CALIFORNIA INVESTMENT TRUST II
S&P 500 Index Fund
S&P MidCap Index Fund
S&P SmallCap Index Fund
Equity Income Fund
---------------------------------------------------
Supplement dated January 1, 1999
To Prospectus dated January 1, 1999
---------------------------------------------------
The current Sub-Adviser with day-to-day responsibility for the portfolios
of the S&P 500 Index Fund, S&P MidCap Index Fund, S&P SmallCap Index Fund and
Equity Income Fund (the "Stock Funds') is TradeStreet Investment Associates,
Inc. (formerly Bank of America NT&SA). The current portfolio manager for the
Equity Funds is Roderick Baldwin. Mr. Baldwin has been Director of Index
Investment Management either with the current Sub-Adviser or its predecessor,
Bank of America NT&SA, since 1991. The Manager is entirely responsible for
paying the Sub-Adviser according to the following schedule:
For the S&P 500 Index Fund, S&P MidCap Index Fund, and S&P SmallCap Index
Fund, the Sub-Adviser will receive from the Manager a monthly fee, calculated at
the annual rate of 0.10% of average daily net assets up to $50 million and 0.05%
of average daily net assets above $50 million. For the Equity Income Fund, the
Sub-Adviser will receive from the Manager a monthly fee, calculated at the
annual rate of 0.15% of average daily net assets up to $50 million and 0.10% of
average daily net assets above $50 million, pursuant to a Sub-Advisory Agreement
with the Manager.
The Board of Trustees of the Trust has authorized the Manager to terminate
Bank of America NT&SA/TradeStreet Investment Associates, Inc. as the sub-adviser
to the Stock Funds. Such termination is expected to become effective as of March
1, 1999. Until such termination, Mr. Baldwin, as an employee of TradeStreet
Investment Associates, Inc., will have day-to-day responsibility for the Stock
Funds. Following such termination, the Manager expects that Mr. Baldwin will
continue to have day-to-day responsibility for the Funds as an employee of the
Manager.
<PAGE>
Prospectus
January 1, 1999
CALIFORNIA INVESTMENT TRUST FUND GROUP
44 Montgomery Street, Suite 2100
San Francisco, California 94104
For Information Call: (415) 398-2727
For Shareholder Servicing Call: (800) 225-8778
or FAX: (415) 421-2019
The following nine mutual funds (individually, a "Fund" and collectively, the
"Funds") are offered in this Prospectus:
o California Tax-Free Income Fund o S&P 500 Index Fund
o California Insured Intermediate Fund o S&P MidCap Index Fund
o California Tax-Free Money Market Fund o S&P SmallCap Index Fund
o U.S. Government Securities Fund o Equity Income Fund
o The United States Treasury Trust
Our Funds have no sales charges, redemption fees, dividend reinvestment charges
or 12b-1 fees.
Each Fund has its own investment objectives and policies. As is the case for all
mutual funds, attainment of each Fund's investment objective cannot be assured.
This Prospectus is designed to provide you with basic information before
investing. You should read and retain this document for future reference. A
Statement of Additional Information about the Funds, which are part of
California Investment Trust and California Investment Trust II, dated January 1,
1999, as may be revised from time to time, has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. A copy is
available without charge from the Funds by calling 1(800) 225-8778.
AN INVESTMENT IN THE CALIFORNIA TAX-FREE MONEY MARKET FUND OR THE UNITED STATES
TREASURY TRUST IS NEITHER INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, AND
THERE CAN BE NO ASSURANCE THAT THESE FUNDS WILL BE ABLE TO MAINTAIN A STABLE
$1.00 SHARE PRICE. THE CALIFORNIA TAX-FREE MONEY MARKET FUND MAY INVEST A
SIGNIFICANT PERCENTAGE OF ITS ASSETS IN A SINGLE ISSUER AND THEREFORE AN
INVESTMENT IN IT MAY BE RISKIER THAN AN INVESTMENT IN OTHER TYPES OF MONEY
MARKET FUNDS.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISSAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Securities and Exchange Commission maintains a Web site (http://www.sec.gov)
that contains the Statement of Additional Information, material incorporated by
reference and other related information.
<PAGE>
CALIFORNIA INVESTMENT TRUST FUND GROUP
The investment objectives and policies of each Fund are described below:
THE TAX-FREE FUNDS:
CALIFORNIA TAX-FREE INCOME FUND ("Income Fund") seeks as high a level of income
exempt from federal and California personal income taxes as is consistent with
prudent investment management and safety of capital. This Fund will usually
invest in intermediate and long-term municipal bonds and will invest only in
securities in the four highest rating categories.
CALIFORNIA INSURED INTERMEDIATE FUND ("Insured Fund") seeks as high a level of
income exempt from federal and California personal income taxes as is consistent
with prudent investment management and safety of capital. This Fund invests
primarily in intermediate and long-term municipal securities that are covered by
insurance guaranteeing the timely payment of principal and interest and will
invest only in securities in the two highest rating categories. Previously
called: California Insured Tax-Free Income Fund.
CALIFORNIA TAX-FREE MONEY MARKET FUND ("Money Fund") has the objectives of
capital preservation, liquidity, and the highest achievable current income
exempt from both federal and California personal income taxes consistent with
safety. This Fund invests in short-term securities rated in the two highest
rating categories.
THE STOCK FUNDS:
THE S&P MIDCAP INDEX FUND ("MidCap Fund") is a diversified mutual fund that
seeks to provide investment results that correspond to the total return of
publicly traded common stocks of medium-size domestic companies, as represented
by the Standard & Poor's MidCap 400 Index ("S&P MidCap Index").
THE S&P 500 INDEX FUND ("500 Fund") is a diversified mutual fund that seeks to
provide investment results that correspond to the total return of common stocks
publicly traded in the United States, as represented by the Standard & Poor's
500 Index ("S&P 500 Index").
THE S&P SMALLCAP INDEX FUND ("SmallCap Fund") is a diversified mutual fund that
seeks to provide investment results that correspond to the total return of
publicly traded common stocks of small sized companies, as represented by the
Standard &Poor's S&P SmallCap 600 Index ("S&P SmallCap Index").
THE EQUITY INCOME FUND ("Equity Income Fund") is a diversified mutual fund that
seeks a high level of current income by investing primarily in income producing
equity securities. As a secondary objective, the Fund will also consider the
potential for price appreciation when consistent with seeking current income.
We will attempt to manage the Equity Income Fund so that the average income
yield of the common stocks held by the fund will be at least 50% greater than
the yield of the S&P 500 Index. Because of our strategies, we expect that the
Fund will have less price volatility that the S&P 500 Index.
2
THE STOCK FUNDS ARE ALL DESIGNED FOR LONG-TERM INVESTMENTS. SHORT-TERM TRADING,
WHICH COULD ADVERSELY IMPACT THE FUNDS AND THEIR SHAREHOLDERS, IS DISCOURAGED.
THE FUNDS IMPOSE NO SALES OR REDEMPTION FEES.
THE GOVERNMENT FUND:
U.S. GOVERNMENT SECURITIES FUND ("Government Fund") seeks liquidity, safety from
credit risk, and as high a level of income as is consistent with these
objectives by investment in full faith and credit obligations of the U.S.
Government and its agencies or instrumentalities, primarily Government National
Mortgage Association ("GNMA") Certificates. A portion of its income may be
exempt from California and other states' personal income taxes.
THE TREASURY TRUST:
THE UNITED STATES TREASURY TRUST ("Treasury Trust") seeks preservation of
capital, safety, liquidity, and, consistent with these objectives, the highest
attainable current income exempt from state income taxes. The Treasury Trust
will invest its assets only in short-term U.S. Treasury securities and its
income will be exempt from California (and most other states') personal income
taxes.
CALIFORNIA INVESTMENT TRUST FUND GROUP(TM)
CONTENTS Page
Fees and Expenses of the Funds ........................................... 4
Financial Highlights ..................................................... 6
Comparison of Fund Expenses .............................................. 13
What is California Investment Trust Fund Group ........................... 13
What are the Investment Objectives and Policies
of the Tax-Free Funds ................................................. 14
What are the Investment Objectives and Policies
of the Government Fund ................................................ 20
What are the Investment Objectives and Policies
of the Treasury Trust ................................................. 21
What are the Investment Objectives and Policies
of the Stock Funds .................................................... 22
Portfolio Transactions ................................................... 30
How are Dividends, Distributions and Taxes Handled? ...................... 30
About Our Management ..................................................... 33
Opening an Account ....................................................... 36
How to Buy Shares ........................................................ 36
Shareholder Services ..................................................... 38
Administrative Information ............................................... 40
How to Redeem Shares ..................................................... 43
Miscellaneous Information ................................................ 46
Glossary ................................................................. 47
3
<PAGE>
FEES AND EXPENSES OF THE FUNDS
The following table of fees and expenses is provided to assist investors in
understanding the various costs and expenses which may be borne directly or
indirectly by an investment in each Fund:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
California
Tax-Free California California U.S. The
Market Income Intermediate Government United States
Money Tax-Free Insured Securities Treasury
Fund Fund Fund Fund Trust
------------------------------------------------------------------
Shareholder Transaction Expenses
- --------------------------------
<S> <C> <C> <C> <C> <C>
Sales Charges imposed on purchases ...... None None None None None
Sales Charges imposed on reinvested
dividends ............................. None None None None None
Deferred Sales Charges .................. None None None None None
Redemption Fees ......................... None None None None None
Exchange Fees ........................... None None None None None
Estimated Annual Fund Operating Expenses
- ----------------------------------------
Management Fee + ........................ 0.29% 0.48% 0.35% 0.47% 0.26%
12b-1 Fees .............................. None None None None None
Other Expenses .......................... 0.11% 0.13% 0.20% 0.18% 0.14%
Total Fund Operating Expenses
(after fee reduction)* ............. 0.40% 0.61% 0.55% 0.65% 0.40%
===== ===== ===== ===== =====
Account Maintenance Fee (per account) ...
- --------------------------------------------------------------------------------------------------------------
S&P S&P S&P
500 MidCap SmallCap Equity
Index Fund Index Fund Index Fund Income Fund
------------------------------------------------------------------
Shareholder Transaction Expenses
- --------------------------------
Sales Charges imposed on purchases ...... None None None None
Sales Charges imposed on reinvested
dividends ............................. None None None None
Deferred Sales Charges .................. None None None None
Redemption Fees ......................... None None None None
Exchange Fees ........................... None None None None
Estimated Annual Fund Operating Expenses
- ----------------------------------------
Management Fee + ........................ 0.05% 0.24% 0.05% 0.39%
12b-1 Fees .............................. None None None None
Other Expenses .......................... 0.15% 0.16% 0.60% 0.41%
Total Fund Operating Expenses
(after fee reduction)* ............. 0.20% 0.40% 0.65% 0.80%
===== ===== ===== =====
Account Maintenance Fee (per account) ... $10.00 $10.00
- --------------------------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE OF FUND EXPENSES
Let's say that a Fund's annual return is 5% and that its operating expenses are
as described. For every $1,000 invested, here's how much you would pay in total
expenses if you closed your account after the number of years indicated:
<TABLE>
<CAPTION>
California
Tax-Free California California
Money Tax-Free Insured Government United States S&P S&P S&P
Market Income Intermediate Securities Treasury 500 MidCap SmallCap Equity
Fund Fund Fund Fund Trust Index Fund Index Fund Index Fund Income Fund
---- ---- ---- ---- ----- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year.............. $4 $6 $6 $7 $4 $12 $14 $7 $8
3 Years............. $13 $20 $18 $21 $13 $36 $43 $21 $26
5 Years............. $22 $34 $31 $36 $22 $61 $72 $36 $45
10 Years............ $51 $76 $69 $81 $51 $126 $151 $81 $99
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THESE EXAMPLES ILLUSTRATE THE EFFECT OF EXPENSES, BUT ARE NOT MEANT TO SUGGEST
ACTUAL OR EXPECTED COSTS OR RETURNS, ALL OF WHICH MAY VARY.
- --------------
* A $12.00 fee is charged for redemptions made by wire.
+ The management fee represents the net amount expected to be received by the
Manager from each Fund after fee waivers and reimbursements during the fiscal
year ended August 31, 1999. The expense information for the Funds has been
restated to reflect management fees and estimated operating expenses after
planned fee waivers and expense reimbursements by the Manager to the Funds. For
the fiscal year ending August 31, 1998, the total fund operating expenses for
the Money Fund, the Income Fund, the Insured Fund, the Government Fund, the
Treasury Trust, the 500 Fund, the MidCap Fund, the SmallCap Fund, and the Equity
Income Fund as a percentage of their average net assets after reimbursements,
were 0.40%, 0.61%, 0.55%, 0.65%, 0.40%, 0.20%, 0.40%, 0.65% and 0.78%,
respectively. If no waivers or reimbursements had been made, the total fund
operating expenses for the Funds during that period would have been 0.61%,
0.61%, 0.70%, 0.68%, 0.64%, 0.40%, 0.56%, 1.10%, and 0.91% respectively.
4 and 5
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)
The Financial Highlights for the prior five years have been selected from the
Funds' financial statements, which have been examined by Tait, Weller & Baker,
independent certified public accountants, whose unqualified report thereon
appears in the Funds' Annual Report to Shareholders for the year ended August
31, 1998, and are incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
Year Ended August 31,
----------------------------------------------------------------
California Tax-Free Money Market Fund 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ....... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................. 0.030 0.031 0.032 0.032 0.022
LESS DISTRIBUTIONS
Dividends from net investment income .. (0.030) (0.031) (0.032) (0.032) (0.022)
-------- -------- -------- -------- --------
Net asset value, end of year ............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total return ............................. 3.09% 3.09% 3.26% 3.27% 2.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) .... $ 88,236 $ 92,818 $103,402 $ 80,412 $ 85,935
Ratio of expenses to
average net assets
Before expense reimbursements ...... 0.61% 0.61% 0.61% 0.66% 0.68%
After expense reimbursements ....... 0.40% 0.40% 0.40% 0.40% 0.35%
Ratio of net investment income
to average net assets
Before expense reimbursements ...... 2.77% 2.86% 2.90% 2.97% 1.83%
After expense reimbursements ....... 2.98% 3.07% 3.11% 3.23% 2.16%
Year Ended August 31,
----------------------------------------------------------------
California Tax-Free Money Market Fund 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ....... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................. 0.022 0.031 0.046 0.056 0.059
LESS DISTRIBUTIONS
Dividends from net investment income .. (0.022) (0.031) (0.046) (0.056) (0.059)
-------- -------- -------- -------- --------
Net asset value, end of year ............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total return ............................. 2.27% 3.18% 4.62% 5.77% 6.04%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) .... $ 58,754 $ 92,913 $ 75,316 $ 85,910 $ 81,577
Ratio of expenses to average net assets
Before expense reimbursements ...... 0.39% 0.15% 0.32% 0.67% 0.69%
After expense reimbursements ....... 0.24% 0.15% 0.21% 0.27% 0.18%
Ratio of net investment income
to average net assets
Before expense reimbursements ...... 2.10% 3.05% 4.44% 5.17% 5.41%
After expense reimbursements ....... 2.25% 3.05% 4.55% 5.57% 5.92%
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Year Ended August 31,
----------------------------------------------------------------
California Tax-Free Income Fund 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ....... $ 12.86 $ 12.31 $ 12.22 $ 12.17 $ 13.39
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................. 0.58 0.60 0.62 0.61 0.65
Net gain (loss) on securities
(both realized and unrealized) ...... 0.51 0.54 0.09 0.30 (0.92)
-------- -------- -------- -------- --------
Total from investment operations ... 1.09 1.14 0.71 0.91 (0.27)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment income .. (0.58) (0.59) (0.62) (0.66) (0.66)
Distribution from capital gains ....... (0.19) .--- .--- (0.20) (0.29)
-------- -------- -------- -------- --------
Total distributions ................ (0.77) (0.59) (0.62) (0.86) (0.95)
-------- -------- -------- -------- --------
Net asset value, end of year .......... $ 13.18 $ 12.86 $ 12.31 $ 12.22 $ 12.17
======== ======== ======== ======== ========
Total return ............................. 8.75 %9.48% 5.40% 8.01% (2.15)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year(in 000's) ..... $225,507 $212,198 $194,926 $196,046 $225,087
Ratio of expenses to average net assets
Before expense reimbursements ...... 0.61% 0.59% 0.60% 0.62% 0.60%
After expense reimbursements ....... 0.61% 0.59% 0.60% 0.62% 0.60%
Ratio of net investment income
to average net assets
Before expense reimbursements ...... 4.47% 4.75% 4.96% 5.13% 5.09%
After expense reimbursements ....... 4.47% 4.75% 4.96% 5.13% 5.09%
Portfolio Turnover .................... 20.95% 34.96% 10.34% 32.21% 31.27%
Year Ended August 31,
----------------------------------------------------------------
California Tax-Free Income Fund 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ....... $ 12.42 $ 11.85 $ 11.30 $ 11.44 $ 11.06
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................. 0.69 0.73 0.75 0.77 0.80
Net gain (loss) on securities
(both realized and unrealized) ...... 1.04 0.57 0.55 (0.13) 0.39
-------- -------- -------- -------- --------
Total from investment operations ... 1.73 1.30 1.30 0.64 1.19
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment income .. (0.68) (0.73) (0.75) (0.78) (0.81)
Distribution from capital gains ....... (0.08) .--- .--- .--- .---
-------- -------- -------- -------- --------
Total distributions ................ (0.76) (0.73) (0.75) (0.78) (0.81)
-------- -------- -------- -------- --------
Net asset value, end of year .......... $ 13.39 $ 12.42 $ 11.85 $ 11.30 $ 11.44
======== ======== ======== ======== ========
Total return ............................. 14.55% 11.29% 11.87% 5.69% 11.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year(in 000's) ..... $274,325 $217,321 $136,594 $ 85,461 $ 70,248
Ratio of expenses to average net assets
Before expense reimbursements ...... 0.60% 0.60% 0.67% 0.69% 0.73%
After expense reimbursements ....... 0.60% 0.60% 0.60% 0.59% 0.60%
Ratio of net investment income
to average net assets
Before expense reimbursements ...... 5.41% 5.98% 6.36% 6.57% 6.93%
After expense reimbursements ....... 5.41% 5.98% 6.43% 6.67% 7.06%
Portfolio Turnover .................... 25.42% 45.43% 44.12% 42.24% 47.59%
</TABLE>
7
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)-cont.
<TABLE>
<CAPTION>
California Insured Intermediate Fund
October 20
1992* to
Year Ended August 31, August 31,
------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $ 10.72 $ 10.42 $ 10.49 $ 10.23 $ 10.65 $ 10.00
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................. 0.44 0.45 0.46 0.44 0.44 0.40
Net gain (loss) on securities
(both realized and unrealized) ..... 0.25 0.30 (0.07) 0.30 (0.42) 0.61
-------- -------- -------- -------- -------- --------
Total from investment operations ...... 0.69 0.75 0.39 0.74 0.02 1.01
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment income .. (0.44) (0.45) (0.46) (0.48) (0.44) (0.36)
Distributions from capital gains ...... (0.05) .--- .--- .--- .--- .---
-------- -------- -------- -------- -------- --------
Total distributions ................ (0.49) (0.45) (0.46) (0.48) (0.44) (0.36)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ........... $ 10.92 $ 10.72 $ 10.42 $ 10.49 $ 10.23 $ 10.65
======== ======== ======== ======== ======== ========
Total return ............................. 6.64% 7.34% 3.75% 7.46% 0.23% 11.91%**
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) .. $ 23,572 $ 24,390 $ 24,207 $ 23,515 $ 21,800 $ 11,145
Ratio of expenses to average net assets
Before expense reimbursements ...... 0.70% 0.70% 0.70% 0.76% 0.88% 2.00%**
After expense reimbursements ....... 0.55% 0.55% 0.55% 0.60% 0.46% 0.16%**
Ratio of net investment income
to average net assets
Before expense reimbursements ...... 3.94% 4.12% 4.22% 4.19% 3.77% 2.75%**
After expense reimbursements ....... 4.09% 4.27% 4.37% 4.35% 4.19% 4.59%**
Portfolio turnover ....................... 26.76% 32.11% 36.08% 43.56% 8.91% --
</TABLE>
- ---------------
* Commencement of operations
** Annualized
8
<PAGE>
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------------------------------------
U.S. Government Securities Fund 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ....... $ 10.38 $ 10.15 $ 10.66 $ 10.30 $ 11.76
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................. 0.59 0.64 0.66 0.70 0.67
Net gain (loss) on securities
(both realized and unrealized) ...... 1.01 0.36 (0.51) 0.41 (1.40)
-------- -------- -------- -------- --------
Total from investment operations ... 1.60 1.00 0.15 1.11 (0.73)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment income .. (0.61) (0.63) (0.66) (0.75) (0.67)
Distribution from capital gains ....... (0.07) (0.14) .--- .--- (0.06)
-------- -------- -------- -------- --------
Total distributions ................ (0.68) (0.77) (0.66) (0.75) (0.73)
-------- -------- -------- -------- --------
Net asset value, end of year ............. $ 11.30 $ 10.38 $ 10.15 $ 10.66 $ 10.30
======== ======== ======== ======== ========
Total return ............................. 15.88% 10.00% 1.26% 11.42% (6.44)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) .... $ 36,063 $ 31,277 $ 29,088 $ 29,884 $ 30,228
Ratio of expenses to average net assets
Before expense reimbursements ...... 0.68% 0.69% 0.71% 0.75% 0.73%
After expense reimbursements ....... 0.65% 0.65% 0.65% 0.64% 0.62%
Ratio of net investment income
to average net assets
Before expense reimbursements ...... 5.46% 6.00% 6.10% 6.72% 5.99%
After expense reimbursements ....... 5.49% 6.04% 6.16% 6.83% 6.10%
Portfolio Turnover .................... 65.27% 170.76% 89.11% 169.83% 129.06%
Year Ended August 31,
------------------------------------------------------------
U.S. Government Securities Fund 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ....... $ 10.52 $ 9.80 $ 9.41 $ 9.57 $ 9.46
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................. 0.71 0.72 0.83 0.82 0.87
Net gain (loss) on securities
(both realized and unrealized) ...... 1.29 0.73 0.39 (0.15) 0.11
-------- -------- -------- -------- --------
Total from investment operations ... 2.00 1.45 1.22 0.67 0.98
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment income .. (0.71) (0.73) (0.83) (0.83)
Distribution from capital gains ....... (0.05) .--- .--- .--- .---
-------- -------- -------- -------- --------
Total distributions ................ (0.76) (0.73) (0.83) (0.83)
-------- -------- -------- -------- --------
Net asset value, end of year ............. $ 11.76 $ 10.52 $ 9.80 $ 9.41 $ 9.57
======== ======== ======== ======== ========
Total return ............................. 20.09% 15.46% 13.55% 7.24% 10.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) .... $ 35,787 $ 79,858 $ 21,188 $ 11,809 $ 11,181
Ratio of expenses to average net assets
Before expense reimbursements ...... 0.75% 0.63% 0.85% 0.81% 0.96%
After expense reimbursements ....... 0.52% 0.38% 0.60% 0.60% 0.61%
Ratio of net investment income
to average net assets
Before expense reimbursements ...... 6.32% 6.87% 8.48% 8.43% 8.83%
After expense reimbursements ....... 6.55% 7.12% 8.73% 8.64% 9.18%
Portfolio Turnover .................... 52.30% 122.14% 53.00% 78.32% 78.29%
</TABLE>
9
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding
throughout the period)-cont.
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------------------------------------
The United States Treasury Trust 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ....... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................. 0.051 0.048 0.050 0.050 0.031
LESS DISTRIBUTIONS
Dividends from net investment income .. (0.051) (0.048) (0.050) (0.050) (0.031)
-------- -------- -------- -------- --------
Net asset value, end of year ............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total return ............................. 5.21% 4.92% 5.11% 5.10% 3.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) .... $ 44,341 $104,509 $ 37,903 $ 29,797 $ 19,268
Ratio of expenses to average net assets
Before expense reimbursements ...... 0.64% 0.64% 0.66% 0.72% 0.75%
After expense reimbursements ....... 0.40% 0.40% 0.43% 0.50% 0.52%
Ratio of net investment income
to average net assets
Before expense reimbursements ...... 4.54% 4.58% 4.60% 4.75% 2.62%
After expense reimbursements ....... 4.78% 4.82% 4.83% 4.97% 2.85%
April 26,
1989* to
Year Ended August 31, August 31,
------------------------------------------------------------
The United States Treasury Trust 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ....... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................. 0.028 0.041 0.064 0.077 0.029
LESS DISTRIBUTIONS
Dividends from net investment income .. (0.028) (0.041) (0.064) (0.077) (0.029)
-------- -------- -------- -------- --------
Net asset value, end of year ............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total return ............................. 2.86% 4.18% 6.59% 8.02% 8.49%**
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) .... $ 28,449 $ 16,799 $ 23,460 $ 19,168 $ 1,848
Ratio of expenses to average net assets
Before expense reimbursements ...... 0.65% 0.73% 0.73% 0.70% 2.71%**
After expense reimbursements ....... 0.32% 0.25% 0.26% 0.25% 0.00%**
Ratio of net investment income
to average net assets
Before expense reimbursements ...... 2.43% 3.66% 5.88% 7.31% 5.60%**
After expense reimbursements ....... 2.76% 4.14% 6.35% 7.76% 8.31%**
</TABLE>
- ---------------
* Commencement of operations
** Annualized
10
<PAGE>
<TABLE>
<CAPTION>
S&P MidCap Index Fund
April 20,1992*
Year Ended August 31, to August 31,
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ..... $ 18.57 $ 14.45 $ 13.82 $ 12.21 $ 12.23 $ 10.12 $ 10.00
-------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ............... 0.23 0.22 0.24 0.26 0.22 0.25 0.09
Net gain on securities
(both realized and unrealized) .... (1.76) 4.85 1.33 2.04 0.22 2.11 0.07
-------- -------- -------- -------- -------- -------- --------
Total from investment operations . (1.53) 5.07 1.57 2.30 0.44 2.36 0.16
-------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income ............................ (0.23) (0.22) (0.25) (0.25) (0.22) (0.25) (0.04)
Distribution from capital gains ..... (1.40) (0.73) (0.69) (0.44) (0.24) .--- .---
-------- -------- -------- -------- -------- -------- --------
Total distributions .............. (1.63) (0.95) (0.94) (0.69) (0.46) (0.25) (0.04)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of year ........... $ 15.41 $ 18.57 $ 14.45 $ 13.82 $ 12.21 $ 12.23 $ 10.12
======== ======== ======== ======== ======== ======== ========
Total return ........................... (9.37)% 36.63% 11.77% 20.24% 3.75% 23.64% 4.48%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) .. $ 39,855 $ 46,271 $ 33,559 $ 26,168 $ 21,789 $ 16,243 $ 3,279
Ratio of expenses to average net
assets
Before expense reimbursements .... 0.56% 0.61% 0.71% 0.80% 0.97% 1.36% 3.74%**
After expense reimbursements ..... 0.40% 0.40% 0.40% 0.40% 0.40% 0.17% 0.00%**
Ratio of net investment income (loss) to
average net assets
Before expense reimbursements ....... 1.04% 1.19% 1.38% 1.70% 1.30% 0.97% (0.46%)**
After expense reimbursements ........ 1.20% 1.40% 1.69% 2.10% 1.87% 2.16% 3.28%**
Portfolio turnover ..................... 19.35% 17.80% 18.18% 11.71% 15.01% 8.16% 0.87%
</TABLE>
S&P SmallCap Index Fund
Year Ended October 2,
August 31, 1996* to
- -----------------------------------------------------------------------
1998 August 31, 1997
- -----------------------------------------------------------------------
Net asset value, beginning of year ..... $ 12.25 $ 10.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ............... 0.13 0.23
Net gain on securities
(both realized and unrealized) .... (2.39) 2.22
-------- --------
Total from investment operations . (2.26) 2.45
-------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income ............................ (0.14) (0.20)
Distribution from capital gains ..... (0.39) .---
-------- --------
Total distributions .............. (0.53) (0.20)
-------- --------
Net asset value, end of year ........... $ 9.46 $ 12.25
======== ========
Total return ........................... (19.38)% 24.86%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) .. $ 7,916 $ 5,933
Ratio of expenses to average net
assets
Before expense reimbursements .... 1.10% 2.32%**
After expense reimbursements ..... 0.65% 0.65%**
Ratio of net investment income (loss) to
average net assets
Before expense reimbursements ....... 0.57% 0.27%**
After expense reimbursements ........ 1.02% 1.94%**
Portfolio turnover ..................... 24.58% 19.99%
* Commencement of operations
** Annualized
11
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding
throughout the period)-cont.
<TABLE>
<CAPTION>
S&P 500 Index Fund
April 20,1992*
Year Ended August 31, to August 31,
----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ..... $ 19.98 $ 14.81 $ 13.31 $ 11.38 $ 11.25 $ 10.09 $ 10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income ................ 0.36 0.38 0.36 0.39 0.30 0.30 0.10
Net gain on securities
(both realized and unrealized) ..... 1.28 5.44 2.05 1.94 0.26 1.16 0.03
-------- -------- -------- -------- -------- -------- --------
Total from investment operations . 1.64 5.82 2.41 2.33 0.56 1.46 0.13
-------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income ............................. (0.34) (0.37) (0.37) (0.37) (0.30) (0.30) (0.04)
Distribution from capital gains ...... (0.38) (0.28) (0.54) (0.03) (0.13) .--- .---
-------- -------- -------- -------- -------- -------- --------
Total distributions .............. (0.72) (0.65) (0.91) (0.40) (0.43) (0.30) (0.04)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of year ........... $ 20.90 $ 19.98 $ 14.81 $ 13.31 $ 11.38 $ 11.25 $ 10.09
======== ======== ======== ======== ======== ======== ========
Total return ........................... 8.14% 40.19% 18.63% 21.06% 5.17% 14.77% 3.66%**
RATIOS/SUPPLEMENTAL DATA ............... $ 87,621 $ 71,860 $ 43,849 $ 21,800 $ 14,830 $ 11,352 $ 4,380
Ratio of expenses to average net
assets
Before expense reimbursements .. 0.40% 0.46% 0.57% 1.04% 1.01% 1.41% 2.71%**
After expense reimbursements ... 0.20% 0.20% 0.20% 0.20% 0.20% 0.09% 0.00%**
Ratio of net investment income (loss) to
average net assets
Before expense reimbursements .. 1.48% 1.85% 2.13% 2.40% 1.95% 1.54% 0.94%**
After expense reimbursements ... 1.68% 2.11% 2.50% 3.24% 2.76% 2.86% 3.65%**
Portfolio turnover ..................... 1.82% 2.10% 1.87% 3.68% 1.22% 8.46% --
</TABLE>
Equity Income Fund
September 4,
1996* to
--------------------------
1998 August 31, 1997
--------------------------
Net asset value, beginning of year ..... $ 12.64 $ 10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income ................ 0.37 0.39
Net gain on securities
(both realized and unrealized) ..... (0.25) 2.84
-------- --------
Total from investment operations . 0.12 3.23
-------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income ............................. (0.37) (0.32)
Distribution from capital gains ...... (0.41) (0.27)
-------- --------
Total distributions .............. (0.78) (0.59)
-------- --------
Net asset value, end of year ........... $ 11.98 $ 12.64
======== ========
Total return ........................... 0.46% 33.28%
RATIOS/SUPPLEMENTAL DATA ............... $ 12,080 $ 9,747
Ratio of expenses to average net
assets
Before expense reimbursements .. 0.91% 1.55%**
After expense reimbursements ... 0.78% 0.76%**
Ratio of net investment income (loss) to
average net assets
Before expense reimbursements .. 2.56% 2.48%**
After expense reimbursements ... 2.69% 3.27%**
Portfolio turnover ..................... 41.23% 2.80%
- ---------------
* Commencement of operations
** Annualized
12
<PAGE>
COMPARISON OF FUND EXPENSES
Below is a table comparing the Funds' total fund operating expenses with average
total fund operating expenses as reported by Lipper Analytical Services, Inc. on
September 30, 1998 for several categories of mutual funds comparable to the
Funds.
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
LIPPER ANALYTICAL SERVICES CIT
-------------------------- ---
CA Tax Exempt Money Funds 0.62%* Money Fund 0.40% *
CA Insured Municipal Funds 1.17%* Insured Fund 0.55%*
CA General Municipal Funds 1.06%* Income Fund 0.61%
General U.S. Government Funds 1.21%* Government Fund 0.65%*
U.S. Treasury Money Funds 0.68%* Treasury Trust 0.40%*
Growth & Income 1.28%** 500 Fund 0.20%*
Equity Income Fund 0.80%*
Growth 1.45%** MidCap Fund 0.40%*
SmallCap Fund 0.65%*
- --------------------------------------------------------------------------------
* After fee waivers and expense reimbursements.
** These figures are for actively managed funds which typically have higher
operating expenses.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGER'S NOTE: WE BELIEVE OUR ANNUAL FUND OPERATING EXPENSES ARE AMONG THE
LOWEST AVAILABLE. IN OUR OPINION, ALL OTHER THINGS BEING EQUAL, LOW COST
NO-LOAD FUNDS WILL PROVIDE INVESTMENT RESULTS THAT ARE BETTER THAN FUNDS
HAVING SALES COMMISSIONS, REDEMPTION FEES AND HIGHER EXPENSES.
- --------------------------------------------------------------------------------
WHAT IS CALIFORNIA INVESTMENT TRUST FUND GROUP?
The California Investment Trust Fund Group (the "Trusts" or "Funds") presently
consists of two diversified, open-end management investment companies, both
organized as Massachusetts business trusts in September 1985. As part of
California Investment Trust, we currently offer through this Prospectus the
Income Fund, Insured Fund and the Money Fund. As part of California Investment
Trust II, we currently offer through this Prospectus the Government Fund and the
Treasury Trust. Also part of this trust are the 500 Fund, the MidCap Fund, the
SmallCap Fund (together, the "Index Funds"), and the Equity Income Fund
(together with the Index Funds, the "Stock Funds").
CCM Partners, a California Limited Partnership (the "Manager"), is the
investment manager of the Funds.
You may purchase shares of any Fund through your securities dealer or broker or
directly from us. (See "How to Buy Shares" on page 36.) We charge no commissions
for your purchases or sales of our shares. Accordingly, more of your money will
go to work for you immediately upon investment.
For example, a $10,000 investment in a mutual fund with a 4% sales charge
results in only $9,600 being invested in that fund because $400 of the
investor's money goes toward payment of the sales commission. As a result, there
is a negative cumulative
13
<PAGE>
effect on the total return over the time of the investment because the original
investment is $9,600, not $10,000.
- --------------------------------------------------------------------------------
MANAGER'S NOTE: THE TERM NO-LOAD MEANS THAT YOU DO NOT PAY COMMISSIONS TO
BUY OR SELL YOUR SHARES. IN OUR OPINION, ALL OTHER THINGS BEING EQUAL, LOW
COST, NO-LOAD FUNDS WILL PROVIDE INVESTMENT RESULTS THAT ARE BETTER THAN
FUNDS HAVING SALES COMMISSIONS, REDEMPTION FEES AND HIGHER EXPENSES. IF YOU
HAVE ANY QUESTIONS ABOUT THE FUNDS, PLEASE CALL US AT 1(800) 225-8778 AND
SPEAK TO ONE OF OUR CUSTOMER SERVICE REPRESENTATIVES.
- --------------------------------------------------------------------------------
All other things being equal, a load fund having a portfolio yield of 5.00%
would only provide an effective net yield to the investor of 0.8% in the first
year if there is a 4% sales charge. Many service organizations that report
mutual fund performance results do not deduct sales charges when reporting these
figures to many publications. This is because the sales charge is an expense
borne by the investor, not the fund. Thus, load funds often are measured as if
they were no-load funds. This favorably distorts the reported performance of
many load funds in comparison to no-load funds.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF OUR TAX-FREE FUNDS?
In general, the Tax-Free Funds seek as high a level of income, which is exempt
from federal income taxes and California personal income taxes, as is consistent
with each Fund's objectives, investment characteristics, and policies.
- --------------------------------------------------------------------------------
MANAGER'S NOTE: THE INCOME FUND, THE INSURED FUND AND THE MONEY FUND ARE
CALLED THE "TAX-FREE FUNDS."
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE INCOME FUND - seeks as high a level of income exempt from
federal and California personal income taxes as is consistent with prudent
investment management and safety of capital. We seek to reduce, to the extent
possible, the credit risks of our portfolio by investing in California municipal
securities having at the time of purchase one of the top four ratings, or if
unrated, being of similar quality to one of the top four ratings, of S&P
Corporation S&P, Moody's Investors Service ("Moody's"), or Fitch Investors
Service, Inc. ("Fitch"). These are considered to be "investment grade"
securities, although bonds rated Baa in the fourth highest category are regarded
as having an adequate capacity to pay principal and interest but with greater
vulnerability to adverse economic conditions and to have some speculative
characteristics. The Income Fund does not invest in derivative securities. The
Income Fund will not invest more than 20% of its total assets in securities
rated in the fourth highest category. If the rating on an issue held in the
Income Fund's portfolio is downgraded from investment grade, our Manager will
consider such event in its evaluation of the overall investment merits of that
security but such consideration will not necessarily result in an automatic sale
of the security. When the Income Fund invests in securities not rated by S&P,
Moody's, or Fitch, it is the responsibility of our Manager to evaluate them and
determine that they have the same quality and characteristics as those described
by S&P, Moody's or Fitch for their ratings. An Appendix to the Statement of
Additional Information contains a description of the ratings of S&P, Moody's,
and Fitch.
- --------------------------------------------------------------------------------
MANAGER'S NOTE: INVESTMENTS BY THE INCOME FUND WILL BE MADE IN SECURITIES
CONSIDERED TO BE "INVESTMENT GRADE."
- --------------------------------------------------------------------------------
14
<PAGE>
The Income Fund normally invests in intermediate and long-term bonds and its
average portfolio maturity generally is five years or more. If our Manager
determines that market conditions warrant a shorter average maturity, the Income
Fund's portfolio will be adjusted accordingly. Since the value of debt
obligations typically varies inversely with changes in interest rates, the net
asset value per share of the Income Fund will also fluctuate in this manner. The
Income Fund, under normal market conditions, attempts to invest 100% and, as a
matter of fundamental policy, invests at least 80%, of the value of its net
assets in securities the interest on which is exempt from federal income taxes
and California personal income taxes. Thus, it is possible, although not
anticipated, that under normal market conditions up to 20% of the Income Fund's
net assets could be in municipal obligations from another state, in taxable U.S.
Treasury obligations, in repurchase agreements secured by such securities, or in
obligations the interest on which is subject to the federal alternative minimum
tax.
- --------------------------------------------------------------------------------
MANAGER'S NOTE: THE INCOME FUND IS INTENDED FOR INVESTORS WHO CAN ACCEPT
THE PROBABILITY OF PRINCIPAL FLUCTUATIONS.
- --------------------------------------------------------------------------------
For temporary defensive purposes only, the Income Fund may invest (i) more than
20% of its assets (which could be up to 100%) in obligations issued or
guaranteed by the full faith and credit of the U.S. Government, the interest on
which is subject to federal and may be subject to California income taxes and
(ii) more than 20% of the value of its net assets (which could be up to 100%) in
instruments the interest on which is exempt from federal income taxes but not
California personal income taxes, such as municipal obligations issued by other
states and their agencies and instrumentalities.
CALIFORNIA INSURED INTERMEDIATE FUND seeks as high a level of income exempt from
federal income taxes and California personal income taxes as is consistent with
prudent investment management and safety of capital. The Insured Fund seeks to
reduce, to the extent possible, the credit risks of its portfolio by investing
in California municipal securities that are insured under an insurance policy
obtained by the issuer or underwriters of such securities at the time of their
original issuance or are insured under an insurance policy purchased by the
Insured Fund.
The Manager determines appropriate purchases for the Insured Fund based on
credit analysis, including consideration of creditworthiness and insurance. The
Insured Fund does not invest in derivative securities. Insurance covering the
timely payment of interest and principal on the municipal securities in which
the Insured Fund invests is obtained from recognized insurers. Such insurance
does not guarantee the market value of the municipal securities in which the
Insured Fund invests or the value of the shares of the Insured Fund. Issuer
insurance remains with the security and thereby enhances its resale value. The
Insured Fund may invest more than 25% of its assets in securities insured by the
same insurance company.
- --------------------------------------------------------------------------------
MANAGER'S NOTE: THE INSURED FUND WILL ATTEMPT TO LIMIT THE PRICE VOLATILITY
OF ITS SHARES BY INVESTING A PORTION OF ITS ASSETS IN INTERMEDIATE TERM
MUNICIPAL SECURITIES AND BY THE USE OF OTHER INVESTMENT STRATEGIES. THERE
IS NO GUARANTEE THAT THESE STRATEGIES WILL BE SUCCESSFUL.
- --------------------------------------------------------------------------------
The Insured Fund also may invest in uninsured California municipal securities
having at the time of purchase the top two ratings or, if unrated, being of
similar quality to the top two ratings (AAA or AA) of S&P, (Aaa or Aa) of
Moody's, (AAA or AA) of Fitch. Securities having these credit ratings are
considered to be "high quality." Under
15
<PAGE>
normal market conditions, the Insured Fund's investment in uninsured obligations
may not exceed 20% of its portfolio assets. If the rating on an issue held in
the Insured Fund's portfolio is downgraded, our Manager will consider such event
in its evaluation of the overall investment merits of that security but such
consideration will not necessarily result in an automatic sale of the security.
When the Insured Fund invests in securities not rated by S&P, Moody's, or Fitch,
it is the responsibility of our Manager to evaluate them and determine that they
have the same quality and characteristics as those described by S&P, Moody's or
Fitch for their ratings. An Appendix to the Statement of Additional Information
contains a description of the ratings of S&P, Moody's, and Fitch.
- --------------------------------------------------------------------------------
MANAGER'S NOTE: UNDER NORMAL MARKET CIRCUMSTANCES, THE INSURED FUND WILL
INVEST AT LEAST 80% OF ITS NET ASSETS IN INSURED CALIFORNIA MUNICIPAL
SECURITIES. THESE ARE GENERALLY RATED AAA BY STANDARD & POOR'S CORPORATION,
AAA BY MOODY'S INVESTORS SERVICE OR AAA BY FITCH INVESTORS SERVICE, INC.
- --------------------------------------------------------------------------------
For temporary defensive purposes only, the Insured Fund may invest (i) more than
20% of its assets (which could be up to 100%) in obligations issued or
guaranteed by the full faith and credit of the U.S. Government, the interest on
which is subject to federal and may be subject to California income taxes and
(ii) more than 20% of the value of its net assets (which could be up to 100%) in
instruments the interest on which is exempt from federal income taxes but not
California's personal income taxes, such as municipal obligations issued by
other states and their agencies and instrumentalities.
CALIFORNIA TAX-FREE MONEY MARKET FUND has the objectives of capital
preservation, liquidity, and the highest achievable current income exempt from
federal and California personal income taxes as is consistent with safety.
Although no assurances can be given, the Money Fund attempts to maintain a
constant net asset value of $1.00 per share.
The Money Fund seeks to achieve its investment objectives through investments
limited to U.S. dollar-denominated money market instruments. The Money Fund does
not invest in derivative securities. All investments by the Money Fund (i.e.,
100% of the Money Fund's investments) will mature or will be deemed to mature
within 397 days from the date of acquisition and the average maturity of the
investments held by the Money Fund (on a dollar-weighted basis) will be 90 days
or less. The maturities of variable rate demand instruments held by the Money
Fund will be deemed to be the longer of the period remaining until the next
interest rate adjustment, or the period remaining until the principal amount can
be recovered through demand, although the stated maturities may be exceed of 397
days. All investments by the Money Fund, including variable rate demand
instruments and participation certificates, are determined by or on behalf of
the California Investment Trust's Board of Trustees to present minimal credit
risks and are of "high quality" as determined by a major rating service or, in
the case of an investment which is not rated, are of comparable quality as
determined by or on behalf of the California Investment Trust's Board of
Trustees. However, investments in high quality, short-term instruments may, in
many circumstances, result in a lower yield than would be available from
investments in instruments of a lower quality or with a longer term.
16
<PAGE>
- --------------------------------------------------------------------------------
MANAGER'S NOTE: WE HAVE MANY INVESTORS WHO ARE UNCERTAIN OF THE INVESTMENT
PERIOD FOR THEIR FUNDS AND WHO ALLOCATE SOME OF THEIR ASSETS TO ONE OF OUR
MONEY FUNDS AND SOME TO ONE OR MORE OF OUR BOND FUNDS, THEREBY ACHIEVING
THEIR DESIRED FLEXIBILITY.
- --------------------------------------------------------------------------------
The Money Fund invests primarily in fixed rate and variable rate obligations
issued by or on behalf of the State of California, other states, territories and
possessions of the United States, and their authorities, agencies,
instrumentalities and political subdivisions, the interest on which is exempt
from federal income taxes ("Municipal Obligations"). The Money Fund invests in
certain Municipal Obligations the interest on which, in the opinion of bond
counsel, is exempt in the opinion of bond counsel from federal and California
personal income taxes ("California Municipal Obligations"). To the extent
suitable California Municipal Obligations are not available for investment by
the Money Fund, the Money Fund may purchase Municipal Obligations issued by
other states, their agencies and instrumentalities, the interest income on which
will be exempt from federal income tax but will be subject to California
personal income taxes.
The Money Fund intends to invest, under normal circumstances, 100% of its assets
in California Municipal Obligations. Except when acceptable securities are
unavailable for investment by the Money Fund as determined by the Manager, the
Money Fund will invest at least 65% of its assets in California Municipal
Obligations, although the exact amount of the Money Fund's assets invested in
such securities will vary from time to time. As a fundamental policy, the Money
Fund will invest, under normal circumstances, at least 80% of its assets in
Municipal Obligations and, as an operating policy, will invest at least 80% of
its assets in Municipal Obligations not subject to the federal alternative
minimum tax. The Money Fund may, for temporary or defensive purposes, invest up
to 20% of its total assets in securities the interest on which is subject to
federal and California personal income tax or to the federal alternative minimum
tax. The Money Fund's investments may include "when-issued" Municipal
Obligations, and stand-by commitments.
The Money Fund makes its investments primarily in: (1) municipal bonds with
remaining maturities of one year or less that at the date of purchase are rated
Aaa or Aa by Moody's or AAA or AA by S&P; (2) municipal notes with remaining
maturities of one year or less that at the date of purchase are rated MIG 1 or
MIG 2 by Moody's or SP-1 or SP-2 by S&P; and (3) municipal commercial paper that
is rated Prime-1 or Prime-2 by Moody's or A-1+, A-1 or A-2 by S&P. If any of
these securities are not rated, they may be acquired if they are of comparable
quality as determined by or on behalf of the Board of Trustees of the California
Investment Trust.
- --------------------------------------------------------------------------------
MANAGER'S NOTE: WE REQUIRE A MINIMUM INVESTMENT OF $10,000 TO OPEN AN
ACCOUNT IN ANY OF OUR BOND OR MONEY MARKET FUNDS. SUBSEQUENT INVESTMENTS
MUST BE $250 OR MORE.
- --------------------------------------------------------------------------------
GENERAL POLICIES: Each Tax-Free Fund may borrow from banks for temporary or
emergency purposes and pledge its assets therefor, up to 10% of its total
assets. (No securities will be purchased by a Fund while any outstanding
borrowings exceed 5% of its total assets.) Each Fund may also make loans of its
portfolio securities provided 100% collateral in the form of cash or U.S.
Government securities is pledged and maintained with the Fund by the borrower.
Each Tax-Free Fund also may enter into repurchase agreements with U.S.
Government securities dealers recognized by the Federal Reserve Board or with
member banks of the Federal Reserve System.
17
<PAGE>
Generally, a repurchase agreement is an agreement under which a Fund acquires a
U.S. Government security subject to resale to a bank or dealer at an agreed upon
time and price which reflects a net interest gain for the Fund. A default by the
other party could cause a Fund to lose the interest factor; however, the
agreement is collateralized by the U.S. Government security and its value is
marked to market daily in order to minimize a Fund's risks. No more than 10% of
the Income Fund's or the Money Fund's total assets or more than 15% of the
Insured Fund's total assets will be invested in repurchase agreements with
maturities in excess of seven days. (See the Statement of Additional Information
for more information.)
- --------------------------------------------------------------------------------
MANAGER'S NOTE: SHORT-TERM MUNICIPAL OBLIGATIONS ARE ISSUED BY STATE AND
LOCAL GOVERNMENTS AND PUBLIC AUTHORITIES AS INTERIM FINANCINGS IN
ANTICIPATION OF TAX COLLECTIONS, REVENUE RECEIPTS OR BOND SALES.
- --------------------------------------------------------------------------------
Municipal bonds may be issued to raise money for various public purposes such as
constructing public facilities and making loans to public institutions. Certain
types of municipal bonds are issued to obtain funding for privately operated
facilities. The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. GENERAL OBLIGATION BONDS are backed by the
taxing power of the issuing municipality and are considered the safest type of
municipal bond. REVENUE BONDS are backed by the revenues of a project or
facility (tolls from a toll-bridge, for example). Industrial development revenue
bonds are a specific type of revenue bond backed by the credit and security of a
private user and therefore investments in these bonds have more potential risk.
Under the Internal Revenue Code of 1986, as amended (the "Code"), there are
certain restrictions on the use of tax-exempt bond financing for
non-governmental business activities, such as industrial development bonds.
Accordingly, interest on certain types of non-essential or private activity
bonds may not be exempt from federal income tax, while interest on other types
of non-essential or private activity bonds, although exempt from regular federal
income tax, is treated as a tax preference for taxpayers subject to the
alternative minimum income tax. To the extent a Tax-Free Fund holds such bonds,
the burden of the alternative minimum income tax treatment would be passed on to
the shareholders as dividends are paid.
Accordingly, the Tax-Free Funds attempt to minimize their investments in such
bonds, and no more than 20% of a Tax-Free Fund's net assets will be invested in
bonds whose interest is treated as a tax preference item under the federal
alternative minimum tax. However, interest on any tax-exempt obligation that is
paid to a corporate shareholder will be included in the calculation of its
alternative minimum tax liability, if any.
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MANAGER'S NOTE: UNDER NORMAL CIRCUMSTANCES, THE TAX-FREE FUNDS DO NOT
INTEND TO INVEST IN MUNICIPAL BONDS SUBJECT TO THE ALTERNATIVE MINIMUM TAX.
- --------------------------------------------------------------------------------
Each of the Tax-Free Funds may purchase a right to sell a security held by the
Fund back to the issuer of the security or another party at an agreed upon price
at any time during a stated period or on a certain date. These rights may be
referred to as "demand features" or "puts." In addition, a Tax-Free Fund may
also hold floating or variable rate obligations, including certificates of
participation. Generally, we utilize the types of securities described in this
paragraph (and in more detail in the Glossary) to improve the investment
position of a Tax-Free Fund by enhancing its yield or liquidity, by shortening
or lengthening its average portfolio maturity, or by a combination thereof.
Also, other tax-exempt instruments which may become available in the
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<PAGE>
future may be purchased as long as the Manager believes their quality is
equivalent to a Tax-Free Fund's quality standards.
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MANAGER'S NOTE: THE INVESTMENT OBJECTIVES AND CERTAIN POLICIES OF THE
INCOME FUND, THE INSURED FUND AND THE MONEY FUND ARE FUNDAMENTAL, MEANING
THAT THEY CAN ONLY BE CHANGED BY VOTE OF THE SHAREHOLDERS.
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LIMITING INVESTMENT RISKS: The ability of each Tax-Free Fund to meet its
objectives is affected by the ability of municipal issuers to meet their payment
obligations. Since each of the Tax-Free Funds invests primarily in obligations
of California issuers, the marketability and market value of these obligations
may be affected by certain California constitutional amendments, legislative
measures, executive orders, administrative regulations, and voter initiatives
that could adversely affect the various California issuers' ability to meet
their financial obligations. There are additional risks associated with an
investment which concentrates in issues of one state. As a result, the value of
each Tax-Free Fund's shares may fluctuate more widely than the value of shares
of a portfolio investing in securities relating to a number of different states.
The ability of state, county or local governments to meet their obligations will
depend primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. An expanded discussion of
risks associated with California tax-exempt securities is contained in the
Statement of Additional Information.
In recent years "Proposition 13" and similar California constitutional and
statutory amendments and initiatives have restricted the ability of California
taxing entities to increase real property tax revenues. Other initiative
measures approved by California voters, through limiting various other taxes,
have resulted in a substantial reduction in state revenues. Decreased state
revenues may result in reductions in allocations of state revenues to local
governments. It is not possible to determine the impact of these initiatives on
the ability of California issuers to pay interest or repay principal on their
obligations. There is no assurance that any California issuer will make full
payments of principal and interest or remain solvent. For example, in December
1994, Orange County filed for bankruptcy. In addition, from time to time,
federal legislative proposals have threatened the tax-exempt status or use of
municipal securities. (An expanded discussion of the risks associated with
municipal securities and California issuers is contained in the Statement of
Additional Information.)
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MANAGER'S NOTE: WHILE AN INVESTMENT IN THE TAX-FREE FUNDS IS NOT WITHOUT
RISK, THE MANAGER FOLLOWS CERTAIN POLICIES IN MANAGING OUR PORTFOLIOS,
WHICH MAY HELP TO REDUCE YOUR RISK.
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In addition to prudently managing our investments in California and other
securities, we have adopted certain policies to limit the credit risks of
concentrating in California municipal obligations. Thus, each Tax-Free Fund will
not purchase a security, if as a result: (a) with respect to 75% of its assets,
more than 5% of its assets would be in the securities of any single issuer,
except for the U.S. Government and its agencies or instrumentalities, and except
that the Insured Fund may invest more than 25% of its assets in securities
insured by the same insurance company; (b) more than 5% of its assets would be
in industrial development revenue bonds where the payment of principal and
interest are the responsibility of a company with less than three years'
operating history; and (c) 25% or more of its assets would be in industrial
development revenue bonds where payment of principal and interest is the
ultimate responsibility of issuers in the same industry, although we may invest
25% or more of a Tax-Free Fund's assets in the aggregate in different industrial
development revenue bonds.
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<PAGE>
Since we may invest up to 25% of a Tax-Free Fund's assets in a single issuer,
changes in the financial condition or market assessment of such issuer may cause
greater fluctuations in the per share price of the Income Fund and in the yield
of the Money Fund. However, we will attempt to limit price volatility of the
Income Fund and the Insured Fund by investing a portion of those Funds' assets
in intermediate term municipal securities.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF OUR GOVERNMENT FUND?
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MANAGER'S NOTE: WE OFFER TWO FUNDS TO MEET THE NEEDS OF BOTH LONG-TERM AND
SHORT-TERM INVESTORS SEEKING INCOME FROM INVESTMENT GRADE U.S. GOVERNMENT
SECURITIES. OUR GOVERNMENT FUND IS OFFERED FOR INVESTORS SEEKING THE CREDIT
SAFETY AND INCOME OF GNMA AND OTHER U.S. GOVERNMENT SECURITIES. THE
TREASURY TRUST INVESTS THE SHORT-TERM U.S. TREASURY SECURITIES EXEMPT FROM
CALIFORNIA (AND MOST OTHER STATES') PERSONAL INCOME TAXES.
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U.S. GOVERNMENT SECURITIES FUND seeks liquidity, safety from credit risk, and as
high a level of income as is consistent with these objectives by investment in
full faith and credit obligations of the U.S. Government and its agencies or
instrumentalities, primarily Government National Mortgage Association ("GNMA")
Certificates. Such obligations include U.S. Treasury bills, notes, strips and
bonds and GNMA Certificates. No GNMA derivatives are included in the portfolio.
The Fund may not always be able to achieve its objectives.
GNMA'S: Since the Government Fund began operation it has invested, and plans to
continue to invest, primarily in GNMA Certificates (including variable rate
certificates), popularly called "Ginnie Mae's." GNMA Certificates are GNMA
mortgage-backed securities representing part ownership of a pool of mortgage
loans on real property. GNMA is a U.S. Government corporation within the
Department of Housing and Urban Development.
GNMA Certificates differ from bonds in that principal is scheduled to be paid
back by the borrower over the length of the loan rather than returned in a lump
sum at maturity. The Government Fund purchases "modified pass-through" type GNMA
Certificates for which the payment of principal and interest on a timely basis
is guaranteed, rather than the "straight-pass through" Certificates for which
such guarantee is not available. The Fund also may purchase "variable rate" GNMA
Certificates or any other type which may be issued with GNMA's guarantee.
GNMA's guarantee of timely payment of principal and interest on GNMA
Certificates is backed by the full faith and credit of the United States. GNMA
may borrow U.S. Treasury funds to the extent needed to make payments under its
guarantee.
Generally, GNMA Certificates bear a nominal "coupon rate" which represents the
effective Federal Housing Administration Veterans Administration mortgage rates
for the underlying pool of mortgages, less GNMA and issuer's fees. Payments to
holders of GNMA Certificates, such as the Government Fund, consist of the
monthly distributions of interest and principal less the GNMA and issuer's fees.
The actual yield to be earned by a holder is calculated by dividing such
payments by the purchase price paid for the GNMA Certificate. Monthly
distributions of interest, as contrasted to semi-annual distributions which are
common for other fixed interest investments,
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have the effect of compounding and thereby raising the effective annual yield
earned on GNMA Certificates.
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MANAGER'S NOTE: WE HAVE MANY INVESTORS WHO ARE UNCERTAIN OF THE INVESTMENT
PERIOD FOR THEIR FUNDS AND WHO ALLOCATE SOME OF THEIR ASSETS TO ONE OF OUR
MONEY FUNDS AND SOME TO ONE OR MORE OF OUR BOND FUNDS, THEREBY ACHIEVING
THEIR DESIRED AVERAGE MATURITY.
- --------------------------------------------------------------------------------
The average life of GNMA Certificates varies with the maturities of the
underlying mortgage instruments. The assumed average life of pools of mortgages
having terms of under 30 years is less than 12 years, but typically not less
than 5 years. A pool's expected life may be shortened, however, by prepayments
of principal and interest on the underlying mortgages. Such prepayments result
from a number of factors, including interest rate levels, general economic
conditions, foreclosure rates, location and age of mortgages, and other social
and demographic conditions. In periods of falling interest rates, the rate of
prepayment tends to increase, which shortens the actual average life of a
mortgage pool. The converse generally occurs during periods of rising interest
rates. Any prepayments are passed through to the Government Fund and become
available for reinvestment by the Fund at the then current yields. When interest
rates have fallen, reinvestment of prepayments will generally be at lower
yields.
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MANAGER'S NOTE: THE GOVERNMENT FUND'S INVESTMENT OBJECTIVES AND CERTAIN
POLICIES ARE FUNDAMENTAL, MEANING THAT THEY CAN ONLY BE CHANGED BY A VOTE
OF ITS SHAREHOLDERS.
- --------------------------------------------------------------------------------
GENERAL POLICIES: The Government Fund, under normal market conditions, attempts
to invest 100% and, as a matter of fundamental policy, invests at least 80% of
the value of its net assets in securities issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities.
The Government Fund may borrow from banks for temporary or emergency purposes
and pledge for such borrowings up to 10% of its total assets. (No securities
will be purchased by the Fund while the value of outstanding borrowings exceed
5% of its total assets.) The Government Fund may also loan its portfolio
securities provided 100% collateral in the form of cash or U.S. Government
securities is pledged and maintained with the Fund by the borrower. The Fund
also may enter into repurchase agreements with Government securities dealers
recognized by the Federal Reserve Board or with member banks of the Federal
Reserve System. We will invest no more than 10% of the Government Fund's total
assets in repurchase agreements with maturities in excess of seven days. (See
the above discussion of repurchase agreements for the Tax-Free Funds, and the
Statement of Additional Information for more information.)
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF OUR TREASURY TRUST?
THE UNITED STATES TREASURY TRUST seeks preservation of capital, safety,
liquidity and consistent with these objectives, the highest attainable current
income exempt from state income taxes, by investing exclusively in U.S. Treasury
securities, namely bills, notes or bonds which are direct obligations of the
U.S. Government. The Treasury Trust does not invest in derivative securities.
The Treasury Trust's net assets will at the time of investment have remaining
maturities of 397 days or less. The dollar weighted average maturity of its
portfolio will be 90 days or less, and it will attempt to maintain a constant
net asset value of $1.00 per share.
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<PAGE>
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MANAGER'S NOTE: THE TREASURY TRUST INVESTS SHORT-TERM IN THE SAFEST
SECURITIES AVAILABLE: U.S. TREASURY OBLIGATIONS.
- --------------------------------------------------------------------------------
Under California law, dividends paid by a mutual fund, or a series thereof,
which are derived from interest income on direct obligations of the U.S.
Government (provided that the fund's federal and California tax-exempt
obligations constitute at least 50% of the fund's total assets at the end of
each quarter of its taxable year) will be exempt from California personal income
tax. Most other states have similar provisions. Accordingly, as a matter of
fundamental policy, the Treasury Trust will invest 100% of its net assets in
direct obligations of the U.S. Government so that all of its dividends will be
exempt from California (and most other states') personal income tax. Prospective
investors should consult their own tax advisers for more information.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF OUR STOCK FUNDS?
S&P 500 INDEX FUND The investment objective of the 500 Fund is to seek
investment results that correspond to the total return (i.e., the combination of
capital changes and income) of common stocks publicly traded in the United
States, as represented by the Standard & Poor's 500 Composite Stock Price Index
(the "S&P 500"). The S&P 500 is a well-known stock market index that includes
common stocks of companies representing approximately 77% of the market value of
all common stocks publicly traded in the United States. Companies included in
the Index range from $403 million to $358 billion in market capitalization. The
Manager believes that the performance of the S&P 500 is representative of the
performance of publicly traded common stocks in general. The median market
capitalization of the stocks in the S&P 500 Index is approximately $7.6 billion.
S&P MIDCAP INDEX FUND The investment objective of the MidCap Fund is to seek
investment results that correspond to the total return (i.e., the combination of
capital changes and income) of publicly traded common stocks of medium-size
domestic companies, as represented by the Standard & Poor's MidCap 400 Index
(the "MidCap Index"). The MidCap Index, representing approximately 8% of the
market value of all common stocks publicly traded in the United States, is
composed of 400 selected common stocks of medium-size domestic companies with
market capitalizations between $148 million and $13 billion. The median market
capitalization of the stocks in the MidCap Index is approximately $1.6 billion.
S&P SMALLCAP INDEX FUND The investment objective of the SmallCap Fund is to seek
investment results that correspond to the total return of publicly traded common
stocks of small sized companies, as represented by the S&P SmallCap 600 Index
(the "SmallCap Index").* As of December 23, 1998, the SmallCap Index,
representing about 3% of the market value of all common stocks publicly traded
in the United States, was composed of 600 selected domestic companies with
market capitalizations between $37 million and $3.4 billion. The median market
capitalization of the stocks in the SmallCap Index was $380 million.
The Index Funds are not managed according to traditional methods of "active"
investment management, which involve the buying and selling of securities based
upon eco-
- ---------------
*"Standard & Poor's", "S&P", "S&P 500, "Standard & Poor's 500", "500", "Standard
and Poor's MidCap 400 Index", and "Standard and Poor's SmallCap 600 Index" are
service marks of Standard and Poor's Corporation and have been licensed for use
by the Funds. The Funds are not sponsored, endorsed, sold or promoted by S&P and
S&P makes no representation regarding the advisability of investing in the
Funds.
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<PAGE>
nomic, financial, and market analysis and investment judgment. Instead, each
Index Fund, utilizing a "passive" or "indexing" investment approach, attempts to
replicate the performance of S&P 500, MidCap Index or the SmallCap Index,
respectively. The Index Funds are designed to keep transaction costs and other
expenses low. There is no assurance that the Index Funds will achieve their
investment objectives.
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MANAGER'S NOTE: THE 500 FUND, MIDCAP FUND AND THE S&P SMALLCAP ARE CALLED
THE "INDEX FUNDS."
- --------------------------------------------------------------------------------
Each Index Fund is intended for long-term investors. The 500 Fund is intended
for investors seeking investment results that correspond to the total return of
publicly traded U.S. common stocks, as represented by the S&P 500*. The MidCap
Fund is intended for investors seeking investment results that correspond to the
total return of publicly traded common stocks of medium-sized domestic
companies, as represented by the MidCap Index. The SmallCap Fund is for
investors seeking investment results that correspond to the total return of
publicly traded common stocks of small sized companies, as represented by the
SmallCap Index. Experience has shown that the longer the period of investment,
the more likely the investor is to have a profitable result. If you anticipate
an investment period of less than three to five years, we suggest you consider
one of our money market or bond funds.
Under normal conditions, each Index Fund will invest at least 80% of its assets
(65% if an Index Fund's asset level is below $25 million) in equity securities
of companies that compose the relevant index. In seeking to replicate the
performance of the S&P 500, the MidCap and the SmallCap Index, respectively, the
Manager will, over time, attempt to allocate each Index Fund's portfolio among
common stocks in approximately the same weightings as the relevant index,
beginning with the heaviest-weighted stocks that make up a larger portion of
each index's value. Over the long term, the Manager will seek a correlation
between the performance of each Index Fund and that of the relevant index of at
least 95% (or between 85%-95% if an Index Fund's assets are below $25 million).
A figure of 100% would indicate perfect correlation. In the unlikely event that
the high correlation sought by the Manager is not achieved, the Board of
Trustees of the California Investment Trust II will consider alternative
arrangements.
The Manager generally will seek to match the composition of the relevant index
to the maximum extent, but may not always invest an Index Fund's stock portfolio
to mirror such index exactly. Because of the difficulty and expense of executing
relatively small stock transactions, an Index Fund may not always be invested in
the less heavily weighted stocks comprising its relevant index, and may at times
have its portfolio weighted differently from the relevant index, particularly
when an Index Fund has total assets of less than $25 million. The Manager
anticipates that each Index Fund will be able to mirror the performance of the
relevant index with little variance at asset levels of $25 million or more. Each
Index Fund may omit or remove an index stock from the portfolio if, following
objective criteria, the Manager judges the stock to be insufficiently liquid or
believes the merit of the investment has been substantially impaired by
extraordinary events or financial conditions.
Although the Manager will attempt to invest as much of each Index Fund's assets
as is practical in stocks comprising the relevant index, each Index Fund also
will maintain a reasonable position in high quality, short-term debt securities
and money market instruments to meet redemption requests and other needs for
liquid assets. If the Manager believes that market conditions warrant a
temporary defensive posture (as an example, extreme market volatility), each
Fund may invest without limit in high-
23
<PAGE>
quality, short-term debt securities and money market instruments (including
shares in money market mutual funds). These securities and money market
instruments may include domestic and foreign commercial paper, certificates of
deposit, banker's acceptances and time deposits, U.S. Government securities, and
repurchase agreements.
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MANAGER'S NOTE: WE BELIEVE THAT INVESTING IN INDEX FUNDS THAT REPRESENT A
BROAD SEGMENT OF THE MARKET, WITH DIVIDENDS REINVESTED AND COMPOUNDED, WILL
PROVIDE VERY COMPETITIVE LONG-TERM INVESTMENT RESULTS.
- --------------------------------------------------------------------------------
S&P 500, MIDCAP AND SMALLCAP INDEXES-The composition of the S&P 500, MidCap
Index and the SmallCap Index may be changed from time to time. They are
determined by S&P and are based on such factors as the market capitalization and
trading activity of each stock and the extent to which each stock is
representative of stocks in a particular industry. The weighting of stocks in
each index is based on the relative market capitalization of each stock
constituting the index; that is, its market price per share times the number of
shares outstanding. Inclusion of a stock in the S&P 500 Index, S&P MidCap Index
or the S&P SmallCap Index in no way implies an opinion by S&P as to its
attractiveness as an investment.
The following table includes basic information about the diversification of the
indices. As markets change, these numbers to fluctuate so they should only be
considered only approximations of the current weightings. As of December 24,
1998, the Index Funds were comprised of the following broad sectors in
approximate proportions.
500 Fund MidCap Fund SmallCap Fund
Sectors weights
Capital good 5.9% 5.9% 4.7%
Consumer cyclical 7.6% 6.2% 10.8%
Consumer non-durable 27.8% 19.2% 23.8%
Banking & financial service 15.6% 13.8% 16.5%
Utility 10.6% 11.6% 4.4%
Service 0.1% 3.0% 3.3%
Transportation 1.0% 2.8% 3.3%
Manufacturing 6.1% 8.6% 13.9%
Technology 18.6% 25.2% 15.7%
Energy 6.7% 3.7% 3.5%
Representation of
U.S.Equity Markets 77% 8% 3%
Weighting of top 50 Stocks 46.8% 34.7% 24.1%
The ability of each Index Fund to meet its objective depends to some extent on
the cash flow experienced by such Fund because investments and redemptions by
shareholders will generally require the Index Funds to purchase or sell
portfolio securities. The Manager will make investment changes to accommodate
cash flow in an attempt to maintain the similarity of each Fund's portfolio to
the relevant index. You also should be aware that the S&P 500, MidCap and the
SmallCap Indices are all unmanaged indices and their performance does not take
into account management fees, brokerage commissions and other costs of investing
that the Index Funds must bear. Finally, because each Index Fund seeks to track
the relevant index, they are not managed for growth or income in the same manner
as other mutual funds, and the
24
<PAGE>
Manager generally will not attempt to judge the merits of any particular stock
as an investment. Accordingly, you should not expect to achieve results that are
potentially greater than the total return for each Index Fund's benchmark index.
Each Index Fund expects to invest in a stock such that it's representative
holding in the fund is approximately the same as the stock's weight in
underlying index. Because some of the stocks that comprise the S&P MidCap Index
and S&P SmallCap Index may be thinly traded, comparatively small investments
could cause relatively volatile price fluctuations.
EQUITY INCOME FUND seeks a high level of current income by investing primarily
in income producing equity securities. As a secondary objective, the Equity
Income Fund will also consider the potential for price appreciation when
consistent with seeking current income.
The Manager will attempt to manage the Equity Income Fund so that the average
income yield of the common stocks held by the Equity Income Fund will be at
least 50% greater than the yield of the S&P 500 Index. Because of these
strategies, we expect that the Equity Income Fund will have less price
volatility than the S&P 500 Index. There is no assurance that the Equity Income
Fund will achieve its stated objective.
Under normal conditions, the Equity Income Fund must invest 65% and will attempt
to invest at least 80% of its total assets in income-producing common stocks.
Except for necessary cash reserves, the Equity Income Fund will typically invest
all of its assets in an effort to meet its investment objectives. The Equity
Income Fund intends to invest in securities which generate a relatively high
level of dividend income and have potential for capital appreciation. These
securities will generally be stocks of high-quality U.S. corporations; however,
as deemed appropriate by the Manager, the Equity Income Fund may invest in
preferred stocks, equity securities which are convertible into common stocks,
American Depository Receipts, Real Estate Investment Trusts, and futures
contracts based on the S&P BARRA/Value Index, the S&P 500 Index, and the S&P
MidCap Index. The Equity Income Fund seeks to diversify its investments over a
carefully selected list in order to moderate the risks inherent in investing in
equity investments.
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MANAGER'S NOTE: UNDER NORMAL MARKET CONDITIONS, THE MANAGER INTENDS THE
EQUITY INCOME FUND TO BE FULLY INVESTED AT ALL TIMES BY USING VARIOUS CASH
MANAGEMENT STRATEGIES OUTLINED HERE AND IN THE STATEMENT OF ADDITIONAL
INFORMATION. IT IS OUR BELIEF THAT BY BEING FULLY INVESTED, THE FUND
INCREASES THE POSSIBILITY OF MEETING THE INVESTMENT GOALS OF ITS INVESTORS.
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The Equity Income Fund invests in a company following an analysis of the issuing
company. Ananalysis technique, proprietary to the Manager, is isused and
includes, among other things, tests for dividend payout ratio and positive
growth of dividends. Over time, dividend income has proved to be an important
component of total return. Also, dividend income tends to be a more stable
source of total return than does capital appreciation. While the price of a
company's stock can be significantly affected by market fluctuations and other
short-term factors, its dividend rate usually has greater stability. For this
reason, securities which pay a high level of dividend income are generally less
volatile in price than securities which pay a low level of dividend income.
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<PAGE>
Although the Manager will attempt to invest as much of the Equity Income Fund's
assets as is practical in income-producing stocks, the Fund may maintain a
reasonable position in high-quality, short-term debt securities and money market
instruments to meet redemption requests and other needs for liquid assets. These
securities and money market instruments may include domestic and foreign
commercial paper, certificates of deposit, banker's acceptances and time
deposits, U.S. Government obligations, money market mutual funds, and repurchase
agreements.
If the Manager believes that market conditions warrant a temporary defensive
posture (as an example, extreme market volatility) the Equity Income Fund may
invest without limitation in high-quality, short-term debt securities and money
market instruments (including shares in money market mutual funds).
These policies are not fundamental so they may be changed by the Board of
Directors without shareholder approval. However, the Equity Income Fund will
notify shareholders before any material change is made in the Fund's policies.
INVESTMENT RISKS
The Money Fund invests primarily in securities of issuers within the State of
California and therefore an investment in the Fund may be riskier than an
investment in other types of money market funds.
Mutual funds investing primarily in equity securities are subject to market
risk, i.e., the possibility that stock prices in general will decline over short
or even extended periods. The stock market tends to be cyclical, with periods
when stock prices generally rise and periods when stock prices generally
decline.
All Funds except the Index Funds are managed according to traditional methods of
"active" investment management, which involve the buying and selling of
securities based upon economic, financial and market analysis and investment
judgement. The Index Funds are managed passively, but attempt to replicate the
performance of the applicable index. Therefore, all Funds are subject to manager
risk. Manager risk refers to the possibility that the Fund's manager may fail to
execute the Fund's investment strategy effectively. As a result, a Fund may fail
to achieve its stated objective.
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The first table on the next page shows the performance of the S&P 500 for the
ten years from 1988 through 1997. Stock prices fluctuated widely during this
period but were higher at the end than at the beginning. The results shown
should not be viewed as representative of the income or capital gain or loss
that the S&P 500 may generate in the future, nor should this be considered
representative of the future performance of the 500 Fund.
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[GRAPHIC OMITTED]
S&P 500 Index*
Performance 1988-1997
1988 16.61%
1989 31.69%
1990 -3.10%
1991 30.47%
1992 7.62%
1993 10.08%
1994 1.32%
1995 37.58%
1996 22.96%
1997 33.36%
*SOURCE: Standard & Poor's Corporation. Total Returns for the S&P 500 include
the change in price of S&P 500 stocks and assume reinvestment of all dividends
paid by S&P 500 stocks.
The table above shows the actual performance of the MidCap Index for 1990
through 1997 and its reconstructed performance for the years 1988 and 1989. The
reconstructed performance utilizes the prices of the 400 companies comprising
the MidCap Index as of May 24, 1989, the date S&P introduced the MidCap Index.
The information shown for the years 1988 through 1989 does not represent actual
performance results and is intended to illustrate what the approximate
performance of the MidCap Index would have been in those years. The table should
not be viewed as representative of the income or capital gain or loss that the
MidCap Index may generate in the future, nor should this table be considered
representative of the future performance of the MidCap Fund.
[GRAPHIC OMITTED]
S&P MidCap Index*
Performance 1988-1997
1988 20.87%
1989 35.55%
1990 -5.12%
1991 50.11%
1992 11.91%
1993 13.96%
1994 -3.58%
1995 30.93%
1996 19.23%
1997 32.24%
*SOURCE: Standard & Poor's Corporation. No attempt was made to adjust the
reconstructed MidCap Index regarding companies that did not exist throughout the
period. The reconstructed information does not, therefore, contain data for 400
companies throughout the time period.
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<PAGE>
The table below shows the actual performance of the SmallCap Index for 1994
through 1997 and its reconstructed performance for the years 1988 and 1993. The
reconstructed performance utilizes the results generated by Standard &Poor's
based on a sampling of stocks that would have been likely to be included in the
index had it been in existance. The information shown for the years 1988 through
1993 does not represent actual performance results and is intended to illustrate
what the approximate performance of the SmallCap Index would have been in those
years. The table should not be viewed as representative of the income or capital
gain or loss that the SamallCap Index may generate in the future, nor should
this table be considered representative of the future performance of the
SmallCap Fund.
[GRAPHIC OMITTED]
S&P SmallCap Index*
Performance 1988-1997
1988 19.49%
1989 13.89%
1990 -23.69%
1991 48.49%
1992 21.04%
1993 18.78%
1994 -4.78%
1995 29.96%
1996 21.32%
1997 25.58%
*SOURCE: Standard & Poor's Corporation.
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MANAGER'S NOTE: WHILE THE INDEX FUNDS SEEK TO DUPLICATE THE PERFORMANCE OF
THE S&P 500, MIDCAP INDEX AND SMALLCAP INDEX, RESPECTIVELY, THE STOCK
PORTFOLIOS MAY NOT MATCH THE INDEXES PERFECTLY. THE INVESTMENT OBJECTIVES
AND CERTAIN POLICIES OF THE INDEX FUNDS ARE FUNDAMENTAL, MEANING THAT THEY
CAN ONLY BE CHANGED BY VOTE OF THE SHAREHOLDERS.
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INVESTMENT LIMITATIONS
The investment objective and status of each Stock Fund as a diversified mutual
fund are fundamental features, and may not be changed without shareholder
approval. The following summarizes certain other of each Stock Fund's principal
investment limitations. A complete listing is contained in the Statement of
Additional Information.
Each Stock Fund may borrow money from a bank, but only for temporary or
emergency purposes. Each Stock Fund may also borrow money by engaging in reverse
repurchase agreements, whereby such Fund would sell securities and agree to buy
them back at a later date. Each Stock Fund may borrow up to a maximum aggregate
amount equal to 15% of the market value of its assets, determined at the time of
bor-
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rowing. Each Stock Fund would borrow money only to meet redemption requests
prior to the settlement of securities already sold or in the process of being
sold by such Stock Fund. To the extent that a Stock Fund borrows money prior to
selling securities, the Stock Fund may be leveraged; at such times, the total
value of the Stock Fund may appreciate or depreciate more rapidly than its
benchmark index. Prior to purchasing additional portfolio securities, each Stock
Fund will repay any money borrowed in excess of 5% of the market value of its
total assets.
Each Stock Fund may lend its investment securities to qualified institutional
investors for the purpose of realizing additional income, although it is not
currently expected that any Stock Fund will do so. As collateral for the loaned
securities, the Stock Fund will receive cash, letters of credit, or securities
issued or guaranteed by the U.S. Government or its agencies. The collateral will
equal at least 100% of the current market value of the loaned securities. Loans
of securities, in the aggregate, will be limited to 10% of each Stock Fund's
total assets, determined at the time of lending. This is a non-fundamental
limitation, and may be changed at any time without shareholder approval.
STOCK INDEX FUTURES
Each Stock Fund may buy and sell stock index futures contracts (a) provided that
not more than 5% of a Stock Fund's assets (determined at the time of the
transaction) are required as futures contracts deposits, and (b) only to the
extent that these futures obligations would represent not more than 20% of a
Stock Fund's total assets (35% if total assets are below $25 million). Each
Stock Fund may engage in futures transactions for several reasons: to maintain
cash reserves while remaining fully invested, to facilitate trading, to reduce
transaction costs, to seek higher investment returns when a futures contract is
priced more attractively than the underlying equity security or index, or, in
the case of the Equity Income Fund, for bonafide hedging purposes. The Stock
Funds may not use futures contracts to leverage its assets.
The primary risks associated with the use of future contracts are: (i) imperfect
correlation between the change in market value of the stocks held by a stock
Fund and the prices of futures contracts; and (ii) possible lack of a liquid
secondary market for a futures contract and the resulting inability to close a
futures position when desired. The risk of imperfect correlation may be reduced
by investing only in those contracts whose behavior is expected to resemble that
of a stock Fund's underlying securities. The risk that a Stock Fund will be
unable to close out a futures position will be minimized by entering into such
transactions on a national exchange or board of trade with an active and liquid
secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in the pricing of futures contracts. As a result, a
relatively small price movement in a futures contract may result in an immediate
and substantial loss (as well as gain) to the investor. To minimize this risk,
when investing in futures contracts, a stock Fund will maintain cash or cash
equivalents in the amount of the underlying obligation, less the value of the
initial margin.
To the extent the MidCap Fund purchases or sells futures contracts, the Manager
currently intends to use futures contracts on the MidCap Index. The MidCap Fund
may, depending upon liquidity and other considerations, use future contracts on
various other indices including: the NYSE, Composite Index, Value Line Composite
Index, S&P 500, and Standard & Poor's 100 Stock Index. To the extent the
SmallCap Fund
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<PAGE>
purchases or sells futures contracts, the Manager currently intends to use
futures contracts on the Russell 2000. The SmallCap Fund may, depending upon
liquidity and other considerations, use future contracts on various other
indices including, but not limited to, the S&P 500 Index and S&PMidCap Index.
PORTFOLIO TRANSACTIONS
GNMA Certificates and new issues of municipal obligations are often sold on a
"when-issued" or "delayed delivery" basis. While we have ownership rights to the
obligations, we do not have to pay for them until they are delivered to us,
normally 15 to 45 days later. To meet that payment promise, we set aside (in a
separate account at our Custodian bank for the acquiring Fund) cash or
securities equal to the payment that will be due. Depending on market
conditions, we could experience greater fluctuations in the share prices or net
asset values of the Income Fund and the Government Fund as a result of
when-issued purchases. In our Manager's opinion, such purchases do not under
normal circumstances affect our ability to maintain the Money Fund's or the
Treasury Trust's net asset value at $1.00 per share.
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MANAGER'S NOTE: OUR MANAGER CHOOSES DEALERS BY JUDGING PROFESSIONAL
ABILITY, QUALITY OF SERVICES, AND REASONABLENESS OF MARK-UPS.
- --------------------------------------------------------------------------------
Our Manager may consider a number of factors in determining which brokers or
dealers to use for our portfolio transactions. While these are more fully
discussed in the Statement of Additional Information, the factors may include,
but are not limited to, the reasonableness of commissions or markups, the
quality of services and executions, and the sale of shares of any Fund by
broker-dealers.
The Manager uses various brokerage firms to carry out the Stock Funds' portfolio
transactions. Since the Manager places a large number of transactions, each
Stock Fund pays commissions lower than those paid by individual investors. Also,
the Stock Funds incur lower costs than those incurred by individuals when
purchasing debt securities. Higher commissions may be paid to firms that provide
research services to the extent permitted by law. The Sub-Adviser may use this
research information in managing each Stock Fund's assets, as well as the assets
of other clients.
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MANAGER'S NOTE: THE FREQUENCY OF PORTFOLIO TRANSACTIONS WILL VARY FROM YEAR
TO YEAR DEPENDING ON MARKET CONDITIONS.
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The majority of portfolio transactions in the Index Funds (other than those made
in response to shareholder activity) will be made to adjust such Fund's
portfolio to track the relevant index or to reflect occasional changes in such
index's composition.
HOW ARE DIVIDENDS, DISTRIBUTIONS AND TAXES HANDLED?
To the extent a Tax-Free Fund invests in California Municipal Obligations and
meets certain requirements of federal income tax and California personal income
tax law, the income received by the Fund is paid to you in the form of dividends
by the Fund which are exempt from regular federal income taxes and California
personal income tax. Distributions of income from certain stripped tax-exempt
obligations and coupons, repurchase agreements, securities loans, or other
taxable investments (if any) will not be exempt from federal or California
income tax. Since inception of the Money Fund and the Insured Fund (December 4,
1985 for the Money Fund and
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<PAGE>
October 20, 1992 for the Insured Fund) 100% of the dividends paid by these Funds
were exempt from federal and California personal income taxes. For the Income
Fund, 100% of the dividends paid by the fund from inception (December 4, 1985)
through the fiscal year ended August 31, 1997 were expempt from federal and
California personal income taxes. For the fiscal year ended Auguat 31, 1998,
99.9% of the dividends from the Income Fund qualified as tax-exempt interest
dividends. The Government Fund and the Treasury Trust also pay their net
interest income to you as dividends. Dividends paid by the Treasury Trust are
expected to be subject to federal income tax but exempt from California personal
income tax. Dividends paid by the Government Fund are expected to be subject to
federal income tax and a portion of such dividends are expected to be subject to
California personal income tax.
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MANAGER'S NOTE: THE MONEY FUND AND THE TREASURY TRUST DECLARE AND CREDIT
DIVIDENDS TO YOUR ACCOUNT DAILY AND REINVEST THEM OR PAY THEM OUT IN CASH
MONTHLY.
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Each business day, we credit Money Fund and Treasury Trust shareholder accounts
with a dividend consisting of substantially all of the net investment income
earned by the Money Fund and the Treasury Trust since the last dividend. Such
dividends are then paid on the last business day of each month. If you redeem
all shares in your Money Fund or Treasury Trust account at any time during a
month, all dividends credited to your account are paid to you along with the
proceeds of redemption. On the last business day of the month (payment date), we
will distribute dividends to Income Fund, Insured Fund and Government Fund
shareholders substantially equal to all the net investment income earned by each
Fund during that month. Shareholders eligible for the dividend are those who
hold shares as of the date of record, which is the next to the last business day
of that month.
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MANAGER'S NOTE: WE AUTOMATICALLY REINVEST YOUR DIVIDENDS AND DISTRIBUTIONS
UNLESS YOU TELL US OTHERWISE.
- --------------------------------------------------------------------------------
Shareholders who reinvest their dividends will have their dividends reinvested
on the payment date of that month, at that day's closing price. We will mail
dividends to shareholders typically on the next business day following the
payment date. Investors who select our Electronic Funds Transfer ("EFT") option
will have their personal accounts credited normally within two business days
following the payment date.
Each Stock Fund ordinarily pays dividends from net investment income quarterly
and distributes net realized securities gains, if any, annually, but may make
distributions on a more frequent basis to comply with the distribution
requirements of the "Code", and in all events in a manner consistent with the
provisions of the 1940 Act. On the last business day of March, June, September
and December we distribute dividends to shareholders of each Stock Fund
substantially equal to all the net investment income earned by each Stock Fund
during the prior three months payable to shareholders of record as of the second
to the last business day of March, June, September and December, respectively.
Unless you otherwise indicate on your account application or notify our
Shareholder Servicing Agent in writing later that you wish to receive cash, we
will automatically reinvest all income dividends and capital gains distributions
in additional shares of the Fund from which they were paid at no cost to you.
Distributions are treated in the same manner for tax purposes whether paid in
cash or reinvested in additional shares.
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<PAGE>
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MANAGER'S NOTE: THE 500 FUND AND THE MIDCAPFUND ASSESS AN ANNUAL
MAINTENANCE FEE OF $10.00 PER ACCOUNT TO OFFSET THE COSTS OF MAINTAINING
SHAREHOLDER ACCOUNTS. THE FEE IS DEDUCTED FROM EACH FUND'S DIVIDEND AT A
RATE OF $2.50 PER QUARTER.
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The Funds will not make distributions from net realized securities gains unless
capital loss carryovers, if any, have been utilized by each Fund or have
expired. All expenses are accrued daily and deducted before declaration of
dividends to investors.
For tax purposes, each Fund is treated as a separate taxable entity. Thus, any
distributions of capital gains are on a per Fund basis rather than aggregated
for the Trust as a whole. Any capital gains you may receive on your investment
in the Funds are taxable (unless you are a tax-exempt organization that has not
borrowed money to purchase shares). One annual payment from net realized capital
gains (after offsetting any available capital loss carryovers) of each Fund, if
any, will be distributed for the 12-month period ending October 31. When these
distributions represent a Fund's long-term capital gains, the Code treats them
that way for you, whether you take them in cash or reinvest them in additional
shares, and regardless of how long you have been a shareholder. The determining
factor is how long the Fund held the securities that produced the gains. You
also may receive distributions of short-term capital gains, which will be taxed
as ordinary income. Any dividend or distribution declared in October, November
or December as of a record date in such months and paid in the following January
will be treated as received on December 31 for federal tax purposes.
Shareholders will be informed after the close of each calendar year as to the
federal income tax consequences of distributions made each year.
With respect to the Income Fund, the Insured Fund, the Government Fund and the
Stock Funds, you may also realize a gain or a loss in any year in which you
redeem (sell) shares since the net asset value of the Funds fluctuate. The tax
treatment will depend, of course, on how long you owned your shares and on your
individual tax position. Any loss realized upon the redemption of shares within
six months from the date of their purchase will be disallowed to the extent of
tax-exempt dividends received during such period or will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gains during such six-month period. In addition, all or a
portion of any such loss will be disallowed to the extent other shares of the
same Fund are acquired (including by reinvestment of dividends) within 30 days
before or after such redemption.
We use the accounting practice called equalization for the Income Fund, the
Insured Fund, the Government Fund and the Stock Funds in order to avoid the
dilution of the dividends payable to existing shareholders. Under this
procedure, that portion of the net asset value per share of the Fund which is
attributable to undistributed income is allocated as a credit to undistributed
income in connection with the purchase of shares or a debit to undistributed
income in connection with the redemption of shares. Thus, after every
distribution, the value of a share drops by the amount of the distribution. If
you purchase shares of one of these Funds before the record date of a
distribution (the next to the last business day of the month) and elect to have
distributions paid to you in cash, you will pay the full price for the shares
and then receive some portion of that price back in the form of a taxable
distribution. Dividends and distributions from net realized short-term
securities gains paid or credited to accounts maintained by U.S. nonresident
shareholders also may be subject to U.S. nonresident withholding taxes.
Any tax-exempt income accrued by the Income Fund or the Insured Fund prior to
payment by it as a dividend will lose its tax-free status if you redeem your
shares prior to
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<PAGE>
the dividend record date, and instead will be included as part of the proceeds
of such redemption. Accordingly, rather than being received as a tax-exempt
dividend, it may be subject to federal and state income tax. You may redeem
shares of the Income Fund or the Insured Fund with the least adverse tax
consequences on the last business day of the month on which date the dividend
representing substantially all the net income previously accrued for the month
is declared. The percentage of income designated as tax-exempt by such Fund will
be determined after the close of the Fund's fiscal year and will be applied
uniformly to all distributions made by it during each fiscal year and may differ
from the actual tax-exempt percentage for any particular month.
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MANAGER'S NOTE: NOTICE AS TO THE TAX STATUS OF YOUR DIVIDENDS AND
DISTRIBUTIONS IS MAILED TO YOU ANNUALLY. WE WILL SEND YOU A STATEMENT OF
YOUR ACCOUNT AT LEAST QUARTERLY AND AFTER EVERY TRANSACTION THAT AFFECTS
YOUR SHARE BALANCE OR REGISTRATION.
- --------------------------------------------------------------------------------
We are required by federal law to withhold 31% of reportable payments, which may
include redemptions (except redemptions of Money Fund and Treasury Trust
shares), capital gains distributions and other taxable distributions, if any,
paid to certain accounts the holders of which have not complied with Internal
Revenue Service ("IRS") regulations. In connection with this withholding
requirement, you will be asked to certify on our application that the social
security or taxpayer identification number you provide is correct and that you
are not subject to 31% back-up withholding for previous underreporting to the
IRS or that you are an exempt recipient. Shareholders are also required to
disclose on their federal income tax returns their receipt of tax-exempt income,
including tax-exempt distributions from the Tax-Free Funds, even though such
distributions are not included in taxable income. For most kinds of accounts,
each Fund will report the proceeds of your redemptions to you and the IRS
annually. However, because the tax treatment also depends on your purchase price
and your personal tax position, you should keep your regular account statements
to use in determining your tax. Notice as to the tax status of your dividends
and distributions is mailed to you annually. You also will receive periodic
summaries of your account which will include information as to dividends and
distributions from securities gains, if any, paid during the year. Depending on
the composition of a Fund's income, a portion of the dividends from net
investment income may qualify for the dividends received deduction allowable to
certain U.S. corporations.
Our discussions in this Prospectus are general by nature, and you are advised to
consult your tax advisor for more complete information about federal, state, and
local tax issues. Paul, Hastings, Janofsky & Walker has expressed no opinion in
respect thereof. For example, shareholders subject to taxation in states other
than California may be taxed in such states on dividends they receive that are
exempt under the California personal income tax law.
ABOUT OUR MANAGEMENT
Our Trustees and Officers are: Richard F. Shelton, President and Trustee;
Phillip W. McClanahan, Vice President, Treasurer and Trustee; Stephen C. Rogers,
Chief Operating Officer, Secretary and Trustee; Harry Holmes, Trustee, with
Harry Holmes & Associates Consulting and formerly with Aspen Skiing Company and
Pebble Beach Company; and John B. Sias, Trustee, President and CEO, Chronicle
Publishing Company, formerly President ABC Television Network Group, and
Director, Capital Cities/ABC Inc. The Manager, CCM Partners, which is a
California limited partner-
33
<PAGE>
ship, and the Trusts were founded in 1985. The general partner of the Manager is
RFS Partners, which is a California limited partnership controlled by Richard F.
Shelton, our President. In addition, the Manager has a number of limited
partners with extensive business and investment backgrounds, including the
following individuals: Hamilton W. Budge, of counsel to the law firm of Brobeck,
Phleger & Harrison; Doris F. Fisher, co-founder of The Gap, Inc.; Robin Quist
Gates, Trustee of the San Francisco Museum of Modern Art; Brooks Walker, Jr.,
Trustee of the San Francisco Museum of Modern Art, and Brayton Wilbur, Jr.,
President of Wilbur-Ellis, Inc.
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MANAGER'S NOTE: OUR BOARD OF TRUSTEES HAS EXTENSIVE BUSINESS, INVESTMENT,
AND MONEY MANAGEMENT EXPERIENCE. THE TRUSTEES SUPERVISE OUR ACTIVITIES AND
REVIEW CONTRACTUAL ARRANGEMENTS WITH COMPANIES WHICH PROVIDE US SERVICES.
THE OFFICERS OF THE MANAGER HAVE EXTENSIVE EXPERIENCE IN THE INVESTMENT AND
SECURITIES BUSINESS.
- --------------------------------------------------------------------------------
Phillip W. McClanahan is Director of Investments for the Manager. He has been
involved in the day-to-day operations of the Income Fund, the Government Fund,
the Money Fund, the Treasury Trust and the Insured Fund since their inception in
1985, 1989 (Treasury Trust) and 1992 (Insured Fund). He served as Vice President
and Portfolio Manager at Transamerica Investment Services from 1984 to 1985.
From 1966 to 1984 he was Vice President and Portfolio Manager at Fireman's Fund
Insurance Company and Amfire, Inc. For more information on Mr. McClanahan's
business experience, please see "Trustees and Officers" in the Statement of
Additional Information.
Rod Baldwin is the Portfolio Manager for the Stock Funds, He has been employedby
the Manager since early 1999. Prior to his employment with CCMPartners, Mr.
Baldwin handled the day-to-day management of the Stock Funds as part of his
duties as Director, Index Investment Management with BofA Capital Management, a
wholly owned subsidiary of Bank of America NT&SA. Bank of America NT&SA served
as the Sub-Advisor of the Stock Funds from their inception. Mr. Baldwin was with
BofA Capital Management from 1976 to 1999. In addition to his duties relating to
the Stock Funds, he was responsible for managing index products for Bank of
America NT&SA.
For managing the investments and business affairs, the Income Fund, Insured
Fund, Money Fund, Treasury Trust and Government Fund pays the Manager a monthly
fee, less reimbursements as noted below, based on the following annualized
percentages of average daily net assets of the Fund throughout the month: 0.50%
of the first $100 million of net assets, plus 0.45% on net assets from $100
million to $500 million, and 0.40% of net assets above $500 million. For the
Manager's services, the Manager is entitled to a monthly fee from the MidCap
Fund computed at the annual rate of 0.40% of the value of its average daily net
assets. The Manager is also entitled to a monthly fee from the S&P 500 Index
Fund computed at the annual rate of 0.25% of the value of its average daily net
assets. For managing the investments and business affairs, the SmallCap Fund and
the Equity Income Fund pay the Manager a monthly fee, less reimbursements as
noted below, based on the following annualized percentages of average daily net
assets of the Fund throughout the month: 0.50% of the first $500 million of
average daily net assets, plus 0.45% on average daily net assets from $500
million to $1 billion, and 0.40% of net assets above $1 billion.
Pursuant to the Management Agreements with the Manager, each Fund is responsible
for its own operating expenses including, but not limited to, the Manager's fee;
taxes, if any; transfer agent, custodian, legal, and auditing fees; fees and
expenses of Trustees
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<PAGE>
who are not members of, affiliated with, or interested persons of the Manager;
salaries of any personnel not affiliated with the Manager; periodic insurance
premiums; trade association dues; expenses of obtaining quotations for
calculating the value of each Fund's net assets and of bookkeeping and
recordkeeping functions; printing and other expenses relating to each Fund's
operations; plus any extraordinary and non-recurring expenses which are not
expressly assumed by the Manager.
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MANAGER'S NOTE: WE BELIEVE OUR ANNUAL FUND OPERATING EXPENSES ARE AMONG THE
LOWEST AVAILABLE.
- --------------------------------------------------------------------------------
Annual operating expenses of each Fund, excluding extraordinary items, are
limited by the Manager to 1% of its average daily net assets, and the Manager
has voluntarily agreed to further limitations. The Manager has agreed to waive
its fees and absorb expenses to the extent necessary to limit total fund
operating expenses through August 31, 1999 to the following annual rates of
average net assets of each Fund: Money Fund-0.40%; Income Fund-0.65%; Insured
Fund-0.55%; Government Fund-0.65%; Treasury Trust-0.40%; 500 Fund-0.20%; MidCap
Fund-0.40%; SmallCap Fund-0.65%; and the Equity Income Fund-0.80%. The operating
expenses, including the management fee and all other expenses (excluding
extraordinary expenses), incurred by a Fund in excess of this expense ratio
limitation will be reimbursed to that Fund by the Manager out of the management
fee. The Manager paid for all of the Trusts' organization expenses and for
substantially all of the Funds' operating expenses during the initial fiscal
period ended August 31, 1986. During the fiscal years ended since then, the
Manager has reimbursed each Fund and assumed certain Fund expenses to lower the
net expenses of each Fund as set forth in their respective Financial Highlights
on pages 6 through 11. The net management fee paid by each Fund during its last
fiscal year ended August 31, 1998 as an annual percentage of average daily net
assets was: 0.48% for the Income Fund, 0.35% for the Insured Fund, 0.47% for the
Government Fund, 0.26% for the Treasury Trust, 0.29% for the Money Fund, 0.05%
for the 500 Fund, 0.24% for the MidCap Fund, 0.05% for the SmallCap Fund and
0.39% for the Equity Income Fund.
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MANAGER'S NOTE: WE REQUIRE A COMPLETED AND SIGNED APPLICATION FOR EACH NEW
ACCOUNT YOU OPEN, REGARDLESS OF THE METHOD YOU CHOOSE FOR MAKING YOUR
INITIAL INVESTMENT.
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OTHER SERVICES - Firstar Bank Milwaukee ("Firstar") serves as the custodian of
the portfolio securities and other assets of the Funds. Firstar Mutual Fund
Services, LLC performs dividend-paying functions, maintains shareholder records,
and acts as transfer agent for the Funds, respectively. For its services,
Firstar is paid a monthly fee based upon a maintenance fee for each account in
the Funds, plus charges for Fund and shareholder transactions. For an additional
fee, Firstar also performs our portfolio and net asset valuation and the
bookkeeping and recordkeeping required by the Investment Company Act of 1940, as
amended.
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<PAGE>
OPENING AN ACCOUNT
You'll find all the necessary application materials included in the packet
accompanying this Prospectus. Additional paperwork may be required from
corporations, associations, and certain other fiduciaries. The minimum initial
investments and subsequent investments for each Fund is listed below.
Minimum Minimum
initial subsequent
Fund investment investment
---- ---------- ----------
Income Fund $10,000 $250
Insured Fund $10,000 $250
Money Fund $10,000 $250
Government Fund $10,000 $250
Treasury Trust $10,000 $250
500 Fund $5,000 $250
MidCap Fund $5,000 $250
SmallCap Fund $5,000 $250
Equity Income Fund $5,000 $250
We may change this minimum investment amount at any time or waive it at our
discretion. To protect against fraud, it is the policy of the Funds not to
accept third party checks for the purposes of opening new accounts or purchasing
additional shares. If you have any questions concerning the application
materials, wire transfers, or our yields and net asset values, please call us,
toll-free at (800) 225-8778. If you have any questions about our investment
policies and objectives, please call us at (415) 398-2727 or (800) 225-8778.
HOW TO BUY SHARES
Investing by Mail - If you wish to purchase shares directly from the Funds, you
should:
o Initial Purchase -Make your check payable to the name of Fund in which you are
investing and mail it with the application to the address indicated on the
application. Please note the minimum initial investments listed above.
o Purchasing Additional Shares--Make your check payable to the name of the Fund
in which you are investing, write your account number on the check, and mail
your check with your confirmation stub to the address printed on your account
statement. There is a $250 minimum for subsequent investments.
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MANAGER'S NOTE: PURCHASES ARE EFFECTIVE THE DAY WE RECEIVE FEDERAL FUNDS
(I.E., FUNDS AVAILABLE AT A FEDERAL RESERVE BANK).
- --------------------------------------------------------------------------------
Purchasing by Exchange - You may purchase shares in a Fund by exchanging shares
from an account in one of our related Funds. Such exchanges must meet the
minimum amounts required for initial or subsequent investments described above.
When opening an account by exchange, your new account must be established with
the same registration as your other California Investment Trust Fund Group
account and an exchange authorization must be in effect.
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<PAGE>
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WIRE INSTRUCTIONS:
Federal funds should be wired to:
Firstar Bank Milwaukee, NA
ABA # 075000022
For: Firstar Mutual Fund Services. LLC
Account # 112-952-137
For further credit to:
Fund: ____________________________________________
Account Registration: _____________________________
Account Number: ___________________________________
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If you are opening a new account by wire, you must first call California
Investment Trust Fund Group at (800) 225-8778 to obtain an account number.
In order to make your order effective, we must have federal funds available to
us at our Bank. Accordingly, your purchase will be processed at the net asset
value next calculated after your investment has been converted to federal funds.
If you invest by check, or non-federal funds wire, allow approximately two
business days for conversion into federal funds. If you wire money in the form
of federal funds, your money will be invested at the share price next determined
after receipt of the wire. You will begin to earn dividends as of the first
business day following the day of your purchase.
All your purchases must be made in U.S. dollars and checks must be drawn on
banks located in the U.S. We reserve the right to limit the number of investment
checks processed at one time. If the check does not clear, we will cancel your
purchase, and you will be liable for any losses and fees incurred.
When you purchase by check, redemption proceeds will not be sent until we are
satisfied that the investment has been collected (confirmation of clearance will
take up to 12 days). To protect against fraud it is the policy of the Funds not
to accept third party checks. Payments by check or other negotiable bank deposit
will normally be effective within two business days for checks drawn on a member
of the Federal Reserve System and longer for most other checks. Wiring your
money to us will reduce the time you must wait before redeeming or exchanging
shares. You can wire federal funds from your bank, which may charge you a fee.
You may buy shares of a Fund through a selected securities broker. Your broker
is responsible for the transmission of your order to Firstar and may charge you
a fee. You will generally receive the share price next determined after your
order is placed with your broker, in accordance with your broker's agreed upon
proceedures with the Fund. Your broker can advise you of specific details.
If you wish, you also may deliver your investment checks (and application, for
new accounts) to the Trust's office. However, if you do so, please note that
your purchase will not be deemed received, nor will it be processed, until we
have forwarded it on your behalf to Firstar which, in turn, will deposit your
checks at the Bank for conversion to federal funds.
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<PAGE>
The Funds do not consider the U.S. Postal Service or other independent delivery
service to be its agents. Therefore, deposit in the mail or with such services,
or receipt by Firstar Trust Company's Post Office Box of purchase applications
or redemption requests does not not constitute receipt by Firstar Trust Company
or the Funds.
You may wish to use dollar-cost averaging as a means of making investments of a
fixed dollar amount at regular intervals into the Funds. Dollar-cost averaging
is based on the assumption that investors cannot regularly outguess the ups and
downs of the market. It is a method of investing that turns the ups and downs of
the market to the advantage of the long-term investor. Instead of trying to time
the highs and lows, you invest the same amount of money in mutual funds at
regular intervals over a long period of time. The objective of dollar-cost
averaging is to buy more when the price is low and less when the price is high.
Although dollar-cost averaging cannot guarantee a profit (no system can give a
gain to investors who have to sell at the bottom of the market), dollar-cost
averaging allows you to take advantage of market swings by purchasing larger
quantities of shares when prices are low. For example, if you invest $1000 at
$10 per share, you receive 100 shares. If, at the time of your next purchase,
the market has dropped and the price of shares of the fund has gone down to $5
per share, you will receive 200 shares for your $1000 purchase.
We reserve the right to suspend the offering of shares of any of the Funds for a
period of time and to reject any specific purchase order in whole or in part.
SHAREHOLDER SERVICES
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MANAGER'S NOTE: THE FREE EXCHANGE PRIVILEGE IS A CONVENIENT WAY TO SELL AND
TO BUY SHARES IN OUR FUNDS IN ORDER TO RESPOND TO CHANGES IN YOUR GOALS.
- --------------------------------------------------------------------------------
FREE EXCHANGE PRIVILEGE
Our Funds have a variety of investment objectives as discussed elsewhere in this
Prospectus. Before you make an exchange please note the following:
o Read this Prospectus.
o Complete and sign an exchange authorization (if not previously done).
Exchanges may be made only among designated accounts registered in the same
name(s).
o Taxes: Each exchange actually represents the sale of shares of one Fund and
the purchase of shares in another, which may produce a gain or loss for tax
purposes. We will confirm each exchange transaction to you by mail.
o Proceeds of redemption from shares of the Fund exchanged are used to purchase
the other Fund on the day the exchange is authorized (which must be prior to
market close, normally at 4:00 p.m., Eastern time).
o Exchange by telephone: call the appropriate Fund at 800-225-8778. Give the
names of the Funds, the exact name in which your accounts in the Funds are
registered, your account numbers, the dollar amount that you wish to exchange
and the required identification number. Telecommunications device for the deaf
("TDD") services for hearing impaired shareholders are available for telephone
exchanges by calling (800) 864-3416.
Unless you submit an account application that indicates that you have declined
telephone exchange privileges, you agree, by signing your account application,
to authorize and direct the Funds to accept and act upon telephone, telex, fax,
or telegraph instructions for exchanges involving your account or any other
account with the same registration. The Funds employ reasonable procedures in an
effort to confirm the
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<PAGE>
authenticity of telephone instructions, such as requiring the caller to give a
special authorization number. Provided these procedures are followed, you
further agree that neither a Fund nor the Transfer Agent will be responsible for
any loss, damage, cost or expense arising out of any telephone instructions
received for an account and to hold harmless Firstar and the Funds, any of their
affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents from any losses,
expenses, costs or liabilities (including attorneys' fees) that may be incurred
in connection with these instructions or the exercise of the telephone exchange
privilege.
You should realize that by electing the telephone exchange option, you may be
giving up a measure of security that you might otherwise have if you were to
exchange your shares in writing. For reasons involving the security of your
account, telephone transactions may be tape recorded.
AUTOMATIC SHARE ACCUMULATION PLAN
Under the Funds' Automatic Share Accumulation Plan, an investor may arrange to
make additional purchases (minimum $250) of Fund shares automatically on a
monthly basis by electronic funds transferred from the shareholder's checking
account if the bank which maintains the account is a member of the Automated
Clearing House, or by preauthorized checks drawn on the shareholder's bank
account. A shareholder may, of course, terminate the program at any time. There
is no fee to participate in this program. However, a service fee of $20.00 will
be deducted from your Fund account for any AIP purchase that does not clear due
to insufficient funds, or if prior to notifying the Fund in writing or by
telephone to terminate the plan, you close your bank account or in any manner
prevent withdrawal of the funds from the designated checking or NOW account.
Investors may obtain more information concerning this program, including the
application form, from the Funds.
The market value of shares of the Funds, except the Money Fund and the Treasury
Trust, is subject to fluctuation. Before undertaking any plan for systematic
investment, the investor should keep in mind that such a program does not assure
a profit or protect against a loss.
TAX-SAVING RETIREMENT PLANS
- --------------------------------------------------------------------------------
MANAGER'S NOTE: RETIREMENT PLANS ARE AMONG THE BEST TAX BREAKS AVAILABLE TO
INDIVIDUALS. PLEASE CALL AND ASK FOR ONE OF OUR RETIREMENT PLAN
SPECIALISTS..
- --------------------------------------------------------------------------------
We can set up your new account in a Fund under one of several tax-sheltered
plans. The following plans let you save for your retirement and shelter your
investment earnings from current taxes.
o IRAS/ROTH IRAS: You can also make investments in the name of your spouse, if
your spouse has no earned income. Each Fund is subject to an annual bank
maintenance fee, currently $12.50 with a maximum annual charge of $25.00 per
social security number. This fee is assessed annually in September.
o SIMPLE, SEP, 401(K)/PROFIT-SHARING AND MONEY-PURCHASE PLANs (Keogh): open to
corporations, self-employed people and partnerships, to benefit themselves and
their employees.
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<PAGE>
o 403(B) PLANS. Open to eligible employees of certain states and non-profit
organizations.
We can provide you with complete information on any of these plans which
discusses benefits, provisions and fees.
SYSTEMATIC WITHDRAWAL PLAN
If you own shares of a Fund with a value of $10,000 or more, you may establish a
Systematic Withdrawal Plan. You may receive monthly or quarterly payments in
amounts of not less than $100 per payment. Details of this plan may be obtained
by calling the Funds.
ADMINISTRATIVE INFORMATION
CASH DISTRIBUTIONS
Unless you otherwise indicate on the account application, we will reinvest all
dividends and capital gains distributions as applicable for your account in
additional shares of the Fund from which they are distributed. On the
application you may indicate by checking the appropriate box that you wish to
receive either income dividends or capital gains distributions in cash. EFT is
available to those investors who would like their dividends electronically
transferred to their personal accounts. For those investors who do not request
this feature, dividend checks will be mailed via regular mail. If you elect to
receive distributions by mail and the U.S. Postal Service cannot deliver your
checks, we will void such checks and reinvest your money in your account at the
then current net asset value and reinvest your subsequent distributions.
STATEMENT AND REPORTS
Investors who own solely Stock Fund shares will receive statements at least
quarterly and after every transaction that affects their share balance and/or
account registration. A statement with tax information will be mailed to you by
January 31 of each year, a copy of which will be filed with the IRS if it
reflects any taxable distributions. Twice a year you will receive our financial
statements, at least one of which will be audited.
- --------------------------------------------------------------------------------
MANAGER'S NOTE: KEEP STATEMENTS YOU RECEIVE AFTER YOU BUY OR SELL SHARES TO
ASSIST IN RECORDKEEPING AND TAX CALCULATIONS.
- --------------------------------------------------------------------------------
The account statements you receive will show the total number of shares of a
Fund owned by you. You may rely on these statements in lieu of share
certificates which are not necessary and will not be issued.
- --------------------------------------------------------------------------------
MANAGER'S NOTE: IF YOU ARE A SHAREHOLDER OF THE INCOME FUND, INSURED FUND,
GOVERNMENT FUND, MONEY FUND OR TREASURY TRUST, WE WILL SEND A STATEMENT OF
YOUR ACCOUNT AT LEAST ONCE A MONTH AND AFTER EVERY TRANSACTION THAT AFFECTS
YOUR SHARE BALANCE AND/OR ACCOUNT REGISTRATION.
- --------------------------------------------------------------------------------
We pay for regular reporting services, but not for special services, such as a
request for an historical transcript of an account. You may be required to pay a
separate fee for these special services.
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<PAGE>
CONSOLIDATED MAILINGS
In an effort to reduce mailing costs, consolidated statements will be sent to
each registrant. Consolidated statements include a summary of all Funds held by
each registrant as identified by the first line of registration, social security
number and address zip code. Consolidated statements offer convenience to
investors by summarizing account information and reducing unnecessary mail. If
you do not wish this consolidation to apply to your account(s), please notify
the Fund of this in writing at the address on the cover page of this Prospectus.
OUR SHARE PRICES
The net asset value of each Fund is computed by adding all of its portfolio
holdings and other assets, deducting its liabilities, and then dividing the
result by the number of shares outstanding in that Fund. Our Shareholder
Servicing Agent normally calculates this value at market close, normally 4:00
p.m. Eastern Time or 1:00 p.m. Pacific Time on each day that the NYSE is open.
The Money Fund's or Treasury Trust's net asset value will not be calculated nor
transactions processed on certain holidays observed by national banks and/or our
Shareholder Servicing Agent (Martin Luther King's Birthday, Presidents Day,
Columbus Day and Veterans Day) in addition to those days on which the NYSE is
closed.
- --------------------------------------------------------------------------------
MANAGER'S NOTE: THE NUMBER OF SHARES YOUR MONEY BUYS REFLECTS THE PER SHARE
PRICE OF THE FUND YOU ARE BUYING ON THE DAY YOUR TRANSACTION TAKES PLACE.
- --------------------------------------------------------------------------------
The share prices of the Income Fund, the Insured Fund, the Government Fund and
the Stock Funds will vary over time as interest rates and the value of their
securities vary. Portfolio securities of the Stock Funds that are listed on a
national exchange are valued at the last reported sale price. U.S. Treasury
Bills are valued at amortized cost, which approximates market value. Portfolio
securities of the Income Fund, the Insured Fund and the Government Fund are
valued by an independent pricing service that uses market quotations
representing the latest available bid price, prices provided by market makers,
or estimates of market values obtained from yield data relating to instruments
or securities with similar characteristics. Securities with remaining maturities
of 60 days or less are valued on the amortized cost basis as reflecting fair
value. All other securities are valued at their fair value as determined in good
faith by the respective Boards of Trustees.
The share price of the Government Fund, Income Fund, Insured Fund and Stock
Funds are reported by the National Association of Securities Dealers, Inc. in
the mutual funds section of most newspapers after the heading "California
Trust"; The Government fund Nasdaq symbol is "CAUSX." The symbol for the Income
Fund is "CFNTX." The symbol for the 500 Fund is "SPFIX". The symbol for the
MidCap Fund is "SPMIX." The symbol for the Insured Fund is "CATFX". The symbol
for the SmallCap Fund is SMCIX. The symbol for the Equity Income Fund is EQTIX.
We attempt to maintain the Money Fund's and the Treasury Trust's price at $1.00
per share. Securities owned by the Money Fund and by the Treasury Trust are
valued on the basis of their amortized cost, which allocates evenly the income
earned from the date of purchase of a security until its maturity instead of
looking at actual changes in its market value. Calculations are made to compare
the value of these Funds' invest-
41
<PAGE>
ments using the amortized cost method with market values. Market valuations are
obtained by using actual quotations provided by independent pricing services,
market makers, estimates of market value, or values obtained from yield data
relating to comparable classes of money market instruments published by
reputable sources. Securities for which market valuations are not readily
available or which are illiquid will be valued at their fair values as
determined in good faith by the respective Boards of Trustees.
PERFORMANCE INFORMATION
All performance information published in advertisements, sales literature and
communications to investors, including various expressions of current yield,
effective yield, tax equivalent yield, total return and distribution rate, is
calculated and presented in accordance with the rules prescribed by the
Securities and Exchange Commission.
The Money Fund and the Treasury Trust may publish both a current yield and an
effective yield for specified 7-day periods. Current yield refers to the income
generated by an investment in the Fund over the specified period which is then
annualized (i.e., the amount of income generated by the investments during that
week is assumed to be generated each week over a 52-week period and is shown as
a percentage of the investment). Effective yield is calculated in a similar
manner, but, when annualized, the income earned by the investment is assumed to
be reinvested; effective yield will differ from current yield because of the
compounding effect of this assumed reinvestment. The Money Fund may also publish
tax equivalent versions of these yields, as described below.
It is our current practice to reflect changes in the portfolio values, if any,
of the Money Fund and the Treasury Trust in their daily dividend, and, for the
purpose of calculating their yield, any realized gains and losses or unrealized
appreciation or depreciation is not included in their daily net investment
income.
The Income Fund, the Insured Fund, Government Fund and Equity Income Fund may
publish a current yield over specified 30-day periods reflecting the income per
share earned by each respective Fund's investments. Current yield for these
Funds is calculated by dividing each Fund's annualized net investment income per
share during the specified period by the net asset value per share at the end of
such period. The Money Fund, the Income Fund and the Insured Fund also may
publish a tax equivalent yield demonstrating the yield from a taxable investment
necessary to produce an after-tax yield equivalent to the yields generated by
these Funds, which invest principally in tax-exempt obligations. Tax equivalent
yield is computed by dividing the tax exempt portion of each respective Fund's
current (or effective) yield, calculated as indicated above, by one minus the
stated income tax rate and adding the product to that portion (if any) of the
Fund's yield that is not tax exempt.
From time to time each Fund may publish its total return. Yield information for
the Income Fund, the Insured Fund and the Government Fund will be accompanied by
total return information on these Funds. Total return information will state
each Fund's average annual compounded rates of return over the most recent four
calendar quarters and over the life of the Fund, based upon the value of shares
acquired through
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<PAGE>
a hypothetical $10,000 investment at the beginning of the specified period and
the net asset value of such shares at the end of the period assuming
reinvestment of all distributions at net asset value. Each Fund (including the
Money Fund and the Treasury Trust) also may advertise aggregate and average
total return information over different periods of time. Aggregate total return
information is calculated in a manner similar to average annual total return,
except that the results are not annualized.
Each Fund also may publish a distribution rate in investor communications
preceded or accompanied by a copy of this Prospectus. The current distribution
rate for each Fund is calculated by dividing the annualization of the total
distributions made by the Fund during a stated period by the net asset value per
share at the end of such period. The distribution rate for a Fund may differ
from its yield because the distribution rate may be calculated for a different
period of time and may contain items of income that are not reflected in a
Fund's yield.
In each case, performance information will be based on past performance and will
reflect all recurring charges against Fund income. Performance information is
based on historical data and does not indicate the future performance of any
Fund. See the Statement of Additional Information for a more detailed
explanation and actual calculations of each Fund's yield for the 7-day or 30-day
period (as appropriate) ended August 31, 1998.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day that the NYSE
is open. Your shares will be redeemed at the net asset value next calculated
after we have received your redemption request in proper form (see below).
Remember that we may hold redemption proceeds until we are satisfied that we
have collected investments which were made by check. To avoid these possible
delays, which could be up to 12 calendar days, you should consider making your
investment by wire, following the instructions on page 37.
By Mail: To:
California Investment Trust Fund Group
44 Montgomery Street, Suite 2100
San Francisco, CA 94104
Send a "letter of instruction" specifying the name of the Fund, the number of
shares to be sold, your name, your account number, and the additional
requirements listed below that apply to your particular account.
T<TABLE>
<CAPTION>
Type of Registration Requirements
- -------------------- ------------
<S> <C>
Individual Letter of instruction signed by all person(s)
Joint Tenants required to sign for the account, exactly as it
Tenants In Common is registered, accompanied by signature guarantee(s).
Sole Proprietorship
Custodial Uniform Gifts to Minors Act
General Partners
Corporation Letter of instruction and a corporate resolution, signed
Association by person(s) required to sign for the account,
accompanied by signature guarantee(s).
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<PAGE>
Trust A letter of instruction signed by the Trustee(s), with a
signature guarantee. (If the Trustee's name is not regis-
tered on your account, also provide a copy of the trust
document, certified within the last 60 days.)
</TABLE>
If you do not fall into any of these registration categories (e.g., Executors,
Administrators, Conservators, Guardians, etc.), please call the Fund for further
instructions.
Firstar requires that signature(s) be guaranteed by an eligible signature
guarantor such as a commercial bank, broker-dealer, credit union, securities
exchange or association, clearing agency or savings association.
- --------------------------------------------------------------------------------
MANAGER'S NOTE: WITH CHECKWRITING, OUR MOST CONVENIENT REDEMPTION
PROCEDURE, YOUR INVESTMENT WILL CONTINUE TO EARN INCOME UNTIL THE CHECK
CLEARS YOUR ACCOUNT. THIS CHECKWRITING FEATURE IS NOT AVAILABLE FOR THE
STOCK FUNDS.
- --------------------------------------------------------------------------------
By Check (except Stock Funds, minimum $500).
You must apply for the checkwriting feature for your account. You may
redeem by check provided that the proper signatures you designated are on
the check. (There is no charge for this service and you may write an
unlimited number of checks). The checkwriting feature is not available for
the Stock Funds. Please note, a $25.00 fee will be charged to your account
for any bounced check.
By Exchange
You must meet the minimum investment requirement of the other Fund. You can
only exchange between accounts with identical registration. Same day
exchanges are accepted until market close, normally 4:00 p.m., Eastern time
(1:00 p.m., Pacific Time).
By Wire
You must have applied for the wire feature on your account. We will notify
you that this feature is active and you may then make wire redemptions by
calling the Fund before 1:00 p.m., Pacific time. This means your money will
be wired to your bank the next business day. There is a charge for each
wire (currently $12.00).
By EFT
You must have applied for the EFT withdrawal feature on your account.
Typically, money sent by EFT will be sent to your bank within three
business days after the sales of your securities. There is no fee for this
service.
By Telephone
Call the Fund at (800) 225-8778. Give the name of the Fund, the exact name
in which your account is registered, your account number, the required
identification number and the number of shares or dollar amount that you
wish to redeem. TDD services for hearing impaired shareholders are
available for telephone redemptions by calling (800) 864-3416. See the
discussion of limitation of liability under "Shareholder Services" - "Free
Exchange Privilege."
Retirement Plan shareholders should complete a Rollover-Distribution Election
Form.
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<PAGE>
REDEMPTION REQUIREMENTS TO REMEMBER
Before you redeem any shares in your account, please review the following
information:
- --------------------------------------------------------------------------------
MANAGER'S NOTE: YOU SHOULD NOT ATTEMPT TO CLOSE YOUR ACCOUNT BY CHECK,
SINCE YOU CANNOT BE SURE OF THE NUMBER OF SHARES AND VALUE OF YOUR ACCOUNT.
USE THE WIRE REDEMPTION OR MAIL REDEMPTION FEATURE TO CLOSE YOUR ACCOUNT.
- --------------------------------------------------------------------------------
Any redemption request we receive from you must be in proper form, which means,
among other things, that we must have a properly completed account application
on file for you, you must properly sign your request, and if you are a
corporation or another entity, we may require current corporate resolutions and
other documents and information. Once your shares are redeemed, we will normally
send you the proceeds within one day but not later than within seven days. When
the NYSE is closed (or when trading is restricted) for any reason other than its
customary weekend or holiday closings, or under any emergency circumstances as
determined by the Securities and Exchange Commission to merit such action, we
may suspend redemption or postpone payment dates. If you want to keep your
account(s) open, please be sure that the value of all of your accounts in the
Funds combined does not fall below $5,000 ($1,000 in the case of the Stock
Funds) because of redemptions. Otherwise, we may close them and mail you the
proceeds at the address we have in our records. We will give you 30 days'
written notice that your account(s) will be closed unless you make an investment
to increase your aggregated account balance(s) to the $5,000 minimum ($1,000 in
the case of the Stock Funds). If you close your account, any accrued dividends
will be paid as part of your redemption proceeds.
The share prices of the Income Fund, the Insured Fund, the Government Fund and
the Stock Funds will fluctuate and you may receive more or less than your
original investment when you redeem. If you are an Income Fund, an Insured Fund
or a Government Fund shareholder, you should not attempt to draw a check for
more than 80% of the value of the shares in your account due to their potential
fluctuations. If you are a Money Fund or Treasury Trust shareholder, you should
not write a check on your account for more than the amount of money which is in
your account. In any Fund, if the amount of your check is greater than the value
of your account, your check will be returned to you unpaid and you may be
subject to extra charges and penalties. The Bank currently charges you $20 for
each check rejected because of an insufficient balance, and the bank where your
check is deposited may charge the account in which the check was deposited an
additional amount.
SHAREHOLDER INQUIRIES SHOULD BE DIRECTED TO THE FUNDS AT:
44 MONTGOMERY STREET, SUITE 2100, SANFRANCISCO, CA 94104; OR BY CALLING THE
FUNDS AT (800) 225-8778.
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<PAGE>
MISCELLANEOUS INFORMATION
The Trusts were organized as Massachusetts business trusts on September 11,
1985. The Agreement and Declaration of Trust for each Trust permits the Trustees
to issue an unlimited number of full and fractional shares of beneficial
interest without par value, which may be issued in any number of series (called
Funds). Such shares have no preemptive, conversion, or sinking rights. You have
equal and exclusive rights to dividends and distributions declared by your Fund
and to the net assets of your Fund upon liquidation or dissolution.
As business trusts, we are not required, nor do we intend, to hold annual
shareholder meetings. However, we may hold special meetings for a specific Fund
or a Trust as a whole for purposes such as electing Trustees, changing
fundamental policies, or approving an investment management agreement. You also
have equal rights as to voting and vote separately by Fund as to issues
affecting only your Fund (such as changes in fundamental investment policies and
objectives). Your voting rights are not cumulative, so that the holders of more
than 50% of the shares voting in any election of Trustees can, if they choose to
do so, elect all of the Trustees. Meetings of shareholders may be called by the
Trustees in their discretion or upon demand of the holders of 10% or more of the
outstanding shares of any Fund for the purpose of electing or removing Trustees.
Our Board of Trustees may from time to time offer other Funds of either Trust,
the assets and liabilities of which will likewise be separate and distinct from
any other Fund of either Trust. Although this offering of shares of each of our
Funds constitutes a separate and distinct offering of such shares, it is
possible that a Fund might become liable for any misstatements or omissions from
this Prospectus or the Statement of Additional Information about one of the
other Funds. The Board of Trustees of each Trust has considered this factor with
respect to each Trust in approving the use of a single, combined Prospectus and
a joint Statement of Additional Information for all of the Funds.
The following have been appointed by the Board of Trustees to serve the Trusts
and the Funds:
Investment Manager: CCMPartners, a California limited Partnership, 44 Montgomery
Street, Suite 2100, San Francisco, California 94104.
Custodian Bank: Firstar Bank Milwuakee, 615 East Michigan Street, Milwaukee,
Wisconsin 53202.
Shareholder Servicing and Transfer Agent: Firstar Mutual Fund Services, LLC, 615
East Michigan Street, Milwaukee, Wisconsin 53202.
Legal Counsel: The validity of the shares of beneficial interest offered hereby
will be passed upon by Paul, Hastings, Janofsky & Walker, 345 California Street,
29th Floor, San Francisco, California 94104.
Auditors: Tait, Weller & Baker, Eight Penn Center Plaza, Suite 800,
Philadelphia, Pennsylvania 19102-1707.
Distributor: RFS Partners, 44 Montgomery Street, Suite 2100, San Francisco,
California 94104.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is unauthorized. No salesman, dealer or other person
is authorized to give any information or make any representation other than
those contained in this Prospectus or in the Statement of Additional
Information.
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<PAGE>
GLOSSARY
TAX ANTICIPATION NOTES are issued to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenue,
to be payable from these specific future taxes.
REVENUE ANTICIPATION NOTES are issued in expectation of receipt of other kinds
of revenue, such as federal revenues available under the Federal Revenue Sharing
Program.
BOND ANTICIPATION NOTES are normally issued to provide interim financing until
long-term financing can be arranged. The long-term bonds then provide the money
for the repayment of the Notes.
CONSTRUCTION LOAN NOTES are sold to provide construction financing. After
successful completion and acceptance, many projects receive permanent financing
through the Federal Housing Administration under FNMA (the Federal National
Mortgage Association) or GNMA (the Government National Mortgage Association.)
PROJECT NOTES are instruments sold by the Department of Housing and Urban
Development but issued by a state or local housing agency.
SHORT-TERM DISCOUNT NOTES (tax-exempt commercial paper) are promissory notes
issued by municipalities to supplement their cash flow. The ratings A-1 and
Prime-1 are the highest commercial paper ratings assigned by S&P and Moody's.
VARIABLE RATE OBLIGATIONS provide for adjustment in interest rates (which are
set as a percentage of a designated base rate such as the prime rate of a bank
or the 90-day U.S. Treasury Bill rate) on specific dates, while floating rate
obligations have an interest rate which changes whenever there is a change in a
designated base rate. Their relationship to the designated base rate means they
are less subject to fluctuations in value. Our investment in these obligations
will normally involve industrial development revenue bonds.
CERTIFICATES OF PARTICIPATION represent an undivided interest in municipal
obligations which are generally owned by a financial institution (primarily
banks) and provide for ownership in proportion to a Fund's interest compared to
the total principal amount of the underlying obligation. Each certificate of
participation is backed by an irrevocable letter of credit or guaranty of a
bank. We generally have the right to sell the instrument back to the issuing
bank or draw on the letter of credit on demand (after seven days' notice, at
most).
DEMAND FEATURE AND PUTS. The variable and floating rate obligations described
above may have a "demand feature" which means a Fund can demand payment at par
plus accrued interest from the issuer or another party on short notice
(generally not to exceed seven days) prior to specified notice dates. We will
consider the maturities of these adjustable rate demand instruments to be the
longer of the specified notice periods or the periods remaining until the next
rate adjustment, even though the stated maturity of the instrument may be
longer. Some of these instruments may be secured by letters of credit or another
credit support arrangement provided by banks. In addition, we may purchase
certain instruments (which may or may not have adjustable rates) which are
payable on demand only on a specified date or series of dates; in any such case
the next demand date will be treated as the maturity of the instrument. Purchase
of these securities with these demand features normally results in a yield to
maturity lower than that available on comparable securities without a demand
feature.
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<PAGE>
Each Fund may acquire a right to sell a security back to the issuer or to
another party in order to enhance liquidity. Such a right entitles the Fund to
"put" securities back to the issuer or to another party within a specified
period of time or on a date certain at an agreed upon price. The maturity of an
obligation on which we have purchased a put will be the earliest date certain on
which we can require payment.
In all cases receipt of payment for a security subject to a demand feature or a
put depends on the ability of the other party to pay for the security when
requested. We will limit these transactions to institutions which the Manager
believes present minimal credit risks.
See the Statement of Additional Information of the Trusts for further
information on these investment practices.
48
