduction or payment,
subject to a Fund's ability to effect such reimbursement and remain in
compliance with any applicable expense limitations. The Investment Manager will
generally seek reimbursement for the oldest of any reductions and/or waivers
before payment by a Fund for fees and expenses for the current year. Such
reimbursement may be paid prior to a Fund's payment of current expenses if so
requested by the Investment Manager even if such payment may require the
Investment Manager to waive or reduce its current fees under the Investment
Management Agreement or to pay current Fund expenses.
SUBADVISER TO THE GOVERNMENT MONEY FUND
The Investment Manager and Wellington Management Company, LLP (the "Wellington
Management") have entered into a subadvisory agreement (the "Wellington
Subadvisory Agreement") pursuant to which Wellington Management serves as
investment adviser to the Government Money Fund. The Wellington Subadvisory
Agreement provides that the Wellington Management shall not be protected against
any liability to the Trust or its shareholders by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from the reckless disregard of its obligations or duties thereunder.
The continuance of the Wellington Subadvisory Agreement after the first two (2)
years of the Wellington Subadvisory Agreement must be specifically approved at
least annually (1) by the vote of a majority of the outstanding shares of the
Government Money Fund or by the Trustees, and (2) by the vote of a majority of
the Trustees who are not parties to the Wellington Subadvisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The Wellington Subadvisory Agreement
will terminate automatically in the event of its assignment. It is terminable at
any time without penalty by the Investment Manager, the Board of Trustees or by
a vote of the majority of the outstanding voting securities of the Government
Money Fund on 60 days' written notice to the Wellington Management, or by the
Wellington Management on 90 days' written notice to the Trust.
Wellington Management is entitled to a fee for its investment advisory services,
which is accrued daily and paid monthly at the following annual rates: 0.075% of
the combined daily net assets of the Government Money Fund up to $500 million
and 0.02% of such net assets in excess of $500 million. Wellington Management
may voluntarily waive portions of its fees, although such waiver is not expected
to affect the Government Money Fund's total operating expenses, due to the
nature of the Investment Manager's fee waivers. Wellington Management may
terminate its waiver at any time.
Wellington Management is located at 75 State Street, Boston, Massachusetts
02109. Wellington Management and its predecessor organizations have provided
investment advisory services to investment companies since 1928 and to
investment counseling clients since 1960. As of December 31, 19999, Wellington
Management had discretionary management authority with respect to approximately
$235 billion in assets.
<PAGE>
SUBADVISER TO THE CALIFORNIA MONEY FUND
The Investment Manager and Weiss, Peck & Greer, L.L.C. ("WP&G" and, with
Wellington Management, each a "Subadviser" and together, the "Subadvisers") have
entered into a subadvisory agreement (the "WP&G Subadvisory Agreement") pursuant
to which WP&G serves as an investment adviser to the California Money Fund. The
WP&G Subadvisory Agreement provides that WP&G shall not be protected against any
liability to the Trust or its shareholders by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard of its obligations or duties thereunder.
WP&G is a limited liability company founded as a limited partnership in 1970,
and engages in investment management, venture capital management and management
buyouts. WP&G has been active since its founding in managing portfolios of tax
exempt securities. As of January 31, 2000, total assets under management were
approximately $18 billion. The principal business address of WP&G is One New
York Plaza, New York, New York 10004.
The WP&G Subadvisory Agreement must be specifically approved at least annually
(1) by the vote of a majority of the outstanding shares of the California Money
Fund or by the Trustees, and (2) by the vote of a majority of the Trustees who
are not parties to such WP&G Subadvisory Agreement or "interested persons" of
any party thereto, cast in person at a meeting called for the purpose of voting
on such approval. The WP&G Subadvisory Agreement will terminate automatically in
the event of its assignment. It is terminable at any time without penalty by the
Investment Manager, the Board of Trustees or, by a vote of the majority of the
outstanding voting securities of the California Money Fund, on 60 days' written
notice to WP&G, or by WP&G on 90 days' written notice to the Trust.
WP&G is entitled to a fee for its investment advisory services, which is accrued
daily and paid monthly at the following annual rates: 0.05% of the average daily
net assets of the California Money Fund up to $500 million, 0.04% between $500
million and $1 billion and 0.03% of net assets in excess of $1 billion.
PRINCIPAL UNDERWRITER
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") with respect to shares of the Funds. The Distributor
receives no compensation for its distribution services to the Funds. The
Distribution Agreement shall remain in effect for a period of two years after
the effective date of the Distribution Agreement and is thereafter renewable
annually. The Distribution Agreement will terminate automatically in the event
of its assignment and may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority of the outstanding voting securities
of the Trust upon not less than 60 days' prior written notice by either party or
upon assignment by the Distributor.
TRANSFER AGENT
Pursuant to a Transfer Agency Agreement, SEI Investments Fund Management, (the
"Transfer Agent") located at 530 East Swedesford Road Wayne, Pennsylvania 19087
serves as transfer
<PAGE>
agent for the Funds. The Transfer Agent provides information and services to
the Funds' shareholders which include reporting share ownership, sales, and
dividend activity (and associated tax consequences), responding to daily
inquiries, and effecting the transfer of the Funds' shares. It furnishes such
office space and equipment, telephone facilities, personnel, and
informational literature distribution as is necessary or appropriate in
providing transfer agency information and services.
CUSTODIAN
Pursuant to a Custodian Agreement, First Union National Bank serves as the
Custodian (the "Custodian") of the Funds' assets. Under the terms of the
Custodian Agreement, the Custodian holds and administers the securities and cash
in the Funds' portfolios.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS
The Trust's independent auditors, KPMG LLP, audit and report on the annual
financial statements of the Funds and review the Funds' federal income tax
returns. KPMG LLP may also perform other professional accounting, auditing, tax,
and advisory services when engaged to do so by the Trust. Shareholders will be
sent audited annual and unaudited semi-annual financial statements. The address
of KPMG LLP is 355 South Grand Avenue, Los Angeles, California 90071.
LEGAL COUNSEL
The validity of the shares of beneficial interest offered hereby will be passed
upon by Paul, Hastings, Janofsky & Walker LLP, 345 California Street, Suite
2900, San Francisco, California 94104.
PORTFOLIO TRANSACTIONS AND TURNOVER
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to: pursue the objective of
the Funds in relation to movements in the general level of interest rates;
invest money obtained from the sale of the Funds' shares; reinvest proceeds from
maturing portfolio securities; and meet redemptions of the Funds' shares.
Portfolio transactions may increase or decrease the yields of the Funds
depending upon management's ability correctly to time and execute them.
The Investment Manager, or a Fund's Subadviser, in effecting purchases and sales
of portfolio securities for the account of the Funds, seeks to obtain best price
and execution. Subject to the supervision of the Board of Trustees, the
Investment Manager or a Fund's Subadviser generally selects broker-dealers for
the Funds primarily on the basis of the quality and reliability of services
provided, including execution capability and financial responsibility.
When the execution and price offered by two or more broker-dealers are
comparable, the Investment Manager or a Fund's Subadviser may, in its
discretion, utilize the services of broker-dealers that provide it with
investment information and other research resources. The Investment
<PAGE>
Manager or a Fund's Subadviser may use such resources when providing advisory
services to other investment advisory clients, including other mutual funds.
The Trust expects that purchases and sales of portfolio securities will usually
be principal transactions. Securities will normally be purchased directly from
the issuer or from an underwriter or market maker for the securities.
Purchases from underwriters will include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
will include the spread between the bid and asked prices.
Investment decisions for the Funds are reached independently from those for
other accounts managed by the Investment Manager or a Fund's Subadviser. Such
other accounts may also make investments in instruments or securities at the
same time as the Funds. If the Investment Manager or a Fund's Subadviser
determines that the purchase or sale of a security is in the best interest of a
Fund as well as that of another client, it may aggregate the securities to be
purchased or sold to the extent permitted by applicable laws and regulations. It
will do so in an attempt to obtain the most favorable price or lower brokerage
commissions and the most efficient execution. In such event, it will allocate
the securities so purchased or sold, as well as the expenses incurred in the
transaction, in the manner it considers to be the most equitable under the
circumstances and consistent with its fiduciary obligations to the Funds and to
its other participating clients. In some cases this procedure may affect the
size or price of the position obtainable for the Funds.
PORTFOLIO TURNOVER
Because securities with maturities of less than one year are excluded from
required portfolio turnover rate calculations, the Funds' portfolio turnover
rates for reporting purposes are expected to be zero.
DISTRIBUTION AND TAXES
DISTRIBUTIONS
Your dividends begin to accrue on the day of purchase for shares bought. All
times are Eastern time. Your dividends begin to accrue on the following day for
shares purchased after these cut-off times. We will not credit you with
dividends for shares on the day you sell them.
On each day that the Funds' net asset values per share are determined (each a
"Business Day"), the Funds' net investment incomes are declared as of the close
of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time) as a
dividend to shareholders of record as of the last calculation of net asset value
prior to the declaration and to shareholders investing on that day subject to
the following conditions: (1) receipt of the purchase order by the Transfer
Agent before 4:30 p.m. Eastern time for the Prime Money Fund and the Government
Money Fund, and before 2:00 p.m. Eastern time for the California Money Fund; and
(2) payment in immediately available funds wired to the Transfer Agent by the
close of business the same day. Shareholders will receive dividends in
additional shares unless they elect to receive cash. Dividends will normally be
reinvested monthly in full and fractional shares of the Funds at the net asset
value on
<PAGE>
the last Business Day of each month. If cash payment is requested, checks
will normally be mailed on the Business Day following the dividend
reinvestment date. The Funds will pay shareholders who redeem all of their
shares all dividends accrued to the time of the redemption within seven days
after the redemption.
The Funds calculate dividends based on daily net investment income. For this
purpose, the net investment income of each Fund consists of: (1) accrued
interest income, plus or minus amortized discount or premium, less (2) accrued
expenses allocated to that Fund. If the Fund realizes any capital gains, they
will be distributed at least once during the year as determined by the Board of
Trustees. Any realized capital losses to the extent not offset by realized
capital gains will be carried forward up to eight years. It is not anticipated
that any Fund will realize any long-term capital gains. Expenses of the Trust
are accrued daily. Should the net asset values of a Fund deviate significantly
from market value, the Board of Trustees could decide to value the investments
at market value, and any unrealized gains and losses could affect the amount of
the Fund's distributions.
FEDERAL INCOME TAXES
It is the policy of the Funds to qualify for taxation, and to elect to be taxed,
as "regulated investment companies" by meeting the requirements of Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). In order to so
qualify, the Funds will distribute each year substantially all of their
investment company taxable income (if any), their net exempt-interest income (if
any), and their net capital gains (if any), and will seek to meet certain other
requirements. Such qualification relieves the Funds of liability for federal
income taxes to the extent the Funds' earnings are distributed. By following
this policy, the Funds expect to eliminate or reduce to a nominal amount the
federal income tax to which they are subject.
In order to qualify as regulated investment companies, the Funds must, among
other things, annually (1) derive at least 90% of their gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stocks, securities, foreign currencies or other
income (including gains from options, futures or forward contracts) derived with
respect to their business of investing in stocks, securities or currencies, and
(2) diversify holdings so that at the end of each quarter of their taxable years
(i) at least 50% of the market value of the Funds' total assets is represented
by cash or cash items, U.S. Government securities, securities of other regulated
investment companies and other securities limited, in respect of any one issuer,
to a value not greater than 5% of the value of the Funds' total assets and 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities or securities of other regulated
investment companies) or of two or more issuers that the Funds control, within
the meaning of the Code, and that are engaged in the same, similar or related
trades or businesses. If the Funds qualify as regulated investment companies,
they will not be subject to federal income tax on the part of their net
investment income and net realized capital gains, if any, which they distribute
to shareholders, provided that the Funds meet certain minimum distribution
requirements. To comply with these requirements, the Funds must distribute
annually at least (1) 90% of "investment company taxable income" (as that term
is defined in the Code), and (2) 90% of the excess of (i) tax exempt interest
income over (ii) certain
<PAGE>
deductions attributable to that income (with certain exceptions), for their
taxable years. The Funds intend to make sufficient distributions to
shareholders to meet these requirements.
If a Fund fails to distribute in a calendar year (regardless of whether it has a
non-calendar taxable year) at least 98 percent of its (1) ordinary income for
such year; and (2) capital gain net income for the one-year period ending on
October 31 of that calendar year (or later if the Fund is permitted so to elect
and so elects), plus any undistributed ordinary income or capital gain from the
prior year, the Fund will be subject to a nondeductible 4% excise tax on the
undistributed amounts. The Funds intend generally to make distributions
sufficient to avoid imposition of this excise tax.
Any distributions declared by the Funds in October, November, or December to
shareholders of record during those months and paid during the following January
are treated, for tax purposes, as if they were received by each shareholder on
December 31 of the year declared. The Funds may adjust their schedules for the
reinvestment of distributions for the month of December to assist in complying
with the reporting and minimum distribution requirements of the Code.
The Funds do not expect to realize any significant amount of long-term capital
gain. However, any distributions by the Funds of long-term capital gain will be
taxable to the shareholders as long-term capital gain, regardless of how long a
shareholder has held Fund shares.
The Funds may engage in investment techniques that may alter the timing and
character of the Funds' incomes. The Funds may be restricted in their use of
these techniques by rules relating to qualifying as regulated investment
companies.
The Funds may invest in some Variable Rate Demand Securities which have a
feature entitling the purchaser to resell the securities at a specified amount
(a "put option"). The Internal Revenue Service (the "IRS") has issued a revenue
ruling to the effect that, under specified circumstances, a regulated investment
company will be the owner of tax exempt municipal obligations acquired with a
put option. The IRS subsequently announced that it will not ordinarily issue an
advance letter ruling as to the identity of the true owner of property in cases
involving the sale of securities (or participation interests therein) if the
purchaser has the right to cause the security (or participation interest
therein) to be purchased by the seller or a third party. The Funds intend to
take the position that they are the owner of any securities with respect to
which they also hold a put option.
The Funds will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder (1) who fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) who provides an incorrect taxpayer identification number; (3) who
is subject to withholding for failure to properly report to the IRS all payments
of interest or dividends; or (4) who fails to provide a certified statement that
he or she is not subject to "backup withholding." This "backup withholding" is
not an additional tax and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
The foregoing discussion relates only to federal income tax law as applicable to
U.S. citizens or residents. Foreign shareholders (i.e., nonresident alien
individuals and foreign corporations, partnerships, trusts and estates)
generally are subject to U.S. withholding tax at the rate of 30%
<PAGE>
(or a lower tax treaty rate) on distributions derived from net investment
income and short-term capital gains. Distributions to foreign shareholders of
long-term capital gains and any gains from the sale or disposition of shares
of the Funds generally are not subject to U.S. taxation, unless the recipient
is an individual who meets the Code's definition of "resident alien."
Different tax consequences may result if the foreign shareholder is engaged
in a trade or business within the U.S. In addition, the tax consequences to a
foreign shareholder entitled to claim the benefits of a tax treaty may be
different than those described above. Distributions by the Funds may also be
subject to state, local and foreign taxes, and their treatment under
applicable tax laws may differ from the U.S. federal income tax treatment.
The information above is only a summary of some of the tax considerations
generally affecting the Funds and their shareholders. No attempt has been made
to discuss individual tax consequences and this discussion should not be
construed as applicable to all shareholders' tax situations. Investors should
consult their own tax advisors to determine the suitability of the Funds and the
applicability of any state, local, or foreign taxation. Paul, Hastings, Janofsky
& Walker LLP has expressed no opinion in respect thereof. Foreign shareholders
should consider, in particular, the possible application of U.S. withholding
taxes on certain taxable distributions from the Funds at rates up to 30%
(subject to reduction under certain income tax treaties).
CALIFORNIA MONEY FUND
The California Money Fund intends to qualify to pay dividends to shareholders
that are exempt from both federal income tax and California personal income tax
("California exempt-interest dividends"). The California Money Fund will qualify
to pay California exempt-interest dividends if (1) at the close of each quarter
of the California Money Fund's taxable year, at least 50 percent of the value of
the California Money Fund's total assets consists of obligations the interest on
which would be exempt from federal income tax and California personal income tax
if the obligations were held by an individual ("California Tax Exempt
Obligations"), and (2) the California Money Fund continues to qualify as a
regulated investment company.
If the California Money Fund qualifies to pay California exempt-interest
dividends, dividends distributed to shareholders will be considered California
exempt-interest dividends if they meet certain requirements. The California
Money Fund will notify its shareholders of the amount of California
exempt-interest dividends each year.
Corporations subject to California franchise tax that invest in the California
Money Fund may not be entitled to exclude California exempt-interest dividends
from their California income.
Dividend distributions that do not qualify for treatment as California
exempt-interest dividends (including those dividend distributions to
shareholders taxable as long-term capital gains for federal income tax purposes)
will be taxable to shareholders at ordinary income tax rates for California
personal income tax purposes to the extent of the California Money Fund's
earnings and profits.
Interest on indebtedness incurred or continued by a shareholder in connection
with the purchase of shares of the California Money Fund will not be deductible
for federal income tax or
<PAGE>
California personal income tax purposes if the California Money Fund
distributes California exempt-interest dividends.
The foregoing is a general, abbreviated summary of certain of the provisions of
the California Revenue and Taxation Code presently in effect as they directly
govern the taxation of shareholders subject to California personal income tax.
These provisions are subject to change by legislative or administrative action,
and any such change may be retroactive with respect to Fund transactions.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning California tax matters. Paul, Hastings, Janofsky
& Walker LLP has expressed no opinion in respect thereof.
SHARE PRICE CALCULATION
The Funds value portfolio instruments at amortized cost, which means they are
valued at their acquisition cost, as adjusted for amortization of premium or
discount, rather than at current market value. Calculations are made to compare
the value of the Funds' investments at amortized cost with market values. Market
valuations are obtained by using actual quotations provided by market makers,
estimates of market value, or values obtained from yield data relating to
classes of money market instruments published by reputable sources at the bid
prices for the instruments. The amortized cost method of valuation seeks to
maintain a stable $1.00 per share net asset value even where there are
fluctuations in interest rates that affect the value of portfolio instruments.
Accordingly, this method of valuation can in certain circumstances lead to a
dilution of a shareholder's interest.
If a deviation of 1/2 of 1% or more were to occur between the net asset value
per share calculated by reference to market values and a Fund's $1.00 per share
net asset value, or if there were any other deviation that the Board of Trustees
of the Trust believed may result in a material dilution or other unfair results
to investors or existing shareholders, the Board of Trustees is required to
cause the Fund to take such action as it deems appropriate to eliminate or
reduce to the extent reasonably practicable such dilution or unfair results. If
a Fund's net asset values per share (computed using market values) declined, or
were expected to decline, below $1.00 (computed using amortized cost), the Board
of Trustees might temporarily reduce or suspend dividend payments for the Fund
in an effort to maintain the net asset value at $1.00 per share. As a result of
such reduction or suspension of dividends or other action by the Board of
Trustees, an investor would receive less income during a given period than if
such a reduction or suspension had not taken place. Such action could result in
investors receiving no dividends for the period during which they hold their
shares and receiving, upon redemption, a price per share lower than that which
they paid. On the other hand, if a Fund's net asset values per share (computed
using market values) were to increase, or were anticipated to increase above
$1.00 (computed using amortized cost), the Board of Trustees might supplement
dividends in an effort to maintain the net asset value at $1.00 per share.
YIELD
If you would like to know the current seven-day yield of any of the Funds, you
may call 1-888-889-0799. The historical performance of the Funds may be shown in
the form of yield and effective yield. These measures of performance are
described below. As noted in the
<PAGE>
Prospectus, the Funds may, from time to time, quote various performance
figures in advertisements and other communications to illustrate their past
performance. Performance figures will be calculated separately for different
classes of shares. As of October 31, 1999, the yields were as follows.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Effective Tax-Equiv. Tax-Equiv.
Fund Yield Yield Current Yield* Effective Yield*
(7-day) (7-day) (7-Day) (7-Day)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIME MONEY FUND
Class A 4.60% 4.71% N/A N/A
Class S** N/A N/A N/A N/A
Institutional Class 4.82% 4.94% N/A N/A
GOVERNMENT MONEY FUND
Class A 4.55% 4.65% N/A N/A
Class S 4.35% 4.44% N/A N/A
Institutional Class** N/A N/A N/A N/A
CALIFORNIA MONEY FUND
Class A 2.39% 2.42% 4.36% 4.42%
Class S** N/A N/A N/A N/A
Institutional Class** N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Calculated using a combined federal and California income tax rate of 45.22%
for the California Money Fund. ** Seven day yield information was not available
for the Prime Money Fund Class S shares, the Government Fund Institutional Class
shares, and the California Money Fund Class S and Institutional Class shares as
these shares had not yet been offered for sale for at least seven days as of
October 31, 1999.
Current yield reflects the interest income per share earned by the Funds'
investments. Current yield is computed by determining the net change, excluding
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of a seven-day period, subtracting a
hypothetical charge reflecting deductions from shareholder accounts, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then annualizing the result by
multiplying the base period return by (365/7).
Effective yield is computed in the same manner except that the annualization of
the return for the seven-day period reflects the results of compounding by
adding 1 to the base period return, raising the sum to a power equal to 365
divided by 7, and subtracting 1 from the result. This figure is obtained using
the Securities and Exchange Commission formula:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1
Investors should recognize that, in periods of declining interest rates, the
Funds' yields will tend to be somewhat higher than prevailing market rates and,
in periods of rising interest rates, will
<PAGE>
tend to be somewhat lower. In addition, when interest rates are falling,
monies received by the Funds from the continuous sale of their shares will
likely be invested in instruments producing lower yields than the balance of
their portfolio of securities, thereby reducing the current yield of the
Funds. In periods of rising interest rates, the opposite result can be
expected to occur.
A tax equivalent yield demonstrates the taxable yield necessary to produce an
after-tax yield equivalent to that of a fund that invests in tax-exempt
obligations. The tax equivalent yield for the California Money Fund is computed
by dividing that portion of the current yield (or effective yield) of the
California Money Fund (computed for the California Money Fund as indicated
above) that is tax exempt by one minus a stated income tax rate and adding the
quotient to that portion (if any) of the yield of the California Money Fund that
is not tax exempt. In calculating tax equivalent yields for the California Money
Fund, the California Money Fund assumes an effective tax rate (combining federal
and California tax rates) of 45.22%, based on a California tax rate of 9.3%
combined with a 39.6% federal tax rate. The effective rate used in determining
such yield does not reflect the tax costs resulting from the loss of the benefit
of personal exemptions and itemized deductions that may result from the receipt
of additional taxable income by taxpayers with adjusted gross incomes exceeding
certain levels. The tax equivalent yield may be higher than the rate stated for
taxpayers subject to the loss of these benefits.
DISTRIBUTION PLANS
The Trust has adopted a Distribution Plan (the "Plan") for the Class A and Class
S classes of the Funds in accordance with Rule 12b-1 under the Investment
Company Act, which regulates circumstances under which an investment company may
directly or indirectly bear expenses relating to the distribution of its shares.
In this regard, the Board of Trustees has determined that the Plan is in the
best interests of the shareholders. Continuance of the Plan must be approved
annually by a majority of the Trustees of the Trust and by a majority of the
Trustees who are not "interested persons" of the Trust as that term is defined
in the Investment Company Act ("Independent Trustees"), and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto. The Plan may not be amended to increase materially the amount
that may be spent thereunder without approval by a majority of the outstanding
shares of a Fund or class affected. All material amendments to the Plan will
require approval by a majority of the Trustees and of these Independent
Trustees.
The Plan adopted by Class A and Class S shareholders provides that the Trust
will pay the Distributor a fee of up to 0.50% of the average daily net assets of
a Fund's Class A and Class S shares that the Distributor can use to compensate
broker-dealers and service providers, including affiliates of the Distributor,
that provide distribution-related services to Class A and/or Class S
shareholders or to their customers who beneficially own Class A and/or Class S
shares.
Payments may be made under the Class A and Class S Plans for distribution
services, including reviewing of purchase and redemption orders, assisting in
processing purchase, exchange and redemption requests from customers, providing
certain shareholder communications requested by the Distributor, forwarding
sales literature and advertisements provided by the Distributor, and arranging
for bank wires.
<PAGE>
Except to the extent that the Investment Manager, Wellington Management and/or
WP&G benefited through increased fees from an increase in the net assets of the
Trust which may have resulted in part from the expenditures, no interested
person of the Trust nor any Trustee who is not an interested person of the Trust
has or had a direct or indirect financial interest in the operation of any of
the distribution plans or related agreements.
Although banking laws and regulations prohibit banks from distributing shares of
open-end investment companies such as the Trust, according to an opinion issued
to the staff of the SEC by the Office of the Comptroller of the Currency,
financial institutions are not prohibited from acting in other capacities for
investment companies, such as providing shareholder services. Should future
legislative, judicial or administrative action prohibit or restrict the
activities of financial institutions in connection with providing shareholder
services, the Trust may be required to alter materially or discontinue its
arrangements with such financial institutions.
The 12b-1 Plan provide that the Investment Manager may use the distribution fees
received only to pay for the distribution expenses of that Class.
Distribution fees are accrued daily and paid monthly, and are charged as
expenses as accrued. Shares are not obligated under the 12b-1 Plan to pay any
distribution expense in excess of the distribution fee. Thus, if the 12b-1 Plan
is terminated or otherwise not continued, no amounts (other than current amounts
accrued but not yet paid) would be owed by the Class to the Investment Manager.
The 12b-1 Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Trustees, including a majority of the
Independent Trustees who have no material interest in the 12b-1 Plan vote
annually to continue the 12b-1 Plan. The Board, when approving the establishment
of the 12b-1 Plan, determined that there are various anticipated benefits to the
Funds from such establishment, including the likelihood that the 12b-1 Plan will
stimulate sales of shares of the Trust and assist in increasing the asset base
of the Trust in the face of competition from a variety of financial products and
the potential advantage to the shareholders of the Trust of prompt and
significant growth of the asset base of the Trust, including greater liquidity,
more investment flexibility and achievement of greater economies of scale. The
12b-1 Plan (and any distribution agreement between the Funds, the Distributor or
the Investment Manager and a selling agent with respect to the shares) may be
terminated without penalty upon at least 60-days' notice by the Distributor or
the Investment Manager, or by the Trust by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding shares (as defined in the
Investment Company Act) of the Class to which the 12b-1 Plan applies. Neither
any "interested person" of the Trusts (as that term is used under the Investment
Company Act) nor any Independent Trustee.
All distribution fees paid by the Funds under the 12b-1 Plan will be paid in
accordance with Rule 2830 of the NASD Regulation, Inc. Rules of Conduct, as such
Rule may change from time to time. Pursuant to the 12b-1 Plan, the Trustees will
review at least quarterly a written report of the distribution expenses incurred
by the Investment Manager on behalf of the shares of the Fund. In addition, as
long as the 12b-1 Plan remain in effect, the selection and nomination of
Trustees who are not interested persons (as defined in the Investment Company
Act) of the Trust shall be made by the Independent Trustees.
<PAGE>
SHAREHOLDER SERVICE AGREEMENTS
The Investment Manager has entered into a Shareholder Services Agreement with
the Trust. Pursuant to the Shareholder Services Agreement, the Investment
Manager will provide, or will arrange for others to provide, certain specified
shareholder services to shareholders of the Funds. As compensation for the
provision of such services, the Funds will pay the Investment Manager a fee of
up to 0.25% of the Funds' average daily net assets on an annual basis, payable
monthly. The Investment Manager will pay certain banks, trust companies,
broker-dealers and other institutions (each a "Participating Organization") out
of the fees the Investment Manager receives from the Funds under the Shareholder
Services Agreement to the extent that the Participating Organization performs
shareholder servicing functions for the Funds with respect to shares of the
Funds owned from time to time by customers of the Participating Organization. In
certain cases, the Investment Manager may also pay a fee, out of its own
resources and not out of the service fee payable under the Shareholder Services
Agreement, to a Participating Organization for providing other administrative
services to its customers who invest in the Funds.
Pursuant to the Shareholder Services Agreement, the Investment Manager will
provide or arrange with a Participating Organization for the provision of the
following shareholder services: responding to shareholder inquiries; processing
purchases and redemptions of the Funds' shares, including reinvestment of
dividends; assisting shareholders in changing dividend options, account
designations, and addresses; transmitting proxy statements, annual reports,
prospectuses, and other correspondence from the Funds to shareholders
(including, upon request, copies, but not originals, of regular correspondence,
confirmations, or regular statements of account) where such shareholders hold
shares of the Funds registered in the name of the Investment Manager, a
Participating Organization, or their nominees; and providing such other
information and assistance to shareholders as may be reasonably requested by
such shareholders.
The Investment Manager may also enter into agreements with Participating
Organizations that process substantial volumes of purchases and redemptions of
shares of the Funds for their customers. Under these arrangements, the Transfer
Agent will ordinarily maintain an omnibus account for a Participating
Organization and the Participating Organization will maintain sub-accounts for
its customers for whom it processes purchases and redemptions of shares. A
Participating Organization may charge its customers a fee, as agreed upon by the
Participating Organization and the customer, for the services it provides.
Customers of Participating Organizations should read the Funds' Prospectuses in
conjunction with the service agreement and other literature describing the
services and related fees provided by the Participating Organization to its
customers prior to any purchase of shares.
EXPENSES
The Trust pays the expenses of its operations, including: the fees and expenses
of independent auditors, counsel and the custodian; the cost of reports and
notices to shareholders; the cost of calculating net asset value; registration
fees; the fees and expenses of qualifying the Trust and its shares for
distribution under federal and state securities laws; and membership dues in the
Investment Company Institute and other industry association membership dues.
<PAGE>
Prior to April 1, 1999 Berkeley Capital Management ("BCM") served as the
Investment Manager for the Prime Money Fund whereby it received fees at an
annual rate of 0.25% of the average daily net assets of the Fund. Following the
acquisition of North American Trust Company by City National Bank, City National
Investments ("CNI"), a division of City National Bank, assumed the role of
Investment Manager. Under the terms of the agreements, CNI receives an annual
fee equal to 0.25% of the average daily net assets of the Prime Money Fund,
0.26% of the average daily net assets of the Government Money Fund and 0.27% of
the average daily net assets of the California Money Fund. During the year ended
October 31, 1999, BCM earned investment advisory fees related to the Prime Money
Fund of $72,162. The Prime Money Fund, Government Money Fund and California
Money Fund paid investment advisory fees to CNI, net of waivers, as of October
31, 1999, in the amount of $61,595, $788,820 and $98,573, respectively. During
the year ended October 31, 1998, BCM earned investment advisory fees related to
the Prime Money Fund of $80,861, net of waivers.
In its role as Investment Manager, CNI has contractually agreed to limit its
fees or reimburse the expenses of the Institutional Class shares of the Prime
Money Fund to the same contractual limit as was provided by BCM. For the
Government Money Fund, California Money Fund, and all other classes of the Prime
Money Fund, CNI has voluntarily agreed to limit its fees or reimburse the
expenses to the extent necessary to keep the operating expenses at or below
certain percentages of the respective average daily net assets of the Funds. The
contractual and voluntary expense limitations (expressed as a percentage of
average daily net assets) are as follows:
<TABLE>
<CAPTION>
---------------------------------- ----------------- --------------------- -------------------------
Prime Money Fund Government Money California Money Fund
Fund
---------------------------------- ----------------- --------------------- -------------------------
---------------------------------- ----------------- --------------------- -------------------------
<S> <C> <C> <C>
Institutional Class 0.63% 0.63% 0.55%
---------------------------------- ----------------- --------------------- -------------------------
---------------------------------- ----------------- --------------------- -------------------------
Class A 0.85% 0.85% 0.78%
---------------------------------- ----------------- --------------------- -------------------------
---------------------------------- ----------------- --------------------- -------------------------
Class S 1.05% 1.05% 0.98%
---------------------------------- ----------------- --------------------- -------------------------
</TABLE>
The Investment Manager may remove these limits at any time, other than with
respect to the Institutional Class shares of the Prime Money Fund, which may
be removed at any time after March 31, 2001. Under certain conditions, the
Investment Manager may recoup the expenses it has reimbursed or absorbed
within three years after they occur if such repayments can be achieved within
a Fund's then current expense limit.
Effective April 1, 1999 the Trust entered into Shareholder Services Agreements
(the "Agreements") with City National Bank whereby City National Bank receives
shareholder service fees at an annual rate of 0.25% of the average daily net
assets of the Funds. Under the Agreements, the Prime Money Fund, Government
Money Fund and California Money Fund paid shareholder services fees, net of
waivers, to City National Bank, as of October 31, 1999, in the amount of
$216,387, $1,226,672 and $443,195, respectively.
The Trust and the Distributor entered into Distribution Agreements dated
April 8, 1999. The
<PAGE>
distributor receives no fees for its distribution services under these
agreements.
City National Bank serves as Sub-Distributor to the Funds. The Funds have
adopted Distribution Plans ("the Plans") relating to the Class A and S shares
pursuant to the Investment Company Act of 1940, Rule 12b-1. The Plans provide
for payment of fees to the Distributor at an annual rate of 0.50% of the average
daily net assets of the Class A and S shares. Such fees are then paid to the
Sub-Distributor for services provided. Under the Agreements the Prime Money
Fund, Government Money Fund and California Money Fund paid distribution fees,
net of waivers, to City National Bank, as of October 31, 1999, in the amount of
$265, $1,472,113 and $564,988, respectively.
GENERAL INFORMATION
The Trust was organized as a business trust under the laws of Delaware on
October 28, 1996 and may issue an unlimited number of shares of beneficial
interest or classes of shares in one or more separate series. Currently, the
Trust offers shares of nine series - three of which are described in this
Statement of Additional Information. The Board of Trustees may authorize the
issuance of shares of additional series or classes of shares of beneficial
interest if it deems it desirable.
The Funds described in this Statement of Additional Information each have three
classes of shares. This Statement of Additional Information describes the Class
A, Class S and Institutional Class of shares for each Fund. Generally, only
financial institutions and financial intemediaries may purchase Institutional
Class shares for their own or on behalf of their customer accounts. Class A
shares are intended for individual investors, partnerships, corporations and
other accounts that have short-term investment needs. Class S Shares are
primarily designed as "Sweep" shares -- by which investors are able to invest
deposited funds overnight or for short periods of time. The classes of each Fund
are subject to the same expenses, except that they are subject to different
distribution costs and other expenses.
The Trust is generally not required to hold shareholder meetings. However, as
provided in its Agreement and Declaration of Trust and its Bylaws, shareholder
meetings may be called by the Trustees for any purpose as may be prescribed by
law, the Agreement and Declaration of Trust, or the Bylaws, or for the purpose
of taking action upon any other matter deemed by the Trustees to be necessary or
desirable including changing fundamental policies, electing or removing
Trustees, or approving or amending an investment advisory agreement. In
addition, a Trustee may be removed by shareholders at a special meeting called
upon written request of shareholders owning in the aggregate at least 10% of the
outstanding shares of the Trust.
Each Trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of his
or her successor or until death, resignation, declaration of bankruptcy or
incompetence by a court of competent jurisdiction, or removal by a majority vote
of the shares entitled to vote (as described below) or of a majority of the
Trustees. In accordance with the Investment Company Act (1) the Trust will hold
a shareholder meeting for the election of trustees when less than a majority of
the trustees have been elected by shareholders, and (2) if, as a result of a
vacancy in the Board of Trustees, less than two-thirds of the trustees have been
elected by the shareholders, that vacancy will be filled by a vote of the
shareholders.
<PAGE>
The Agreement and Declaration of Trust provides that one-third of the shares
entitled to vote shall be a quorum for the transaction of business at a
shareholders' meeting, except when a larger quorum is required by applicable
law, by the Bylaws or by the Agreement and Declaration of Trust, and except that
where any provision of law, of the Agreement and Declaration of Trust, or of the
Bylaws permits or requires that (1) holders of any series shall vote as a
series, then a majority of the aggregate number of shares of that series
entitled to vote shall be necessary to constitute a quorum for the transaction
of business by that series; or (2) holders of any class shall vote as a class,
then a majority of the aggregate number of shares of that class entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that class. Any lesser number shall be sufficient for adjournments. Any
adjourned session or sessions may be held, within a reasonable time after the
date set for the original meeting, without the necessity of further notice. The
Agreement and Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Trust (or any of its investment portfolios) by notice to the
shareholders without shareholder approval.
For further information, please refer to the registration statement and exhibits
for the Trust on file with the SEC in Washington, D.C. and available upon
payment of a copying fee. The statements in the Prospectuses and this Statement
of Additional Information concerning the contents of contracts or other
documents, copies of which are filed as exhibits to the registration statement,
are qualified by reference to such contracts or documents.
PRINCIPAL HOLDERS OF SECURITIES
As of February 18, 2000, the following shareholders held of record the following
numbers of shares of the following classes of the Funds. As of February 18,
2000, the Trustees and officers of the Trust owned, in aggregate, of record less
than 1% of the outstanding shares of each Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------- ------------------------ ----------------------
SHARES PERCENTAGE
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
<S> <C> <C>
PRIME MONEY FUND
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
INSTITUTIONAL CLASS
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
City National Bank As Fiduciary For Various Accounts 159,335,226.31 99.03%
Attn: Trust OPS/Mutual Funds
PO Box 60520
Los Angeles CA 90060-0520
- ------------------------------------------------------------- ------------------------ ----------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------- ------------------------ ----------------------
CLASS A
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
<S> <C> <C>
Southwest Securities 16,362,133.92 22.00%
Special Custodial Account For Exclusive Benefit of Our
Customers
Attn: Barbara Dodd
PO Box 509002
Dallas TX 75250-9002
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
City National Bank As Agent For Various Accounts 59,265,087.58 78.00%
Attn: Trust OPS/Mutual Funds
PO Box 60520
Los Angeles CA 90060-0520
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
CLASS S
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
City National Bank As Agent For Various Accounts 5,441,919.41 99.99%
Attn: Trust OPS/Mutual Funds
PO Box 60520
Los Angeles CA 90060-0520
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
GOVERNMENT MONEY FUND
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
CLASS A
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
Southwest Securities 1,102,195,269.95 69.00%
Special Custodial Account For Exclusive Benefit of Our
Customers
Attn: Barbara Dodd
PO Box 509002
Dallas TX 75250-9002
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
City National Bank As Agent For Various Accounts 506,108,030.15 31.00%
Attn: Trust OPS/Mutual Funds
PO Box 60520
Los Angeles CA 90060-0520
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
CLASS S
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
City National Bank As Agent For Various Accounts 7,062,267.84 99.99%
Attn: Trust OPS/Mutual Funds
PO Box 60520
Los Angeles CA 90060-0520
- ------------------------------------------------------------- ------------------------ ----------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------- ------------------------ ----------------------
CALIFORNIA MONEY FUND
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
<S> <C> <C>
CLASS A
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
Southwest Securities 392,751,459.60 72.00%
Special Custodial Account For Exclusive Benefit of Our
Customers
Attn: Barbara Dodd
PO Box 509002
Dallas TX 75250-9002
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
City National Bank As Agent For Various Accounts 145,556,142.86 27.00%
Attn: Trust OPS/Mutual Funds
PO Box 60520
Los Angeles CA 90060-0520
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
CLASS S
- ------------------------------------------------------------- ------------------------ ----------------------
- ------------------------------------------------------------- ------------------------ ----------------------
City National Bank As Agent For Various Accounts 690,430.17 99.99%
Attn: Trust OPS/Mutual Funds
PO Box 60520
Los Angeles CA 90060-0520
- ------------------------------------------------------------- ------------------------ ----------------------
</TABLE>
PURCHASE AND REDEMPTION OF SHARES
The Funds' minimum initial investment is $100,000. Subsequent investments of
$1,000 or more may be made. These minimum requirements may be changed at any
time. Exceptions to the minimum investment requirements may be made at the
discretion of the Investment Manager. In order to reach or maintain these
purchase and account minimums, your Authorized Institution may aggregate your
purchase with the purchases of its other clients. Further exceptions to the
purchase and account minimums may be made at our discretion. The Funds will
accept investments in cash only in U.S. dollars.
Each Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order in-kind by
making payment in readily marketable securities chosen by the Fund and valued as
they are for purposes of computing the Fund's net asset values. However, the
Trust has elected to commit itself to pay in cash all requests for redemption by
any shareholder of record, limited in amount with respect to each shareholder
during any 90-day period to the lesser of: (1) $250,000, or (2) one percent of
the net asset value of the relevant Fund at the beginning of such period. If
payment is made in securities, a shareholder may incur transaction expenses in
converting these securities into cash.
To minimize administrative costs, share certificates will not be issued. Records
of share ownership are maintained by the Transfer Agent.
<PAGE>
Investors should remember that it may be difficult to complete transactions by
telephone during periods of drastic economic or market changes, when phone lines
may become busy with calls from other investors. If you want to buy or sell
shares but have trouble reaching the Funds by telephone, you may want to use
another method for completing a transaction, even though an alternative
procedure may mean that completing your transaction may take a longer period of
time.
The Funds may be required to withhold federal income tax at a rate of 31%
(backup withholding) from dividend payments, distributions, and redemption
proceeds if a shareholder fails to furnish the Funds with his/her certified
social security or tax identification number. The shareholder also must certify
that the number is correct and that he/she is not subject to backup withholding.
The certification is included as part of the share purchase application form. If
the shareholder does not have a social security number, he/she should indicate
on the purchase form that an application to obtain the number is pending. The
Funds are required to withhold taxes if a number is not delivered within seven
days.
OTHER INFORMATION
The Prospectuses of the Funds and this Statement of Additional Information do
not contain all the information included in the Registration Statement filed
with the SEC under the Securities Act, with respect to the securities offered by
the Prospectuses pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined at
the office of the SEC in Washington, D.C.
Statements contained in the Prospectuses or in this Statement of Additional
Information as to the contents of any contract or other document referred to are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectuses and this Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.
<PAGE>
APPENDIX - RATINGS OF INVESTMENT SECURITIES
I. COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Prime-1 is the highest commercial paper rating assigned by
Moody's Issuers (or related supporting institutions) of commercial paper with
this rating are considered to have a superior ability to repay short-term
promissory obligations. Issuers (or related supporting institutions) of
securities rated Prime-2 are viewed as having a strong capacity to repay
short-term promissory obligations. This capacity will normally be evidenced by
many of the characteristics of issuers whose commercial paper is rated Prime-1,
but to a lesser degree.
STANDARD & POOR'S CORPORATION
A S&P A-1 commercial paper rating indicates either an
overwhelming or very strong degree of safety regarding timely payment of
principal and interest. Issues determined to possess overwhelming safety
characteristics are denoted A-1+. Capacity for timely payment on commercial
paper rated A-2 is strong, but the relative degree of safety s not as high as
for issues designated A-1.
II. SHORT-TERM NOTES AND VARIABLE RATE DEMAND OBLIGATIONS
MOODY'S INVESTORS SERVICE
Short-term notes and variable rate demand obligations bearing
the designations MIG-1/VMIG-1 are considered to be of the best quality, enjoying
strong protection from established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing. Obligations rated
MIG-2/VMIG-2 are of high quality and enjoy ample margins of protection, although
not as large as those of the top rated securities.
STANDARD & POOR'S CORPORATION
A S&P SP-1 rating indicates that the subject securities'
issuer has a very strong capacity to pay principal and interest. Issues
determined to possess overwhelming safety characteristics are given a plus (+)
designation. S&P's determination that an issuer has a satisfactory capacity to
pay principal and interest is denoted by a SP-2 rating.
III. BONDS
MOODY'S INVESTORS SERVICE
Moody's rates the bonds it judges to be of the best quality
Aaa. These bonds carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
extraordinarily 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 these issues. Bonds
carrying an Aa designation are deemed to be of high quality by all standards.
Together with Aaa rated bonds,
<PAGE>
they comprise what are generally known as high grade bonds. Aa bonds are
rated lower than the best bonds because they may enjoy relatively lower
margins of protections, fluctuations of protective elements may be of greater
amplitude or there may be other factors present which make them appear to be
subject to somewhat greater long-term risks.
STANDARD & POOR'S CORPORATION
AAA is the highest rating assigned by S&P to a bond and
indicates the issuer's extremely strong capacity to pay interest and repay
principal. An AA rating denotes a bond whose issuer has a very strong capacity
to pay interest and repay principal and differs from an AAA rating only in small
degree.
