<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1996
REGISTRATION NO. 2-12893
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
POST-EFFECTIVE AMENDMENT NO. 57
AND
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 57
SIERRA GROWTH FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1801 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90067
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (310) 277-1450
JOHN G. AYER, PRESIDENT
SIERRA GROWTH FUND, INC.
1801 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90067
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
MICHAEL GLAZER, ESQ.
PAUL, HASTING, JANOFSKY & WALKER
555 SOUTH FLOWER STREET
23RD FLOOR
LOS ANGELES, CALIFORNIA 90071
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
/x/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has registered an indefinite number of shares by this Registrant Statement.
Registrant filed a Notice under such Rule for its fiscal year ended October 31,
1995 on December 21, 1995.
<PAGE>
SIERRA GROWTH FUND, INC.
Cross Reference Sheet Showing Location in Prospectus and in Statement of
Additional Information of Information Required by Items of Form N-1A
<TABLE>
<CAPTION>
FORM N-1A
ITEM AND HEADING PROSPECTUS CAPTION
---------------- ------------------
<S> <C>
Part A--
Item:
1. Cover Page Cover Page
2. Synopsis Summary of Expenses
3. Condensed Financial Information Per Share Data and Ratios
4. General Description of Registrant What is the Fund; Objectives and Investment
Policy
5. Management of the Fund Board of Directors; Investment Adviser;
Custodian, Transfer Agent and Dividend
Disbursing Agent
6. Capital Stock and Other Securities Capital Stock; Dividends and Tax Status;
Systematic Cash Withdrawal Plan
7. Purchase of Securities Being Offered Cover Page; How Net Asset Value is
Determined; How to Buy and Redeem Fund
Shares
8. Redemption or Repurchase How to Buy and Redeem Fund Shares
9. Pending Legal Proceedings Inapplicable
STATEMENT OF ADDITIONAL INFORMATION CAPTION
-------------------------------------------
Part B--
Item:
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Inapplicable
13. Investment Objectives and Policies Investment Objectives and Policies; Investment
Restrictions, Brokerage Transactions
14. Management of the Fund Officers and Directors
15. Control Persons and Principal Holders
of Securities Officers and Directors
16. Investment Advisory and Other Services Investment Advisory and Other Services
17. Brokerage Allocation and Other
Practices Brokerage Transactions
18. Capital Stock and Other Securities Inapplicable
19. Purchase, Redemption and Pricing of
Securities Being Offered Purchase Redemption and Pricing of Securities
Being Offered
20. Tax Status Inapplicable
21. Underwriters Inapplicable
22. Calculation of Performance Data Inapplicable
23. Financial Statements Financial Statements
Part C--
Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C to this
Registration Statement.
</TABLE>
<PAGE>
PROSPECTUS
SIERRA GROWTH FUND, INC.
1801 CENTURY PARK EAST, LOS ANGELES, CALIFORNIA 90067
(310) 277-1450
Sierra Growth Fund, Inc. (the "Fund") is a no-load, diversified, open-end
investment company. Its principal objective is long-term growth of capital. A
secondary consideration is the production of short-term income. In order to
achieve its investment objectives, the Fund invests in securities of companies
which appear to have good prospects for increased earnings and dividends and
uses certain other investment techniques in an effort to enhance income and
reduce market risks.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT INVESTORS SHOULD KNOW
ABOUT THE FUND PRIOR TO INVESTING AND SHOULD BE RETAINED FOR FUTURE REFERENCE.
A STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1996, HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS HEREBY INCORPORATED BY
REFERENCE. A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE UPON
REQUEST AND WITHOUT CHARGE BY WRITING OR CALLING THE FUND.
THIS PROSPECTUS IS DATED MARCH 1, 1996
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SUMMARY OF EXPENSES
This table is designed to assist shareholders in understanding the various
fees and expenses associated with investing in the Fund. The Example shown
below should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
Shareholder Transaction Expenses:
Maximum sales load imposed on purchases (as a percentage of
offering price) none
Maximum sales load imposed on reinvested dividends (as a percentage
of offering price) none
Deferred sales load (as a percentage of original purchase price or
redemption proceeds, as applicable) none
Redemption fees (as a percentage of amount redeemed, if applicable) none
Exchange fee none
Annual Fund Operating Expenses for the year ended October 31, 1995
(as a percentage of average net assets):
Management fees 1.04%
-----
12b-1 fees none
Other expenses (Audit, legal, shareholder services, transfer
agent, custodian, and miscellaneous) 2.06%
-----
-----
Total Fund Operating Expenses 3.10%
-----
-----
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<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following total fees and expenses
on a $1,000 investment, assuming (1) 5% annual
return (a) and (2) redemption at the end of each time period: $33 $36 $40 $363(b)
--- --- --- -------
</TABLE>
(a) Use of this assumed annual return is mandated by the Securities and
Exchange Commission and is not intended to be an illustration of past
or future investment results.
(b) These are cumulative totals. The average fees and expenses paid over
a 10-year period would be approximately $36.33 per year.
2
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FINANCIAL HIGHLIGHTS
The per share data and ratios in the following table for the years ended
October 31, 1995, 1994 and 1993, have been audited by Hein + Associates LLP,
independent auditors, whose report thereon and on the financial statements and
the related notes, appears in the Statement of Additional Information. The per
share data and ratios for each of the six years in the period ended October 31,
1991, were audited by other auditors, whose report dated November 21, 1991
expressed an unqualified opinion on such selected per share data and ratios.
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
FOR THE YEARS ENDED OCTOBER 31,
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.24 $12.07 $11.58 $13.22 $8.37 $12.27 $11.41 $10.73 $11.58 $10.56
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.26) (.29) (.21) (.27) (.23) (.22) (.17) (.30) (.43) (.17)
Net gains or losses on securities
(both realized and unrealized) 4.51 .55 1.56 (.20) 5.30 (1.22) 1.66 .98 .10 1.19
------ ------ ------ ------ ------ ------- ------- ------ ------ ------
Total from investment operations 4.25 .26 1.35 (.47) 5.07 (1.44) 1.49 .68 (.33) 1.02
LESS DISTRIBUTIONS:
Dividends (from net investment income -- -- -- -- -- -- -- -- -- --
Dividends (from capital gains) (.52) (2.09) (.86) (1.17) (.22) (2.46) (.63) -- (.52) --
Net asset value, end of year $13.97 $10.24 $12.07 $11.58 $13.22 $8.37 $12.27 $11.41 $10.73 $11.58
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
Total Return 43.71% 1.86% 11.80% (4.67)% 61.63% (15.30%) 13.54% 6.34% (3.16)% 9.66%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's): $4,151 $2,992 $3,024 $3,032 $3,459 $2,247 $2,672 $2,686 $2,862 $3,589
Ratio of operating expenses* 3.10% 3.51% 2.81% 3.03% 3.49% 3.99% 3.28% 3.31% 3.87% 2.75%
Ratio of net investment income
(loss to average net assets) (2.10)% (2.86)% (1.82)% (2.24)% (2.08)% (2.29)% (1.32)% (2.50)% (3.16)% (1.44)%
Portfolio turnover rate** 60% 43% 50% 67% 49% 69% 49% 11% 33% 14%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes state taxes.
** A portfolio turnover rate is the percentage computed by taking the lesser
of purchases or sales of portfolio securities (excluding short-term
investments) for a year and dividing it by the monthly average of the
market value of the portfolio securities during the year.
3
<PAGE>
WHAT IS THE FUND
Sierra Growth Fund, Inc. (the "Fund") is an investment company which was
organized in the State of Delaware. Purchasers of the Fund's shares invest in a
company that itself invests in securities. The Fund is an open-end investment
company because, upon demand of an investor, the Fund has a legal duty to redeem
its shares held by the investor and pay the investor the net asset value of the
shares. See "How Net Asset Value is Determined" and "How to Buy and Redeem Fund
Shares" on page 10. The Fund makes investments in various securities and is a
type of management company commonly known as a mutual fund.
The Fund was organized as a corporation under the name Teachers Mutual Fund
of California, Inc. in the State of Delaware on October 1, 1956 and commenced
operations in 1957. The Fund's name was changed to Teachers Association Mutual
Fund of California, Inc. in 1957, to Inverness Growth Fund, Inc. in 1973 and to
Sierra Growth Fund, Inc. in 1976. The purpose of the Fund is to provide
investors with an opportunity to acquire an interest in a comprehensive common
stock program under the continuous supervision of impartial and experienced
professional investment management. Investment companies operate in accordance
with their objectives and policies. The Fund's investment objectives and
policies are set forth below under "Objectives and Investment Policy."
With respect to the purchase and sale of investments, the Fund receives
investment advice and other services from Stonebridge Capital Management,
Incorporated (the "Adviser"), which is paid a fee pursuant to a contract. See
"Investment Adviser" on page 10 for a discussion of the Adviser and its contract
with the Fund. In addition to the advisory fee, the Fund pays other costs
including custodian and transfer agency fees, audit and legal fees, brokerage
fees and fees for certain administrative services.
The value of the Fund's shares, which are priced daily, fluctuates with the
value of the securities in which the Fund invests. When the Fund sells
portfolio securities it may realize a gain or a loss, depending on whether it
sells them for more or less than their cost. The Fund will earn dividend or
interest income to the extent that it receives dividends and interest from its
investments.
The Fund offers its shares to the public at net asset value on a continuous
basis. Such shares have been qualified for sale in California and New York and
may also be purchased in states where qualification is not required.
OBJECTIVES AND INVESTMENT POLICY
The principal objective of the Fund is long-term growth of capital. The
production of short-term income is a secondary consideration. In order to
achieve these objectives, management obtains careful and intensive studies of
trends of various industries and companies, including their earnings, as well as
the appreciation possibilities and relative investment values of their
securities.
Management seeks to attain the objectives of the Fund primarily through the
ownership of securities of companies which appear to have good prospects for
increased earnings and, consequently, the possibility of increased future
dividends and through the use of certain other investment techniques in an
effort to enhance income and reduce market risks. There can be no assurance
that these objectives will be achieved since all investments are subject to risk
in varying degrees. Such objectives can be changed by the Board of Directors of
the Fund.
It is a policy of the Fund, which may not be changed without approval of a
majority of the outstanding voting securities of the Fund, to diversify its
investments and not to concentrate its assets in any one industry.
Diversification and non-concentration tend to reduce, though they do not
eliminate, the market risk inherent in all securities. At the same time they
broaden investment opportunities.
The Fund is not restricted to investment in companies of any particular
size, and it may invest in smaller growth companies as well as established
companies. The securities of smaller companies may be subject to more volatile
market movements and greater risk than the securities of more well-established
companies. The Fund does not usually invest in stocks which are not listed on
an exchange or on the NASDAQ National Market System.
It is also the general policy of the Fund to remain fully invested in
common stocks. However, under certain circumstances, investments may be made in
other types of securities such as convertible bonds, preferred stocks, American
Depository Receipts, futures and options. There may also be times when, in
order to protect and preserve the assets of the Fund, management may hold
significant portions of the Fund's assets in cash, money market funds or short-
term US Treasury Securities, or make investments in those industries which will
best afford such protection, but in no event will more than 25% of the Fund's
assets be invested in any one industry.
The Fund may not invest an amount which exceeds 5% of the value of the
Fund's total assets in the securities of any one issuer. This restriction does
not apply to holdings of government securities.
4
<PAGE>
The Fund does not trade actively for quick profits; however, changes are
made in the portfolio whenever such action appears advisable. During periods of
broad economic growth, emphasis is placed on seeking investments in leading
companies in those industries that are expected to lead the expansion. During
periods when the economy is sluggish, emphasis is placed on seeking to invest in
companies selected because of their individual prospects for improved earnings.
In recent years, companies that have provided unusual investment opportunities
notwithstanding a sluggish economy have often been found to be among the leaders
in the development of new technology in their respective industries. Management
has approached these decisions with essentially the point of view of long-term
investing but securities may occasionally be sold for investment reasons even
though they have been held for short periods. Therefore, there may be a limited
number of short term transactions. This flexibility gives management freedom to
adjust the portfolio to changing business conditions. Because of this policy,
it is anticipated that the annual portfolio turnover will normally be in the
range of 25-100%. A 50% turnover rate would occur, for example, if one-half of
the value of the shares of the Fund's portfolio were replaced in a period of one
year. The rate of portfolio turnover in the Fund for the fiscal years ended
October 31, 1995, 1994 and 1993 was 60%, 43%, and 50%, respectively. Brokerage
cost to the Fund is normally commensurate with the rate of portfolio activity.
The investor should consider the tax consequences of these policies as discussed
on page 9.
Maintaining the purchasing power of the capital of the Fund is an important
consideration of management in the determination of investment policy, but there
can be no assurance that investors in the Fund will be protected from the
effects of inflation. The principal risk factor generally attendant to
investment in an investment company with investment policies and objectives
similar to the Fund's is the market risk inherent in investment in the
underlying securities in which the Fund invests. An additional risk factor
peculiar to investment in the Fund arises from the fact that long-term growth is
sought by the Fund at the possible expense of short-term profits.
FOREIGN INVESTMENTS. The Fund may invest up to 20% of its assets, either
directly or indirectly through investments in American Depository Receipts
("ADRs"), closed-end investment companies and in securities issued by foreign
companies wherever organized. ADRs are receipts issued by an American bank or
trust company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs may be listed on a national securities exchange or may trade in
the over-the-counter market. ADR prices are denominated in United States
dollars; the underlying security may be subject to foreign government taxes
which would reduce the yield on such securities. ADRs may be sponsored by the
foreign issuer or may be unsponsored (organized independently from the foreign
issuer). Available information regarding the foreign securities underlying
unsponsored ADRs may not be as current as for sponsored ADRs, and the prices of
unsponsored ADRs may be more volatile.
Securities of closed-end investment companies investing in foreign
securities may be acquired by the Fund within the limits prescribed by the
Investment Company Act of 1940. The Fund will invest in closed-end investment
companies only in furtherance of its investment objective. Such companies,
themselves, however, may have policies that are different from those of the Fund
and will bear management and other expenses of the same type as those paid by
the Fund and which may be greater or lesser in amount than those paid by the
Fund.
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, there is generally less publicly
available information about foreign companies, particularly those not subject to
the disclosure and reporting requirements of the United States securities laws.
Foreign issuers are generally not bound by uniform accounting, auditing and
financial reporting requirements comparable to those applicable to domestic
issuers. Investments in foreign securities also involve the risk of possible
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, political or financial instability or diplomatic and
other developments which could affect such investments. Further, economies of
particular countries or areas of the world may differ favorably or unfavorably
from the economy of the United States.
The Fund may enter into currency exchange contracts (agreements to exchange
dollars for foreign currencies at a future date) to manage exchange rate risk.
Currency exchange contracts allow the Fund to hedge the Fund's foreign
investments against adverse exchange rate changes. Successful currency hedging
depends upon the Adviser's ability to predict foreign currency values. A
currency exchange contract will tend to offset both positive and negative
currency fluctuations but will not offset other changes in the value of the
Fund's foreign investments. The Fund does not and will not use currency
exchange contracts for speculative purposes.
OPTIONS AND STOCK INDEX FUTURES. In addition to its investments in
securities, the Fund may buy and sell options on stocks and stock indices, stock
index futures contracts, and options on futures with respect to a portion of
its assets. The Fund may purchase and sell options on stocks and stock indices,
stock index futures contracts and futures options to manage cash flow and to
attempt to remain fully invested in the stock market. Since stock index options
and futures contracts and options are based on broad stock market indices, their
performance tends to track the performance of common stocks generally--which may
or may not correspond to the types of securities in which the Fund invests.
Some options and futures strategies expose the Fund to stock market changes when
it is not fully invested in stocks, and some strategies hedge against stock
price fluctuations. When the Fund has cash from new investments in the Fund or
holds a portion of its assets in money market instruments, it may enter into
futures contracts or options to attempt to increase its exposure to the stock
market. Strategies the Fund could use to accomplish this include purchasing
futures contracts, writing put options, and purchasing call options. When the
Fund
5
<PAGE>
wishes to sell securities, because of shareholder redemptions or otherwise, it
may use futures or options to hedge against market risk until the sale can be
completed. These strategies could include selling futures contracts, writing
call options, and purchasing put options. The Fund will not use leverage in
futures and options transactions, and will segregate liquid assets to cover its
potential obligations when required to do so by guidelines issued by the
Securities and Exchange Commission.
In selecting futures contracts and options for the Fund, the Adviser will
assess such factors as current and anticipated stock prices, relative liquidity
and price levels in the options and futures markets compared to the securities
markets, and the Fund's cash flow and cash management needs. If the Adviser
judges these factors incorrectly, or if price changes in the Fund's futures or
options positions are not correlated with its other investments, use of futures
contracts and options may lower the Fund's return. The Fund could also be
exposed to risks if it could not close out its futures or options positions
because of an illiquid secondary market. The Fund's policies regarding options
and futures contracts are not fundamental policies and may be changed at any
time without shareholder approval.
SHORT SALES. The Fund may from time to time make short sales "against the
box" when it believes that a decline may occur in the price of a security held
by the Fund (or in the price of a security convertible into or exchangeable for
such security), or when the Fund wants to sell the security at a current
attractive price but also wished to defer recognition of gain or loss for tax
purposes.
BOARD OF DIRECTORS
The overall management of the business and affairs of the Fund is vested
with the Board of Directors. The Board of Directors approves all significant
agreements between the Fund and persons or companies furnishing services to the
Fund, including the Fund's agreements with its investment adviser, custodian,
transfer agent, and dividend disbursing agent.
The day-to-day operations of the Fund are delegated to the Fund's officers,
subject always to the objectives and policies of the Fund and to the general
supervision of the Fund's Board of Directors.
INVESTMENT ADVISER
The Adviser, Stonebridge Capital Management, Incorporated, 1801 Century
Park East, Los Angeles, California 90067, is retained as investment adviser
pursuant to a written Investment Advisory Agreement (the "Agreement") last
approved by the shareholders of the Fund on May 11, 1987. Stonebridge Capital
Management, Incorporated is the successor to Cole, Ayer, McCully & Light, Inc.
which served as adviser to the Fund from June 29, 1976 to August 10, 1979 when
it merged with Barrett & Denney, Incorporated, an investment advisory firm the
shareholders of which were Messrs. V. Barrett Denney and Richard C. Barrett.
Subsequently, the name Cole, Ayer, McCully & Light, Inc., was changed to
Stonebridge Capital Management, Incorporated.
The Agreement provides that it shall remain in force and effect from year
to year so long as such continuance is approved at least annually by the Board
of Directors of the Fund or by a majority of the outstanding voting securities
of the Fund, but in either event it must be approved by a majority of the
directors who are not parties to the agreement or "interested persons" of any
such party (as defined in the Investment Company Act of 1940). The Agreement
also provides that it may be terminated without penalty at any time by the Board
of Directors of the Fund or by vote of a majority of the Fund's outstanding
voting securities or by the Adviser upon sixty days' written notice and that it
shall terminate automatically in the event of its assignment (as defined in the
Investment Company Act of 1940).
The Agreement provides that the Adviser shall act as investment adviser for
the Fund and make recommendations with respect to the investment and
reinvestment of the portfolio of the Fund. In carrying out its function as
investment adviser, the Adviser obtains and evaluates such economic, statistical
and financial information as may be pertinent to the formulation and
implementation of programs for investment and reinvestment. In this connection,
the Adviser determines what industries and companies shall be represented in the
Fund's portfolio and regularly reports thereon to the Board of Directors of the
Fund. Any investment program undertaken by the Adviser, as well as any other
activities undertaken by the Adviser on behalf of the Fund, are at all times
subject to any directives of the Fund's Board of Directors.
In addition, the Agreement provides that, subject to the authority of the
Board of Directors of the Fund, the Adviser shall supervise and manage the
business of the Fund. The Adviser provides to the Fund, in addition to
investment advice and management, the services of the Fund's officers and other
personnel, except that by contract the Fund is obligated to pay the cost of
services of its principal financial officer and of personnel operating under the
direction of the principal financial officer.
The Adviser is normally paid an annual fee which is a percentage of the
average weekly net asset value of the Fund equal to 1/2% of the first $10
million, 1/4% of the next $15 million, and 1/8% of the excess over $25 million.
Under the Agreement, the Adviser may be obligated to refund all or a portion of
its fee to the Fund if certain expenses of the Fund exceed an expense limitation
established by the California Department of Corporations. For the Fund's fiscal
year ended October 31, 1995, the Adviser received a fee for investment advisory
services which represented 1.04% of the Fund's average net assets.
6
<PAGE>
The Adviser is owned by six of its employees. John G. Ayer, President of
the Fund and Vice President of the Adviser, has been primarily responsible for
the day-to-day management of the Fund's portfolio since 1985. Although the
organizational arrangements of the Adviser do not require that all investment
decisions be made by committee, it is the practice of the Adviser to make such
decisions by committee.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The Fund's transfer agent and dividend disbursing agent is NIF Management
Co., Inc., 5990 Greenwood Plaza Boulevard, Englewood, Colorado 80111 (the
"Transfer Agent"), and the Fund's custodian is Colorado National Bank of Denver,
17th and Champa Street, Denver, Colorado 80202 (the "Bank").
CAPITAL STOCK
The authorized capitalization of the Fund consists of 3,000,000 shares of
capital stock having a par value of $1.00 per share. All full shares have equal
rights with respect to voting, repurchase, dividends, and liquidation. Each
share is transferable and redeemable on written demand of the holder. All
shares are fully paid and are not subject to assessment. Shares have no
preemptive or conversion rights. In the election of directors, shareholders
have the right to cumulate their votes. Under the cumulative voting method, a
shareholder is entitled to cast a total number of votes equal to the number of
directors to be elected, multiplied by the total number of votes to which his or
her shares are entitled. These votes may be cast for one candidate or
distributed among any number of candidates.
At the Fund's annual shareholder meeting on March 28, 1996, its
shareholders will be asked to approve an amendment to the Fund's Certificate of
Incorporation changing its name to "Stonebridge Aggressive Growth Fund." If the
name change is approved, the Adviser will enter into a license agreement with
the Fund permitting the fund to use the phrase "Stonebridge" in its name for so
long as the Adviser continues to act as the Fund's investment adviser.
Shareholder inquiries concerning the Fund should be directed to a Fund
representative by calling (310) 277-1450.
REPORTS TO SHAREHOLDERS
The Fund issues semi-annual and annual reports to its shareholders listing
securities held in its portfolio and containing financial statements and other
information. The accounts of the Fund are audited annually by independent
auditors.
DIVIDENDS AND TAX STATUS
Annual dividends, if any, are paid to shareholders from the Fund's
investment income after deducting expenses. Dividends from net investment
income are normally paid in December. Capital gains realized on investment
holdings, if any, will be distributed to shareholders once a year, usually in
December. With respect to dividends, shareholders holding certificates and
shareholders whose written request for a cash payment is received by the
Transfer Agent before the payable date are paid the cash value of such
dividends. All other shareholders are paid their dividends in shares of the
Fund at net asset value. With respect to capital gains distributions, all
shareholders are paid in shares of the Fund at net asset value, except for
shareholders holding certificates and shareholders whose written request for a
cash payment is received by the Transfer Agent before the payable date of such
distribution. A dividend or capital gains distribution payment will have the
effect of reducing the net asset value of a share by the amount of such payment.
Furthermore, such dividends or distributions are subject to income taxes.
The Fund has complied and intends to comply with the provisions of
Subchapter M of the Internal Revenue Code relating to "regulated investment
companies."
It is the policy of the Fund to distribute to shareholders each year
substantially all of its net taxable income and realized capital gains. By
following this policy, and meeting certain other requirements, the Fund is
relieved of the payment of federal income taxes. Net gains on sales of
securities when realized and distributed (actually or constructively) are
taxable to shareholders as capital gains.
Dividends from net investment income are taxable to shareholders as
ordinary income and are generally eligible, in the case of corporations, for the
70% deduction for corporate shareholders provided by the Internal Revenue Code.
Capital gains distributions do not qualify for such exclusion. For the fiscal
year ended October 31, 1995, there were no dividends paid from investment income
of the Fund so none were eligible for such exclusion. Shareholders who are
citizens or residents of the United States pay federal taxes at capital gains
rates on long-term capital gains which are distributed to them, whether or not
reinvested in the Fund, and regardless of the period of time that such shares
have been owned by the shareholders. Advice as to the tax status and amount of
each year's dividends and distributions will be mailed annually.
7
<PAGE>
Pursuant to federal regulations, the Fund may be required to withhold for
federal income taxes 31% of distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification numbers or to make
required representations, or who have been notified by the Internal Revenue
Service they are subject to back-up withholding. Corporate shareholders, and
other shareholders specified by the Internal Revenue Code, are exempt from
back-up withholding.
The foregoing is only a brief description of some of the federal income tax
consequences of holding Fund shares. Distributions also may be subject to
additional state, local, and foreign taxes, depending on each shareholder's
particular situation. Shareholders should consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
SYSTEMATIC CASH WITHDRAWAL PLAN
The Systematic Cash Withdrawal Plan (the "Plan") makes it possible to
receive a fixed amount of money at regular intervals--monthly or quarterly--
without disturbing investment diversification.
Any shareholder who owns $10,000 or more in shares of the Fund, based on
net asset value, may establish a Plan with the Transfer Agent to provide for
periodic monthly or quarterly payments of a fixed sum of $50 or more in
multiples of $10. The Fund makes no recommendation as to an appropriate amount
for withdrawal payments. Under this Plan, income dividends and capital gains
distributions are automatically reinvested in additional shares at net asset
value. Withdrawal payments represent proceeds from the redemption of shares.
There will be a reduction of the shareholder's equity in the Fund if the amount
of the withdrawal payments exceeds the dividends and distributions reinvested.
There is no limit as to the amount which may be withdrawn under the Plan. An
investor under the Plan ordinarily will not be permitted to make periodic
purchases at the same time as withdrawals.
Payments under the Plan may represent a return of capital as well as
income, and may deplete all or part of the initial investment under the Plan,
particularly if there is a market decline. Also, the number of payments which a
shareholder will receive will be affected by fluctuations in the market.
A Plan authorization form may be obtained from the Fund upon request.
HOW NET ASSET VALUE IS DETERMINED
The net asset value per share is computed daily at the close of the New
York Stock Exchange (the "Exchange") on those days on which the Exchange is
open. The net asset value per share is determined by dividing the total market
value of all the Fund's securities and other assets including cash, less all
liabilities including accrued expenses, but excluding capital and surplus, by
the total number of Fund shares outstanding. Securities listed or traded on a
registered securities exchange or quoted on the NASDAQ National Market
("NASDAQ") are valued at the last sales price on the day of computation.
Securities traded on the over-the-counter market for which no sales are reported
are valued at the mean between the bid and asked price. The value of any other
securities and assets will be determined at fair value in good faith by or under
the direction of the Board of Directors. Dividends receivable are treated as
assets from the date on which stocks go ex-dividend, interest on bonds is
accrued daily, and insofar as is practicable, liabilities are accrued daily.
HOW TO BUY AND REDEEM FUND SHARES
TO BUY SHARES: Complete a Share Purchase Application and send it to the
Sierra Growth Fund, Inc., 1801 Century Park East, Suite 1800, Los Angeles,
California 90067, along with your check or money order payable to the Fund for
$100 or more.
Upon acceptance, your Application will be forwarded to the Transfer Agent
which will establish an account in your name on the books of the Fund.
Additional purchases may be made without a new application at any time in
amounts of $25 or more by sending payments directly to NIF Management Co., Inc.,
P.O. Box 17017, Denver, Colorado 80217, in return envelopes supplied by it.
After each purchase, you will receive a confirmation showing the number of full
and fractional shares purchased and total shares owned. The Fund reserves the
right to reject any application or purchase order which it judges to be
disadvantageous to the Fund. If the initial application to purchase shares and
check or money order are received by the Fund prior to the close of the Exchange
on a given day, then the purchase price for the shares will be the net asset
value per share on such day. If the initial application and check or money
order are received by the Fund after the close of the Exchange on a given day or
on any day when the Exchange is not open, the purchase price will be the net
asset value per share as of the close of the Exchange on the next day the
Exchange is open. In the case of purchases by existing shareholders, net asset
value is determined based upon the time the Transfer Agent receives the order
and funds to purchase the shares.
8
<PAGE>
Certificates representing the shares purchased are not issued unless
specifically requested. The Transfer Agent credits the shareholder's account
with the number of shares purchased. Each shareholder receives account
statements after every transaction, as well as annually, to provide him with a
record of the total number of shares in his account. This relieves the
shareholder of responsibility for safekeeping of certificates and, should he
redeem his shares, eliminates the need to deliver certificates. However, a
shareholder may at any time request the Transfer Agent to issue certificates for
full shares for all or a part of his holdings and such certificates will bear
the date on which the Transfer Agent receives the request to issue such
certificates.
TO REDEEM SHARES: If you wish to redeem shares for which you do not hold
share certificates, simply send your written redemption request, signed by all
registered owners, to the Transfer Agent. If you hold certificates for your
shares, endorse them for transfer and send them and a written redemption request
to the Transfer Agent.
A signature guarantee by a guarantor institution which participates in The
Securities Transfer Agents Medallion Program (STAMP), The Stock Exchange
Medallion Program (SEMP) or The New York Stock Exchange, Inc. Medallion
Signature Program (MSP), is required if payment is to be made to someone other
than the registered stockholder at his address as listed on the Fund's stock
records.
In case of a redemption, the redemption price will be paid as soon as
possible but not later than the seventh day following the day of surrender of
shares in proper form as described above, except as further postponement may be
permissible under the Investment Company Act of 1940 for any period when (a) the
Exchange is closed for other than weekends or holidays or trading thereon is
restricted under conditions set forth by the Securities and Exchange Commission
(the "Commission"), (b) the Commission has by order permitted such suspension,
or (c) there is an emergency as defined by the rules of the Commission, which
makes disposal of portfolio securities or valuation of the net assets of the
Fund not reasonably practicable. Payment for redemption of recently purchased
shares will be delayed until the Transfer Agent has been advised that the
purchase check has been honored, which may take up to 15 days.
The redemption price may be more or less than the cost of the shares
redeemed, depending upon the market value of the securities owned by the Fund at
the time of redemption.
THROUGH BROKERS: The Fund's shares may be purchased and redeemed through
certain registered securities broker-dealers. A broker-dealer who agrees to
process an order to purchase or redeem shares on your behalf may charge you a
fee for this service.
9
<PAGE>
SIERRA GROWTH FUND, INC.
OFFICERS AND DIRECTORS
RICHARD C. BARRETT, Chairman,
Board of Directors and Vice President
JOHN G. AYER, President and Director
CHARLES E. WOODHOUSE, Vice President and Director
DEBRA L. NEWMAN, Vice President and Treasurer
COLLEEN M. SCHOMER, Secretary
SELVYN B. BLEIFER, Director
MARILYN RUSSELL BITTLE, Director
MARVIN FREEDMAN, Director
CHARLES F. HAAS, Director
WILLIAM H. TAYLOR II, Director
EXECUTIVE OFFICES
1801 Century Park East, Suite 1800
Los Angeles, California 90067
Telephone--(310) 277-1450
INVESTMENT ADVISER
STONEBRIDGE CAPITAL MANAGEMENT,
INCORPORATED
1801 Century Park East, Suite 1800
Los Angeles, California 90067
TRANSFER AGENT
NIF MANAGEMENT CO., INC.
5990 Greenwood Plaza Boulevard
Suite 325
Englewood, Colorado 80111
Telephone--(303) 220-8500
CUSTODIAN
COLORADO NATIONAL BANK OF DENVER
17th and Champa Street
Denver, Colorado 80202
LEGAL COUNSEL
PAUL HASTINGS, JANOFSKY & WALKER
555 South Flower Street
Los Angeles, California 90071
INDEPENDENT AUDITORS
HEIN + ASSOCIATES LLP
717 17th Street
Suite 1600
Denver, Colorado 80202
<PAGE>
SIERRA GROWTH FUND, INC.
PROSPECTUS
March 1, 1996
1801 Century Park East
Los Angeles, CA 90067
<PAGE>
STATEMENT OF ADDITIONAL
INFORMATION
SIERRA GROWTH FUND, INC.
1801 Century Park East, Los Angeles, California 90067
(310) 277-1450
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH A PROSPECTUS, WHICH MAY BE OBTAINED BY WRITING SIERRA GROWTH
FUND, INC.,
1801 CENTURY PARK EAST, LOS ANGELES, CALIFORNIA 90067
(310) 277-1450
STATEMENT OF ADDITIONAL INFORMATION DATED: MARCH 1, 1996
RELATING TO THE PROSPECTUS DATED: MARCH 1, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
----
Introduction 3
Investment Objectives and Policies 3
Investment Restrictions 8
Officers and Directors 8
Investment Advisory and Other Services 10
Brokerage Transactions 10
Purchase, Redemption and Pricing of Securities Being Offered 11
Index to Financial Statements F-1
Report of Independent Auditors F-2
Statement of Assets and Liabilities F-3
Portfolio of Investments F-4
Statement of Operations F-6
Statements of Changes in Net Assets F-7
Notes to Financial Statements F-8
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INTRODUCTION
Sierra Growth Fund, Inc. (the "Fund") is a no-load, diversified, open-end
investment company, commonly known as a mutual fund. The rules and regulations
of the United States Securities and Exchange Commission (the "SEC") require all
mutual funds to furnish prospective investors certain information concerning the
activities of the company being considered for investment. This information is
included in a Prospectus dated March 1, 1996 (the "Prospectus"), which may
be obtained without charge by writing or calling the Fund. This Statement of
Additional Information is intended to furnish investors with additional
information concerning the Fund. Some of the information required to be in this
Statement of Additional Information is included in the Fund's current
Prospectus; and, in order to avoid repetition, reference will be made to
sections of the Prospectus. Additionally, the Prospectus and this Statement of
Additional Information omit certain information contained in the Fund's
registration statement filed with the SEC. Copies of the registration
statement, including items omitted from the prospectus and this Statement of
Additional Information, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations.
INVESTMENT OBJECTIVES AND POLICIES
Information concerning the Fund's fundamental investment objective is set
forth in the Prospectus under the heading "Objectives and Investment Policy."
The Fund's principal objective is long-term growth of capital. Production of
short-term income is a secondary consideration. In order to achieve its
investment objectives, the Fund invests in securities of companies which appear
to have good prospects for increased earnings and dividends and uses certain
other investment techniques in an effort to enhance income and reduce market
risks.
SHORT-TERM TREASURY SECURITIES. The Fund may invest in US Treasury bills,
which mature in one year or less, have fixed interest rates, and are guaranteed
by the full faith and credit of the US Government.
REGISTERED INVESTMENT COMPANIES. The Fund may invest in money market
mutual funds, and in closed-end investment companies with foreign security
portfolios. The Investment Company Act of 1940 prohibits the Fund from
investing in any such investment company if, as a result of the purchase, the
Fund and any "affiliated persons" of the Fund (as defined in the Act) would own
more than 3% of the total outstanding stock of the investment company.
CONVERTIBLE BONDS. The Fund may invest in convertible bonds, which are
fixed income securities that may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or a different issuer. Convertible bonds are senior to common stocks in an
issuer's capital structure, but are usually subordinated to similar non-
convertible securities. While providing a fixed income stream (generally higher
in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
provides the investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the underlying common stock.
Like other debt securities, the value of a convertible bond tends to vary
inversely with the level of interest rates. However, to the extent that the
market price of the underlying common stock approaches or exceeds the conversion
price, the price of the convertible bond will be increasingly influenced by its
conversion value (the security's worth, at market value, if converted into the
underlying common stock).
PREFERRED STOCKS. The Fund may invest in preferred stocks, though this
being an aggressive growth fund it would mostly consider convertible preferred
stocks for which the same criterion apply as the ones outlined above for the
convertible bonds.
SHORT SALES AGAINST THE BOX. The Fund may from time to time make short
sales of securities if at the time of the short sale it owns or has the right to
acquire, at no additional cost, an equal amount of the securities sold short.
This investment technique is known as a "short sale against the box." In a short
sale, the Fund does not immediately deliver the securities sold and is said to
have a short position in those securities until delivery occurs. To make
delivery to the purchaser, the executing broker borrows the securities being
sold short on behalf of the Fund. While the short position is maintained, the
Fund will collateralize its obligation to deliver the securities sold short in
an amount equal to the proceeds of the short sale plus an additional margin
amount established by the Board of Governors of the Federal Reserve (presently
10% of the market value of the securities sold short). If the Fund engages in a
short sale, the collateral account will be maintained by the Fund's custodian or
a duly qualified sub-custodian. While the short sale is open the Fund will
maintain in a segregated custodial account an amount of securities equal in kind
and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities at no additional cost. These
securities would constitute the Fund's long position.
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<PAGE>
The Fund may make a short sale against the box when it believes that the
price of a security may decline, causing a decline in the value of a security
owned by the Fund (or a security convertible into or exchangeable for such
security), or when the Fund wants to sell the security it wants at a current
attractive price, but also wishes to defer recognition of gain or loss for
federal income tax purposes and for purposes of satisfying certain tests
applicable to regulated investment companies under the Internal Revenue Code.
In such a case, any future losses in the Fund's long position should be reduced
by a gain in the short position. The extent to which such gains or losses are
reduced would depend upon the amount of the security sold short relative to the
amount the Fund owns. There will be certain additional transaction costs
associated with short sales against the box, but the Fund will endeavor to
offset these costs with income from the investment of the cash proceeds of short
sales.
The Fund will not make short sales of securities if doing so could create
liabilities or require collateral deposits and segregation of assets aggregating
more than 25% of the market value of the Fund's total assets. The Fund's
ability to enter into short sales transactions is limited by the requirements of
the Internal Revenue Code for qualification as a regulated investment company.
OPTIONS AND FUTURES TRANSACTIONS. The Fund intends to limit its
transactions in options to writing covered call options on stocks and stock
indexes, purchasing put options on stocks and on stock indexes, and closing out
such options in closing transactions. The Fund intends to limit its
transactions in futures contracts (contracts to purchase or sell an underlying
instrument at a future date), to purchasing and selling stock index and foreign
currency futures contracts, and to the purchase of related options.
Transactions in such options and futures contracts may afford the Fund the
opportunity to hedge against a decline in the value of securities it owns, may
provide a means for the Fund to generate additional income on its investments,
or may provide opportunities for capital appreciation.
In purchasing futures contracts and related options the Fund will comply
with rules and interpretations of the Commodity Futures Trading Commission
("CFTC"), under which the Fund is excluded from regulation as a "commodity pool
operator." CFTC regulations require, among other things, (1) that futures be
used solely for "bona fide hedging" purposes, as defined in CFTC regulations,
and (2) other positions for the establishment of which the aggregate initial
margin and option premiums (less the amount by which such options are "in the
money") do not exceed 5% of the Fund's net assets (after taking into account
unrealized gains and unrealized losses on any contract it has entered into).
The extent to which the Fund may engage in futures transactions may also be
limited by the Internal Revenue Code's requirements for qualification as a
regulated investment company.
The above limitations on the Fund's investments in futures contracts and
options, and the Fund's policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information, are not
fundamental policies and may be changed as regulatory agencies permit. The Fund
will not modify the above limitations to increase the permissible futures and
options activities without supplying additional information in a current
Prospectus or Statement of Additional Information that has been distributed or
made available to the Fund's shareholders.
OPTIONS ON SECURITIES. A call option is a short-term contract (generally
having a duration of nine months or less) under which the purchaser of the call
option, in return for payment of the option premium (the option's current market
price), obtains the right to buy the option's underlying security at a specified
exercise price at any time during the term of the option. The writer of a call
option, who receives the premium, assumes the obligation to deliver the
underlying security against payment of the exercise price at any time the option
is exercised. A put option is a similar contract that gives the purchaser of
the option, in return for the premium paid, the right to sell the underlying
security at a specified exercise price at any time during the term of the
option. The writer of the put option receives the premium and assumes the
obligation to buy the underlying security at the exercise price whenever the
option is exercised.
A call option is "covered" if the Fund owns the call option's underlying
security or has an absolute and immediate right to acquire that security without
the payment of additional consideration (or upon payment of additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities it owns. A call option is also covered if the Fund
owns, on a share-for-share basis, a call option on the same security whose
exercise price is equal to or less than the call written, or greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash, Treasury bills and other high-grade liquid debt securities in a
segregated account with its custodian. A put option is "covered" if the Fund
maintains cash, Treasury bills and other high-grade liquid debt securities with
a value equal to the put option's exercise price in a segregated account with
its custodian, or else owns, on a share-for-share basis, a put option on the
same security whose exercise price is equal to or greater than the put written.
Securities held to cover an option may not be sold (and may not be lent to
another party) so long as the Fund remains obligated under the option, unless
they are replaced by other appropriate securities. The premium paid for
purchasing an option reflects, among other things, the relationship of the
exercise price to the market price and volatility of the underlying security,
the remaining term of the option, supply and demand and interest rates.
When the Fund has written an option it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing,
at the current market price, an option identical as to underlying instrument,
exercise price and expiration date to the option written by the Fund. The Fund
may not effect a closing purchase transaction, however, after it has
-4-
<PAGE>
been notified that the option has been exercised. When the Fund has purchased
an option it may liquidate its position by exercising the option, or by entering
into a closing sale transaction by selling an option identical to the option it
has purchased. There is no guarantee that a closing transaction can be
effected.
The Fund will realize a profit from a closing transaction if the price at
which the option is closed out is less than the premium received for writing the
option or more than the premium paid for purchasing the option. Similarly, the
Fund will realize a loss from a closing transaction if the price at which the
option is closed out is more than the premium received or less than the premium
paid. If a put option written by the Fund were exercised, the Fund would incur
a loss if and to the extent that the exercise price it had to pay exceeded the
sum of the value of the securities received and the premium received for writing
the option. Transaction costs for opening and closing positions must be taken
into account in these calculations.
The Fund may write covered call options on securities it owns to attempt to
realize, through the receipt of premium income, a greater return than would be
realized on the securities alone. In return for the premium, the Fund forfeits
the right to any appreciation in the value of the underlying security above the
option's exercise price for the life of the option (or until a closing
transaction can be effected). The Fund also gives up some control over when it
may sell the underlying securities, and must be prepared to deliver the
underlying securities against payment of the option's exercise price at any time
during the life of the option. The Fund retains the full risk of a decline in
the price of the underlying security held to cover the call for as long as its
obligation as a writer continues, except to the extent that the effect of such a
decline may be offset in part by the premium received.
The principal purpose of writing a covered put option would be to realize
income in the form of the option premium, in return for which the Fund would
assume the risk of a decline in the price of the underlying security below the
option's exercise price less the premium received. The Fund's potential profit
from writing a put option would be limited to the premium received.
The Fund may purchase put options on securities it owns to attempt to
protect those securities against a decline in market value during the term of
the option. To the extent that the value of the securities declines, the Fund
may be able to realize a gain by closing out the put option (or, if the value of
the securities falls below the put option's exercise price, may exercise the
option and sell the securities at the exercise price), and thereby may partially
or completely offset the depreciation of the securities. If the price of the
securities does not fall during the life of the option, the Fund may lose all or
a portion of the premium it paid for the put option, and would lose the entire
premium if an option were allowed to expire unexercised. Such a loss could,
however, be offset entirely or in part if the value of the securities owned
should rise.
STOCK INDEX AND FOREIGN CURRENCY FUTURES AND RELATED OPTIONS. The Fund may
purchase and sell stock index and foreign currency futures contracts (as well as
purchase related options) as a hedge against changes resulting from market
conditions and exchange rates in the values of the domestic and foreign
securities held in the Fund or which it intends to purchase and where the
transactions are economically appropriate for the reduction of risks inherent in
the ongoing management of the Fund.
A stock index assigns relative value to the common stocks included in the
index (for example, the Standard & Poor's 500 or the New York Stock Exchange
Composite Index), and the stock index fluctuates with changes in the market
value of such stocks. A stock index futures contract is a bilateral agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value at the close of the last trading day of the contract and the price
at which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made. A foreign currency futures contract
creates an obligation on one party to deliver, and corresponding obligation on
another party to accept delivery of, a stated quantity of a foreign currency,
for an amount fixed in United States dollars.
The Fund will sell stock index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. The Fund may do so either to hedge the value of its
portfolio as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, the Fund
will purchase stock index futures contracts in anticipation of purchases of
securities. In a substantial majority of these transactions, the Fund will
purchase such securities upon termination of the long futures positions, but a
long futures position may be terminated without a corresponding purchase of
securities.
In addition, the Fund may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that the Fund expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more restricted
index, such as an index comprised of securities of a particular industry group.
The Fund may also sell futures contracts in connection with this strategy, in
order to protect against the possibility that the value of the securities to be
sold as part of the restructuring of the portfolio will decline prior to the
time of sale.
-5-
<PAGE>
Foreign currency futures may be used to hedge against a decline of the US
dollar and to hedge against the currency risk of some foreign securities. We do
not expect this to happen often.
No price is paid or received by the Fund upon the purchase or sale of a
futures contract. Initially, the Fund will be required to deposit with the
broker or in a segregated account with the Fund's custodian an amount of cash or
cash equivalents, the value of which may vary but is generally equal to 10% or
less of the value of the contract. This amount is known as initial margin. The
nature of initial margin in futures transactions is different from that of
margin in securities transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of the
futures contract assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the broker, will be
made on a daily basis as the price of the underlying instruments fluctuates
making the long and short positions in the futures contract more or less
valuable, a process known as marking-to-market. For example, when the Fund has
purchased a futures contract and the price of the contract has risen in response
to a rise in the underlying instruments, that position will have increased in
value and the Fund will be entitled to receive from the broker a variation
margin payment equal to that increase in value. Conversely, where the Fund has
purchased a futures contract and the price of the futures contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Fund would be required to make a variation margin payment
to the broker. At any time prior to expiration of the futures contract, the
Adviser may elect to close the position by taking an opposite position, subject
to the availability of a secondary market, which will operate to terminate the
Fund's position in the futures contract. A final determination of variation
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or gain.
Futures options possess many of the same characteristics as options on
securities. A futures option gives the holder the right, in return for the
premium paid, to assume a long positions (call) or short position (put) in a
futures contract at a specified exercise price at any time during the period of
the option. Upon exercise of a call option, the holder acquires a long position
in the futures contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true.
Futures positions may be closed out only on an exchange or board of trade
which provides a market for such futures. Although the Fund intends to purchase
futures which appear to have an active market, there is no assurance that a
liquid market will exist for any particular contract or at any particular time.
Thus, it may not be possible to close a futures position in anticipation of
adverse price movements.
OPTIONS ON STOCK INDICES. The Fund may write covered call options on stock
indexes to attempt to increase the return on its investments through the receipt
of premium income. The Fund will cover index calls by owning securities whose
price changes, in the opinion of the Fund's Adviser, are expected to be similar
to those of the index. If the value of an index on which the Fund has written a
call option falls or remains the same, the Fund would realize a profit in the
form of the premium received (less transaction costs) that could offset all or a
portion of any decline in the value of the securities it owns. If the value of
the index rises, however, the Fund would realize a loss in its call option
position, which would reduce the benefit of any unrealized appreciation of the
Fund's stock investments.
The principal reason for writing a covered put option on a stock index
would be to realize income in return for assuming the risk of a decline in the
index. To the extent that the price changes of securities owned by the Fund
correlate with changes in the value of the index, writing covered put options on
indexes would increase the Fund's losses in the event of a market decline,
although such losses would be offset in part by the premium received for writing
the option. The Fund would cover put options on indexes by segregating assets
equal to the option's exercise price, in the same manner as put options on
securities.
The Fund may purchase put options on stock indexes to hedge its investments
against a decline in value. By purchasing a put option on a stock index, the
Fund will seek to offset a decline in the value of securities it owns through
appreciation of the put option. If the value of the Fund's investments did not
decline as anticipated, or if the value of the option did not increase, the
Fund's loss would be limited to the premium paid for the option. The success of
this strategy will largely depend on the accuracy of the correlation between the
changes in value of the index and the changes in value of the Fund's security
holdings.
RISKS ASSOCIATED WITH OPTIONS ON SECURITIES AND INDICES. Several risks are
associated with transactions in options on securities and indices. For example,
significant differences between the securities and options markets could result
in an imperfect correlation between those markets, causing a given transaction
not to achieve its objectives. A decision as to whether, when and how to use
options involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected events.
-6-
<PAGE>
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Among the possible reasons for the
absence of a liquid secondary market on an exchange are: (I) insufficient
trading interest in certain options; (ii) restrictions on transactions imposed
by an exchange; (iii) trading halts, suspensions or other restrictions imposed
with respect to particular classes or series of options or underlying
securities; (iv) interruption of the normal operations of an exchange; (v)
inadequacy of the facilities of an exchange or the Options Clearing Corporation
to handle current trading volume; or (vi) a decision by an exchange to
discontinue the trading of options or a particular class or series of options
(in which event the secondary market on that exchange or in that class or series
of options could cease to exist, although outstanding options on that exchange
that had been issued by the Options Clearing Corporation as a result of trades
on that exchange would generally continue to be exercisable in accordance with
their terms).
If the Fund were unable to close out an option that it had purchased on a
security, it would have to exercise the option in order to realize any profit.
If the Fund were unable to close out a covered call option that it had written
on a security, it would not be able to sell the underlying security unless the
option expired without exercise. As the writer of a covered call option, the
Fund forgoes, during the option's life, the opportunity to profit from increases
in the market value of the security covering the call option above the sum of
the premium and the exercise price of the call.
If trading were suspended in an option purchased by the Fund, the Fund
would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it has purchased. Except
to the extent that a call option on an index written by the Fund is covered by
an option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.
RISKS OF TRANSACTIONS IN STOCK INDEX FUTURES AND RELATED OPTIONS. Because
of the imperfect correlation between movements in the price of the future and
movements in the price of the securities which are the subject of the hedge, the
price of the future may move more than or less than the price of the securities
being hedged. If the price of the future moves less than the price of the
securities which are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on the
future. If the price of the future moves more than the price of the hedged
securities, the Fund will experience either a loss or gain on the future which
will not be completely offset by movements in the price of the securities which
are the subject of the hedge. It is also possible that, where the Fund has sold
futures to hedge its portfolio against a decline in the market, the market may
advance while the value of securities held in the Fund may decline. If this
occurred, the Fund would lose money on the future and also experience a decline
in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before the Fund is able to invest its cash or cash
equivalents in securities or options in an orderly fashion, it is possible that
the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. First, rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or currency movements by the Adviser may still not result in a
successful hedging transaction over a short time frame. In addition, the Fund's
purchase and sale of options on indexes is subject to the risks described above
with respect to options on securities.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. the daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses, because
the limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
-7-
<PAGE>
In the event of the bankruptcy of a broker though which a Fund engages in
transactions in futures contracts or options, the Fund could experience delays
and losses in liquidating open positions purchased or sold though the broker,
and incur a loss of all or part of its margin deposits with the broker.
INVESTMENT RESTRICTIONS
The following is a more detailed description of certain policies and
practices of the Fund which augments the summary of the Fund's investment
program which appears above and in the Prospectus under the heading "Objectives
and Investment Policy."
Certain investment limitations and restrictions cannot be changed without
the approval of the lesser of (i) 67% or more of the voting securities of the
Fund represented at a meeting if the holders of more than 50% of the outstanding
voting securities of the Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding voting securities of the Fund. These restrictions
are as follows:
(1) The Fund may not invest an amount which exceeds 5% of the value
of the Fund's total assets in the securities of any one issuer. This
restriction does not apply to holdings of government securities.
(2) The Fund may not issue any senior securities.
(3) The Fund may not purchase the securities of any issuer for the
purpose of exercising control of management and it may not acquire or
own more than 10% of any class of the securities of any company.
(4) The Fund may not make short sales of securities or maintain a
short position unless at the time of the short sale the Fund owns or
has the right to acquire at no additional cost an equal amount of the
securities sold short.
(5) The Fund may borrow money only for temporary emergency purposes
and then not in excess of 5% of its total assets.
(6) The Fund may not underwrite securities, buy or sell real estate
or commodities or commodity contracts, or make loans to individuals,
except that the Fund may invest in futures contracts and options as
described in "Futures, Stock Index and Options Transactions."
(7) The Fund will not invest in the securities of other investment
companies if immediately after such investment the Fund will own
(a) securities issued by an investment company having an aggregate
value in excess of 5% of the value of the total assets of the Fund, or
(b) securities issued by all investment companies having an aggregate
value in excess of 10% of the value of the total assets of the Fund,
except to the extent permitted by the Investment Company Act of 1940
and any applicable rules or exemptive orders issued thereunder.
(8) The Fund may not invest in any security if information is not
available with respect to the history, management, assets, owners and
income of the issuer of such security, and may not make any investment
which would subject the Fund to unlimited liability.
(9) The Fund may not purchase any securities on margin except for
short-term credits as are necessary for the clearance of transactions;
provided, however, the Fund may make initial and variation margin
payments in connection with purchases or sales of options or futures
contracts.
Although the Fund's Certificate of Incorporation does not prohibit
purchases of restricted securities, the Fund has never held such securities in
its portfolio and does not presently intend to purchase restricted securities.
OFFICERS AND DIRECTORS
Overall operations of the Fund are conducted by its officers under the
control of the Board of Directors. Information regarding the current officers
and directors, including their positions with the Fund, and their principal
occupations over the past five years is as follows:
*John G. Ayer (age 73)--President and Director, 1801 Century Park East, Los
Angeles, California 90067. Executive Vice President and Director of the
Adviser; formerly Vice President and Director of its predecessors, Cole, Ayer,
McCully & Light, Inc. and Inverness Counsel, Inc. (California).
-8-
<PAGE>
*Richard C. Barrett (age 54)--Vice President and Chairman of the Board of
Directors, 1801 Century Park East, Los Angeles, California 90067. Vice
President and Director of National Industries Fund, Inc. ("National"). President
and Director of the Adviser; formerly Chairman of the Board, Director and Chief
Financial Officer of Barrett & Denney, Incorporated and Vice President of Lionel
D. Edie & Co., Inc. prior thereto.
Marilyn Russell Bittle (age 61)--Director, 141 Syracuse Walk, Long Beach,
California 90803. Teacher, Las Flores School, Bellflower, California Unified
School District.
Marvin Freedman (age 70)--Director. Partner - Freedman, Broder & Angen,
Certified Public Accountants, 2501 Colorado Avenue, Suite 350, Santa Monica,
California 90404.
Charles F. Haas (age 82)--Director, 12626 Hortense Street, Studio City,
California 91604. Private investor, retired motion picture and television
director.
William H. Taylor II, Ph.D. (age 57)--Director, 2452 Francisco Street, San
Francisco, California 94123. General Partner of Taylor & Company. (formerly
Taylor & Turner Associates Ltd.) a venture capital organization; formerly
Executive Vice President of B.E.I. Electronics, Inc., and Vice President of
Crocker Capital Corporation.
Selvyn B. Bleifer (age 66)--Director, 414 North Camden Drive, Beverly Hills,
California 90210. Director of National. Physician, Cardiovascular Medical
Group.
*Charles E. Woodhouse (age 32)--Vice President and Director, 1801 Century Park
East, Los Angeles, California 90067. Director of Research and Vice President of
the Adviser Teaching and research assistant, University of Southern California.
*Debra L. Newman (age 40)--Vice President and Treasurer, 1801 Century Park East,
Los Angeles, California 90067. President of National Industries Fund. Vice
President, Chief Financial Officer, Secretary and Director of the Adviser.
*Colleen M. Schomer (age 29)--Secretary, 1801 Century Park East, Los Angeles,
California 90067. Portfolio Administrator of the Adviser. Story editor,
Triad Artists, Inc.
*"Interested person" of the Fund as defined by the Investment Company Act of
1940.
The following table sets forth the aggregate compensation paid, for the
fiscal year ended October 31, 1995, to the directors who are not affiliated with
the Adviser, for service on the Board of Directors of the Fund and National
Industries Fund:
<TABLE>
<CAPTION>
COMPENSATION TABLE
TOTAL COMPENSATION
AGGREGATE FROM FUND AND FUND
COMPENSATION PENSION OR COMPLEX*
DIRECTOR FROM FUND RETIREMENT BENEFITS PAID TO DIRECTORS
-------- ------------ ------------------- ------------------
<S> <C> <C> <C>
John G. Ayer $0 $0 $0
Richard C. Barrett $0 $0 $0
Marilyn Russell Bittle $0 $0 $0
Charles F. Haas $100 $0 $100
William H. Taylor, II $446 $0 $446
Selvyn B. Bleifer, MD $150 $0 $850
Charles E. Woodhouse $0 $0 $0
</TABLE>
____________________________________
* National Industries Fund, Inc. and the Fund comprise a "Fund Complex" as
such term is defined in Item 22(a)(1)(v) of Rule 14a-101 of the Securities
Exchange Act of 1934, because they have the same investment advisor.
As of February 1, 1996, the officers and directors, as a group, owned less
than 1% of the outstanding shares of the Fund. As of February 1, 1996,
Lorraine F. Petitfils, 581 Evergreen, Pasadena, California 91105, owned of
record and beneficially 30,991 shares of the Fund constituting 9% of the
outstanding shares of the Fund.
-9-
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
Information concerning the Fund's investment adviser, Stonebridge Capital
Management, Incorporated, 1801 Century Park East, Los Angeles, California 90067
(the "Adviser"), is set forth in the Prospectus under the heading "Investment
Adviser." The following information augments the discussion in the Prospectus.
Richard C. Barrett owns 39.2%, John G. Ayer owns 9.8%, Debra L. Newman owns
15.6%, and Karen H. Parris, Timothy G. Walt and Charles E. Woodhouse each own
11.8% of the outstanding stock of the Adviser. Each such person is employed by
the Adviser. There are no other shareholders of the Adviser.
The Adviser is paid an annual fee which is a percentage of the average
weekly net asset value of the Fund equal to 1/2 of 1% of the first $10,000,000,
1/4 of 1% of the next $15,000,000 and 1/8 of 1% of the excess over $25,000,000.
Such fee, determined by taking the average of the net asset values of the Fund
on the last day of each week, is paid monthly. The Agreement provides for a
reduction in the Adviser's fee to the extent that the Fund's total annual
expenses, excluding taxes and interest and including the advisory fee, exceed
the maximum amount of expenses allowed by the California Department of
Corporations, which amount is presently equal to 2.5% of the first $30,000,000
of the Fund's average weekly net assets, 2% of the next $70,000,000 of the
average weekly net assets and 1% of any average net assets in excess of
$100,000,000 calculated on a monthly basis (the "Expense Limitation Rule"). On
February 13, 1987, the Fund was granted a variance from the Expense Limitation
Rule by the California Department of Corporations allowing the Fund to exclude
its transfer agent and custodial fees and expenses, and its accounting fees from
the calculation of its total expenses for purposes of the Expense Limitation
Rule. The variance applies until such time as the variance is revoked by the
California Department of Corporations.
For the fiscal year ended October 31, 1995, the Adviser received $17,491 in
fees for investment advisory services. For fiscal year ended October 31, 1994,
the Adviser received $14,484 in fees for investment advisory services. For the
fiscal year ended October 31, 1993, the Adviser received $15,176 in fees for
investment advisory services.
Subject to the authority of the Board of Directors of the Fund, the Adviser
supervises and manages the overall business of the Fund, provides certain
services and facilities including, but not limited to, a chief executive officer
for the Fund, office space, furniture and supplies, and places orders for the
purchase and sale of portfolio securities on behalf of the Fund. The salary of
the Fund's chief financial officer is paid by the Adviser, which is reimbursed
by the Fund for the portion of such salary attributed to services rendered on
behalf of the Fund. All legal and auditing and ordinary business expenses of
the Fund are borne by the Fund.
The Fund's transfer agent and dividend disbursing agent is NIF Management
Co., Inc., 5990 Greenwood Plaza Boulevard, Englewood, Colorado, 80111 (the
"Transfer Agent"), and the Fund's custodian is Colorado National Bank of Denver,
17th and Champa Street, Denver, Colorado 80202 (the "Bank"). As custodian, the
Bank receives and deposits cash, holds all securities of the Fund, receives and
delivers securities bought or sold by the Fund, and receives and collects income
from the Fund's investments. The Bank has no part in the management or
investment business of the Fund. The Transfer Agent maintains all shareholder
records for the Fund, issues stock certificates, accepts, confirms and processes
payments for the purchase of Fund shares and disburses payments made by the Fund
to its shareholders. In exercising transactions, the Transfer Agent acts as
agent for the Fund. While the Transfer Agent also provides other services as
directed by officers of the Fund, it has no part in the management or investment
decisions of the Fund.
The Fund's independent auditors are Hein + Associates LLP, 717 17th Street,
Suite 1600, Denver, Colorado 80202 (the "Auditors"). The Auditors audit the
Fund's annual financial statements and review the Fund's tax returns. The
Auditors have no part in the management or investment decisions of the Fund.
BROKERAGE TRANSACTIONS
Decisions to buy and sell securities for the Fund, assignment of its
portfolio business and negotiation of its commission rates are made by the
Adviser. It is the Fund's policy to obtain the best security price and
execution available, and in doing so it will assign portfolio executions and
negotiate commission rates in accordance with the reliability and quality of a
broker-dealer's services. In determining the quality of brokerage services,
consideration is given to statistical and research services provided to the
Adviser as well as brokerage services, which may result in payment of higher
commissions than those charged by other brokers. Allocation of business among
broker-dealers is not based on any definitive formula and a specific dollar
value cannot be placed on the statistical and research material furnished the
Adviser by broker-dealers.
Statistical and research material furnished to the Adviser may be useful to
the Adviser in providing services to clients other than the Fund. Similarly,
such material furnished to the Adviser by brokers through which other clients of
the Adviser in providing services to the Fund. The Board of Directors of the
Fund reviews from time to time the extent and continuation of this practice.
-10-
<PAGE>
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the kind made
by the Fund may also be made by such other accounts. When a purchase or sale of
the same security is made at substantially the same time on behalf of the Fund
and one or more other accounts managed by the Adviser, available investments are
allocated in the discretion of the Adviser by such means as, in its judgment,
result in fair treatment. The Adviser aggregates orders for purchases and sales
of securities of the same issuer on the same day among the Fund and its other
managed accounts, and the price paid to or received by the Fund and those
accounts is the average obtained in those orders. In some cases, such
aggregation and allocation procedures may affect adversely the price paid or
received by the Fund or the size of the position purchased or sold by the Fund.
When the Fund purchases or sells a security which is not listed on a
national securities exchange but which is traded in the over-the-counter market,
the transaction generally takes place directly with a principal market maker,
except in those circumstances where, in the opinion of the Fund, better prices
and executions will be achieved through the use of other broker-dealers. The
Adviser does not receive any benefit directly or indirectly arising from these
transactions.
The following provides information regarding the Fund's brokerage
transactions during the fiscal years ended October 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
ANNUAL TOTAL BROKERAGE
PORTFOLIO TURNOVER COMMISSIONS
RATE PAID*
---- -----
<S> <C> <C>
1995 60% $ 8,995
1994 43% $ 5,785
1993 50% $24,811
</TABLE>
* All of the broker-dealer firms with which the Fund placed orders for
the purchase and sale of portfolio securities furnished the Adviser with
statistical and research material and other services in varying degrees.
None of these firms was affiliated with the Fund or the Adviser during such
periods.
The annual portfolio turnover rate has varied and will continue to vary
from year to year. Portfolio turnover is a function of market shifts and
relative valuation of individual securities and market sectors. The Fund's
Adviser attempts to keep the Fund invested in those securities that have the
potential to meet the Fund's growth objective and that represent the best
relative values.
The Fund has not acquired securities of any brokers or dealers, or the
parents thereof, during the fiscal year ended October 31, 1995.
-11-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report F-2
Statement of Assets and Liabilities--October 31, 1995 F-3
Portfolio of Investments--October 31, 1995 F-4
Statement of Operations--For the Year Ended October 31, 1995 F-6
Statements of Changes in Net Assets--For the Years Ended
October 31, 1995 and 1994 F-7
Notes to Financial Statements F-8
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Sierra Growth Fund, Inc.
Los Angeles, California
We have audited the accompanying statement of assets and liabilities of
Sierra Growth Fund, Inc., including the portfolio of investments, as of
October 31, 1995, the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended October 31, 1995 and
1994, and the selected per share data and ratios set forth under the caption
"Financial Highlights" for each of the three years in the period ended
October 31, 1995. These financial statements and per share data and ratios are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and per share data and ratios based on
our audits. The per share data and ratios set forth under the caption
"Financial Highlights" for the six years ended October 31, 1991, were audited by
other auditors whose report, dated November 22, 1991, expressed an unqualified
opinion on those selected per share data and ratios.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and selected per share data and
ratios referred to in the first sentence above present fairly, in all material
respects, the financial position of Sierra Growth Fund, Inc. at October 31,
1995, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the selected
per share data and ratios for each of the four years in the period then ended,
in conformity with generally accepted accounting principles. In addition, we
have audited the calculation of the Fund's total return for each of the six
years in the period ended October 31, 1991, as set forth under the caption
"Financial Highlights" and, in our opinion, the amounts have been calculated
correctly.
HEIN + ASSOCIATES LLP
Denver, Colorado
December 5, 1995
F-2
<PAGE>
SIERRA GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities at value - identified cost $2,461,145 $4,168,726
Cash 1,011
Prepaid insurance 442
------------
TOTAL ASSETS 4,170,179
LIABILITIES
Accounts payable and accrued expenses, including amounts payable
to related parties of $4,455 18,883
------------
NET ASSETS (equivalent to $13.97 per share based on 297,241
shares of capital stock outstanding) $4,151,296
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
SIERRA GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
COMMON STOCKS (81%):
Automotive Equipment (1%) -
Thompson PBE* 2,500 $43,125
Computer Hardware (8%):
Sequent Computer Systems Inc.* 4,000 69,500
EMC Corp.* 10,000 155,000
Vitesse Semiconductor* 10,000 117,500
Computer Software (27%):
Adobe Systems, Inc. 4,000 228,000
Computer Network Technology* 5,000 32,500
IKOS, Inc.* 10,000 116,250
Informix Corp.* 6,000 175,500
Mentor Graphics Corp.* 8,000 168,000
Microsoft Corp.* 2,000 200,000
Oracle Systems Corp.* 1,500 65,438
Phoenix Technologies* 4,000 46,500
Rational Software* 5,000 78,125
Data-Communication and Networking (14%):
Bay Network* 4,000 265,000
Cisco Systems, Inc.* 3,000 232,500
Netstar, Inc.* 8,000 82,000
Design and Manufacturing Automation (3%) -
Consilium Inc.* 10,000 123,750
Electrical/Electronics (6%):
Exide Electronics* 4,000 82,000
Vicor Corp.* 6,000 122,622
Woodhead Industries 2,500 35,625
Foreign (1%) -
Grupo Iusacell S.A. 'L' ADS* 3,000 35,625
Hospital Supply & Services (4%):
Fresenuis USA* 3,000 49,125
Mentor Corp. 6,000 132,000
Industrial (2%):
Lydall, Inc. 3,000 68,250
Southdown, Inc. 2,000 32,500
Machinery (1%) -
Foilmark, Inc.* 5,000 33,125
Manufacturing (2%):
Northwestern Steel & Wire* 5,000 38,125
Silicon Graphics* 1,500 49,688
Medical/Biotechnology (8%):
Amgen Inc.* 2,000 96,000
Chiron Corp.* 1,235 112,385
Genzyme Corp.* 1,000 58,250
ICOS Corp.* 10,000 57,500
Oil (Offshore Drilling) (1%) -
J. Ray McDermott 3,000 45,750
Pharmaceuticals (1%) -
La Jolla Pharmaceuticals* 10,000 41,870
Semi-Conductor (2%):
Cypress Semi-Conductor* 1,000 35,375
Micrion Corp.* 4,000 51,000
----------
Total Common Stocks (cost $1,669,227) 3,375,503
F-4
<PAGE>
<CAPTION>
<S> <C> <C>
US GOVERNMENT OBLIGATIONS (12%) -
US Treasury Bill, maturing January 11, 1996
(cost $493,415) 500,000 494,720
MONEY MARKET INVESTMENTS (7%)
First American Treasury Obligation Class C
(cost $298,503) 298,503
----------
TOTAL INVESTMENTS (100%), at cost $2,461,145 $4,168,726
----------
----------
</TABLE>
- -------------------------------
* Securities on which no cash dividends were paid during the preceding twelve
(12) months.
On October 31, 1995, the Fund held no investments in any securities of any
company which totaled 5% or more of the outstanding voting securities of such
company (such companies would be deemed to be "Affiliated Companies" as defined
in Section 2 (a) (3) of the Investment Company Act of 1940).
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
SIERRA GROWTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME (LOSS):
Income:
Interest $ 30,056
Dividends 5,168
----------
Total income 35,224
----------
EXPENSES:
Officers' salaries and directors' fees 18,851
Legal 17,817
Advisory fees, related party 17,491
Transfer agent fees, related party 15,593
Printing 13,134
Audit 10,799
Custodial fees 7,039
Other 4,837
Taxes, other than income taxes 2,902
----------
Total expenses 108,463
----------
NET INVESTMENT LOSS (73,239)
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 522,215
Net increase in unrealized appreciation 831,216
----------
NET GAIN ON INVESTMENTS 1,353,431
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,280,192
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
SIERRA GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31, 1995
-------------------------
1995 1994
-------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss $(73,239) $(84,384)
Net realized gain on investments 522,215 150,760
Net change in unrealized appreciation 831,216 (11,830)
---------- ----------
Net increase in net assets resulting form operations 1,280,192 54,546
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS -
Net realized gain on investments (150,944) (518,513)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 3,877 20,345
Shares issued to shareholders in reinvestment of dividends 142,262 487,287
---------- ----------
146,139 507,632
Cost of shares redeemed (116,451) (75,165)
---------- ----------
Increase (decrease) in net assets from capital stock transactions 29,688 432,467
---------- ----------
INCREASE (DECREASE) IN NET ASSETS 1,158,936 (31,500)
NET ASSETS, beginning of year 2,992,360 3,023,860
---------- ----------
NET ASSETS, at end of year $4,151,296 $2,992,360
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-7
<PAGE>
SIERRA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Sierra Growth Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company.
SECURITY VALUATION - Investment securities listed or traded on a registered
securities exchange or quoted on NASDAQ are valued at the last sales price
on the date of valuation. Securities traded on the over-the-counter market
for which no sales are reported are valued at the mean between the bid and
asked price.
Short-term debt securities, with remaining maturities at the purchase date
of 60 days or less, consist exclusively of US Treasury Bills and are stated
at amortized cost which is approximately equivalent to value.
FEDERAL INCOME TAXES - No provision for Federal income taxes is necessary
because the Fund has qualified as a "regulated investment company" under
the Internal Revenue Code and intends to maintain this qualification and
distribute substantially all of its net investment income and realized
gains from investment transactions to its shareholders each year.
OTHER - Securities transactions are accounted for on the date the
securities are purchased or sold (trade date). Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income is recognized on the accrual basis.
2. INVESTMENT TRANSACTIONS:
Purchases and sales of investment securities (excluding short-term
securities) for the year ended October 31, 1995, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------------------
<S> <C> <C>
Common stocks $1,757,506 $2,261,049
Mutual funds 40,179
---------- ----------
Total $1,757,506 $2,301,228
-------------------------
-------------------------
</TABLE>
The net gain on investments for the year ended October 31, 1995, amounted
to $1,353,431. This amount represents the net increase in the value of
investments (all of which are represented by long transactions) held during
the year. As of October 31, 1995, gross unrealized appreciation of
investment securities was $1,750,294, and gross unrealized depreciation of
investments totaled $42,713, resulting in net unrealized appreciation of
$1,707,581.
F-8
<PAGE>
SIERRA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES:
On December 19, 1994, the Fund renewed its investment advisory agreement
with Stonebridge Capital Management, Incorporated (Stonebridge). Certain
officers and directors of the Fund are affiliated with Stonebridge. Under
the agreement, the Fund pays a monthly advisory fee to Stonebridge for a
continuous investment program approximately equivalent, on an annual basis,
to the sum of: (a) 1/2 of 1% of the average weekly net asset value on the
first $10,000,000 of assets; (b) 1/4 of 1% of the next $15,000,000; and (c)
1/8 of 1% of the excess over $25,000,000. For these fees, Stonebridge
provides to the Fund, in addition to investment advice and management, the
services of the Fund's officers and other personnel, except that by
contract the Fund is obligated to pay the cost of services of its principal
financial officer and of personnel operating under the direction of the
principal financial officer. Officers' salaries paid by the Fund during the
year ended October 31, 1995 amounted to $18,055.
The agreement provides that the advisory fee will be reduced by the amount
which will reduce the total expenses of the Fund, including the advisory
fee, but excluding taxes and interest, to the amount of the aggregate
annual expenses (currently 2-1/2% of the first $30,000,000 of the Fund's
average weekly net assets, 2% of the next $70,000,000 of the average weekly
net assets and 1-1/2% of any average net assets in excess of $100,000,000
calculated on a monthly basis) which, if exceeded, would result in the
denial by the California Department of Corporations of a permit allowing
the shares of the Fund to be sold in California. Subsequent to October 31,
1986, the Fund applied for a variance from the limitation on aggregate
annual expenses. The variance was granted on February 13, 1987, permitting
custodial fees and expenses, transfer agent fees and expenses, and
accounting fees to be excluded from aggregate annual expenses for purposes
of computing the expense limitation. The variance applies to the fiscal
year ended October 31, 1986 and future years, or until such time as the
variance is revoked by the California Department of Corporations. For the
fiscal year ended October 31, 1995, applicable operating expenses did not
exceed the statutory limitations.
F-9
<PAGE>
SIERRA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CAPITAL STOCK:
At October 31, 1995, there were 3,000,000 shares of $1.00 par value capital
stock authorized, and capital paid in aggregated $2,266,526. Transactions
in shares of capital stock for the years ended October 31, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
------ ------
1995 1994 1995 1994
--------------------- ---------------------
<S> <C> <C> <C> <C>
Shares sold 347 2,013 $ 3,877 $ 20,345
Shares issued to shareholders in
reinvestment of dividends 14,591 46,765 142,262 487,287
--------- --------- --------- ---------
14,938 48,778 146,139 507,632
Less shares redeemed (10,048) (6,990) (116,451) (75,165)
--------- --------- --------- ---------
Net increase 4,890 41,788 $ 29,688 $ 432,467
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accumulated investment loss and accumulated undistributed net realized
gain from investment transactions as of October 31, 1995 were $790,747 and
$670,676, respectively.
5. DISTRIBUTIONS TO SHAREHOLDERS:
On December 19, 1994, a distribution of $.516 per share, aggregating
$150,944, was declared from net realized gains from investment
transactions. The dividend was paid on December 29, 1994, to shareholders
of record on December 28, 1994.
F-10
<PAGE>
PART C
OTHER INFORMATION
ITEM
- ----
24. (a) FINANCIAL STATEMENTS
In Part A:
Financial Highlights
In Part B:
Report of Independent Auditors
Statement of Assets and Liabilities
Portfolio of Investments
Statement of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
(b) EXHIBITS
EXHIBITS (1) THROUGH (10) AND (12) THROUGH (15)
Reference is made to the Exhibits to the Fund's Form N-1 and
Form N-1A, and post-effective amendments thereto previously
filed with the Securities and Exchange Commission which are
hereby incorporated herein.
EXHIBIT (11): "CONSENT OF INDEPENDENT AUDITOR."
25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Selvyn B. Bleifer, Marvin Freedman, Charles F. Haas and Richard C.
Barrett, comprising a majority of the members of the Board of Directors of
the Fund, also comprise all of the directors of National Industries Fund,
Inc. ("National"), a registered investment company. In addition, Mr.
Barrett, Debra L. Newman and Colleen Schomer, officers of the Fund, are
officers of National. Accordingly, the Fund and National may be deemed to
be under common control.
26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF
RECORDHOLDERS
AS OF
JANUARY 31,
TITLE OF CLASS 1996
----
<S> <C>
Capital Stock of the Fund 367
</TABLE>
27. INDEMNIFICATION
In accordance with Section 145 of the General Corporation Law of the
State of Delaware, Article VI, Section 7 of the Fund's By-Laws, filed as
Exhibit 2 to this Registration Statement, provides for indemnification of
the Fund's directors and officers under certain circumstances.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors and officers of the
Fund pursuant to the foregoing provisions or otherwise, the Fund has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Fund of expenses
incurred or paid by a director or officer of the Fund in the successful
defense of any action, suit or proceeding) is asserted by such director or
officer in connection with the securities being
S-1
<PAGE>
registered hereby, the Fund will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in such Act and will be governed by the
final adjudication of such issue.
28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
During the two fiscal years ended October 31, 1995, Stonebridge
Capital Management, Incorporated, the Investment Adviser to the Fund, has
engaged principally in the business of providing investment management
services to institutional and individual clients. All of the additional
information required by this Item 28 with respect to the Investment Adviser
is set forth in the Form ADV, as amended, of the Investment Adviser (File
No. 801-5363), which is incorporated herein by reference.
29. PRINCIPAL UNDERWRITERS
Inapplicable.
30. LOCATION OF ACCOUNTS AND RECORDS
1801 Century Park East,
Suite 1800
Los Angeles, California 90067
NIF Management Co., Inc.
5990 Greenwood Plaza Boulevard
Englewood, Colorado 80111
Colorado National Bank of Denver
17th and Champa Street
Denver, Colorado 80202
31. MANAGEMENT SERVICES
Inapplicable.
32. UNDERTAKINGS
The Fund hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Fund's latest annual report to its
shareholders upon the request of such person and without charge.
S-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Amendment to Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amendment to Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Los Angeles, and State of
California on the 1st day of March, 1996.
SIERRA GROWTH FUND, INC.
a Delaware Corporation
By DEBRA L. NEWMAN
--------------------------
Debra L. Newman
Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
(1) Principal Executive Officer:
JOHN G. AYER President March 1, 1996
-------------------------
John G. Ayer
(2) Principal Financial and Accounting Officer:
DEBRA L. NEWMAN Treasurer March 1, 1996
-------------------------
Debra L. Newman
(3) Directors:
*MARVIN FREEDMAN Director March 1, 1996
*RICHARD C. BARRETT Director March 1, 1996
*WILLIAM H. TAYLOR II Director March 1, 1996
*CHARLES F. HAAS Director March 1, 1996
*CHARLES E. WOODHOUSE Director March 1, 1996
*JOHN G. AYER Director March 1, 1996
*SELVYN B. BLEIFER Director March 1, 1996
*MARILYN RUSSELL BITTLE Director March 1, 1996
</TABLE>
* By: DEBRA L. NEWMAN
---------------------
Debra L. Newman
Attorney-in-Fact
S-3
<PAGE>
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITOR
We consent to the use in this Post-Effective Amendment No. 57 to the
Registration Statement (Form N-1A No. 2-12893) of our report dated December 5,
1995 on the financial statements and the per share data and ratios of Sierra
Growth Fund, Inc., included herein and to the reference made to us under the
caption "Financial Highlights" in the Prospectus and under the caption
"Investment Advisory and Other Services" in the Statement of Additional
Information.
HEIN + ASSOCIATES LLP
Denver, Colorado
March 1, 1996
