Rule 497(e)
Filing No. 2-17277 & 811-987
SIFE TRUST FUND
STATEMENT OF ADDITIONAL INFORMATION
Dated April 30, 1999, as Amended August 4, 1999
------------------------------------------
Managed by SIFE (A California Corporation)
100 North Wiget Lane
Walnut Creek, California 94598
Telephone: (800) 231-0356 / (925) 988-2400
Internet: www.sife.com
------------------------------------------
This Statement of Additional Information, which may be amended from time to
time, concerning SIFE Trust Fund (the "Fund") is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Fund's
Prospectus, dated April 30, 1999, as may be amended from time to time (the
"Prospectus"). This Statement of Additional Information (the "SAI") contains
additional and, in some cases, 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 Fund at the address and
telephone number set forth above. Financial information from SIFE Trust Fund's
Annual Report has been incorporated into this SAI. A free copy of the Annual
Report is available by calling 1-800-231-0356.
TABLE OF CONTENTS
Page
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General Information & History B-2
Investment Objectives, Policies & Practices B-2
Fundamental Investment Policies B-2
Investment Practices B-3
American Depositary Receipts B-3
Repurchase Agreements B-3
Options Policies B-4
Risk Considerations B-6
Management of the Fund B-7
Compensation of Trustees and Officers B-7
Control Persons and Principal Holders of Securities B-9
Investment Advisory & Other Services B-9
Investment Advisory Services B-9
Management and Administration B-10
Custody Services B-10
Independent Accountants B-10
Brokerage Allocation & Portfolio Turnover Rates B-11
Capital Stock and Other Securities B-11
Calculation of Net Asset Value B-12
Federal Income Tax Information B-12
Underwriting of the Fund's Securities B-14
Underwriting Services B-14
Distribution Plans B-15
Performance Information B-16
Financial Statements B-18
Service Providers B-19
B-1
<PAGE>
GENERAL INFORMATION & HISTORY
SIFE Trust Fund was organized as a Delaware business trust 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 Fund, through its
predecessor, the California Trust, has offered its securities to the public on a
continuous basis, and conducting operations as a mutual fund, since July 2,
1962. The 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 Fund. SIFE, a
California corporation, (the "Management Company") is the Fund's investment
advisor, and also functions as the principal underwriter of the Fund's
securities.
INVESTMENT POLICIES & PRACTICES
The 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 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 of the holders of the Fund's shares.
1. The Fund may not invest 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 financial
services, 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 Fund may not invest 25% or more of its assets in any one
industry other than financial institutions. With respect to 75% of
the Fund's portfolio, the Fund may not invest more than 5% of its
assets in any one issuer. The Fund also may not acquire more than
10% of the outstanding voting securities of any issuer. With
respect to 80% of the 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, must have
assets of more than $7,000,000 and must have paid dividends in
each of the five years immediately preceding investment.
3. The Fund may not: (i) borrow money or make loans (provided,
however, that this restriction shall not prevent the 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.
B-2
<PAGE>
Investment Practices
The following investment practices are described in the prospectus and
include writing covered put and covered call options, lending portfolio
securities and entering into repurchase agreements. These practices are not
fundamental and may be changed from time to time by the Fund's Board of Trustees
without shareholder approval.
1. The Fund maintains cash reserves in order to make such payments as
may be required of it. Pending application or investment, the
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.
2. The 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 Fund remains obligated as
a writer of an option, it must (i) in the case of a put option,
designate 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, and (ii) in the case of a call option,
collateralize the option with actual securities held in the Fund's
investment portfolio. The 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 Fund has invested less than 1.0% of its assets in ADRs.
Repurchase Agreements
The 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 Fund
acquires United States Government securities for a relatively short period of
time, subject to the seller's obligation to repurchase and the Fund's
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<PAGE>
obligation to resell the securities. The Fund bears a risk of loss in the event
that the other party to a repurchase agreement defaults on its obligations and
the 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 Fund being able to dispose 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 Fund may write (i.e., sell) "covered" put and call options for
non-speculative purposes. These options are used for purposes of enhancing Fund
returns but are not a principle investment strategy of the Fund. In a "covered"
option position the 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 Fund uses options sales to hedge specific portfolio positions and does not
purchase (or write) "naked" options.
Covered "put" options are defined as contracts entered into between the
Fund, as seller, and the Options Clearing Corporation, as agent for unaffiliated
third parties, as purchaser, whereby the Fund grants to the purchaser the right,
for a defined period of time and at a set price, to sell specific securities to
the Fund. Similarly, covered "call" options written by the Fund enable the
purchaser of the option to obligate the Fund, for a defined period of time and
at a set price, to sell specific securities held in the Fund's investment
portfolio. It should be noted that, so long as its obligation as a call option
writer continues the Fund in return for the premium, has given up the
opportunity to 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 Fund has no control over when it
may be required to sell the underlying securities.
It is an investment policy of the Fund that, so long as the Fund remains
obligated as a writer of a put option, it will designate 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 Fund's investment portfolio). The Fund does not write
"naked" or uncovered options and designates all funds used to cover options.
Also, it is an investment policy that the Fund will not write options if (i) the
aggregate value of the purchase obligations underlying all unexpired put options
written by the Fund (which positions are marked-to-market daily) exceeds 10% of
the net asset value of the Fund, and (ii) the nominal value of the Fund's
unexpired call options exceeds 25% of the net assets value of the Fund, provided
that the total amount of such positions at no time may exceed 35% of the Fund's
net asset value.
When the Fund writes a put option, the 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
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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 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 Fund are covered with cash, United States Treasury
securities or other, high-grade short-term debt securities in an amount equal to
or greater than the nominal value of the option (i.e., the amount which the Fund
would have to pay in order to close out the option position).
When the 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 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 Fund will be forced to deliver securities which it may
not wish to sell. All call options written by the Fund are covered with
securities held in the Fund's investment portfolio.
The 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 SAI, 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.
If an option expires unexercised, the 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
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 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 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 Fund's position as a writer of that option will be canceled by The
Options Clearing Corporation. However, the 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 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 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
Fund may
B-5
<PAGE>
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 Fund is unable to effect a closing purchase transaction with
respect to a put option it has written, it will not be permitted to undesignate
those funds 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 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
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.
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 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 Fund's assets consist primarily of common stocks, it must be
emphasized that the value of an investment in the Fund will fluctuate as the
market value of such stocks rises or falls. Accordingly, in a declining market,
the net asset value of the Fund's shares will decline just as, in a rising
market, the net asset value of the Fund's shares will rise. These fluctuations
in the net asset value of each class of shares may make the Fund more suitable
for long-term investors who can bear the risk of such short-term fluctuations.
B-6
<PAGE>
MANAGEMENT OF THE FUND
The business affairs of the Fund are overseen by a Board of Trustees
currently composed of seven members, four of who are not "interested persons" as
that term is defined in Section 2(a)(19) of the 1940 Act.
Compensation of Trustees and Officers
<TABLE>
Like all other expenses of the Fund, Trustee fees are paid by the
Management Company as part of the comprehensive fee structure. As of April 7,
1999, the officers and Trustees of the Fund, as a group, owned beneficially or
of record less than 1% of the outstanding shares. The following tables sets
forth the names, ages and business backgrounds of each officer and Trustee of
the Fund. The address of each Trustee is c/o SIFE Trust Fund, 100 North Wiget
Lane, Walnut Creek, California 94598. Trustees who are "interested persons" of
the Fund are identified by an asterisk following their names.
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual From Fund and Fund
Name of Person, Compensation Accrued As Part of Benefits Upon Complex Paid to
Position From Fund+ Fund Expenses Retirement Trustees+
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Haig G. Mardikian, Trustee $35,000 N/A N/A $35,000
Walter S. Newman, Trustee $35,000 N/A N/A $35,000
Neil L. Diver, Trustee $35,000 N/A N/A $35,000
John A. Meany, Trustee $35,000 N/A N/A $35,000
Diane H. Belding, Trustee* $30,000 N/A N/A $30,000
Charles W. Froehlich, Jr., Trustee* $30,000 N/A N/A $30,000
Bruce W. Woods, Trustee* $30,000 N/A N/A $30,000
=================================================================================================================
<FN>
+ The total compensation listed reflects all compensation paid to the Trustees
for attending regular board and audit committee meetings during 1998. In
addition to the compensation stated above, Trustees Mardikian, Newman, Diver,
Meany, Belding, Froehlich and Woods also received additional compensation in the
amount of $15,150, $10,900, $24,700, $13,400, $1,500, $1,500 and $1,500,
respectively, for attending special board meetings and/or for performing
additional Trustee duties.
</FN>
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
Name, Address, Age and Position Held Principal Occupation During Past Five Years
- ------------------------------------ -------------------------------------------
<S> <C>
Haig G. Mardikian (51) General Partner, George M. Mardikian Enterprises (real estate
Trustee; Chairman of the Board investments); Managing Director, The United Broadcasting
Member, Audit Committee Corporation (radio broadcasting).
Walter S. Newman (77) Owner, WSN Enterprises (real estate consultants); Retired
Trustee; Vice-Chairman of the Board President, San Francisco Planning Commission; Retired
Chairman, Audit Committee President, San Francisco Redevelopment Agency; Chairman of the
Board, National Brain Tumor Foundation.
Diane Howard Belding (42) * Management Company employee, 1992-1998; General Partner,
Trustee Howard & Howard Ranch (avocado and lemon ranch), 1983-present;
Director, Management Company (1982-present).
Neil L. Diver (61) Principal, The Development Group (financial consulting),
Trustee 1995-present; Chairman, Systems Integrators, Inc. (software
Member, Audit Committee development), 1995-1996; Chairman, Ameriwood Industries
International Corporation, (furniture manufacturing),
1990-1998; Chairman/ President & Co-Founder, Cryopharm
Corporation, (Biochemical Research) 1987-1996.
Charles W. Froehlich, Jr. (70) * Retired Appellate Court Judge; retired Superior Court Judge;
Trustee; Secretary formerly Of Counsel to Peterson, Thelan & Price; principal,
Froehlich & Peterson Dispute Resolution.
John A. Meany (58) President, John's Valley Foods, Inc.; President, John's Town &
Trustee Country Markets, Inc.; Director, Northern California Grocers
Member, Audit Committee Association.
Bruce W. Woods (46)* President & Chief Executive Officer and Director of Management
Trustee; President & Chief Executive Officer Company & Trustee of Fund, July 1996-present; Management
Company employee, June 1986-present.
Gary A. Isaacson (39) Chief Financial Officer of the Management Company, November
Treasurer 97-present; Controller of Hal Porter Homes, 1989-1997.
</TABLE>
B-8
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of April 7, 1999, officers and directors of the Fund in aggregate do not
own more than 1% of the outstanding shares of the Fund. As of the same date, to
the knowledge of the Fund, no shareholder owned of record 5% or more of the
outstanding Class A-I shares of the Fund and the following shareholders owned of
record 5% or more of the outstanding Class A-II, Class B, and Class C shares as
indicated:
CLASS A-II SHARES SHARES PERCENT
- ----------------- ------ -------
Koch Industries Incorporated 1,541,205 7.09%
c/o Wilshire Asset Management
1299 Ocean Avenue, Suite 700
Santa Monica, CA 90401-1036
CLASS B SHARES SHARES PERCENT
- -------------- ------ -------
MLPF&S Inc. 463,240 7.38%
For the Sole Benefit of its Customers
Attn: Service Team
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6484
CLASS C SHARES SHARES PERCENT
- -------------- ------ -------
MLPF&S Inc. 88,272 14.49%
For the Sole Benefit of its Customers
Attn: Service Team
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6484
Evangeline C. Winkler Trust 69,987 11.49%
3234 Rossmoor Pkway Apt 1
Walnut Creek, CA 94595
INVESTMENT ADVISORY & OTHER SERVICES
Investment Advisory Services
The Management Company acts as the investment adviser to the Fund, subject
to policies established by the Board of Trustees. As investment adviser to the
Fund, the Management Company is responsible for the management of the Fund's
investment portfolio, as well as the administration of its operations. Basic
policy is set and determined by the Board of Trustees of the Fund and carried
out by the Management Company pursuant to an Investment Advisory Agreement dated
as of April 30, 1997 and amended December 16, 1998 (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
Fund or the Management Company, as that term is defined in the 1940 Act, at a
meeting on March 4, 1999. The Management Company does not act in a similar
capacity for any other person or entity.
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<PAGE>
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 Fund,
or (ii) a majority of the Trustees and separately a majority of those 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.
Under the advisory agreement, 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 Fund. This fee is deducted from the Fund on the first business
day of the following month. During the past three years the Management Company
was paid investment advisory fees of, $7,607,105 (1996), $11,960,037 (1997), and
$14,504,536 (1998) respectively.
Management and Administration
The Management Company manages the Fund's operations, and is solely
responsible for all of the costs and expenses of the 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 Fund. As such,
State Street Bank holds all Fund securities in safekeeping, receives and pays
for portfolio securities purchased, delivers and receives payment for portfolio
securities sold, and collects all Fund income.
Independent Accountants
Deloitte & Touche LLP, 50 Fremont Street, San Francisco, California 94105,
provided auditing services as the Fund's independent certified public
accountants for the 1998 fiscal year.
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<PAGE>
BROKERAGE ALLOCATION & PORTFOLIO TURNOVER RATES
In all purchases and sales of securities for the Funds, the primary
consideration is to obtain the most favorable price and execution available. The
Management Company determines which securities are to be purchased and sold by
the Fund and which broker-dealers are eligible to execute the Fund's portfolio
transactions.
In placing portfolio transactions, the Management Company will use its best
efforts to choose a broker-dealer capable of providing the services necessary
generally to obtain the most favorable price and execution available. The full
range and quality of services available will be considered in making these
determinations, such as the firm's ability to execute trades in a specific
market required by the Fund, the size of the order, the difficulty of execution,
the operational facilities of the firm involved, the firm's risk in positioning
a block of securities, and other factors.
Purchases of portfolio securities for the Fund also may be made directly
from underwriters, who usually act as principals for their own account.
Purchases from underwriters will include a concession paid by the issuer to the
underwriter.
During the 1998 calendar year, the Fund paid brokerage commissions of
$601,341 and total purchases and sales of portfolio securities aggregated
$780,635,406. Portfolio turnover rates for the years 1996, 1997 and 1998 were
140.2%, 63.0%, and 31%, respectively. The portfolio turnover rate in 1996 was
relatively high, due to the extremely active market for financial institutions
stocks specifically and equities in general.
During the last three fiscal years, the Fund has not paid any brokerage
commissions to any broker which is an affiliated person of the Fund or the
Management Company. Listed below is certain information regarding the Fund's
payment of brokerage commissions in portfolio transactions during the last three
years:
Total Securities
Number of Total Amount of Purchased and
Year Brokers Brokerage Paid Sold
---- ------- -------------- -------------
1996 57 $1,598,407 $1,900,773,494
1997 30 $ 966,121 $1,242,328,896
1998 32 $ 601,341 $ 780,635,406
CAPITAL STOCK AND OTHER SECURITIES
SIFE Trust Fund is a Delaware business trust. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, with no par value. The Fund
currently comprises of one single series of shares. The series is further
divided into the following four separate classes of shares: Class A-I, Class
A-II, Class B, Class C. 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. Shareholders shall
have no preemptive rights.
The Fund reserves the right, if conditions exist that make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
(a redemption-in-kind). These securities shall be
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<PAGE>
valued for redemption-in-kind purposes in the same manner they are valued for
purposes of calculating the Fund's net asset value. If the Fund elects to make
payments in securities, a shareholder may incur transaction expenses in
converting these securities to cash. However, because SIFE Trust Fund has
elected to be governed by Rule 18f-1 under the Investment Company Act of 1940,
as amended, the Fund is obligated to redeem your shares, during any ninety-day
period, solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund at the beginning of the period. The Fund may, at its option, seek an
order from the Securities and Exchange Commission to withdraw its election to be
governed by Rule 18f-1.
CALCULATION OF NET ASSET VALUE
All funds received by the 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 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 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.
FEDERAL INCOME TAX INFORMATION
The 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
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 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 Fund.
To qualify as a RIC, the 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, and (b) 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
B-12
<PAGE>
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 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 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 Fund will be taxable to Investors whether made in cash or reinvested by the
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 Fund on the
reinvestment date. Fund distributions also will be included in individual and
corporate shareholders' income on which the alternative minimum tax may be
imposed.
The Fund or the securities dealer effecting a redemption of the 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 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 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 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 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 Fund will receive dividend distributions from U.S. corporations. To the
extent that the Fund receives such dividends and distributes them to Investors
and meets certain other requirements of the Code, corporate Investors in the
Fund may be entitled to the "dividends received" deduction. Availability of the
deduction is subject to certain holding period and debt-financing limitations.
The 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 Fund invests may be treated as "passive foreign
investment companies" ("PFICs") under the Code. Part of the income and gains
that the Fund derives from PFIC stock may be subject to a non-deductible federal
income tax at the Fund level. In some cases, the 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 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
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 Fund. Income from
B-13
<PAGE>
transactions in options derived by the 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
Fund that substantially diminishes the Fund's risk of loss from any other
position held by the 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 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 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 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 Fund
or its Investors, and this discussion is not intended as a substitute for
careful tax planning. Accordingly, potential investors in the 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.
UNDERWRITING OF THE FUND'S SECURITIES
Underwriting Services
The Management Company acts as principal underwriter for the 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 Fund, or (ii) a majority of the trustees and separately by a
majority of those 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 March 4, 1999.
B-14
<PAGE>
<TABLE>
During the past three years the Management Company has earned sales
commissions for its services as principal underwriter as set forth below.
<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>
1996 $2,178,040 $ 538,437 $1,628,368 $ 11,235
1997 $2,405,671 $ 969,688 $2,098,423 $(662,440)
1998 $ 820,213 $1,063,223 $ 294,000 $(537,010)
</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 Fund;
their other business affiliations are set forth above in "Trustees and
Officers." As of February 18, 1999, 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.
<TABLE>
The following table sets forth all commissions and other compensation
received during the Fund's last fiscal year by the Management Company, as
principal underwriter for the Fund's securities.
<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 $104,072 $101,857 -0- -0-
</TABLE>
Distribution Plans
As described in the Prospectus, the 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, also 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 in the case of the
Class B and Class C plans the servicing of shareholder accounts. Such expenses
and services include, but are not necessarily limited to, the payment of
commissions and other
B-15
<PAGE>
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 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 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 Fund include improved investor services and
benefits to the investment process from growth or stability of assets. 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
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 Fund is committed to the exclusive discretion of the
other Trustees who are not "interested persons" of the Fund.
For the fiscal year ended December 31, 1998 the Fund paid out distribution
fees of $253,933 for Class A-II, and distribution and services fees of $303,129
for Class B and $25,743 for Class C shares.
PERFORMANCE INFORMATION(1)
To help investors better evaluate how an investment in the Fund might
satisfy their investment objectives, advertisements and other materials
regarding the Fund may discuss various financial publications. Materials may
also compare performance to performance as reported by other investments,
indices, and averages.
Annual, non-compounded performance information relating to a hypothetical
investment of $10,000 (adjusted for maximum sales charges) in Class A-I shares
for the ten-year period ended December 31, 1998, 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). The performance of the Fund may also be compared
in publications to 1) the performance of relevant indices for which reliable
performance data is available, and 2) averages, performance rankings, or other
information prepared by recognized mutual fund statistical services.
- ----------
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-16
<PAGE>
<TABLE>
For the year ended December 31, 1998, a $9,500 net investment in Class A-I
and Class A-II shares of the 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, 1998 through December 31,
1998) would have decreased to $9,988 and $9,949 respectively. For the same year
end date, 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
Fund would have increased to $27,194 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.
<CAPTION>
Class A-I Shares
-----------------
Average Annual Average Annual
Results of Total Return Total Return
$10,000 Invested Including Maximum Including Total Return:
with 5.0% Sales Sales Charge Minimum Sales Total Return: S&P 500
Investment Term Charge of 5.0% Charge of 0.0% SIFE Trust Fund Stock Index
--------------- --------------- ----------------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
1 year $ 9,988 -0.12% 5.14% 5.14% 28.58%
3 years $18,419 22.58% 24.69% 93.89% 110.85%
5 years $27,194 22.15% 23.41% 186.25% 193.91%
10 years $54,888 18.56% 19.17% 477.77% 479.63%
</TABLE>
<TABLE>
<CAPTION>
Class A-II Shares
-----------------
Average Annual Average Annual
Results of Total Return Total Return
$10,000 Invested Including Maximum Including Total Return:
with 5.0% Sales Sales Charge Minimum Sales Total Return: S&P 500
Investment Term Charge of 5.0% Charge of 0.0% SIFE Trust Fund Stock Index
--------------- --------------- ----------------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
1 year $ 9,949 -0.51% 4.73% 4.73% 28.58%
</TABLE>
The Fund calculates average annual total return according to the following
formula, as required by the Securities and Exchange Commission:
"P(1+T)n = 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
B-17
<PAGE>
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 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 Fund's performance is affected by many
factors including: changes in the levels of equity prices and interest rates
generally, the Fund's selection of specific securities for the portfolio, the
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.
FINANCIAL STATEMENTS
Audited Financial Statements, including the specimen price-make-up sheet
(following the Statement of Assets and Liabilities), showing how the Fund
calculates its total offering price per unit, for the relevant periods ending
December 31, 1998, for SIFE Trust Fund, as contained in the Annual Report to
shareholders of the Fund for the fiscal year ended December 31, 1998, are
incorporated herein by reference to the report.
B-18
<PAGE>
SERVICE PROVIDERS
-----------------
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
B-19
