<PAGE>
Rule 497(e)
2-17277
SUPPLEMENT DATED APRIL 30, 1998 TO PROSPECTUS OF
SIFE TRUST FUND
DATED APRIL 30, 1998
The information set forth in this table and the table on Page 13 of the
Prospectus for 1996 and 1997 was audited by Deloitte & Touche LLP,
independent certified public accountants and from 1988-1995 was audited by
other auditors. Deloitte & Touche LLP's independent auditors report is
incorporated by reference in the Statement of Additional Information. The
following information is to supplement the Financial Highlights section of the
Prospectus as it appears on Page 13:
<TABLE>
<CAPTION>
CLASS A-I
--------------
YEARS ENDED DECEMBER 31 1991 1990 1989 1988
---- ---- ---- ----
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA
(For one share outstanding during the period):
Net asset value, beginning of period $2.12 $2.92 $2.63 $2.32
----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.08 0.11 0.11 0.09
Net realized and unrealized gain (loss) on investments 0.90 (0.75) 0.42 0.36
----- ----- ----- -----
Total from investment operations 0.98 (0.64) 0.53 0.45
----- ----- ----- -----
LESS DISTRIBUTIONS TO INVESTORS:
Dividends from net investment income (0.08) (0.11) (0.11) (0.09)
Distributions from capital gains (0.12) (0.05) (0.13) (0.05)
----- ----- ----- -----
Total distributions (0.20) (0.16) (0.24) (0.14)
----- ----- ----- -----
Net asset value, end of period $2.90 $2.12 $2.92 $2.63
----- ----- ----- -----
----- ----- ----- -----
TOTAL RETURN(3) 47.3% (22.1%) 20.2% 19.8%
----- ----- ----- -----
----- ----- ----- -----
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $260 $204 $289 $241
----- ----- ----- -----
----- ----- ----- -----
Ratios to average net assets:
Expenses(4) 1.04% 1.07% 1.03% 1.10%
----- ----- ----- -----
----- ----- ----- -----
Net investment income 3.03% 4.63% 3.52% 3.52%
----- ----- ----- -----
----- ----- ----- -----
Portfolio turnover rate 77.6% 42.3% 41.7% 20.7%
----- ----- ----- -----
----- ----- ----- -----
Average commission rate paid(5) - - - -
</TABLE>
(3) Sales loads are not reflected in total return.
(4) Prior to April 1, 1996, the Management Company received (i) an
investment advisory fee of 0.60% per annum of the Trust Fund's net assets,
plus (ii) reimbursement of certain expenses attributable to the operation of
the Trust Fund.
(5) The Trust Fund is required to disclose its average commission rate paid
for years beginning on or after January 1, 1996.
<PAGE>
Rule 497(e)
2-17277
[LOGO]
SIFE TRUST FUND
______________________________
Managed by SIFE (A California Corporation)
100 North Wiget Lane
Walnut Creek, California 94598
Telephone: (800) 231-0356 / (925) 988-2400
Fax: (925) 943-1783
Internet Address: http://www.sife.com
______________________________
PRINCIPAL OBJECTIVES OF A SIFE INVESTMENT
1. CONSERVATION OF CAPITAL
2. CAPITAL GROWTH
3. DIVERSIFICATION AND CONCENTRATION
SIFE Trust Fund (the "Trust Fund") seeks to conserve its Investors'
capital and provide capital growth consistent with prudent investment
management practices through the investment of not less than 30% of the Trust
Fund's assets in the equity securities of financial institutions, and the
remainder in the equity securities of a diverse portfolio of service and
industrial enterprises regarded by the Trust Fund's investment advisor as
"stable growth" companies. There can be no assurance that the Trust Fund
will achieve its investment objectives. Unless the Trust Fund receives
instructions to the contrary, all dividend income received by the Trust Fund
from portfolio securities and net capital gains realized by the Trust Fund
from the sale of portfolio securities is reinvested on behalf of each
Investor in additional shares of the same class.
This Prospectus contains information a prospective investor should
consider before investing in the Trust Fund, and should be retained for
future reference. A Statement of Additional Information, dated April 30,
1998, containing additional and more detailed information about the Trust
Fund (the "Statement of Additional Information"), has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference
into this Prospectus. The Statement of Additional Information, which may be
revised from time to time, is available without charge and can be obtained by
writing or calling the Trust Fund at the address or telephone number set
forth above. The Securities and Exchange Commission maintains a Web site
(www.sec.gov) that contains the Statement of Additional Information, material
incorporated by reference and other information regarding SIFE Trust Fund.
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 OTHER REGULATORY
AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
APRIL 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary 4
Investment Policies 4
Purchase & Redemption of Shares 4
Alternative Purchase Arrangements 4
The Management Company 6
Federal Income Taxes 6
Trust Characteristics of an Investment in the Trust Fund 6
Risk Considerations 6
Summary of Fees and Expenses 7
Investment Objectives 8
Conservation of Capital 8
Capital Growth 8
Diversification & Concentration 8
Investment Policies 9
Fundamental Investment Policies 9
Writing Covered Call and Put Options 10
Lending Portfolio Securities 10
Repurchase Agreements 11
Dividends, Distributions and Tax Matters 11
Distributions of Dividend Income and Capital Gains 11
Federal Tax Matters 11
Financial Highlights 13
Purchasing Shares 14
Class A-I Shares 14
Class A-II Shares 14
Class B Shares 14
Class C Shares 15
Factors to Consider in Choosing a Particular Class of Shares 15
Initial Sales Charge Alternative: Class A-I and Class A-II Shares 15
Sales Charge Waivers 16
Class A-I and Class A-II Rights of Accumulation 16
Class A-I and Class A-II Letters of Intention 17
Deferred Sales Charge Alternative: Class B Shares 17
"Pay-As-You-Go" Alternative: Class C Shares 18
Systematic Purchase Plan 18
Right to Designate a Beneficiary 18
Distribution and Shareholder Servicing Plans 19
Redeeming Shares 19
Minimum Balance 20
Repayment Privilege after Partial Redemption 20
Waiver of Class B & Class C CDSC 20
Signature Guarantee 20
Redemption by Telephone 20
Systematic Withdrawal Plan 21
Calculation of Net Asset Value 21
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Management's Discussion of Trust Fund Performance 22
Comparison Chart: Change in Value of $9,500 Net Investment vs. S&P 500 24
(10 Years)
General Information 25
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
STATEMENT OF ADDITIONAL INFORMATION, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY
STATE OR JURISDICTION IN WHICH SUCH OFFER MAY NOT LAWFULLY BE MADE.
3
<PAGE>
PROSPECTUS SUMMARY
SIFE Trust Fund (the "Trust Fund") was organized as a business trust under
the laws of the State of Delaware on February 28, 1997; the Trust Fund is the
successor-in-interest to SIFE Trust Fund, a California trust organized on
September 26, 1960. The Trust Fund, through its predecessor, has been
offering its securities, and conducting operations as a mutual fund, since
July 2, 1962, and is registered with the Securities and Exchange Commission
as an open-end diversified management investment company offering its shares
on a continuous basis to the public. All references and historical
information, including performance data, contained in either this Prospectus
or in the Trust Fund's Statement of Additional Information refer to SIFE
Trust Fund, a California trust, as its business and operations have been
continued by SIFE Trust Fund, a Delaware business trust.
INVESTMENT POLICIES. The Trust Fund's investment policies require the
investment of not less than 30% of the Trust Fund's assets in selected
"financial institutions" (i.e., those companies which derive a significant
portion of their income from dealing in money, credit, loans and insurance).
The Trust Fund also invests in the equity securities of a diverse portfolio
of service and industrial enterprises generally regarded by the Trust Fund's
investment advisor as "stable growth" companies; however, the Trust Fund may
not invest 25% or more of its assets in any one industry other than financial
institutions. These policies are regarded as fundamental investment
policies, and may not be changed other than by the approval of a majority in
interest of the Trust Fund's shares, voting together and not by class.
PURCHASE & REDEMPTION OF SHARES. An investment in the Trust Fund may be
made for an initial minimum investment of $200; additional investments may be
made in increments of $50 or more. Shares may be purchased through
authorized investment representatives and certain broker/dealers at the
public offering price next determined after the Trust Fund receives a
purchase order in good form. Investments are made at net asset value ("NAV")
per share (plus applicable sales charges), with the NAV per share of each
class determined daily by dividing the net assets of the class by the number
of shares of such class outstanding on that day. Unless the Trust Fund
receives instructions to the contrary, all income received by the Trust Fund
from portfolio securities and net capital gains realized by the Trust Fund
from the sale of portfolio securities is reinvested on behalf of each
Investor in additional shares of the same class. Shares may be redeemed,
either directly or pursuant to a regular program of periodic redemptions, on
any business day that the New York Stock Exchange is open. Redemptions may
be made directly through the Trust Fund, or through certain broker/dealers,
financial institutions and service organizations.
ALTERNATIVE PURCHASE ARRANGEMENTS. The Trust Fund currently offers four
classes of shares, each subject to different expenses and sales charges.
CLASS A-I shares are offered at net asset value per share plus a sales
charge, which may range from -0- to a maximum of 5.0% of the public
offering price. Class A-I shares are available for purchase only by (i) a
Trust Fund account which was established on or prior to April 30, 1996,
(ii) directors, employees and registered representatives of SIFE, a
California corporation (the "Management Company") or the Trust Fund, and
their immediate family members, and (iii) certain investors as described
in the section titled "Sales Charge Waivers."
CLASS A-II shares are offered at net asset value per share plus a sales
charge, which may range from -0- to a maximum of 5.0% of the public
offering price, and are subject to an annualized distribution fee of 0.25%
of the Trust Fund's average daily net assets attributable to the Class
A-II shares.
4
<PAGE>
CLASS B shares are offered at net asset value per share, without the
imposition of a sales charge, but are subject to a contingent deferred
sales charge ("CDSC") of up to 5.0% if redeemed within six years of
purchase. Class B shares are subject to an annualized distribution fee of
0.75% and an annualized investor servicing fee of 0.25% of the Trust
Fund's average daily net assets attributable to the Class B shares. Class
B shares automatically convert into Class A-II shares, based on relative
net asset values, on the sixth anniversary of their purchase. The
Management Company will pay to the selling dealer, out of its own
resources, a sales commission of 4.0% of the purchase.
CLASS C shares are offered at net asset value per share plus a sales
charge of 1.0% of the public offering price, and are subject to an
annualized distribution fee of 0.75% and an annualized investor servicing
fee of 0.25% of the Trust Fund's average daily net assets attributable to
the Class C shares. Class C shares have no conversion feature and if
redeemed, in whole or in part, prior to one year following the initial
purchase, are subject to a 1.0% CDSC.
The following table compares certain aspects relating to the purchase of the
different classes of the Trust Fund's shares:
<TABLE>
<CAPTION>
CLASS A-I CLASS A-II CLASS B CLASS C
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Charges Initial sales charge Initial sales charge Declining CDSC Initial sales
at time of purchase at time of purchase (maximum of charge at time of
of up to 5.0% of of up to 5.0% of 5.0% of the purchase of
the offering price the offering price amount invested) 1.0% of the
(5.26% of amount (5.26% of amount applicable to any offering price;
invested) invested) shares redeemed CDSC of 1.0%
within the first six of amount
years; no CDSC invested if
after six years shares are
(automatic redeemed prior
conversion to to one year
Class A-II shares) following
purchase
12b-1 Distribution Fee None 0.25% of average 0.75% of average 0.75% of
daily net assets daily net assets for average daily net
the first six years, assets; no
after which time conversion
the Class B shares feature
convert to Class
A-II shares
Servicing Fee None None 0.25% of average 0.25% of
daily net assets average daily net
assets
</TABLE>
The Trust Fund has reserved the right to create additional classes of
investment units with different income and expense characteristics in order
to tailor such characteristics to the needs and circumstances of different
classes of investors, as well as broker-dealers, financial institutions and
other organizations, such as pension and profit-sharing plans.
5
<PAGE>
THE MANAGEMENT COMPANY. SIFE, a California corporation (as defined
previously, "the Management Company"), acts as the investment adviser and
principal underwriter for the Trust Fund. The Management Company receives an
investment management fee of 1.25% of the Trust Fund's average daily net
assets, computed and prorated daily, in exchange for which the Management
Company provides investment advice, manages the Trust Fund's investment
portfolio and performs and/or assumes responsibility for all of the Trust
Fund's administrative and shareholder services. As a result of this
"bundled" fee arrangement, the Investors are not subject to any other fee,
charge or assessment, other than (i) an ongoing shareholder servicing fee of
0.25% of average daily net assets of the Class B and Class C shares paid to
dealers for servicing shareholder accounts, and (ii) ongoing distribution
fees payable by the Class A-II, Class B and Class C shares. The Management
Company does not act in a similar capacity for any other person or entity.
FEDERAL INCOME TAXES. As a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
the Trust Fund distributes all of its net income from dividends and capital
gains to its Investors. Such distributions are taxable to Investors
currently even if such distributions are reinvested on behalf of Investors in
additional shares (Investors not subject to current taxation, such as
retirement accounts, generally are not required to pay tax on any amounts
distributed until redemption occurs). Redemptions and transfers between
accounts may be taxable sales of shares and may result in the recognition of
taxable gain or loss for federal income tax purposes. Distributions and
redemptions may also be subject to state and local income taxes.
TRUST CHARACTERISTICS OF AN INVESTMENT IN THE TRUST FUND. The Trust Fund
permits an owner of its shares to specify a beneficiary, in effect creating
an instrument of trust which may, under certain circumstances, provide for a
post-mortem transfer of the shares so specified without the imposition of the
probate process. However, post-mortem transfers and beneficiary designations
vary by jurisdiction. Please consult a qualified estate planning
professional for advice on how SIFE Trust Fund's trust characteristics may be
effected by the laws of your jurisdiction.
RISK CONSIDERATIONS. Investments in equity securities in general are
subject to market risks that cause their prices to fluctuate over time.
Fluctuations in the value of the securities in which the Trust Fund invests
will cause the net asset value of each class of shares to fluctuate as well;
an investment in the Trust Fund, therefore, may be more suitable for
long-term investors who can bear the risk of such short-term fluctuations.
More specifically, the investment by the Trust Fund of not less than 30%
of its assets in the equity securities of financial institutions exposes the
Trust Fund to certain additional risks specific to the financial services
industry. Financial services are subject to greater governmental regulation
than many other industries, as well as capital risk (i.e., the risk that in
periods of tight money or high inflation the cost to attract deposits will
rise substantially), term and rate risk (i.e., the risks attendant to lending
money for long periods of time at fixed or only partially adjustable interest
rates against the security of assets, the valuations of which may fluctuate
with economic conditions) and credit risk (i.e., the risk of lending money to
borrowers who may or may not be able to pay), all of which may, from time to
time, require substantial reserves against actual or anticipated losses. In
addition, industry consolidation and the erosion of the distinctions between
banks and other less traditional financial institutions has resulted in
increased, and increasing, competition. Increased competition, with
attendant pressure on financial institution profitability, may also result
from legislative initiatives which would reduce the separation between the
commercial and investment banking business and which, if enacted, could
significantly impact the industry and the Trust Fund.
6
<PAGE>
SUMMARY OF FEES AND EXPENSES
The purpose of the following tables is to assist an Investor in
understanding the various costs and expenses, both direct and indirect,
associated with an investment in the Trust Fund.
<TABLE>
<CAPTION>
INVESTOR TRANSACTION EXPENSES CLASS A-I(1) CLASS A-II(1&2) CLASS B(2) CLASS C(2)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.00% 5.00% none 1.00%
Maximum Sales Charge Imposed on Reinvestment of
Distributions (as a percentage of offering price) none none none none
Maximum Deferred Sales Charge
(as a percentage of the original purchase price) none none 5.00% none(3)
Redemption Fees none none none none(3)
Exchange Fees n/a n/a none n/a
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees(4) 1.25% 1.25% 1.25% 1.25%
12b-1 Distribution Fees none 0.25% 0.75% 0.75%
Shareholder Servicing Fees none none 0.25% 0.25%
Total Fund Operating Expenses 1.25% 1.50% 2.25% 2.25%
Example of Expenses(5)
- -------------------
You would pay the following expenses on a $1,000
investment, assuming (i) a 5% annual return and (ii)
redemption at the end of each time period: 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
CLASS A-I $62 $88 $115 $194
CLASS A-II $65 $95 $128 $220
CLASS B(6) $73 $100 $140 $222
CLASS C $43 $80 $129 $266
</TABLE>
- -------------------------
(1) Sales charges may be reduced for certain large purchases or for certain
institutional purchasers, see the section titled "Purchasing Shares."
(2) Long-term investors may ultimately pay more than the economic equivalent of
the maximum front end sales charge otherwise permitted under the rules of
the National Association of Securities Dealers, Inc.
(3) Class C shares redeemed prior to one year following purchase are subject
to a 1.0% CDSC, based on the amount originally invested.
(4) The Management Company is responsible for all of the Trust Fund's operating
expenses, without limitation, and, in exchange, is paid a fee equal to
1.25% of the Trust Fund's average daily net assets, per annum.
(5) Use of this assumed annual return of 5.0% is required by the Securities and
Exchange Commission, and should not be considered indicative of past or
future performance.
(6) Assumes conversion of the Class B shares on the sixth anniversary of
purchase.
7
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000
investment, assuming no redemption: 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
CLASS A-I $62 $88 $115 $194
CLASS A-II $65 $95 $128 $220
CLASS B(6) $23 $70 $120 $222
CLASS C $33 $80 $129 $266
</TABLE>
INVESTMENT OBJECTIVES
Identified below in italics are the investment objectives of the Trust
Fund, which may not be changed without a vote of a "majority in interest" of
all shareholders, without regard to Class (when used in this Prospectus, this
quoted language means the lesser of (a) 67% of the shares voting at a meeting
at which more than 50% of all outstanding shares are represented, or (b) more
than 50% of all outstanding shares).
CONSERVATION OF CAPITAL. The Trust Fund seeks to conserve its Investors'
capital by investing not less than 30% of the Trust Fund's assets in the
equity securities of "financial institutions" (defined as companies which
derive a significant portion of their income from dealing in money, credit,
loans and insurance), and the remainder in the equity securities of a diverse
portfolio of service and industrial enterprises generally regarded by the
Management Company as "stable growth" companies; the Trust Fund cannot invest
more than 25% of its assets in any one industry other than financial
institutions. Since the Trust Fund's assets consist primarily of common
stocks, the value of an investment will fluctuate in accordance with the
market value of such stocks. Accordingly, in a declining market, the value of
an investment in the Trust Fund's shares will decline and if the value of the
investment declines below an Investor's cost, that Investor will incur a loss
upon a redemption of shares.
CAPITAL GROWTH. The Trust Fund seeks to provide capital appreciation
consistent with prudent investment management practices by investing in the
equity securities of financial institutions and other enterprises where the
Management Company determines that a favorable relationship exists between
the "value" of a security, as determined by an analysis of price/earnings
ratios and certain other information, and its growth potential. In selecting
an investment, the Management Company will take into consideration such
factors as a company's management, growth prospects, business operations,
revenues, earnings, cash flows and strength of the balance sheet, as well as
other information which the Management Company may deem relevant, including
size of the dividend, if any. The Management Company invests in the
securities of those companies which show strong financial results coupled
with good growth prospects and which the Management Company believes are
well-managed. The Management Company may also invest in the securities of
financial institutions which it believes may be the target of, or will
benefit from, consolidation in the financial services industry. It is a
fundamental investment policy of the Trust Fund that not less than 30% of the
Trust Fund's assets will, at all times, be invested in the equity securities
of financial institutions.
DIVERSIFICATION AND CONCENTRATION. Financial institutions, such as banks
and insurance companies, finance and engage directly in a broad range of
economic activities, thus providing an element of diversification of
investment risk. The Management Company believes that the performance of a
business enterprise which participates in a broad range of economic activity,
either through direct investment or indirect financing, will be less likely
to rise or fall with the fortunes of any one type of business activity.
Further, by investing in financial institutions which are active in different
regions (or, in the case of large, "money center" banks, active
internationally), the Management Company attempts to minimize the effect of
economic conditions which may affect one region but not necessarily another.
- -----------------------
(6) Assumes conversion of the Class B shares on the sixth anniversary of
purchase.
8
<PAGE>
It is clear, however, that diversification of the character discussed
above does not necessarily reduce or eliminate the risk inherent in an
investment in a portfolio containing a substantial number of financial
institution securities. Financial institutions, as a group, are subject to
greater governmental regulation than many other industries, as well as
capital risk (i.e., the risk that in periods of tight money or high inflation
the cost to attract deposits will rise substantially), term and rate risk
(i.e., the risks attendant to lending money for long periods of time at fixed
or only partially adjustable interest rates against the security of assets,
the valuations of which may fluctuate with economic conditions) and credit
risk (i.e., the risk of lending money to borrowers who may or may not be able
to pay), all of which may, from time to time, require substantial reserves
against actual or anticipated losses. In addition, insurance companies and
other financial institutions which hold large portions of their capital in
marketable securities are subject to the risks of the securities markets.
Further, industry consolidation and the erosion of the distinctions between
banks and other less traditional financial institutions has resulted in
increased, and increasing, competition. Increased competition, with
attendant pressure on financial institution profitability, may also result
from current legislative initiatives which would reduce the separation
between the commercial and investment banking business and which, if enacted,
could significantly impact the industry and the Trust Fund.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT POLICIES. The policies set forth in this
subsection, as well as any other policy in this section specifically noted as
such, are "fundamental investment policies" of the Trust Fund, and may not be
changed without a vote of a majority in interest of the Trust Fund's
shareholders. All other investment policies may be changed from time to time
by the Trust Fund's Board of Trustees. Additional information concerning the
Trust Fund's investment policies, including the Trust Fund's fundamental
investment policies, may be found in the Statement of Additional Information.
As described above, the Trust Fund invests not less than 30% of its assets
in the equity securities of financial institutions. The Trust Fund will also
invest in the common or preferred stocks, or securities convertible into
common or preferred stocks, of non-financial institutions, general service
and industrial enterprises regarded by the Management Company as "stable
growth" companies. A reserve of cash may be maintained by the Trust Fund for
the purpose of making such cash payments as may be required of it. Pending
application or investment, cash reserves are commonly invested by the Trust
Fund in repurchase agreements and other cash equivalents, such as liquid
securities of the United States, securities issued by state governments or
government agencies, certificates of deposit or other interest-bearing
accounts and high-grade commercial paper.
In addition to the securities of financial institutions and of service and
industrial companies domiciled in the United States, the Trust Fund may
invest in the American Depository Receipts ("ADRs") of certain international
business enterprises. ADRs are securities representing an undivided
fractional interest in a pool of securities issued by a non United States
company and deposited in a trust for the benefit of the ADR holders. ADRs
are registered with the Securities and Exchange Commission by the trustee
(commonly a commercial bank) on behalf of the issuer, and are traded
domestically on one or more of the securities exchanges.
The Trust Fund may not invest 25% or more of its assets in any one
industry other than financial institutions. Insofar as 80% of the Trust
Fund's investment portfolio is concerned, the company must have been in
existence for at least five years, have assets of more than $7,000,000, and
have paid dividends in each of the five years immediately preceding
investment. Investments may not be made in
9
<PAGE>
any one company in an amount greater than 5.0% of the total asset value of
the Trust Fund, nor may the Trust Fund acquire more than 10% of the
outstanding voting securities of any company.
WRITING COVERED CALL AND PUT OPTIONS. Subject to certain limits, the
Trust Fund may write (sell) covered "call" options on securities held by the
Trust Fund for non-speculative or hedging purposes, may write covered "put"
options on securities for the same purposes, and may enter into closing
purchase transactions with respect to such options. The premium paid by the
purchaser of 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. The
exercise price of an option may be below, equal to, or above the current
market value of the underlying securities at the time the option is written.
Covered "put" options are defined as contracts entered into between the
Trust Fund, as seller, and the Options Clearing Corporation, as agent for
unaffiliated third parties, as purchaser, whereby the Trust Fund grants to
the purchaser the right, for a defined period of time and at a set price, to
sell specific securities to the Trust Fund. Similarly, covered "call"
options written by the Trust Fund enable the purchaser of the option to
obligate the Trust Fund, for a defined period of time and at a set price, to
sell specific securities held in the Trust Fund's investment portfolio. It
should be noted that, so long as its obligation as a call option writer
continues the Trust Fund in return for the premium, has given up the
opportunity for profit from a price increase in the underlying security above
the exercise price and has retained the risk of loss should the price of the
security decline. As a call option writer, the Trust Fund has no control
over when it may be required to sell the underlying securities.
It is a fundamental investment policy of the Trust Fund that, so long as
the Trust Fund remains obligated as a writer of a put option, it will
maintain in a segregated account cash, U.S. Treasury securities, or
high-grade short term debt securities in an amount equal to or greater than
the nominal value of the option (call options are backed by actual securities
held in the Trust Fund's investment portfolio). The Trust Fund does not write
"naked" or uncovered options. Also, it is a fundamental investment policy
that the Trust Fund will not write options if (i) the aggregate value of the
purchase obligations underlying all unexpired put options written by the
Trust Fund (which positions are marked-to-market daily) exceeds 10% of the
net asset value of the Trust Fund, and (ii) the nominal value of the Trust
Fund's unexpired call options exceeds 25% of the net asset value of the Trust
Fund, provided that the total amount of such positions at no time may exceed
35% of the Trust Fund's net asset value.
LENDING PORTFOLIO SECURITIES. The Trust Fund may lend its portfolio
securities in accordance with applicable regulatory requirements. Such loans
may be made only to banks and member firms of the New York Stock Exchange
determined by the Management Company to present minimal credit risk, and must
be secured by collateral at least equal to the market value of the securities
loaned. If the market value of the loaned securities increases over the
value of the collateral, the borrower must promptly put up additional
collateral; if the market value declines, the borrower is entitled to a
return of the excess collateral. The types of collateral currently permitted
are cash, debt securities issued or guaranteed by the United States
Government or its agencies, irrevocable standby letters of credit issued by
banks determined by the Management Company to present minimal credit risk, or
any combination thereof. It is a fundamental investment policy of the Trust
Fund to limit the quantity of loaned portfolio securities so that the
aggregate market value, at the time the loan is made, of all portfolio
securities on loan will not exceed one third of the value of the Trust Fund's
net assets.
During the existence of a loan, the Trust Fund will continue to be
entitled to receive the equivalent of the interest or dividends paid by the
issuer on the securities loaned. In addition, the Trust Fund will be
entitled to receive a negotiated loan fee or premium from the borrower or, in
the case of loans
10
<PAGE>
collateralized by cash or government securities, will retain part or all of
the income realized from the investment of cash collateral or the interest on
the government securities. Under the terms of its securities loans, the
Trust Fund has the right to call the loan and obtain the securities loaned at
any time from the borrower within three trading days notice. Voting rights
may pass with the lending of securities. However, the Trust Fund will be
obligated either to call the loan in time to vote or consent or otherwise
obtain rights to vote or consent, if a material event affecting the
investment is expected to occur. The Trust Fund may pay reasonable finder's,
custodian and administrative fees in connection with the securities loaned.
As with other extensions of credit there are risks of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. Loans of portfolio securities will be made only when, in
the judgment of the Management Company, the income to be generated by the
transaction justifies the attendant risks.
REPURCHASE AGREEMENTS. The Trust Fund may enter into repurchase
agreements with banks and member firms of the New York Stock Exchange
determined by the Management Company to present minimal credit risk. A
repurchase agreement is a contract under which the Trust Fund acquires United
States Government securities for a relatively short period (usually not more
than one week) subject to the obligations of the seller to repurchase and the
Trust Fund to resell the security at a fixed time and price (representing the
Trust Fund's cost plus interest). The Trust Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its
obligations and the Trust Fund is delayed or prevented from exercising its
rights to dispose of the collateral.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS OF INCOME AND CAPITAL GAINS. Unless the Trust Fund receives
a specific written instruction to the contrary, all income on portfolio
securities and realized net capital gains are reinvested in additional shares
of the same class for the account of each Investor without the imposition of
an additional sales charge (see the preceding table titled "Summary of Fees
and Expenses"). It should be noted that, notwithstanding the reinvestment of
income and capital gain items, the amount of the net investment income or
gain will nevertheless be includable in the Investor's gross income as
ordinary income or capital gain for tax purposes.
All available net investment income and net realized gains from
operations, if any, are usually distributed the last business day of
February, May, August and December, and are distributed proportionately to
the account of each Investor on the basis of the number of shares credited to
each account relative to the total number of shares outstanding as of the
close of business on the previous day. The amount so distributed is
immediately reinvested in additional shares at the net asset value per share
on that day, calculated by including the distribution. Realized net capital
gains, if any, from securities held for more than one year, are allocated
proportionately to the account of each Investor in the same manner as net
investment income, once annually, usually on the last business day of
November, and are distributed to each Investor's account as soon as possible,
but not later than December 31. Realized net capital gains, if any, from
securities held one year or less, are allocated proportionately to the
account of each investor once annually as of the last business day of
December, and are distributed to each investor's account as soon as possible.
FEDERAL TAX MATTERS. The Trust Fund has qualified and intends to continue
to qualify as a "regulated investment company" under Subchapter M of the
Code. So long as the Trust Fund so qualifies, it will pay no separate
federal income tax on the income and gains distributed to Investors. For
federal income tax purposes, distributions from the Trust Fund's net
investment income and net realized short-term capital gains are taxable as
ordinary income. Distributions from net realized long-term capital gains are
taxable as long-term capital gain, regardless of how long the Investor may
have held his or her shares.
11
<PAGE>
Investors will be notified annually by the Trust Fund as to the federal
income tax status of distributions made by the Trust Fund. The maximum
federal capital gain rate for individuals is 28% with respect to capital
assets held for more than 12 months, but not more than 18 months, and 20%
with respect to capital assets held for more than 18 months. The maximum
capital gains rate for corporate shareholders is the same as the maximum tax
rate for ordinary income. Distributions are taxable to Investors currently
even though reinvested in additional shares. Investors not subject to tax on
their income generally are not required to pay tax on amounts distributed to
them. Redemptions of shares, as well as transfers between accounts, may be
taxable sales which may result in the recognition of taxable gain or loss for
federal income tax purposes. Redemptions and distributions may also be
subject to state and local income taxes.
The foregoing is only a summary of some of the important federal income
tax considerations generally affecting the Trust Fund and its Investors and
is only accurate as of the date of this Prospectus. See "Additional Federal
Income Tax Information" in the Statement of Additional Information. No
attempt is made to present a detailed explanation of the income tax treatment
of the Trust Fund or its Investors and this discussion is not intended as a
substitute for careful tax planning. ACCORDINGLY, POTENTIAL INVESTORS IN THE
TRUST FUND ARE URGED TO CONSULT THEIR TAX ADVISERS WITH SPECIFIC REFERENCE TO
THEIR OWN TAX SITUATIONS.
12
<PAGE>
FINANCIAL HIGHLIGHTS
The information set forth in this table for 1996 and 1997 was audited by
Deloitte & Touche LLP, independent certified public accountants and from
1992 -- 1995 was audited by other auditors. Deloitte & Touche LLP's
independent auditors report is incorporated by reference in the Statement of
Additional Information.
<TABLE>
<CAPTION>
CLASS A-I CLASS A-II CLASS B(1) CLASS C(1)
YEARS ENDED DECEMBER 31 1997 1996 1995 1994 1993 1992 1997 1996(2) 1997 1997
------ ------ ------ ------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
(For one share outstanding during the period):
Net asset value, beginning of
period $4.86 $4.58 $3.55 $3.83 $3.68 $2.90 $4.86 $4.73 $5.41 $5.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.08 0.09 0.10 0.09 0.07 0.06 0.07 0.07 0.01 0.01
Net realized and unrealized
gain (loss) on
investments 2.07 1.16 1.68 (0.13) 0.29 0.92 2.07 1.01 1.53 1.54
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 2.15 1.25 1.78 (0.04) 0.36 0.98 2.14 1.08 1.54 1.55
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS TO INVESTORS:
Dividends from net
investment income (0.08) (0.09) (0.10) (0.09) (0.07) (0.06) (0.06) (0.07) (0.02) (0.02)
Distributions from capital
gains (0.48) (0.88) (0.65) (0.15) (0.14) (0.14) (0.48) (0.88) (0.48) (0.48)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.56) (0.97) (0.75) (0.24) (0.21) (0.20) (0.54) (0.95) (0.50) (0.50)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $6.45 $4.86 $4.58 $3.55 $3.83 $3.68 $6.46 $4.86 $6.45 $6.46
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN(3) 44.8% 27.4% 49.9% (1.5%) 9.3% 33.9% 44.6% 22.8% 28.9% 29.1%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $1,049 $769 $614 $410 $414 $345 $85 $18 $16 $1
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratios to average net assets:
Expenses(4) 1.25% 1.20% 1.03% 0.94% 1.02% 0.99% 1.50% 1.48% 2.22% 2.25%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income 1.38% 1.82% 2.25% 2.27% 1.69% 1.73% 1.11% 1.77% 0.30% 0.30%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Portfolio turnover rate 63.0% 140.2% 93.5% 25.2% 28.7% 33.4% 63.0% 95.8% 63.0% 63.0%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Average commission rate paid(5) $0.07 $0.03 - - - - $0.07 $0.03 $0.07 $0.07
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
- -------------------------------------
(1) No Class B or C shares were sold prior to May 1, 1997. For the period
May 1, 1997 (commencement of operations) to December 31, 1997
(2) For the period May 1, 1996 (commencement of operations) to
December 31, 1996
(3) Sales loads are not reflected in total return.
(4) The Management Company is responsible for all of the Trust Fund's
operating expenses, without limitation and in exchange, is paid a fee equal
to 1.25% of the Trust Fund's average daily net assets, per annum, without
further compensation or reimbursement for any cost or expense attributable
to the operation of the Trust Fund.
(5) The Trust Fund is required to disclose its average commission rate paid for
years beginning on or after January 1, 1996. The average commission rate
attributable to the Class A-I, A-II, B & C shares in 1997 was $0.07. Prior
to April 1, 1996, the Management Company received an investment advisory
fee of 0.60% per annum of the Trust Fund's net assets plus reimbursement
of certain expenses attributable to the operation of the Trust Fund.
13
<PAGE>
PURCHASING SHARES
The Trust Fund currently offers four classes of shares, each of which is
subject to different sales, distribution and shareholder servicing charges.
Each class is offered on a continuous basis to the public at its respective
net asset value (plus applicable sales charge), which values are determined
as of the close of business on each business day. COMPLETED APPLICATIONS
MUST BE RECEIVED BY THE TRUST FUND BEFORE 1:00 PM PACIFIC TIME ("PT") TO BE
EXECUTED AT THE NET ASSET VALUE CALCULATED ON THE DAY OF RECEIPT.
Investments in the Trust Fund's shares may be made for a minimum initial
investment of $200 and minimum subsequent investments of $50. All orders and
instructions must be in writing, specifying which class of shares is intended
for purchase (account applications which do not specify which class of
shares are desired will be considered an order for Class A-II shares) and
must be accompanied by proper payment, by check payable to the Trust Fund and
denominated in United States dollars. Please note that the Trust Fund does
not accept third-party checks for deposit. The check payee on the front of
the check must be payable to SIFE Trust Fund, and cannot be endorsed to SIFE
Trust Fund on the back of the check.
CLASS A-I SHARES. Class A-I shares are offered at net asset value
per share plus an initial sales charge, which may range from -0- to 5.0%
of the public offering price (5.26% of the amount invested, net of sales
charges), depending upon the amount purchased; this initial sales charge
may be reduced or waived for certain purchasers. Class A-I shares are
available for purchase only by (i) a Trust Fund account which was
established on or prior to April 30, 1996, (ii) directors, employees and
registered representatives of the Management Company and the Trust Fund,
and immediate family members, and (iii) certain investors as described
in the section titled "Sales Charge Waivers."
CLASS A-II SHARES. Class A-II shares are offered at net asset value
per share plus an initial sales charge, which may range from -0- to 5.0%
of the public offering price (5.26% of the amount invested, net of
sales charges), depending upon the amount purchased; this initial sales
charge may be reduced or waived for certain purchasers. The Class A-II
shares are subject to an annualized distribution fee of 0.25% of the
Trust Fund's average daily net assets attributable to the Class A-II
shares. Due to the imposition of the distribution fee, the Class A-II
shares will have a greater overall expense ratio than the Class A-I
shares and will pay lower dividends per share than the Class A-I shares.
CLASS B SHARES. Class B shares are offered at net asset value per
share, without a sales charge, therefore the entire amount is
immediately invested in that Investor's Class B account. Class B shares
are subject to an annualized distribution fee of 0.75%, an annualized
investor servicing fee of 0.25% of the Trust Fund's average daily net
assets attributable to the Class B shares and are subject to a
contingent deferred sales charge ("CDSC") of up to 5.0% of the original
purchase price if redeemed within six years of purchase (no CDSC is
imposed on Class B shares purchased through the reinvestment of
distributions). Class B shares automatically convert into Class A-II
shares, based on relative net asset values, on the sixth anniversary of
their purchase. The Management Company will pay to the selling dealer,
out of its own resources, a sales commission of 4.0% of the purchase
price. The higher distribution fees and the shareholder servicing fees
paid by the Class B shares should cause the Class B shares to have a
higher overall expense ratio and therefore to pay lower dividends than
the Class A-I and Class A-II shares.
14
<PAGE>
CLASS C SHARES. Class C shares are offered at net asset value per
share plus an initial sales charge of 1.0% of the public offering price.
Thereafter, Investors "pay as they go" in the form of a pro rata
annualized distribution fee of 0.75% and a pro rata annualized investor
servicing fee of 0.25% of the Trust Fund's average daily net assets
attributable to the Class C shares. Class C shares have no conversion
feature and any shares redeemed prior to one year following the initial
purchase are subject to a 1.0% CDSC. The higher distribution fees and
the shareholder servicing fees paid by the Class C shares should cause
the Class C shares to have a higher overall expense ratio and therefore
to pay lower dividends than the Class A-I and Class A-II shares.
FACTORS TO CONSIDER IN CHOOSING A PARTICULAR CLASS OF SHARES. In
deciding which class of the Trust Fund's shares to purchase, prospective
Investors should consider, among other factors, the amount and intended
length of their investment. Investors who prefer not to pay an initial sales
charge and who intend to hold their investment for a minimum of six years may
wish to consider Class B shares. Investors who prefer to pay a reduced
initial sales charge but who are unsure of their intended holding period may
wish to consider Class C shares.
Over time, the cumulative expense of the higher distribution and
shareholder servicing fees associated with the Class B and Class C shares may
be expected to approximate or exceed the expense of the lower distribution
fee and applicable initial sales charge associated with the Class A-II
shares. Thereafter, Class C shares (and unconverted Class B shares, if
applicable) would experience higher cumulative expenses. Investors who
expect to maintain their investment in the Trust Fund over the long term
might elect to purchase Class A-II shares, even if the size of the purchase
does not qualify for a reduction in sales charge, because the indirect cost
of the higher fees associated with Class B and Class C shares may outweigh
the benefit of having all their invested dollars put to work immediately.
Any positive return on this initial investment advantage could offset the
higher fees associated with the Class B and Class C shares; however, because
the Trust Fund's future returns cannot be predicted, there can be no
assurance that a positive return will be achieved.
INITIAL SALES CHARGE ALTERNATIVE: CLASS A-I AND CLASS A-II SHARES. A
sales charge of up to 5.0% of the public offering price (5.26% of the amount
invested, net of sales charges) may be charged to the Investor to cover sales
commissions and certain selling expenses. The sales charge is made at the
time of the initial investment and upon each subsequent investment (no sales
charge is assessed upon the reinvestment of income or capital gains
distributions). The schedule of sales charges applicable to both Class A-I
and Class A-II shares is as follows:
<TABLE>
<CAPTION>
AGGREGATE AMOUNT CONCESSIONS TO
PURCHASED (INCLUDING SALES CHARGE AS SALES CHARGE AS SELECTED BROKER/DEALERS
AMOUNT OF A PERCENTAGE OF A PERCENTAGE OF THE AS A PERCENTAGE OF
CURRENT PURCHASE) THE OFFERING PRICE NET AMOUNT INVESTED THE OFFERING PRICE
- -------------------- ------------------ ------------------- -----------------------
<S> <C> <C> <C>
$0 - $99,999 5.0% 5.26% 4.75%
$100,000 - $249,999 4.0% 4.17% 3.80%
$250,000 - $499,999 3.0% 3.09% 2.85%
$500,000 - $999,999 2.5% 2.56% 2.375%
$1,000,000 and over None None *
</TABLE>
- -----------------------
* For an investment of this magnitude the Management Company may pay, from its
own resources, a one-time fee of 0.60% of the invested amount to the selling
broker/dealer.
15
<PAGE>
SALES CHARGE WAIVERS. Class A-I shares may be purchased without the
imposition of sales charges by any current or retired director, Trustee,
officer, employee or registered representative of the Management Company or
the Trust Fund, as well as the spouse, child, parent, or any immediate family
member of any of the foregoing and any employee benefit plan or payroll
deduction plan established by or for such persons.
Subject to approval by the Management Company sales charges do not apply
to Class A-II shares of the Trust Fund purchased:
(1) by a federal, state, or local governmental agency or authority
prohibited by law from paying certain front-end sales charges
(governmental agencies or authorities prohibited by law from paying
distribution fees are entitled to purchase Class A-I shares);
(2) in accounts which a bank, investment-advisor or broker-dealer charges an
advisory, account management or administration fee, provided the bank or
broker-dealer has an agreement with the Management Company;
(3) by registered representatives, bank trust officers and other employees
(and their immediate families) of investment professionals having
agreements with the Management Company, provided shares are not resold
except to the Trust Fund;
(4) by a charitable organization, charitable remainder trust or life income
pool established for the benefit of a charitable organization (all as
defined by Section 501(c)(3) of the Internal Revenue Code) investing
$100,000 or more;
(5) by an insurance company separate account used to fund annuity contracts
purchased by employee benefit plans which have more than 25 participants
or $1,000,000 or more invested in the Trust Fund;
(6) by a single account covering a minimum of 25 participants or $1,000,000
or more invested in the Trust Fund and representing a defined benefit
plan, defined contribution plan, cash or deferred plan qualified under
401(a) or 401(k) of the Internal Revenue Code;
(7) by a trust institution (including bank trust departments) investing
$250,000 or more on their own behalf or on the behalf of others;
(8) by an account as to which a bank, broker-dealer, third party
administrator or investment adviser charges an account management fee,
provided the foregoing has an agreement with the Management Company; or
(9) by "wrap program investors" with an account established under a "wrap
account" or other similar fee-based program sponsored and maintained by
a registered broker-dealer.
Investors eligible for sales charge waivers should be aware that under
the Trust Fund's Rule 12b-1 Plan, bank trust departments, wrap program
sponsors, or broker-dealers are entitled to payments under the 12b-1 Plan in
addition to the charges or fees that the bank trust department, program
sponsor, or broker-dealer may charge in asset-based or other fees. Investors
should discuss these charges with their bank trust department, wrap program
sponsor, or broker-dealer, and generally weigh the benefits of these programs
against the total annual expenses paid. Such sales charge waiver programs
(a.k.a. "NAV purchase programs") are subject to prior approval by the
Management Company, minimum purchase requirements as to the amount of
purchase, as well as other investment limitations which may be established
from time to time by the Management Company and which may be discontinued
without prior notice. For further information please contact the
Distribution Division of the Management Company at 1-888-700-7433.
CLASS A-I AND CLASS A-II RIGHTS OF ACCUMULATION. Generally, the amount
of any sales charge assessed in connection with an initial purchase of Class
A-I or Class A-II shares is based upon the dollar amount of such investment.
The sales charge for subsequent investments may be reduced if the Investor's
account value at the time of the investment plus the amount to be purchased
reaches certain
16
<PAGE>
breakpoints. Accounts may be linked for the purpose of determining whether
such breakpoints are reached if such accounts are (1) identified by the same
Social Security or tax identification number, (2) owned by the Investor's
spouse, minor children or any corporations 100% owned by such Investor, or
(3) fiduciary accounts (such as IRA or employee benefit plan accounts)
controlled by such Investor. Purchases made through omnibus accounts
established for financial intermediaries are not eligible for any rights of
accumulation.
CLASS A-I AND CLASS A-II LETTERS OF INTENTION. An Investor purchasing
Class A-I or Class A-II shares may qualify for a reduced sales charge by
signing a nonbinding Letter of Intention and Price Agreement ("LOI") in which
the Investor states his or her intention to invest during the 13 months
following execution of the LOI, a specified amount which, if made at one
time, would qualify for a reduced sales charge. A LOI may be signed at any
time and thereafter each additional investment (plus all investments made up
to 90 days prior to the execution of the LOI) will be entitled to the sales
charge applicable to the level indicated in the LOI. For purposes of
establishing a volume purchase discount level in computing sales charges, an
accumulation credit is given for volume purchases of Class A-I and Class A-II
shares. The credit given toward the completion of the investment intention
specified in the LOI is the account value as of the time of execution of the
LOI plus additional net purchases (purchases less redemptions) between the
date of the LOI and the expiration of the thirteen month investment period of
the LOI. Note that investment appreciation and/or distributions are credited
up to the date of the LOI, but only net purchases are credited afterwards.
Example A: An investor initially invests $50,000. Six months later the
investor's account is valued at $53,000 and the investor submits a LOI for
$100,000. At the end of the thirteen-month investment period allowed by the
LOI, the account value increases to $65,000 from appreciation and
distributions, but with no new investments. To meet the original terms of the
LOI, the investor needs to invest the remaining difference of $47,000
($100,000 less $53,000). Example B: An investor invests $50,000 and
simultaneously submits a LOI for $100,000. The value of the account drops to
$48,000 with no account activity. The investor needs to invest only $50,000
to meet the original terms of the LOI. Example C: An Investor invests
$10,000 with a LOI for $100,000. During the thirteen month investment period
the investor makes ten investments of $5,000 each, or $50,000 additional.
The investor also makes several redemptions which total $50,000. Since the
investor's net investment is $10,000, the investor needs to invest an
additional $90,000 ($100,000 less $60,000 plus $50,000) to meet the terms of
the $100,000 LOI. Note that no retroactive adjustment of the sales charge
will be made for investments made more than 90 days prior to such execution.
If the Investor does not satisfy the investment commitment specified in the
LOI within the 13-month period, there will be an upward adjustment of the
sales charge, depending upon the amount actually purchased. Only one LOI
with respect to any Investor may be in effect at any time. However, if a
"break point," for purposes of reduced sales charges, specified in any LOI
has been reached and the Investor wishes to contribute additional sums into
any qualifying account, an amended LOI, identifying different break points
and sales charges, may be submitted. The Management Company will hold in
escrow an amount of shares equal to five percent of the total intended
purchase, as identified in any LOI, to cover additional sales charges which
may be due if the total investments over the statement period are
insufficient to qualify for the reduced charges set forth in such LOI.
DEFERRED SALES CHARGE ALTERNATIVE: CLASS B SHARES. Investors may choose
to purchase Class B shares of the Trust Fund at net asset value per share,
without the imposition of an initial sales charge. Class B shares offer an
Investor the advantage of having the entire amount invested immediately in
the Trust Fund. However, such Class B shares are subject to a contingent
deferred sales charge which declines from 5.0% to zero over a six-year term.
The Class B shares are subject to an annualized distribution fee of 0.75% and
an annualized investor servicing fee of 0.25% of the Trust Fund's average
daily net assets attributable to the Class B shares until the expiration of
the six-year CDSC term, at which time the Class B shares automatically
convert to Class A-II shares on the basis of relative net asset
17
<PAGE>
values. The Class A-II shares are subject to a pro rata annualized
distribution fee of 0.25% of the average daily net assets, and are not
subject to an investor servicing fee.
Class B shares which are redeemed prior to the sixth anniversary of
their purchase will be subject to a contingent deferred sales charge at the
rates set forth below. The CDSC is calculated based on the lesser of (i) the
original cost of the shares being redeemed or (ii) the net asset value of
such shares at the time of redemption. No CDSC will be imposed on increases
in net asset value above the initial purchase price. In addition, no CDSC is
imposed on Class B shares purchased through the reinvestment of dividends or
other distributions.
In determining whether a CDSC is applicable to a redemption of Class B
shares, the calculation will be made in a manner which results in the lowest
rate being charged. Thus, redemptions will be processed, first from Class B
shares representing capital appreciation, second from Class B shares acquired
through the reinvestment of dividends and distributions, and third from Class
B shares held for the longest period of time.
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
Number of Years Since Purchase (as a percentage of dollar amount)
------------------------------ ----------------------------------
<S> <C>
First . . . . . . . . . . . 5.0%
Second. . . . . . . . . . . 4.0%
Third . . . . . . . . . . . 3.0%
Fourth. . . . . . . . . . . 3.0%
Fifth . . . . . . . . . . . 2.0%
Sixth . . . . . . . . . . . 1.0%
Seventh and thereafter. . . -0-
</TABLE>
The Management Company will pay from its own resources commissions of up
to 4.0% of the amount purchased to broker/dealers selling Class B shares.
The CDSC and higher distribution and investor servicing fees attributable to
the Class B shares will be used, in whole or in part, by the Management
Company to defray distribution and investor servicing related expenses
incurred by the Management Company in connection with the sale of the Class B
shares.
"PAY-AS-YOU-GO" ALTERNATIVE: CLASS C SHARES. Investors electing to
purchase Class C shares will pay a sales charge of 1.0% of the amount
purchased and if the Class C shares are redeemed prior to the expiration of
one year from the date of purchase, a CDSC of 1.0%. Class C shares are not
eligible for conversion to Class A-II shares and will be subject to a
continuing annualized distribution fee of 0.75% and an annualized investor
servicing fee of 0.25% of the Trust Fund's average daily net assets
attributable to the Class C shares.
SYSTEMATIC PURCHASE PLAN. Investors wishing to purchase shares on a
continuous basis may elect to make additional purchases (minimum of $50)
automatically on a monthly or quarterly basis by electronic funds transfer
from the shareholder's bank account by completing the appropriate portions of
the Account Application. Systematic Purchase Plans will take effect the
month following the completion of an application to participate in the plan.
A shareholder enrolling in a systematic purchase program may terminate his or
her participation at any time.
RIGHT TO DESIGNATE A BENEFICIARY. The Trust Fund permits an owner of a
personal account (e.g., an account other than an IRA or other tax-qualified
account) to specify a beneficiary, in effect creating an instrument of trust
which may, under certain circumstances, provide for a post-mortem transfer of
the
18
<PAGE>
shares so specified outside of the probate process. However, because laws
vary by jurisdiction, each Investor should consult his or her tax and/or
estate planning advisor to determine whether it is advisable for such
Investor to designate a beneficiary and whether such a designation will, in
fact, result in an effective post-mortem transfer of such shares outside of
the probate process. Please note that shares transferred to beneficiaries
maintain the same share class as prior to the transfer.
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS. The Trust Fund has
adopted distribution plans pursuant to Rule 12b-1 with respect to each of the
Class A-II, Class B and Class C shares, which plans provide for expenditures
of 0.25%, 0.75% and 0.75% respectively, of the average daily net asset value
of each class to pay for the expenses of distributing the shares of such
class. In addition, the Class B and Class C distribution plans provide for
expenditures of 0.25% of the average daily net asset value of each class to
pay for the expenses of servicing the accounts of Class B and Class C
shareholders. Payments under each distribution plan are payable to the
Management Company, which may reallow all or part of such distribution plan
payments as commissions for shares sold or payments for accounts serviced to
broker/dealers and others participating in the distribution of such shares.
REDEEMING SHARES
An Investor may redeem shares, either directly or pursuant to a regular
program of periodic redemptions on any business day that the New York Stock
Exchange is open by giving written notice to the Management Company. Shares
may also be redeemed through certain broker/dealers, financial institutions
or service organizations, which may charge a fee which would otherwise not be
payable if such shares were redeemed directly from the Trust Fund.
REDEMPTIONS RECEIVED AFTER 1:00 PM PT WILL BE PRICED AT THE NET ASSET VALUE
DETERMINED AS OF THE CLOSE OF BUSINESS ON THE BUSINESS DAY FOLLOWING RECEIPT.
Redemptions will be effective at the net asset value per share next
determined after the receipt by the Management Company, the Transfer Agent,
other broker/dealer or financial intermediary of a written redemption request
in proper form. A redemption request must identify the account, state the
number of shares or dollar amount to be redeemed and must be signed by each
registered owner exactly as the account is registered. The Management
Company or the Transfer Agent will normally send redemption proceeds (less
any applicable CDSC in the case of Class B or Class C shares) on the next
business day following a redemption request, but in any event redemption
proceeds will be sent within seven calendar days of receipt of a redemption
request in proper form. Redemptions of $5,000 or more may also be made by
wire transfer directly to any bank previously designated by the shareholder
on the account application. A request for redemption by wire transfer must
be received prior to 1:00 pm PT to be processed on the next business day.
The Management Company does not, at present, impose any fee for redemptions
made by wire from any account, however the Management Company has reserved
the right to impose such a fee in the future. Shareholders redeeming by wire
may be required to pay such fees as may be imposed by the shareholder's bank
for wire service.
The Trust Fund will satisfy all redemption requests in cash, so long as
the payments would not, in the opinion of the Trustees, require the Trust
Fund to sell assets under disadvantageous circumstances or under conditions
which are to the detriment of the remaining shareholders of the Trust Fund.
The Trust Fund may suspend the right of redemption or postpone the date of
payment for more than seven days during any period when trading on the New
York Stock Exchange is restricted or suspended, or at any time during which
an emergency exists as determined by the Securities and Exchange Commission,
as a result of which disposal by the Trust Fund of its securities or
determination of the fair value of its assets is not reasonably practicable,
or otherwise as the Securities and Exchange Commission may by order or permit
for the protection of Investors.
19
<PAGE>
MINIMUM BALANCE. Due to the relatively high cost of maintaining smaller
accounts, the Trust Fund reserves the right to make involuntary redemptions
of all shares in any account (other than the account of a shareholder who is
a participant in a tax-qualified retirement plan) if at any time the total
investment does not have a value of $200. Before any such involuntary
redemption the Investor will be notified that the value of his or her account
is less than the required minimum and will be allowed at least 60 days to
bring the value of the account up to at least $200 before the redemption is
processed.
REPAYMENT PRIVILEGE AFTER PARTIAL REDEMPTION: An Investor holding Class
A-I or Class A-II shares has the privilege of reinvesting an amount
representing previous redemptions into any account of the same class without
any sales charge or other fee being assessed, provided that the total amount
redeemed is replaced in one or more purchases of at least $50 each and
further provided that such purchases are clearly identified as replacements
of previous redemptions. This repayment privilege only applies to partial
redemptions in accounts containing a minimum of $200 in value remaining and
not to a complete redemption and termination of an account. It should be
noted that, for income tax purposes, a partial redemption is considered a
sale of the Investor's Class A-I or Class A-II shares and may result in
taxable gain or loss to the Investor. This privilege of repaying partial
redemptions without charge may be terminated by the Trust Fund at any time by
giving each Investor at least 90 days written notice, but any such
termination will apply only to redemptions made after the effective date of
the termination.
WAIVER OF CLASS B AND CLASS C CDSC. The contingent deferred sales
charge applicable to redemptions of Class B and Class C shares will be waived
by the Trust Fund (i) following the death or disability (as defined in
Section 72(m)(7) of the Code) of a shareholder, if such redemption is made
within one year of death or disability, (ii) to the extent that the
redemption represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has attained
the age of 70 1/2, (iii) if such a withdrawal is made under a systematic
withdrawal plan, provided that such a systematic withdrawal is limited to no
more than 12% of the annual beginning account value, (iv) if such a
withdrawal (in the case of Class B shares only) is followed by a reinvestment
in Class B shares within 60 days of the initial redemption (this permits a
redeeming Investor to change his or her mind and recover from the Trust Fund
the CDSC paid upon such Investor's redemption), and (v) in the case of
tax-exempt employee benefit plans, if the Internal Revenue Service or the
Department of Labor, as the case may be, determines by rule or regulation
that continuation of the investment in such shares would be improper. To the
extent that the CDSC is waived pursuant to (iv) (which privilege may not be
extended more than once), the CDSC period applicable to the reinvestment
shares will be extended by the number of calendar days between the original
redemption date and the reinvestment date.
SIGNATURE GUARANTEE. To prevent fraudulent redemptions, a signature
guarantee for the signature of each person in whose name the account is
registered is required for all redemption requests for (i) amounts of $50,000
or more, (ii) checks made payable to someone other than the account
holder(s), (iii) checks mailed to an address different than the address of
record for the account, and (iv) if the account registration has changed
within the past 30 days. A signature guarantee may be obtained from any
commercial bank, trust company, savings and loan association, federal savings
bank, broker/dealer or other eligible financial institution. Notary public
endorsements will not be accepted as a substitute for a signature guarantee.
Additional documentation may be required for redemptions made by
corporations, executors, administrators, trustees, guardians and qualified
plan administrators.
REDEMPTION BY TELEPHONE. Telephone redemption and exchange privileges
are automatically elected when an account is opened unless the shareholder
requests on the new account application not to have telephone redemption
privileges. Shareholders may also either initiate or terminate telephone
privileges after an account has been opened by obtaining and returning a
completed Account Service Option
20
<PAGE>
Agreement Form to SIFE Trust Fund, P.O. Box 8244, Boston, MA 02266-8244.
Once a telephone privilege election is active, an investor may exchange or
redeem shares up to $50,000 in value, by calling 1-800-231-0356 toll free
during normal business hours. Note that redemption requests made after 1:00
PM Pacific Time will be processed at the next-determined NAV. A telephone
redemption must be made payable to and addressed identically to the ownership
name(s) and address of record. A signature-guaranteed authorization by the
shareholder(s) is required to: 1) redeem or transfer more than $50,000, 2)
change the bank or account designated to receive a wire transfer, 3) send a
redemption to a different address from the address of record, or 4) send a
redemption to an address of record that has been changed within the prior 30
days. Please note that Federal fund wire transfers are only an option for
financial institutions that are members of the Federal Banking System.
Neither the Trust Fund nor the Management Company will be liable for any
loss or expense in acting on telephone instructions that are reasonably
believed to be genuine. In attempting to confirm that telephone requests are
genuine, the Management Company will use procedures that are considered
reasonable, including requesting a shareholder to state his or her account
number, the name in which the account is registered, the Social Security or
Taxpayer Identification Number, banking institution and account number, and
such other information as may appear necessary or appropriate to verify the
identity of the requesting shareholder. The Trust Fund and the Management
Company reserve the right to refuse to honor a telephone or wire redemption
request if it is believed advisable to do so. Procedures for redeeming
shares may be modified or terminated at any time by the Trust Fund after at
least 30 days' prior written notice to the shareholders.
SYSTEMATIC WITHDRAWAL PLAN. The Trust Fund offers a systematic
withdrawal plan which permits shareholders to receive (either by check or by
electronic funds transfer) periodic payments of $100 or more from the
shareholder's account, either on a monthly or a quarterly basis. Shares of
the applicable class will be redeemed as required. (Under a systematic
withdrawal plan Class B and C shares may not be subject to a Contingent
Deferred Sales Charge (CDSC). For further information please see the
paragraph titled "WAIVER OF CLASS B AND CLASS C CDSC" elsewhere in this
section).
Purchases of Class A-I or Class A-II shares, while a systematic
withdrawal plan is in effect, may be disadvantageous because of the
imposition of sales charges on new purchases. Further, depending upon the
shareholder's tax basis, purchase of any shares of any class while a
systematic withdrawal plan is in effect, whether directly or through the
reinvestment of dividends and distributions, may have adverse tax
consequences. Finally, shareholders should be aware that, to the extent that
withdrawals exceed purchases plus reinvestments, a systematic withdrawal plan
will ultimately exhaust the value of the subject account.
CALCULATION OF NET ASSET VALUE
The total net asset value of the Trust Fund is computed on each business
day for the New York Stock Exchange, as of the closing of that Exchange
(usually 1:00 p.m. Pacific Time). No valuation is made, therefore, on
weekends, customary holiday closings or under any emergency circumstances as
determined by the Securities and Exchange Commission. The Trust Fund's
portfolio value is calculated by adding together the values of all
securities, based on their closing prices on the exchange on which they are
primarily traded, or at the last available sale price, or if unavailable for
any reason, at the closing bid price. The total net asset value is then
determined by adding the portfolio value to the value of all other Trust Fund
assets, and subtracting all liabilities and necessary reserves. A pro rata
portion of the management fee of 1.25% of average net assets per annum is
accrued daily.
21
<PAGE>
The net asset value ("NAV") per share of each class of shares is
calculated by dividing the total value of all assets attributable to such
class by the number of shares of such class then outstanding. The net asset
values per share of the Class B and Class C shares are generally expected to
be the same. The net asset value per share of the Class A-I shares is
expected to be higher than the net asset value per share of the Class A-II
shares due to the daily expense accrual of the distribution fee attributable
to the Class A-II shares. Similarly, the net asset value per share of the
Class A-II shares is expected to be higher than the net asset values per
share of the Class B and Class C shares due to the higher daily expense
accruals of the distribution fees, as well as the shareholder servicing fees,
imposed on the Class B and Class C shares.
MANAGEMENT'S DISCUSSION OF TRUST FUND PERFORMANCE
The Trust Fund was organized as a business trust under the laws of the
State of Delaware on February 28, 1997, and operates as an open-end
diversified management investment company offering its shares on a continuous
basis to the public. The Trust Fund is the successor-in-interest to SIFE
Trust Fund, a California trust organized on September 26, 1960 which has been
offering its securities, and conducting operations as a mutual fund, since
July 2, 1962. The Management Company is the investment adviser and
underwriter for the Trust Fund and has acted in such capacities since the
formation of the Trust Fund.
The Trust Fund's Board of Trustees, the members of which are elected by
the Trust Fund's shareholders, establishes investment and other material
policies and has overall responsibility for the business and affairs of the
Trust Fund. Mr. Michael Stead, the Management Company's Chief Investment
Officer, has held primary responsibility for the day-to-day management of the
Trust Fund's portfolio since May 1995. From 1984 through May 1995, the Trust
Fund's investment portfolio was managed by Mr. Sam A. Marchese, then
President and Chief Executive Officer of the Management Company. From
September 1988 until his assumption of the Trust Fund's investment management
activities, Mr. Stead held a variety of increasingly responsible domestic and
international positions with Bank of America, N.T. & S.A., most recently as
Senior Credit Officer for the Capital Markets Division.
Subject to policy established by the Trust Fund's Board of Directors,
the administration and management of the daily affairs of the Trust Fund are
performed by the Management Company pursuant to an Investment Advisory
Agreement between it and the Trust Fund. Fees for all investment advisory
services rendered by the Management Company are included in the management
advisory fee of 1.25% per annum payable to the Management Company by the
Trust Fund. The management advisory fee is calculated based on net assets
accrued daily and paid monthly.
Pursuant to an Investment Advisory Agreement, all fees and expenses
incurred in connection with the Trust Fund's operations are borne, without
limitation, by the Management Company in return for an all-inclusive fee of
1.25% of the average daily net assets of the Fund. For the fiscal year ended
December 31, 1997, the Trust Fund paid the Management Company $11,960,037.
Generally, 1997 performance reflected the strong overall performance of
the stock market. The positive domestic (and to a lesser extent,
international) economic environment, coupled with relatively low inflation,
resulted in an annual compounded total return of 44.8% for Class A-1 shares,
44.6% for Class A-2 shares, 28.9% for Class B shares, and 29.1% for Class C
shares (Class B and C shares were first offered on May 1, 1997). These total
return figures do not reflect effect of sales charges. The combination of
steady economic growth coupled with low inflation permitted the Federal
Reserve Board to leave interest rates mostly unchanged throughout 1997.
22
<PAGE>
For the third year in a row the stocks of financial institutions,
particularly banks, outperformed the general stock market.
The Trust Fund's decision to continue investing in financial stocks in
1997 stemmed from a positive economic outlook as well as continued
strengthening of the financial fundamentals for banks, thrifts and other
financial institutions. A strong economy combined with relatively little
inflation made for an environment that attracted investors into equities and
mutual funds at historic rates. As of December 31, 1997, the Trust Fund had
92.1% of the portfolio's assets invested in financial industry stocks. This
was up from 75.6% as of December 31, 1996, as the Trust Fund dedicated more
of its assets to the financial industry.
TURNOVER RATE: During 1997 the Trust Fund's turnover rate was 63.0%,
down from 140.2% in 1996. The decrease in the turnover rate reflects
decreased activity in the Trust Fund's portfolio trading. This decrease in
activity was expected since the previous higher turnover rate was the result
of repositioning of the portfolio. Accordingly, capital distributions
decreased in 1997.
CASH POSITION: A decision was made during 1997 to decrease the cash
position. This decision was made as part of an investment strategy to remain
invested in equities while still maintaining sufficient cash to take
advantage of any market corrections or weaknesses in the stock of investment
candidates. The stock market posted strong returns and the economy continued
to grow moderately with little inflation and low interest rates making the
Trust Fund's decreased cash position prudent. The cash and cash equivalents
on December 31, 1997, were 5.5% of the portfolio assets of the Trust Fund, as
compared to 13.5% on December 31, 1996.
PERFORMANCE DURING THE YEAR: The Management Company's strategy proved
beneficial to the Trust Fund's performance throughout the year. The bank
sector outperformed many other market sectors. Banks and financial
institutions continued to post strong earnings growth throughout the year.
Many of these companies found themselves in strong enough financial condition
that many raised dividends or announced stock buyback programs. Furthermore,
consolidation among financial institutions remained a driving force among the
stocks of financial institutions.
NON-FINANCIAL INDUSTRY INVESTMENTS: The Management Company decreased
the level of non-financial industry stocks held in the Trust Fund's portfolio
in 1997. On December 31, 1997, the level of non-financial investments were
2.3% of the Trust Fund's portfolio assets, compared with 10.9% on December
31, 1996. This was primarily a result of the decision to increase the
portfolio's exposure to the bank sector because the Management Company
remains confident that bank and thrift stocks should return superior
performance over the long-term.
In selecting investments, the Management Company takes into
consideration such factors as the company's management, growth prospects,
business operations, revenues, earnings, cash flows and strength of the
balance sheet, as well as other information which the Management Company may
deem relevant, including size of the dividend, if any. The Management
Company invests in the securities of those companies which show strong
financial results coupled with good growth prospects, and which the
Management Company believes are well-managed.
From time to time the Trust Fund advertises, among other things, its
"average annual compounded total return" and its "average annual total
return" over the one, five and ten year periods. The terms "average annual
compounded total return" and "average annual total return" both refer to a
calculation that assumes a gross investment in Class A-I shares of $10,000
(resulting in a net investment of $9,500 after deduction of the maximum sales
charge) at the start of the applicable period. Total return is the
23
<PAGE>
percentage change in value of the hypothetical $10,000 invested over a given
period, assuming reinvestment of all net capital gains and dividends
attributable to such amount. Compounded total return assumes continuing
reinvestment of each year-end amount, with the next year's return calculated
based on the actual performance of the Trust Fund in that calendar year. The
annual percentage changes are then averaged, on a compounded basis, over a
ten-year period resulting in an "average annual compounded total return" or
"average annual total return." Any performance information used by the Trust
Fund is based on historical results and is not intended to be representative
or predictive of future performance. It should be noted that, because
different classes of shares are subject to different sales charges and
distribution and/or shareholder servicing fees, the performance of those
classes will be different from, and in most cases less than Class A-I shares.
COMPARISON OF CHANGE IN VALUE OF $9,500 NET INVESTMENT IN
CLASS A-I SHARES OF SIFE TRUST FUND
ON DECEMBER 31, 1987 AND $10,000 INVESTMENT IN THE S&P 500
($9,500 REPRESENTS A $10,000 INVESTMENT WITH THE MAXIMUM SALES CHARGE DEDUCTED)
[CHART]
<TABLE>
<CAPTION>
SIFE S&P 500
--------- ---------
<S> <C> <C>
Dec-87 $ 9,500 $ 10,000
Dec-88 $ 11,383 $ 11,661
Dec-89 $ 13,681 $ 15,356
Dec-90 $ 10,652 $ 14,880
Dec-91 $ 15,692 $ 19,414
Dec-92 $ 21,016 $ 20,894
Dec-93 $ 22,977 $ 23,000
Dec-94 $ 22,627 $ 23,303
Dec-95 $ 33,923 $ 32,061
Dec-96 $ 43,204 $ 39,422
Dec-97 $ 62,555 $ 52,573
</TABLE>
<TABLE>
<CAPTION>
RESULTS OF AVERAGE ANNUAL AVERAGE ANNUAL CUMULATIVE TOTAL
$10,000 COMPOUNDED TOTAL COMPOUNDED TOTAL RETURN: SIFE
INVESTED RETURN INCLUDING RETURN INCLUDING TRUST FUND CUMULATIVE TOTAL
INVESTMENT WITH 5.0% MAXIMUM SALES MAXIMUM SALES INCLUDING MINIMUM RETURN: S&P 500
TERM SALES CHARGE CHARGE OF 5.0% CHARGE OF 0.0% SALES CHARGE OF 0.0% STOCK INDEX
- ---------- ------------ ---------------- ---------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
1 year $13,755 37.55% 44.79% 44.79% 33.36%
3 years $26,265 37.97% 40.35% 176.47% 125.61%
5 years $28,278 23.11% 24.38% 197.66% 151.62%
10 years $62,552 20.12% 20.74% 558.45% 425.67%
</TABLE>
24
<PAGE>
The preceding graph and table reflect past performance and return figures
for the Class A-I shares. Past performance is not predictive of future
performance. The Class B and Class C shares were first offered to the public
on May 1, 1997, and performance and return information for the eight month
period ended December 31, 1997 is not believed to be meaningful.
The Trust Fund's Class A-I total return for the year ending December 31,
1997, was 37.55%. This total return results from the Trust Fund's 44.79%
return for the year ending December 31, 1997, and the effect of the deduction
of the maximum sales charge of 5.0% (5.26% of the net amount invested).
Therefore, an initial investment of $10,000 ($9,500 after deduction of the
maximum sales charge of $500) on December 31, 1996, would have had a value of
$13,755 on December 31, 1997.
The Trust Fund's Class A-I average annual compound return as of December
31, 1997, assuming that the maximum sales charge was deducted from the
initial investment was 37.55% for one year, 23.11% for five years and 20.12%
for ten years. Performance figures are based on historical results and are
not intended to indicate future performance.
GENERAL INFORMATION
VOTING RIGHTS. Shareholders are entitled to one full or fractional vote
for each full or fractional share and may vote for the election of Trustees,
and on such other matters as may be submitted to meetings of shareholders or
as required by the Investment Company Act of 1940, as amended.
DISTRIBUTION OF SHARES. SIFE, located at 100 North Wiget Lane, Walnut
Creek, California 94598, acts as the Trust Fund's underwriter in the
continuous sale and distribution of the Trust Fund's shares pursuant to an
Underwriting Agreement. SIFE is solely responsible for all of the costs and
expenses of distribution, without limitation, including the payment of
commissions and related costs, expenses, and such other distribution or
shareholder servicing fees as may be necessary or appropriate to
broker/dealers, salespersons, financial planners and other independent
contractors. Sales are made not only through the registered representatives
of SIFE, but also through selected broker/dealers who have entered into
distribution agreements. Where sales are made through such broker/dealers, a
concession of up to 100% of the sales charge may be allowed the
broker/dealer. Certain Trustees of the Trust Fund are also officers and
directors of SIFE.
Each of the Class A-II, Class B and Class C shares has in effect a
distribution plan complying with the provisions of Rule 12b-1 under the
Investment Company Act of 1940, as amended (individually, a "Plan"). Each
Plan permits the Trust Fund to pay to the Management Company, as principal
underwriter of the Trust Fund's securities, a specified percentage of the
assets attributable to each class of shares to compensate the Management
Company for expenses incurred, services rendered and facilities provided in
connection with the distribution of shares and the servicing of shareholder
accounts. The Management Company is responsible for all distribution
expenses in excess of such payments. However, no portion of the fees paid to
the Management Company pursuant to any Plan are refundable in the event that
the fees are less than such expenses.
As required by Rule 12b-1, each Plan has been approved by the Board of
Trustees and separately by a majority of the Trustees who are not "interested
persons" of the Trust Fund and have no direct or indirect financial interest
in the operation of the Plan, in each case pursuant to a finding that the
Plan was in the best interests of the shareholders of the respective class of
shares. Each Plan requires that at least quarterly, the Audit Committee of
the Board of Trustees must receive a written report prepared by the Chief
Financial Officer of the Trust Fund enumerating the amounts spent by each
class and the purposes therefor. Each Plan further requires that, for so
long as each such Plan is in effect, the nomination and
25
<PAGE>
selection of those trustees who are not "interested persons" of the Trust
Fund are committed to the exclusive discretion of the other trustees who are
not "interested persons" of the Trust Fund.
YEAR 2000 ISSUES. Many computer systems were designed using only two
digit designation years. These systems may not be able to distinguish the
Year 2000 from the Year 1900 (commonly known as the "Year 2000 Problem").
Like other investment companies and financial and business organizations, The
Management Company could be adversely affected if the computer system used by
the Management Company or outside service providers do not properly address
this problem prior to January 1, 2000. The Management Company has established
a group to analyze these issues and to implement any systems modifications
necessary to prepare for the Year 2000. Currently, the Management Company
does not anticipate that the transition to the 21st century will have any
material impact on its ability to continue to service the Trust Fund at
current levels. In addition, the Management Company has sought assurances
from the Trust Fund's outside service providers that they are taking all
necessary steps to ensure that their computers will accurately reflect the
Year 2000, and the Management Company will continue to monitor all outside
service providers. At this time, however, no assurance can be given that the
Trust Fund's outside service providers have anticipated all necessary changes
to avoid any adverse effects to the Trust Fund as a result of Year 2000
problems.
SHAREHOLDER REPORTS. Unless otherwise requested, only one copy of each
shareholders report or other material sent to the shareholders will be mailed
to each household with accounts under common ownership and the same address
regardless of the number of shareholders or account at the household or
address.
For further information, please contact SIFE, 100 North Wiget Lane,
Walnut Creek, California 94598, (800) 231-0356 or (925) 988-2400. SIFE may
also be contacted via the Internet at "http://www.sife.com."
26
<PAGE>
RECEIPT FOR PROSPECTUS
I hereby acknowledge receipt of the SIFE
Trust Fund Prospectus dated April 30, 1998.
Date: ____________________________, 199__
_______________________________________
SIGNATURE
_______________________________________
SIGNATURE
_______________________________________
ADDRESS
_______________________________________
SALES REPRESENTATIVE
27
<PAGE>
PROSPECTUS
[LOGO]
SIFE TRUST FUND
April 30, 1998
_________________
INVESTMENT ADVISER, UNDERWRITER AND DISTRIBUTOR
SIFE
100 North Wiget Lane
Walnut Creek, CA 94598
_________________
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02110
_________________
TRANSFER AGENT
BOSTON FINANCIAL DATA SERVICES
P.O. Box 8244
Boston, MA 02266-8244
________________
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
50 Fremont Street
San Francisco, CA 94105
________________
LEGAL COUNSEL
PAUL, HASTINGS, JANOFSKY & WALKER LLP
345 California Street, 29th Floor
San Francisco, CA 94104
28
<PAGE>
Rule 497(e)
2-17277
SIFE TRUST FUND
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1998
-----------------------------
Managed by SIFE (A California Corporation)
100 North Wiget Lane
Walnut Creek, California 94598
Telephone: (800) 231-0356 / (925) 988-2400
Internet Address: http://www.sife.com
-----------------------------
This Statement of Additional Information, which may be amended from time to
time, concerning SIFE Trust Fund (the "Trust Fund") is not a prospectus and is
only authorized for distribution when preceded or accompanied by the Trust
Fund's Prospectus, dated April 30, 1998 (the "Prospectus"). This Statement of
Additional Information contains additional and more detailed information than in
the Prospectus and should be read in conjunction with the Prospectus.
Additional copies of the Prospectus may be obtained without charge by writing or
calling your investment adviser, broker/dealer or financial planner, or the
Trust Fund at the address or telephone number set forth above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information & History B-2
Investment Objectives & Policies B-2
Fundamental Investment Policies B-2
American Depositary Receipts B-3
Repurchase Agreements B-3
Options Policies B-4
Risk Considerations B-5
Performance Information B-6
Management of the Trust Fund B-7
Compensation of Trustees and Officers B-7
Investment Advisory & Other Services B-8
Investment Advisory Services B-8
Management and Administration B-9
Custody Services B-9
Independent Accountants B-9
Brokerage Allocation & Portfolio Turnover Rates B-10
Calculation of Net Asset Value B-10
Underwriting of the Trust Fund's Securities B-11
Underwriting Services B-11
Distribution Plans B-12
Additional Federal Income Tax Information B-12
Financial Statements B-25
General B-25
</TABLE>
<PAGE>
GENERAL INFORMATION & HISTORY
The Trust Fund was organized as a business trust under the laws of the State
of Delaware on February 28, 1997 and is the successor-in-interest to SIFE Trust
Fund, a California trust organized on September 26, 1960 (the "California
Trust"). The Trust Fund, through its predecessor, the California Trust, has
been offering its securities to the public on a continuous basis, and conducting
operations as a mutual fund, since July 2, 1962. The Trust Fund is registered
with the Securities and Exchange Commission as an open-end diversified
management investment company. All information, including but not limited to
historical business and financial information, presented in this Statement of
Additional Information and/or the Prospectus relates to the California Trust as
its business has been continued by the Trust Fund. SIFE, a California
corporation, (the "Management Company") is the Trust Fund's investment advisor,
and also functions as the principal underwriter of the Trust Fund's securities.
INVESTMENT OBJECTIVES & POLICIES
The Trust Fund's investment objectives and policies are described in the
Prospectus, which should be read in conjunction with the additional information
provided below, which describes in further details the Fund's investment
policies.
FUNDAMENTAL INVESTMENT POLICIES
- -------------------------------
The Trust Fund has identified the policies described below as "fundamental
investment policies." Such policies may not be changed without a vote of a
majority in interest (as described above) of the holders of the Trust Fund's
shares. All other investment practices, such as the Trust Fund's practices with
respect to writing covered put and covered call options, lending portfolio
securities and entering into repurchase agreements (in each case, as described
in the Prospectus), may be changed from time to time by the Trust Fund's Board
of Trustees without shareholder approval.
1. The Trust Fund invests not less than 30% of its assets in the equity
securities of "financial institutions" (companies which derive a
significant portion of their income from dealing in money, credit,
loans and insurance) and the remainder in the equity securities
(including securities convertible into common or preferred stocks) of
a diverse portfolio of domestic and certain international service
and industrial enterprises generally regarded by the Management Company
as "stable growth" companies. See "American Depository Receipts,"
below.
2. The Trust Fund maintains cash reserves in order to make such payments
as may be required of it. Pending application or investment, the
Trust Fund's cash reserves are invested in repurchase agreements and
other cash equivalents, such as securities issued by the United States
and state governments or their agencies, certificates of deposit or
other interest-bearing accounts and high-grade commercial paper. See
"Repurchase Agreements" and "Lending Portfolio Securities," below.
3. The Trust Fund may not invest 25% or more of its assets in any one
industry other than financial institutions. Investments may not be
made in any one company in an amount greater than 5% of the total asset
value of the Trust Fund, nor may the Trust Fund acquire more than 10%
of the outstanding voting securities of any company. With respect to
80% of the Trust Fund's investment portfolio, in order for the shares
of a company to be eligible for investment, the company must have been
in existence for at least five years,
B-2
<PAGE>
must have assets of more than $7,000,000 and must have paid
dividends in each of the five years immediately preceding investment.
4. The Trust Fund may not: (i) borrow money or make loans (provided,
however, that this restriction shall not prevent the Trust Fund from
purchasing certain publicly issued debt securities or commercial paper
or lending its portfolio securities in accordance with applicable
regulatory requirements); (ii) underwrite the securities of other
issuers; (iii) purchase or sell real estate; (iv) purchase or sell
commodities or commodity contracts; (v) invest in the securities of
other investment companies; (vi) invest in companies for the purpose of
exercising control or management; (vii) issue senior securities; or
(viii) make short sales or purchases on margin.
5. The Trust Fund may write covered call options with respect to its
portfolio securities, may write covered put options with respect to
securities and may enter into closing purchase transactions with
respect to such options in accordance with applicable regulatory
requirements. So long as the Trust Fund remains obligated as a writer
of an option, it must (i) in the case of a put option, maintain cash,
U.S. Treasury securities or high-grade, short-term debt securities in a
segregated account in an amount equal to or greater than the nominal
value of the option, and (ii) in the case of a call option,
collateralize the option with actual securities held in the Trust
Fund's investment portfolio. The Trust Fund does not write "naked" or
uncovered options. See "Options Policies," below.
AMERICAN DEPOSITARY RECEIPTS
- ----------------------------
American Depositary Receipts ("ADRs") are created when a foreign company
deposits its securities into a trust account administered by a domestic
financial institution (generally, a large, commercial bank). The trust account
may be located in the United States or at a foreign branch of the receiving
financial institution. The receiving financial institution then issues ADRs,
which represent an undivided fractional interest in the pool of securities so
deposited.
The Management Company believes that certain large, international non-
domestic corporations may represent attractive investment opportunities, as well
as providing a certain degree of economic and geographic diversification.
Historically, the Trust Fund has invested less than 1.0% of its assets in ADRs.
REPURCHASE AGREEMENTS
- ---------------------
The Trust Fund may enter into repurchase agreements with banks and member
firms of the New York Stock Exchange determined by the Management Company to
present minimal credit risk. A repurchase agreement is a contract under which
one party acquires certain securities held by another party pursuant to an
agreement whereby the selling party agrees to repurchase from the acquiring
party the subject securities at a fixed time and price. Repurchase agreements
are generally short-term (usually not more than one week) with the acquiring
party profiting to the extent that the repurchase obligation exceeds the
acquiring party's cost. Under the terms of a typical repurchase agreement, the
Trust Fund acquires United States Government securities for a relatively short
period of time, subject to the seller's obligation to repurchase and the Trust
Fund's obligation to resell the securities. The Trust Fund bears a risk of loss
in the event that the other party to a repurchase agreement defaults on its
obligations and the Trust Fund is delayed or prevented from exercising its
rights to dispose of the subject securities, including the risk that the market
value of the subject securities might decline prior to the Trust Fund being able
to dispose
B-3
<PAGE>
of them. The Management Company reviews, on an ongoing basis to evaluate
potential risks, the creditworthiness of the counterparties as well as the
market values of collateral securities.
Under the relevant terms of the Investment Company Act of 1940, as amended
(the "1940 Act"), a repurchase agreement is considered to be a loan
collateralized by the underlying securities.
OPTIONS POLICIES
- ----------------
The Trust Fund may write (i.e., sell) "covered" put and call options for non-
speculative purposes. A "covered" option position is one where the Trust Fund
holds the underlying securities (in the case of call options) or cash (in the
case of put options), as distinct from "naked" or unsecured options, which are
generally bought or sold for speculative purposes. The Trust Fund uses options
sales to hedge specific portfolio positions (i.e., to lock in a fixed price in a
stock which, for whatever reason, may be subject to increasing volatility) and
does not purchase (or write) "naked" options.
When the Trust Fund writes a put option, the Trust Fund assumes for a defined
period of time an obligation to purchase the underlying security at a set price
from the purchaser of the option and receives as consideration for its
undertaking the option obligation an option premium equal to the difference
between the market price of the underlying security at the time the option is
written. The exercise, or "strike," price is adjusted for certain economic
factors reflecting, among other things, the relationship of the exercise price
to the market price, the volatility of the underlying security, the remaining
term of the option, supply, demand and interest rates. If the market price of
the underlying security rises above the strike price, the option will expire
unexercised and the Trust Fund will profit to the full extent of the premium.
However, if the market price falls below the strike price and the option is
exercised, the Trust Fund will be forced to acquire securities at an above-
market price and may suffer a loss (however, the amount of any loss is reduced
by the premium received). All put options written by the Trust Fund are covered
with cash, United States Treasury securities or other, high-grade short-term
debt securities and held in a segregated account in an amount equal to or
greater than the nominal value of the option (i.e., the amount which the Trust
Fund would have to pay in order to close out the option position).
When the Trust Fund writes a call option, it assumes for a defined period of
time an obligation to sell the underlying security at a set price to the
purchaser of the option. The option premium is equal to the difference between
the market price of the underlying security at the time the option is written
and the exercise, or "strike," price, adjusted for the market factors described
above. If the market price of the underlying security falls below the strike
price, the option will expire unexercised and the Trust Fund will profit to the
full extent of the premium. However, if the market price rises above the strike
price and the option is exercised, the Trust Fund will be forced to deliver
securities which it may not wish to sell. All call options written by the Trust
Fund are covered with securities held in the Trust Fund's investment portfolio.
The Trust Fund may write call or put options only if the underlying
securities are listed on a national securities exchange or the NASDAQ National
Market System and the options are issued by The Options Clearing Corporation.
As of the date of this Prospectus, such options are traded on the following
exchanges: Chicago Board Options Exchange, Incorporated, American Stock
Exchange, Inc., New York Stock Exchange, Inc., Philadelphia Stock Exchange,
Inc., and The Pacific Stock Exchange, Inc..
B-4
<PAGE>
If an option expires unexercised, the Trust Fund realizes a gain in the
amount of the premium. However, such a gain, in the case of a call option may
be offset by a decline in the market value of the underlying security during the
option period. In the case of a put option, the gain in the amount of the
premium may be offset by the additional amount of income, if any, that would
have been generated had the funds used to cover the potential exercise of the
put option not been maintained in the form of cash or cash-equivalents.
If a call option is exercised, the transaction may result in a loss to the
Trust Fund equal to the difference between the market price of the underlying
security at exercise and the sum of the exercise price of the call plus the
premium received from the sale of the call. If a put option is exercised, there
may be a loss to the Trust Fund equal to the difference between (i) the exercise
price of the put less the premium received from the sale of the put, and (ii)
the market price of the underlying security at exercise.
If the Trust Fund has written a call or put option and wishes to terminate
its obligation, it may effect a "closing purchase transaction" by buying an
option of the same series as the option previously written. The effect of this
purchase is that the Trust Fund's position as a writer of that option will be
canceled by The Options Clearing Corporation. However, the Trust Fund may not
effect a closing purchase transaction on a particular option after it has been
notified of the exercise of that option. If the Trust Fund wishes to sell a
security on which a call has been written, it may effect a closing purchase
transaction simultaneously with or before selling the security.
A closing purchase transaction is effected on an exchange which provides a
secondary market for an option of the same series. If the Trust Fund is unable
to effect a closing purchase transaction with respect to a call option it has
written, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise. Accordingly, the
Trust Fund may run the risk of either foregoing the opportunity to sell the
underlying security at a profit or being unable to sell the underlying security
as its price declines. If the Trust Fund is unable to effect a closing purchase
transaction with respect to a put option it has written, it will not be able to
remove funds from the segregated account maintained by the Custodian which are
being held to cover the potential exercise of the put option.
If a closing purchase transaction is effected, a profit or loss may be
realized depending on whether the cost of making the closing purchase
transaction is less or greater than the premium received upon writing the
original option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from a closing purchase transaction will often be offset in whole
or in part by appreciation of the underlying security owned by the Trust Fund.
If a closing purchase transaction results in a gain, that gain may be partially
or entirely offset by depreciation of the underlying security.
RISK CONSIDERATIONS
- -------------------
Diversification of the character discussed above does not necessarily reduce
or eliminate the risk inherent in an investment in a portfolio containing the
securities of a substantial number of financial institutions. Financial services
are subject to greater governmental regulation than many other industries, as
well as capital risk (i.e., the risk that, in periods of tight money or high
inflation, the cost to attract deposits will rise substantially), term and rate
risk (i.e., the risks attendant to lending money for long periods of time at
fixed or only partially adjustable interest rates against the security of
assets, the valuations of which may fluctuate with economic conditions) and
credit risk (i.e., the risk of lending money to borrowers who may or may not be
B-5
<PAGE>
able to pay), all of which may, from time to time, require substantial reserves
against actual or anticipated losses. Further, industry consolidation and the
erosion of the distinctions between banks and other less traditional financial
institutions has resulted in increased competition. Increased competition, with
attendant pressure on financial institution profitability, may also result from
legislative initiatives which would reduce the separation between the commercial
and investment banking business and which, if enacted, could significantly
impact the industry and the Trust Fund. In addition, institutions such as
insurance companies that hold large portions of their capital in marketable
securities are subject to the risks of the securities market.
Since the Trust Fund's assets consist primarily of common stocks, it must be
emphasized that the value of an investment in the Trust Fund will fluctuate as
the market value of such stocks rises or falls. Accordingly, in a declining
market, the net asset value of the Trust Fund's shares will decline just as, in
a rising market, the net asset value of the Trust Fund's shares will rise.
These fluctuations in the net asset value of each class of shares may make the
Trust Fund more suitable for long-term investors who can bear the risk of such
short-term fluctuations.
PERFORMANCE INFORMATION (1)
Annual, non-compounded performance information relating to a hypothetical
investment of $10,000 (adjusted for maximum sales charges) in Class A-I and
Class A-II shares for the ten-year period ended December 31, 1997, is set
forth below. Such information assumes that all net investment income and
realized capital gains were reinvested (at no sales charge). No adjustment
has been made for possible tax liabilities. Also shown is comparable
performance information for the unmanaged Standard & Poor's 500 Stock Index
(assuming the reinvestment of all dividends), a widely used indicator of
general stock market activity (source: Standard & Poor's Corporation).
For the year ended December 31, 1997, a $9,500 net investment in Class A-I
and Class A-II shares of the Trust Fund (calculated based on a $10,000
investment less the current maximum 5.0% sales charge, assuming re-investment
of all distributions for the entire period of January 1, 1997 through
December 31, 1997) would have increased to $13,755 and $13,736, respectively.
For the five-year and ten year periods ended on the same date, and using the
same assumptions, a $9,500 net investment in Class A-I shares of the Trust
Fund would have increased to $28,278 and $62,552, respectively. Since Class
A-II shares were first offered May 1, 1996, performance history for Class
A-II shares is not applicable for three, five, and ten year periods.
<TABLE>
<CAPTION>
CLASS A-I SHARES
AVERAGE AVERAGE
ANNUAL TOTAL ANNUAL TOTAL
RESULTS OF RETURN RETURN
$10,000 INCLUDING INCLUDING
INVESTED WITH MAXIMUM MINIMUM TOTAL RETURN: TOTAL RETURN:
INVESTMENT 5.0% SALES SALES CHARGE SALES CHARGE SIFE TRUST S&P 500
TERM CHARGE OF 5.0% OF 0.0% FUND STOCK INDEX
---- ------ ------- ------- ---- -----------
<S> <C> <C> <C> <C> <C>
1 year $13,755 37.55% 44.79% 44.79% 33.36%
3 years $26,265 37.97% 40.35% 176.47% 125.61%
5 years $28,278 23.11% 24.38% 197.66% 151.62%
10 years $62,552 20.12% 20.74% 558.45% 425.67%
</TABLE>
<TABLE>
<CAPTION>
CLASS A-II SHARES
AVERAGE AVERAGE
ANNUAL TOTAL ANNUAL TOTAL
RESULTS OF RETURN RETURN
$10,000 INCLUDING INCLUDING
INVESTED WITH MAXIMUM MINIMUM TOTAL RETURN: TOTAL RETURN:
INVESTMENT 5.0% SALES SALES CHARGE SALES CHARGE SIFE TRUST S&P 500
TERM CHARGE OF 5.0% OF 0.0% FUND STOCK INDEX
---- ------ ------- ------- ---- -----------
<S> <C> <C> <C> <C> <C>
1 year $13,736 37.36% 44.59% 44.59% 33.36%
</TABLE>
- -----------------------------
(1) Information given for Class A-I and Class A-II shares only. Class A-II
shares are identical in all respects to Class A-I shares except that Class
A-II shares bear a 0.25% 12b-1 distribution fee. Class B and C shares were
first offered for sale on May 1, 1997. Class B and C share sales fees differ
from the Class A-I shares and bear a 0.75% 12b-1 distribution fee and a 0.25%
servicing fee.
B-6
<PAGE>
The Trust Fund calculates average annual total return according to the
following formula, as required by the Securities and Exchange Commission:
n
"P(1+T) = ERV", where the average annual total return ("T") is computed by
using the value at the end of the period ("ERV") of a hypothetical initial
investment of $10,000 ("P") over a period of years ("n"). Accordingly, to
calculate total return, an initial investment is divided by the per-unit
offering price (which includes the sales charge) as of the first day of the
period in order to determine the initial number of units purchased. Subsequent
dividends and capital gain distributions are then reinvested at net asset value
on the reinvestment date determined by the Board of Trustees. The sum of the
initial shares purchased and additional shares acquired through reinvestment is
then multiplied by the net asset value per share as of the end of the period in
order to determine ending value. The difference between the ending value and
the initial investment, divided by the initial investment and converted to a
percentage, equals total return. The resulting percentage indicates the
positive or negative investment results that an investor would have experienced
from reinvested dividends and capital gain distributions and changes in unit
price during the period. Total return may be calculated for one year, five
years, ten years and for other periods. The average annual total return over
periods greater than one year also may be computed by utilizing ending values as
determined above.
The data quoted represents past performance. Past performance is no
guarantee of future performance. Effective April 1, 1995, the Trust Fund
reduced the maximum sales charge on Class A-I shares from 6.25% to 5.0% and the
minimum sales charge was reduced from 1.0% (on purchases of $2,000,000 or more)
to zero (on purchases of $1,000,000 or more). The Trust Fund's performance is
affected by many factors including: changes in the levels of equity prices and
interest rates generally, the Trust Fund's selection of specific securities for
the portfolio, the Trust Fund's expense ratio, and other factors. The
investment return and principal value of the investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
MANAGEMENT OF THE TRUST FUND
The business affairs of the Trust Fund are overseen by a Board of Trustees
currently composed of seven members, four of whom are not "interested persons"
as that term is defined in Section 2(a)(19) of the 1940 Act.
COMPENSATION OF TRUSTEES AND OFFICERS
- -------------------------------------
The Trust Fund does not pay any remuneration directly to any officer or
trustee. Prior to April 1, 1996, the Trust Fund's officers and trustees (then
called "directors") received indirect remuneration from the Trust Fund through
reimbursement paid to the Management Company for the Trust Fund's pro rata share
of certain office and other expenses, including salaries, bonuses and Board
fees; after this date, such costs have been borne directly by the Management
Company. No officer or trustee of the Trust Fund received remuneration in
excess of $60,000, either directly or indirectly, from the Trust Fund in 1997.
Each trustee is paid an attendance fee of $5,000 for each Board meeting
attended (the Board of Trustees meets not less than quarterly). In addition,
members of the Audit Committee receive a per-meeting fee of $1,000. As of
January 1, 1998, the officers and trustees of the Trust Fund and their families,
as a group, owned beneficially or of record less than 1% of the outstanding
shares. The following table sets forth the names, ages and business backgrounds
of each officer and trustee of the Trust Fund. The address of each Trustee is
c/o SIFE Trust Fund, 100 North
B-7
<PAGE>
Wiget Lane, Walnut Creek, California 94598. Trustees who are "interested
persons" of the Trust Fund are identified by an asterisk following their
names.
<TABLE>
<CAPTION>
NAME, ADDRESS, AGE AND POSITION HELD PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ------------------------------------ -------------------------------------------
<S> <C>
Haig G. Mardikian (50) General Partner, George M. Mardikian
Trustee; Chairman of the Board Enterprises (real estate investments);
Managing Director, The United Broadcasting
Corporation (radio broadcasting).
Walter S. Newman (76) Owner, WSN Enterprises (real estate
Trustee; Vice-Chairman of the Board consultants); Retired President, San
Francisco Planning Commission; Retired
President, San Francisco Redevelopment
Agency; Chairman of the Board, National
Brain Tumor Foundation.
Diane Howard Belding (41) * Management Company employee, 1992-present;
Trustee General Partner, Howard & Howard Ranch
(avocado and lemon ranch), 1983-present;
Director, Management Company (1982 - present).
Neil L. Diver (60) Chairman, Systems Integrators, Inc., 1995-
Trustee present; Chairman, Ameriwood Industries
International Corporation, 1990-present;
Chairman/President & Co-Founder, Cryopharm
Corporation, 1987-1996; President & Co-
Founder, Exogene Corporation, 1987-1992.
Charles W. Froehlich, Jr. (69) * Retired Appellate Court Judge; retired
Trustee; Secretary Superior Court Judge; formerly Of Counsel
to Peterson, Thelan & Price; principal,
Froehlich & Peterson Dispute Resolution.
John A. Meany (57) President, John's Valley Foods, Inc.;
Trustee President, John's Town & Country Markets,
Inc.; Director, Northern California Grocers
Association.
Bruce W. Woods (45)* President & Chief Executive Officer and
Trustee; President & Chief Director of Management Company & Trustee of
Executive Officer Trust Fund, July 1996-present; Management
Company employee, June 1986-present.
Gary A. Isaacson (39) Chief Financial Officer of the Management
Treasurer Company, November 97-present; Controller of
Hal Porter Homes, 1989-1997.
</TABLE>
INVESTMENT ADVISORY & OTHER SERVICES
INVESTMENT ADVISORY SERVICES
- ----------------------------
The Management Company acts as the investment adviser to the Trust Fund,
subject to policies established by the Board of Trustees. As investment adviser
to the Trust Fund, the Management Company is responsible for the management of
the Trust Fund's investment portfolio, as well as the administration of its
operations. Basic policy is set and determined by the
B-8
<PAGE>
Board of Trustees of the Trust Fund and carried out by the Management Company
pursuant to an Investment Advisory Agreement dated as of April 30, 1997 (the
"Investment Advisory Agreement"). The Advisory Agreement was last approved
by the Board of Trustees, including a majority of the Trustees who are not
"interested persons" of the Trust Fund or the Management Company, as that
term is defined in the 1940 Act, at a meeting on February 26, 1998. The
Management Company does not act in a similar capacity for any other person or
entity.
The Advisory Agreement is for an initial term of one year and may be renewed
from year to year provided that any such renewal has been approved annually by
(i) the majority of the outstanding voting securities of the Trust Fund, or (ii)
a majority of the trustees who are neither parties to the Advisory Agreement,
nor "interested persons" with respect to the Management Company at a meeting
called for the purpose of voting on such matter. The Advisory Agreement also
provides that either party has the right to terminate the Advisory Agreement
without penalty upon 60 days written notice to the other party, and that the
Advisory Agreement automatically terminates in the event of its assignment.
Prior to May 1, 1995, the Management Company received compensation of 0.50%
of average net assets, per annum, plus reimbursement of certain expenses. From
May 1, 1995 through March 31, 1996, SIFE received compensation of 0.60% of
average net assets, per annum, plus reimbursement of certain expenses.
Effective April 1, 1996, the Management Company receives 1.25% of average net
assets, per annum, without any additional reimbursement of expenses. Investment
advisory fees are accrued daily and computed and paid monthly on the last
business day of each month at the rate of 1/12th of 1.25% of the average net
assets of the Trust Fund. This fee is deducted from the Trust Fund on the first
business day of the following month. During the past three years the Management
Company was paid investment advisory fees of $3,039,425 (1995), $7,607,105
(1996), and $11,960,037 (1997), respectively.
MANAGEMENT AND ADMINISTRATION
- -----------------------------
The Management Company manages the Trust Fund's operations, and is solely
responsible for all of the costs and expenses of the Trust Fund's operation,
including, without limitation, all fees for custodial and transfer agency
services, Trustees' fees, legal and auditing fees, tax matters, dividend
disbursements, bookkeeping, maintenance of office and equipment, brokerage,
expenses of preparing, printing and mailing prospectuses to Investors and all
expenses in connection with reporting to Investors and compliance with
governmental agencies. The Management Company has contracted with Boston
Financial Data Services for the performance of certain shareholder accounting
and transfer agency functions, and is solely responsible for all fees, costs and
expenses associated with the performance by Boston Financial Data Services of
such functions.
CUSTODY SERVICES
- ----------------
State Street Bank & Trust Company, 225 Franklin Street, Boston, MA 02110
("State Street Bank") acts as the custodian for the assets of the Trust Fund.
As such, State Street Bank holds all Trust Fund securities in safekeeping,
receives and pays for portfolio securities purchased, delivers and receives
payment for portfolio securities sold, and collects all Trust Fund income.
INDEPENDENT ACCOUNTANTS
- -----------------------
Deloitte & Touche LLP, 50 Fremont Street, San Francisco, California 94105,
provided auditing services as the Trust Fund's independent certified public
accountants for the 1997 fiscal year.
B-9
<PAGE>
BROKERAGE ALLOCATION & PORTFOLIO TURNOVER RATES
In executing portfolio transactions for securities traded on national
securities exchanges or in the over-the-counter market, the Trust Fund endeavors
always to obtain the most favorable terms and conditions, taking into account
the price of the security and any commissions or discounts applicable to the
transaction. The Management Company is responsible for carrying out this policy
in its placement of the Trust Fund's investments.
During the last calendar year, the Trust Fund paid brokerage commissions of
$966,121 and total purchases and sales of portfolio securities aggregated
$1,242,328,896. Portfolio turnover rates for the years 1995, 1996 and 1997 were
93.5%, 140.2% and 63.0%, respectively. The portfolio turnover rate in 1995 and
1996 was relatively high, due to the extremely active market for financial
institutions stocks specifically and equities in general, as well as to the
substantial portfolio re-configuration undertaken in mid-1995.
During the last three fiscal years, the Trust Fund has not paid any brokerage
commissions to any broker which is an affiliated person of the Trust Fund or the
Management Company. Listed below is certain information regarding the Trust
Fund's payment of brokerage commissions in portfolio transactions during the
last three years:
<TABLE>
<CAPTION>
TOTAL SECURITIES
NUMBER OF TOTAL AMOUNT OF PURCHASED AND
YEAR BROKERS BROKERAGE PAID SOLD
- ---- ------- -------------- ----
<S> <C> <C> <C>
1995 56 $990,818 $915,869,856
1996 57 $1,598,407 $1,900,773,494
1997 30 $966,121 $1,242,328,896
</TABLE>
CALCULATION OF NET ASSET VALUE
All funds received by the Trust Fund for investment and all funds reinvested
from net investment income and realized capital gains, if any, are accounted for
in terms of shares, with the per-share value determined daily by dividing (i)
the difference between (a) the total value of the net assets attributable to
each class of the Trust Fund's shares on that day and (b) all charges, such as
distribution fees, shareholder servicing fees and management fees (each of which
is calculated and charged daily), for that class as well as any other
appropriate costs or expenses, by (ii) the total number of shares of that class
then outstanding.
Equity securities held by the Trust Fund are valued at the last sale price on
the exchange or in the over-the-counter market in which such securities are
primarily traded as of the close of business on the day the securities are being
valued. Securities for which a closing sale price is not readily available are
valued at the closing bid price. Short-term debt securities (held for liquidity
purposes) are amortized to maturity based on their cost, and marked-to-market
daily. Option positions are marked-to-market based on their nominal, as quoted
value. See "Calculation of Net Asset Value" in the Prospectus for additional
information concerning the timing and manner of valuation of each class of
shares.
B-10
<PAGE>
UNDERWRITING OF THE TRUST FUND'S SECURITIES
UNDERWRITING SERVICES
- ---------------------
The Management Company acts as principal underwriter for the Trust Fund
pursuant to an Underwriting Agreement. The Underwriting Agreement is for an
initial term of one year, and may be renewed from year to year provided that any
such renewal has been approved annually by (i) the majority of the outstanding
voting securities of the Trust Fund, or (ii) a majority of the trustees who are
neither parties to the Underwriting Agreement or "interested persons" with
respect to the Management Company at a meeting called for the purpose of voting
on such matter. The Underwriting Agreement also provides that either party has
the right to terminate the Underwriting Agreement without penalty upon 60 days
written notice to the other party and that the Underwriting Agreement
automatically terminates in the event of its assignment. The Underwriting
Agreement was last approved by the Board of Trustees, including a majority of
the Trustees who are not "interested persons," as that term is defined in the
1940 Act, at a meeting on February 26, 1998.
During the past three years the Management Company has earned sales
commissions for its services as principal underwriter as set forth below.
<TABLE>
<CAPTION>
TOTAL SALES PAID TO INDEPENDENT PAID TO ITS OWN NET COMMISSIONS TO THE
YEAR COMMISSIONS AGENTS SALESPERSONS MANAGEMENT COMPANY
- ---- ----------- ------ ------------ ------------------
<S> <C> <C> <C> <C>
1995 $1,452,138 $376,255 $1,075,083 $(800)
1996 $2,178,040 $538,437 $1,628,368 $11,235
1997 $2,405,671 $969,688 $2,098,423 $(662,440)
</TABLE>
The directors of the Management Company, the business addresses for all of
whom c/o SIFE, 100 North Wiget Lane, Walnut Creek, California 94598 are: Diane
H. Belding; Charles W. Froehlich, Jr.; Sam A. Marchese; Michael J. Stead; Sharon
E. Tudisco; Bruce W. Woods; and John W. Woods. The directors have the following
positions with the Management Company: Mr. Bruce W. Woods is Chief Executive
Officer and President; Mr. Stead is Portfolio Manager; and Mr. Froehlich is
Secretary; Mrs. Tudisco and Mr. John W. Woods are retired. Ms. Belding, Mr.
Froehlich and Mr. Bruce W. Woods are also officers and/or Trustees of the Trust
Fund; their other business affiliations are set forth above in "Trustees and
Officers." As of April 30, 1998, Mr. John W. Woods owned 10.98% of the
outstanding shares of the Management Company, Mr. Marchese owned 21.11%, Mrs.
Tudisco owned 10.55%, Mrs. Belding owned 21.11%, Mr. Froehlich owned 14.89%,
Mr. Bruce W. Woods owned 8.26%, the J. Bradley Woods Irrevocable Trust owned
4.05%, the William B. Woods Irrevocable Trust owned 4.05%, and Mr. Stead owned
5.00% of the outstanding shares of the Management Company.
The following table sets forth all commissions and other compensation
received during the Trust Fund's last fiscal year by the Management Company, as
principal underwriter for the Trust Fund's securities.
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NAME OF NET UNDERWRITING COMPENSATION ON
PRINCIPAL DISCOUNTS AND REDEMPTION AND BROKERAGE OTHER
UNDERWRITER COMMISSIONS REPURCHASES COMMISSIONS COMPENSATION
- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
SIFE $143,427 $4,733 -0- -0-
</TABLE>
B-11
<PAGE>
DISTRIBUTION PLANS
- ------------------
As described in the Prospectus, the Trust Fund has adopted a separate Plan
of Distribution pursuant to Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (individually, a "Plan") for each of the Class A-II, Class B and
Class C shares. The terms and conditions of each such Plan provide that each
such Class is authorized to spend certain sums (0.25% of average daily net
assets in the case of the Class A-II shares and 0.75% of average daily net
assets, in the case each of the Class B and Class C shares) on activities
primarily intended to support the distribution and sale of such shares. The
Class B Plan and Class C Plan also provide that each such Class is authorized
to spend an additional 0.25% of average daily net assets for services
relating to the servicing of shareholders' accounts.
Under each Plan, the distribution (and, in the case of the Class B and
Class C shares, the servicing) fees are designed to compensate the Management
Company for expenses incurred, services rendered and facilities provided in
connection with the distribution of shares and the servicing of shareholder
accounts. Such expenses and services include, but are not necessarily
limited to, the payment of trail commissions and other payments to
broker/dealers, financial institutions and others who sell shares and/or
service shareholder accounts. It should be noted that the distribution and
servicing fees are payable to the Management Company even if the amount paid
exceeds the Management Company's actual expenses of providing such services.
As required by Rule 12b-1, each Plan has been approved by the Board of
Trustees, and separately by a majority of the Trustees who are not
"interested persons" of the Trust Fund and who have no direct or indirect
financial interest in the operation of the Plan, in each case pursuant to a
finding that the Plan was in the best interests of the shareholders of the
respective class of shares. The officers and Trustees who are "interested
persons" of the Trust Fund may be considered to have a direct or indirect
financial interest in the operation of the Plans due to present or past
affiliations with the Management Company. Potential benefits of each Plan to
the Trust Fund include improved investor services, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management and investment advisor organization. Payments under each
Plan are reviewed at least quarterly and each Plan must be renewed annually
by the Board of Trustees.
Each Plan requires that, at least quarterly, the Audit Committee of the
Board of Trustees must review a written report prepared by the Treasurer of
the Trust Fund enumerating the amounts spent by each class pursuant to its
Plan and the purposes therefor. Each Plan further requires that, for so long
as each such Plan is in effect, the nomination and selection of those
Trustees who are not "interested persons" of the Trust Fund is committed to
the exclusive discretion of the other Trustees who are not "interested
persons" of the Trust Fund.
ADDITIONAL FEDERAL INCOME TAX INFORMATION
The Trust Fund has qualified and elected, and intends to continue to qualify,
to be treated as a regulated investment company (a "RIC") under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"), for each taxable
year by complying with all applicable requirements regarding the source of its
income, the diversification of its assets and the timing of its distributions.
The Trust Fund's policy is to distribute to its Investors all of its investment
company taxable income and any net realized capital gains for each year in a
manner that complies with the distribution requirements of the Code, so that the
Trust Fund will not be subject to any federal income or excise taxes based on
net income. However, the Board of Trustees may elect to pay such excise taxes
if it determines that payment is, under the circumstances, in the best interests
of the Trust Fund.
B-12
<PAGE>
To qualify as a RIC, the Trust Fund must among other things, (a) derive at
least 90% of its gross income each year from dividends, interest, payments with
respect to loans of stock and securities, gains from the sale or other
disposition of stock or securities or foreign currency gains related to
investments in stock or securities, or other income (generally including gains
from options) derived with respect to the business of investing in stock,
securities or currency, (b) for taxable years beginning on or before August 5,
1997, derive less than 30% of its gross income each year from the sale or other
disposition of stock or securities (or options thereon) held less than three
months (excluding some amounts otherwise included in income as a result of
certain hedging transactions), and (c) diversify its holdings so that, at the
end of each fiscal quarter, (i) at least 50% of the market value of its assets
is represented by cash, cash items, U.S. Government securities, securities of
other RICs and other securities limited, for purposes of this calculation, in
the case of other securities of any one issuer to an amount not greater than 5%
of the Fund's assets or 10% of the voting securities of the issuer, and (ii) not
more than 25% of the value of its assets is invested in the securities of any
one issuer (other than U.S. Government securities or securities of other RICs),
or in two or more issuers which the Trust Fund controls and which are engaged in
the same or similar trades or businesses or related trades or businesses. By
complying with the applicable provisions of the Code, the Trust Fund will not be
subject to federal income tax on taxable income (including realized capital
gains) that is distributed to shareholders in accordance with the timing
requirements of the Code. If the Trust Fund is unable to meet certain
requirements of the Code, it may be subject to taxation as a corporation.
Distributions of net investment income and net realized capital gains by the
Trust Fund will be taxable to Investors whether made in cash or reinvested by
the Trust Fund in shares. In determining amounts of net realized capital gains
to be distributed, any available capital loss carryovers from prior years will
be applied against capital gains. Investors receiving distributions in the form
of additional shares will have a cost basis for federal income tax purposes in
each share so received equal to the net asset value of a share of the Trust Fund
on the reinvestment date. Trust Fund distributions also will be included in
individual and corporate shareholders' income on which the alternative minimum
tax may be imposed.
The Trust Fund or the securities dealer effecting a redemption of the Trust
Fund's shares by an Investor generally will be required to file information
reports with the Internal Revenue Service (the "IRS") with respect to
distributions and payments made to the Investor. In addition, the Trust Fund
will be required to withhold federal income tax at the rate of 31% on taxable
dividends, redemptions and other payments made to accounts of individual or
other non-exempt Investors who have not furnished their correct taxpayer
identification numbers and certain required certifications on the Account
Application Form or with respect to which the Trust Fund or the securities
dealer has been notified by the IRS that the number furnished is incorrect or
that the account is otherwise subject to withholding.
The Trust Fund intends to declare and pay dividends and other distributions,
as stated in the Prospectus. In order to avoid the payment of a 4%
nondeductible federal excise tax based on net income, the Trust Fund must
declare on or before December 31 of each year and pay on or before January 31 of
the following year, distributions at least equal to 98% of its ordinary income
for that calendar year and at least 98% of the excess of any capital gains over
any capital losses realized in the one-year period ending October 31 of that
year, together with any undistributed amounts of ordinary income and capital
gains (in excess of capital losses) from previous calendar years.
The Trust Fund will receive dividend distributions from U.S. corporations.
To the extent that the Trust Fund receives such dividends and distributes them
to Investors and meets certain other
B-13
<PAGE>
requirements of the Code, corporate Investors in the Trust Fund may be
entitled to the "dividends received" deduction. Availability of the
deduction is subject to certain holding period and debt-financing limitations.
The Trust Fund may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations. Foreign
corporations in which the Trust Fund invests may be treated as "passive foreign
investment companies" ("PFICs") under the Code. Part of the income and gains
that the Trust Fund derives from PFIC stock may be subject to a non-deductible
federal income tax at the Trust Fund level. In some cases, the Trust Fund may
be able to avoid this tax by electing to be taxed currently on its share of the
PFIC's income, whether or not such income is actually distributed by the PFIC.
The Trust Fund will endeavor to limit its exposure to the PFIC tax by investing
in PFICs only where the election to be taxed currently will be made. Because it
is not always possible to identify a foreign issuer as a PFIC in advance of
making the investment, the Trust Fund may incur the PFIC tax in some instances.
Investing in options contracts involves complex rules that will determine the
character and timing of recognition of the income received in connection
therewith by the Trust Fund. Income from transactions in options derived by the
Trust Fund with respect to its business of investing in securities will qualify
as permissible income under Subchapter M of the Code. Any security, option or
other position entered into or held by the Trust Fund that substantially
diminishes the Trust Fund's risk of loss from any other position held by the
Trust Fund may constitute a "straddle" for federal income tax purposes. In
general, straddles are subject to certain rules that may affect the amount,
character and timing of the Trust Fund's gains and losses with respect to
straddle positions (including rules that may result in gain being treated as
short-term capital gain rather than long-term capital gain).
Redemptions and exchanges of shares of the Trust Fund will result in gains or
losses for tax purposes to the extent of the difference between the proceeds and
the Investor's adjusted tax basis for the shares. Any loss realized upon the
redemption or exchange of shares within six months from their date of purchase
will be treated as a long-term capital loss to the extent of distributions of
long-term capital gain dividends during such six-month period. All or a portion
of a loss realized upon the redemption of shares may be disallowed to the extent
shares are purchased (including shares acquired by means of reinvested
dividends) within 30 days before or after such redemption. In addition, the
sales charge savings that may be available for reinvesting amounts from previous
redemptions will, in certain circumstances, increase the amount of the gain (or
reduce the amount of the loss) from those redemptions. Distributions and
redemptions may be subject to state and local income taxes, and the treatment
thereof may differ from the federal income tax treatment. Nonresident aliens and
foreign persons are subject to different tax rules and may be subject to
withholding of up to 30% on certain payments received from the Fund.
The foregoing and the related discussion in the Prospectus are only a summary
of some of the important federal income tax considerations generally affecting
the Trust Fund and its Investors and is only accurate as of the date of this
Statement of Additional Information. The law firm of Paul, Hastings, Janofsky &
Walker LLP has expressed no opinion in respect thereof. No attempt is made to
present a detailed explanation of the federal income tax treatment of the Trust
Fund or its Investors, and this discussion is not intended as a substitute for
careful tax planning. Accordingly, potential investors in the Trust Fund are
urged to consult their tax advisers concerning the application of foreign,
federal, state and local taxes to an investment in the Fund, and with specific
reference to their own tax situation.
B-14
<PAGE>
FINANCIAL STATEMENTS
Audited Financial Statements for the relevant periods ending December 31,
1997, for SIFE Trust Fund, as contained in the Annual Report to shareholders of
the Trust Fund for the Fiscal Year ended December 31, 1997 ("report"), are
incorporated herein by reference to the report.
GENERAL
As of April 29, 1998, officers and directors of the Trust Fund in aggregate
do not own more than 1% of the outstanding shares of the Trust Fund. As of
the same date, to the knowledge of the Trust Fund, no shareholder owned of
record 5% or more of the outstanding Class A-I or Class A-II shares of the
Trust Fund and the following shareholders owned of record 5% or more of the
outstanding Class B and Class C shares as indicated:
<TABLE>
<CAPTION>
CLASS B SHARES SHARES PERCENT
- -------------- ------- -------
<S> <C> <C>
MLPF&S Inc. ............................................ 382,606 8.71%
For the Sole Benefit of its Customers
Attn: Service Team
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6484
<CAPTION>
CLASS C SHARES
- --------------
<S> <C> <C>
MLPF&S Inc. ............................................ 90,571 22.23%
For the Sole Benefit of its Customers
Attn: Service Team
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6484
Nellie M. Poratti ...................................... 20,429 5.01%
P.O. Box 975
Gardnerville, NV 89410
</TABLE>
