<PAGE> 1
As filed with the Securities and Exchange Commission on August 30, 1996
Securities Act File No. 33-27489
Investment Company Act File No. 811-5775
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 23 /X/
---- ---
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 26 /X/
---- ---
Sierra Trust Funds
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
9301 Corbin Avenue
Northridge, California 91324
----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (818) 725-0200
F. Brian Cerini
9301 Corbin Avenue
Northridge, California 91324
---------------------------------------
(Name and Address of Agent for Service)
Copies to:
Richard W. Grant, Esq. Lawrence Sheehan, Esq.
Morgan, Lewis & Bockius LLP O'Melveny & Myers
2000 One Logan Square 1999 Avenue of the Stars, #700
Philadelphia, Pennsylvania 19103 Los Angeles, California 90067
It is proposed that this filing will become effective
(check appropriate box):
_____immediately upon filing pursuant to paragraph (b), or
_____on October 31, 1996 pursuant to paragraph (b),
_____60 days after filing pursuant to paragraph (a), or
_____75 days after filing pursuant to paragraph (a), or
X on October 31, 1996 pursuant to paragraph (a) of Rule 485
The Registrant has previously filed a declaration of indefinite registration of
its shares of beneficial interest pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. The shares subject to the declaration are
without par value. Registrant's Rule 24f-2 Notice with respect to the U.S.
Government, Corporate Income, California Municipal, California Insured
Intermediate Municipal, National Municipal, Growth and Income, Emerging Growth,
International Growth, Short Term Global Government, Global Money, U.S.
Government Money, California Money, Short Term High Quality Bond, Growth,
Florida Insured Municipal and Target Maturity 2002 Funds for the fiscal year
ended June 30, 1996 was filed with the Securities and Exchange Commission on
August 28, 1996.
<PAGE> 2
SIERRA TRUST FUNDS
CROSS REFERENCE SHEET
_______________________________________
Part A - Information Required in a Prospectus
- -------- ------------------------------------
Location in Prospectus for the Sierra Trust Funds for the
Class A, Class B and Class I Shares of the Global Money Fund,
U.S. Government Money Fund, California Money Fund, Short Term
High Quality Bond Fund, Short Term Global Government Fund,
U.S. Government Fund, Corporate Income Fund, California
Municipal Fund, Florida Insured Municipal Fund, California
Insured Intermediate Municipal Fund, National,Municipal Fund,
Form N-1A Growth and Income Fund, Growth Fund, Emerging Growth Fund
Item No. and International Growth Fund
- -------- ---------------------------------------------------------------
<TABLE>
<S> <C> <C>
1. Cover Page . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . The Funds at a Glance; Expenses
3. Condensed Financial
Information . . . . . . . . Financial Highlights; Performance
4. General Description of
Registrant . . . . . . . . The Funds at a Glance; Organization; Sierra Advisors, Its Affiliates and
Service Providers; Investment Principles and Risk Considerations; Investor
Services; Securities and Investment Practices
5. Management of the Fund . . . The Funds at a Glance; Organization; Sierra Advisors, Its Affiliates and
Service Providers; Breakdown of Fund Expenses; Investor Services
5A. Management's Discussion of
Fund Performance . . . . . Not Applicable - Disclosure in Annual Report
6. Capital Stock and Other
Securities . . . . . . . . The Funds at a Glance; Organization; Dividends, Capital Gains and Taxes;
Investor Services
7. Purchase of Securities
Being Offered . . . . . . . Setting Up Your Account; Ways to Set Up Your Account; How to Buy Shares; How
to Sell Shares; Investor Services; Transaction Details; Exchange Privileges
and Restrictions
8. Redemption or Repurchase . . How to Buy Shares; How to Sell Shares; Transaction Details; Exchange
Privileges and Restrictions
9. Pending Legal Proceedings. . Not Applicable
</TABLE>
(i)
<PAGE> 3
Location in Prospectus for the Sierra Trust Funds for the
Class A and Class S Shares of the Global Money Fund, U.S.
Government Money Fund, California Money Fund, Short Term High
Quality Bond Fund, Short Term Global Government Fund, U.S.
Government Fund, Corporate Income Fund, California Municipal
Fund, Florida Insured Municipal Fund, California Insured
Intermediate Municipal Fund, National Municipal Fund, Growth
Form N-1A and Income Fund, Growth Fund, Emerging Growth Fund and
Item No. International Growth Fund
- -------- ---------------------------------------------------------------
<TABLE>
<S> <C> <C>
1. Cover Page . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . The Sierra Trust Funds Family at a Glance; Summary of Sierra Trust Funds
Expenses
3. Condensed Financial
Information . . . . . . . . Financial Highlights; Performance Information
4. General Description of
Registrant . . . . . . . . The Sierra Trust Funds Family at a Glance; Organization; Sierra Advisors,
Its Affiliates and Service Providers; Investment Principles and Risk
Considerations; Securities and Investment Practices
5. Management of the Fund . . . The Sierra Trust Funds Family at a Glance; Organization; Sierra Advisors,
Its Affiliates and Service Providers; Breakdown of Fund Expenses
5A. Management's Discussion of
Fund Performance . . . . . Not Applicable - Disclosure in Annual Report
6. Capital Stock and Other
Securities . . . . . . . . The Sierra Trust Funds Family at a Glance; Organization; Dividends, Capital
Gains and Taxes
7. Purchase of Securities
Being Offered . . . . . . . Your Account; Ways to Set Up Your Account; How to Invest in a SAM Account;
How to Sell Shares; Transaction Details; Exchange Privileges and
Restrictions
8. Redemption or Repurchase . . How to Invest in a SAM Account; How to Sell Shares; Transaction Details;
Exchange Privileges and Restrictions
9. Pending Legal Proceedings. . Not Applicable
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Form N-1A Location in Prospectus for the Sierra Trust Funds for the Class A
Item No. Shares of the Target Maturity 2002 Fund
- --------- ------------------------------------------------------------------
<S> <C> <C>
1. Cover Page . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . The Target Maturity 2002 Fund at a Glance; Summary of Fund
Expenses
3. Condensed Financial
Information . . . . . . . . Financial Highlights; Performance Information
4. General Description of
Registrant . . . . . . . . The Target Maturity 2002 Fund at a Glance; Organization;
Sierra Advisors, Its Affiliates and Service Providers;
Investment Principles and Risk Considerations; Securities and
Investment Practices
5. Management of the Fund . . . The Target Maturity 2002 Fund at a Glance; Organization;
Sierra Advisors, Its Affiliates and Service Providers;
Breakdown of Fund Expenses
5A. Management's Discussion of
Fund Performance . . . . . Not Applicable - Disclosure in Annual Report
6. Capital Stock and Other
Securities . . . . . . . . The Target Maturity 2002 Fund at a Glance; Organization;
Dividends, Capital Gains and Taxes
7. Purchase of Securities
Being Offered . . . . . . . Your Account; Ways to Set Up Your Account; How to Invest in
Class A Shares of the Fund; How to Sell Shares; Transaction
Details; Exchange Restrictions
8. Redemption or Repurchase . . How to Sell Shares; Transaction Details; Exchange
Restrictions
9. Pending Legal Proceedings. . Not Applicable
</TABLE>
(iii)
<PAGE> 5
Part B - Information Required in a Statement of Additional Information
- -------- -------------------------------------------------------------
<TABLE>
<CAPTION>
Form N-1A
Item No. Location in Statement of Additional Information
- --------- -----------------------------------------------
<S> <C> <C>
10. Cover Page . . . . . . . . . Cover Page
11. Table of Contents . . . . . Contents
12. General Information and
History . . . . . . . . . . General Information and History
13. Investment Objectives and
Policies . . . . . . . . . Investment Objectives and Policies of the Funds
14. Management of the Fund . . . Management of the Company
15. Control Persons and Principal
Holders of Securities . . . Management of the Company
16. Investment Advisory and
Other Services . . . . . . How to Buy and Redeem Shares; Management of the Company
17. Brokerage Allocation and
Other Practices . . . . . . Portfolio Turnover; Portfolio Transactions
18. Capital Stock and Other
Securities . . . . . . . . Management of the Company; see Prospectus -- "Organization"
and "Dividends, Distributions and Taxes"
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . . . How to Buy and Redeem Shares; Net Asset Value; How to
Exchange Shares
20. Tax Status . . . . . . . . . Taxes; see Prospectus -- "Dividends, Distributions and Taxes"
21. Underwriters . . . . . . . . How to Buy and Redeem Shares; Distributor
22. Calculation of Performance
Data . . . . . . . . . . . Determination of Performance; See Prospectus -- "Performance"
23. Financial Statements . . . . Financial Statements
</TABLE>
Part C
- ------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
(iv)
<PAGE> 6
<TABLE>
<C> <S>
PROSPECTUS SIERRA TRUST FUNDS
OCTOBER 31, 1996 P.O. BOX 5118
WESTBOROUGH, MASSACHUSETTS 01581-5118
800-222-5852
</TABLE>
TARGET MATURITY 2002 FUND
This prospectus describes the Class A Shares of the Target Maturity 2002 Fund
(the "Fund") of the Sierra Trust Funds (the "Trust"). The Fund seeks to provide
as high a level of return by December 31, 2002 as is consistent with
preservation of capital at the end of the target maturity year and, thereafter,
current income consistent with the creditworthiness of U.S. Treasury securities.
Please read this prospectus before investing, and keep it for future reference.
It contains useful information that can help you decide whether the investment
goals of the Fund are right for you.
A Statement of Additional Information ("SAI") about the Trust, dated October 31,
1996, has been filed with the Securities and Exchange Commission (the "SEC"),
and is incorporated herein by reference (is considered legally a part of this
prospectus). The SAI is available free upon request by calling the Trust at
800-222-5852.
THE TRUST'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS (TRUST OR
OTHERWISE) OF, OR ENDORSED OR GUARANTEED BY, GREAT WESTERN BANK, OR ANY OF ITS
AFFILIATES OR CORRESPONDENTS. THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. THESE SECURITIES ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Fund Expenses & Financial Highlights...................................................... 3
The Fund's Investments and Risk Considerations....................................................... 5
Performance Information.............................................................................. 8
Your Account -- Ways to Set Up Your Account.......................................................... 10
-- How to Invest in Class A Shares of the Fund..................................................... 11
How to Sell Shares................................................................................... 15
Exchange Privileges and Restrictions................................................................. 18
Dividends, Capital Gains and Taxes................................................................... 19
Shareholder and Account Policies..................................................................... 20
The Fund in Detail -- Organization................................................................... 21
-- Sierra Advisors, Its Affiliates and Service Providers........................................... 21
-- Breakdown of Fund Expenses...................................................................... 23
</TABLE>
<PAGE> 7
TARGET MATURITY 2002 FUND AT A GLANCE
The Fund offers Class A Shares, which have a front-end sales charge.
GOAL: To provide as high a level of return by December 31, 2002 as is consistent
with preservation of capital at the end of the target maturity year and,
thereafter, current income consistent with the creditworthiness of U.S. Treasury
securities. See "The Fund's Investments and Risk Considerations."
STRATEGY: Investing primarily in zero-coupon U.S. Treasury securities maturing
in the year 2002. After the year 2002, the Fund will invest in coupon-bearing
U.S. Treasury securities with maturities of up to three years and money market
instruments. See "The Fund's Investments and Risk Considerations."
INVESTMENT MANAGEMENT: Sierra Investment Advisors Corporation ("Advisor" or
"Sierra Advisors") has overall responsibility for management of the Fund.
BlackRock Financial Management, Inc. ("Sub-Advisor" or "BlackRock") is the
investment sub-advisor of the Fund and selects the investments made by the Fund
subject to oversight and direction by Sierra Advisors. See "The Fund in Detail -
Sierra Advisors, Its Affiliates and Service Providers."
THE SIERRA TRUST FUNDS FAMILY
The Sierra Trust Funds (the "Trust") is an open-end management investment
company with a family of sixteen separate diversified and nondiversified
investment funds, each with its own investment objectives and policies. Each
investment fund of the Trust, except for the Target Maturity 2002 Fund (the
"Non-Target Maturity Funds"), offers four classes of shares, Class A Shares,
Class B Shares, Class S Shares and Class I Shares. Subject to the following
restrictions, investors may invest in one or more of the different classes,
which have different sales charges, expenses and other features. Class A Shares
have a front-end sales charge, while Class B Shares have sales charges only if
they are redeemed within four or six years, depending on the Non-Target Maturity
Fund involved, and Class S Shares have sales charges only if they are redeemed
within six years. Class S Shares are sold to investors who select the Sierra
Asset Management ("SAM") service. Investors may purchase directly Class A Shares
of all of the Funds, Class B Shares of the Non-Money Funds, which are all of the
Non-Target Maturity Funds other than the Global Money, U.S. Government Money and
California Money Funds (the "Money Funds"), and Class S Shares of ten of the
Funds (the "SAM Account Funds") that currently are used for investment by SAM
Accounts. Class B Shares of the Money Funds are offered only to shareholders
exchanging Class B Shares of other Non-Target Maturity Funds and therefore may
not be purchased directly by investors. Currently, only the Global Money Fund,
U.S. Government Money Fund, Short Term High Quality Bond Fund, Short Term Global
Government Fund, U.S. Government Fund, Corporate Income Fund, Growth and Income
Fund, Growth Fund, Emerging Growth Fund and International Growth Fund will offer
and sell Class I Shares, and sales of Class I Shares will be made exclusively to
the various investment portfolios of Sierra Asset Management Portfolios ("SAM
Portfolios"), an open-end management investment company that began operations on
, 1996. SAM Portfolios offer investors the opportunity to pursue a
selected asset allocation strategy that is implemented through investment by an
investment portfolio of the SAM Portfolios in Class I Shares of certain of the
Funds.
The Non-Target Maturity Funds fall into several basic categories which are
presented below in descending order of risk. Generally, investors seeking the
highest returns must assume greater risks.
GROWTH FUNDS seek long-term growth by investing in stocks.
INTERNATIONAL GROWTH FUND
EMERGING GROWTH FUND
GROWTH FUND
-1-
<PAGE> 8
GROWTH AND INCOME FUNDS invest in stocks, bonds and other shorter-term fixed
income debt instruments for long-term growth and income.
GROWTH AND INCOME FUND
INCOME FUNDS seek periodic income from investments in bonds and other
shorter-term fixed income debt instruments.
CORPORATE INCOME FUND
CALIFORNIA MUNICIPAL FUND
FLORIDA INSURED MUNICIPAL FUND
NATIONAL MUNICIPAL FUND
U.S. GOVERNMENT FUND
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
SHORT TERM GLOBAL GOVERNMENT FUND
SHORT TERM HIGH QUALITY BOND FUND
MONEY FUNDS seek periodic income and stability by investing in high-quality,
short-term investments.
GLOBAL MONEY FUND
CALIFORNIA MONEY FUND
U.S. GOVERNMENT MONEY FUND
Class A Shares, Class B Shares, Class S Shares and Class I Shares of the
Non-Target Maturity Funds are not offered through this prospectus. Please call
800-222-5852 if you would like to obtain prospectuses for the Non-Target
Maturity Funds. You should review any such prospectus carefully before investing
or sending money.
-2-
<PAGE> 9
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
TARGET MATURITY 2002 FUND
CLASS A SHARES
- -------------------------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)(1)......................................................... 2.00%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage
of offering price)................................................ None
Deferred Sales Load(2).............................................. None
Redemption Fees(3).................................................. None
Exchange Fees(4).................................................... None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees(5)(7)............................................... 0.00%
12b-1 Fees(6)....................................................... 0.25%
Other Expenses(7)................................................... 0.49%
Total Fund Operating Expenses(7).................................... 0.74%
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) The initial sales charge is reduced for purchases of $50,000 and over,
decreasing to zero for purchases of $1,000,000 and over for each Fund.
(2) Certain investors who purchase Class A Shares at net asset value based on a
purchase amount of $1 million or more may be subject to a 1.0% or 0.5% CDSC
on redemptions within one or two years of purchase, respectively. See
"Purchase of Class A Shares" and "Application of Class A Shares CDSCs."
(3) A $5.00 fee may be charged for each wire transfer if shares are redeemed by
wire transfer to a shareholder's pre-authorized designated bank account.
(4) See "Your Account Exchange Privileges and Restrictions."
(5) Reflects voluntary waivers of management fees by the Advisor. In the absence
of such voluntary waivers, management fees would be 0.25%.
(6) Due to the continuous nature of the 12b-1 fee, long-term shareholders of a
Fund may pay more than the economic equivalent of the maximum front-end
sales charge otherwise permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD").
(7) The total fund operating expenses set forth in the foregoing table are
actual expenses incurred during the most recent fiscal year. Actual expenses
for the Fund may vary from day to day. The Advisor and the Administrator
anticipate voluntarily waiving fees and/or bearing expenses that will result
in total fund operating expenses as set forth in the foregoing table; they
are under no obligation to continue to do so. In the absence of such
voluntary waivers and/or bearing of expenses, total fund operating expenses
would be [4.71%.]
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Example:
You would pay the following on a $1,000 investment,
assuming (1) 5% annual return, (2) deduction at the
time of purchase of the maximum initial sales charges,
and (3) redemption at the end of the timer period...... $27 $43 $ $
</TABLE>
THE EXAMPLE IS NOT MEANT TO STATE ACTUAL OR EXPECTED EXPENSES OR RATES OF
RETURN, WHICH MAY BE GREATER OR LESS THAN AS SHOWN. The Advisor and the
Administrator each reserves the right, at their sole discretion, to terminate
voluntary fee waivers and reimbursements at any time. The purpose of this table
is to assist the investor in understanding the various costs and expenses that
may be directly or indirectly borne by investors in the Fund.
-3-
<PAGE> 10
FINANCIAL HIGHLIGHTS
The following information for the period ended June 30, 1996 has been audited by
Price Waterhouse LLP, independent accountants. Their unqualified report is
included in the Trust's Annual Report to Shareholders (the "Annual Report").
Further information about the performance of the Fund is contained in the Annual
Report. The SAI and Annual Report can be obtained at no charge by calling
Shareholder Services at 800-222-5852. The following information on financial
highlights should be read in conjunction with the Trust's financial statements
and notes thereto.
TARGET MATURITY 2002 FUND
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
CLASS A SHARES
-----------------------------
PERIOD ENDED PERIOD ENDED
06/30/96 6/30/95*
------------ ------------
<S> <C> <C>
Net asset value, beginning of period................................. $10.78 $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................................ 0.63 0.12
Net realized and unrealized investment gain on investments........... (0.30) 0.66
------ ------
Total from investment operations..................................... 0.33 0.78
------
LESS DISTRIBUTIONS:
Dividends from net investment income................................. (0.39) --
Distributions from realized gains.................................... -- --
------ ------
Total Distributions.................................................. (0.39) --
------
Net asset value, end of period....................................... $10.72 $10.78
====== ======
Total return+........................................................ 2.91% 7.80%
====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)................................. $3,125 $2,626
Ratio of operating expenses to average net assets.................... 0.62% 0.74%**
Ratio of net investment income to average net assets................. 5.66% 5.22%**
Portfolio turnover rate.............................................. 5% 0%
Ratio of operating expenses to average net assets without fees
reduced by credits allowed by the custodian........................ 0.70%(a) N/A
Ratio of operating expenses to average net assets without fee
waivers, expenses absorbed and/or fees reduced by credits allowed
by the custodian................................................... 2.55%(a) 4.71%**
Net investment income per share without fee waivers, expenses
absorbed and/or fees reduced by credits allowed by the custodian... $ 0.41 $ 0.03
</TABLE>
- ------------------------------------
* The Fund commenced operations on March 20, 1995.
** Annualized.
+ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges. The total return would have
been lower if certain fees had not been waived and expenses absorbed by the
investment advisor and administrator.
(a) The ratio includes custodian fees before reduction by credits allowed by the
custodian as required by amended disclosure requirements effective September
1, 1995.
-4-
<PAGE> 11
THE FUND'S INVESTMENTS AND RISK CONSIDERATIONS
The following section describes the investment objective and policies of the
Fund and some of the risk considerations related to investing in the Fund. The
investment objective of the Fund is not a fundamental policy of the Fund and,
upon notice to the Fund's shareholders, may be changed without the approving
vote of the Fund's shareholders. The "Securities and Investment Practices"
section that follows provides more information about the types of securities and
investment practices that the Fund may use, and the risk considerations related
to such securities and investment practices.
INVESTMENT PRINCIPLES AND RISK CONSIDERATIONS
The objective of the Fund is to provide as high a level of return by December
31, 2002 as is consistent with preservation of capital at the end of the target
maturity year and, thereafter, current income consistent with the
creditworthiness of U.S. Treasury securities.
The Fund will pursue this objective by investing at least 90% of its net assets
in zero-coupon U.S. Treasury securities (each such security, a "Zero-Coupon
Security") maturing during 2002. Generally, the Fund will endeavor to purchase
those Zero-Coupon Securities that mature towards the end of 2002. See
"Securities and Investment Practices - Zero-Coupon U.S. Treasury Securities."
Until December 31, 2002, the Fund may also invest up to 10% of its net assets in
coupon-bearing (income-producing) U.S. Treasury securities maturing on or before
December 31, 2002 and money market instruments. If the Sub-Advisor determines
that securities meeting the Fund's investment objective and policies are not
otherwise readily available for purchase, the Fund may invest in zero-coupon and
income-producing U.S. Government securities maturing on or before December 31,
2002 and money market instruments. See "Securities and Investment
Practices - Other Investments and Practices."
To the extent that a Fund holds Zero-Coupon Securities that mature prior to
December 31, 2002, the proceeds of such Zero-Coupon Securities at their maturity
will be reinvested in short term coupon-bearing U.S. Treasury securities or
money market instruments until December 31, 2002. Therefore, towards the end of
the target maturity year, 2002, the percentage of the Fund's assets invested in
coupon-bearing U.S. Treasury securities and money market instruments may
increase up to 100%. After December 31, 2002, the Fund will remain open and all
assets will be invested in coupon-bearing U.S. Treasury securities with
maturities of up to three years and money market instruments, and the Fund will
be managed as a relatively short-term bond fund. After December 31, 2002, the
normal risks of a bond fund will apply. The market value of fixed-income
securities held by the Fund and, consequently, the NAV per share of the Fund can
be expected to vary inversely to changes in prevailing interest rates. Investors
should also recognize that, in periods of declining interest rates, the yield of
the Fund will tend to be somewhat higher than prevailing market rates and, in
periods of rising interest rates, the Fund's yield will tend to be somewhat
lower. Also, when interest rates are falling, the inflow of net new money to the
Fund from the continuous sale of its shares will likely be invested in
instruments producing lower yields than the balance of its assets, thereby
reducing current yield. In periods of rising interest rates, the opposite can be
expected to occur.
In order to maintain liquidity or for temporary defensive purposes, the Fund may
invest in cash and cash equivalents.
The Fund seeks to achieve a predictable dollar amount that approximates (net of
Fund expenses) the return on a direct investment in a Zero-Coupon Security that
matures during the Fund's target maturity year. However, the share price of the
Fund will fluctuate with changes in the market value of the Fund's investments.
In this regard, Zero-Coupon Securities tend to fluctuate more in response to
changes in interest rates than do comparable interest-paying debt obligations.
Consequently, redemptions made prior to the end of the Fund's target maturity
year may result in substantial capital gains or losses.
The Fund will pursue professional management of market risk. To approximate the
return an investor would receive if he or she purchased Zero-Coupon Securities
directly, the Sub-Advisor manages the Fund to track as closely as possible the
price behavior of Zero-Coupon Securities maturing towards the end of 2002. To
correct for factors such as shareholder purchase and redemption activity (and
related transaction costs) that differentiate investing in a portfolio of
Zero-Coupon Securities from investing directly in a Zero-Coupon Security, the
Sub-Advisor executes portfolio transactions necessary to accommodate net
shareholder activity each business day.
-5-
<PAGE> 12
By adhering to these investment parameters, the Advisor and the Sub-Advisor
expect that a shareholder who holds his or her shares and does not effect any
redemptions until the Fund's target maturity date of December 31, 2002 (the
"Target Maturity Date"), and who reinvests all dividends and capital gain
distributions, will realize a maturity value that does not differ substantially
from the anticipated value at maturity ("AVM"), as calculated on the purchase
date, that investors may expect for the period from the purchase date to the
Fund's maturity date of December 31, 2002. There can be no assurance, however,
that these objectives will be achieved. Furthermore, if a shareholder does not
reinvest all dividends and capital gain distributions, then the AVM cannot be
estimated accurately.
The Advisor or the Sub-Advisor calculates the Fund's AVM each day the Trust is
open for business. Daily calculations are necessary because AVM calculations
assume, among other factors, that the Fund's expense ratio and portfolio
composition remain constant until the end of the target maturity year and that
dividends and distributions are reinvested in the Fund.
The Fund's AVM may vary from day to day, due to redemptions and distributions,
as well as transaction costs, interest rate changes, and the Sub-Advisor's
efforts to improve total return by taking advantage of market opportunities.
Nevertheless, it is expected that the Fund's AVM will tend to fluctuate within
narrow ranges.
Zero-coupon U.S. Treasury securities evidence the right to receive a fixed
payment at a future date (i.e., the maturity date) from the U.S. Government, and
are backed by the full faith and credit of the U.S. Government. The guarantee of
the U.S. Government, however, does not apply to the market value of the
Zero-Coupon Securities owned by the Fund or to the Class A Shares of the Fund.
The value of a Zero-Coupon Security may fluctuate dramatically over the term of
the security. The values of Zero-Coupon Securities fluctuate inversely with
changes in interest rates. As interest rates rise, the value of Zero-Coupon
Securities will tend to decline and as interest rates fall, the value of
Zero-Coupon Securities will tend to increase. With their long-term goals in
mind, investors in the Fund should plan to hold their shares until the Fund's
target maturity date to reduce their exposure to the volatility produced by
fluctuations in interest rates.
There are relatively few mutual funds with investment objectives and policies
similar to those of the Fund that have reached their target maturity date.
Therefore, there is relatively little experience regarding the types of risk
involved in investing in the Fund. There is no assurance that the Fund will
achieve its investment objective and policies, or that an investor will be able
to redeem his or her shares at the end of the target maturity year for the
amount that he or she originally paid for such shares. The Advisor and the
Sub-Advisor also cannot accurately predict the amount of variation a shareholder
will experience in share price or in the Fund's AVM. There can be no assurance
by the Fund, the Advisor, the Sub-Advisor, or any of their affiliates, that the
AVM can be achieved.
The day-to-day management of the Fund's portfolio is the responsibility of a
committee composed of individuals who are officers of BlackRock. This committee
has managed the Fund since its inception on March 20, 1995 and is supervised by
Keith Anderson and Andrew J. Phillips. Mr. Anderson, a Managing Director of
BlackRock, has been co-head of the Portfolio Management Group since 1988. Mr.
Phillips has been a portfolio manager of BlackRock since 1991 and a Vice
President of BlackRock since 1993.
SECURITIES AND INVESTMENT PRACTICES
This section contains more detailed information about types of securities in
which the Fund may invest, and strategies the Sub-Advisor may employ in pursuit
of the Fund's investment objective. A summary of risks and restrictions
associated with these security types and investment practices is included as
well, except that the risks and restrictions of Zero-Coupon Securities and
coupon-bearing U.S. Treasury securities are discussed in "Investment Principles
and Risk Considerations" above. All policies and limitations are considered at
the time of purchase; the sale of securities is not required in the event of a
subsequent change in circumstances.
The Fund might not buy all of these securities or use all of these techniques to
the full extent permitted unless its Sub-Advisor, subject to oversight by Sierra
Advisors, believes that doing so will help the Fund achieve its goal. Sierra
Advisors may, from time to time, direct the Sub-Advisor with respect to
investment policies and strategies. As a shareholder, you will receive fund
reports every six months detailing your Fund's holdings and describing recent
investment practices.
-6-
<PAGE> 13
Except for the limitations on borrowing, the investment guidelines set forth
below may be changed at any time by vote of the Board of Trustees of the Trust
without shareholder consent. A complete list of investment restrictions that
identifies additional restrictions which cannot be changed without the approval
of a majority of the Fund's outstanding shares is contained in the SAI.
ZERO-COUPON U.S. TREASURY SECURITIES
Zero-coupon U.S. Treasury securities are the underlying principal portions of
U.S. Treasury securities. Unlike U.S. Treasury securities with coupons attached,
which pay interest periodically, Zero-Coupon Securities pay no interest.
Instead, these securities are issued at a substantial discount from their
maturity value, and this discount is amortized over the life of the security.
Investment return comes from the difference between the price at which a
Zero-Coupon Security is issued (or purchased) and the price at which it matures
(or is sold).
Zero-Coupon Securities currently appear in two basic types, those created by
separating the interest and principal components of previously issued
interest-paying U.S. Treasury securities and those originally issued in the form
of face amount only U.S. Treasury securities paying no interest ("original issue
zeroes"). The former type were created originally by broker-dealers who bought
Treasury securities, deposited these securities with a custodian bank for
safekeeping and then sold, separately, receipts representing ownership interests
in the coupon payments and the underlying principal payments that were generated
by these securities. Some examples of zeroes sold through custodial receipt
programs are Certificates of Accrual on Treasury Securities ("CATS"), Treasury
Investment Growth Receipts ("TIGRs") and generic Treasury Receipts ("TRs").
The U.S. Treasury subsequently introduced a program called Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") in order to
facilitate the secondary market stripping of selected U.S. Treasury securities
into individual interest and principal components. Such securities may
thereafter be maintained in the book-entry system operated by the Federal
Reserve in a manner that permits the separate ownership and trading of the
interest and principal payments. Book-entry trading eliminates the bank credit
risks associated with broker-dealer sponsored custodial receipt programs. STRIPS
are direct obligations of the U.S. Government and have the same credit risks as
other U.S. Treasury securities.
Zero-coupon securities purchased by the Fund accrue interest (commonly referred
to as "imputed income") for federal income tax purposes even though Zero-Coupon
Securities do not pay current interest. The Fund must distribute this imputed
income to shareholders as ordinary income dividends. If shareholders do not
elect to receive such dividends in cash, but instead opt to reinvest such
dividends in the Fund, they will nonetheless be liable to pay tax on such
dividends. See the "Taxes - Taxes on Distributions" section.
OTHER INVESTMENTS AND PRACTICES
BORROWING. The Fund may borrow money temporarily for extraordinary or emergency
purposes. However, if the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off. If the Fund makes
additional investments while borrowings are outstanding, this may be construed
as a form of leverage. The Fund may borrow money from banks solely for temporary
or emergency purposes, but not in an amount exceeding 30% of its total assets.
Whenever borrowings by a Fund, including reverse repurchase agreements, exceed
5% of the value of its total assets, the Fund will not purchase any securities.
Borrowing creates leverage which increases a Fund's investment risk. If the
income and gains on the securities purchased with the proceeds of borrowings
exceed the cost of the arrangements, the Fund's earnings or net asset value will
increase faster than would be the case otherwise. Conversely, if the income and
gains fail to exceed the costs, earnings or net asset value will decline faster
than would otherwise be the case.
COUPON-BEARING U.S. TREASURY SECURITIES. The Fund may invest up to 15% of its
net assets in coupon-bearing U.S. Treasury securities and money market
instruments. U.S. Treasury bills, notes, and bonds are direct obligations of the
U.S. Treasury. Historically, they have involved no risk of loss of principal if
held to maturity. Between issuance and maturity, however, the prices of these
securities change in response to changes in market interest rates.
Coupon-bearing securities generate current interest payments, and part of a
Fund's return may come from reinvesting interest earned on these securities.
-7-
<PAGE> 14
PERFORMANCE INFORMATION
YIELD
From time to time, advertisements or shareholder reports concerning the Fund may
describe YIELD. The YIELD of a Fund refers to the income generated by an
investment in the Fund over a 7-day period identified in the advertisement. This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment.
The Fund may quote STATE TAX-EQUIVALENT YIELDS, which show the STATE TAXABLE
YIELDS an investor would have to earn before taxes to equal the Fund's state
tax-free yields. You can calculate your state tax-equivalent yield for any state
tax-free fund using the following equation:
Your State Tax-Equivalent Yield = Fund's State Tax-Free Yield
---------------------------
100% - Your State Tax Rate
For example if your state tax rate were 11% and the Fund's state tax-free yield
were 5%, your calculation would look like this:
.050 = .056 = 5.6%
-----
1-.11
In this example, your return would be higher from a state tax-free investment
yielding 5% if state taxable yields (on investments with comparable quality and
maturity characteristics) were below 5.6%. If only a portion of a Fund's income
were state tax-exempt, only that portion would be adjusted in the calculation.
See "Dividends, Capital Gains and Taxes" for a more detailed discussion of the
tax-exempt status of Fund dividends.
TAX-EQUIVALENT YIELDS are useful tools in determining the desirability of a
tax-exempt investment; however, you should consider other factors as well. The
basic formula above incorporates a number of assumptions and may not be
appropriate for your particular situation. You may wish to consult with your tax
advisor.
The Fund's yields are calculated according to methods that are standardized for
all stock and bond funds. Because these yield calculation methods differ from
the methods used for other accounting purposes, the Fund's yield may not equal
its yield to maturity, its distribution rate, the income paid to a shareholder's
account, or the income reported in the Fund's financial statements.
TOTAL RETURN
From time to time, the Fund may advertise its average annual total return over
various periods of time. Such TOTAL RETURN figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in shares of the Fund. During
the first year of the Fund's operation, figures will be given for the period
from commencement of the Fund's operations, or on a year-by-year basis. In the
future, figures will be given for one-, five- and ten-year periods, as
applicable, and may be given for other periods as well (such as from the
commencement of the Fund's operations, or on a year-by-year basis).
ADDITIONAL PERFORMANCE QUOTATIONS. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Similarly, the Fund
may provide yield quotations in investor communications based on the Fund's net
asset value ("NAV") (rather than its Public Offering Price) per share on the
last day of the period covered by the yield computation. Because these
additional quotations will not reflect the maximum sales charge payable, such
performance quotations will be higher than the performance quotations that
include the maximum sales charge.
-8-
<PAGE> 15
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT A PREDICTION OF
FUTURE PERFORMANCE.
PERFORMANCE COMPARISONS
In reports or other communications to shareholders or in advertising material,
the Fund may compare the performance of its Class A Shares with that of other
mutual funds as listed in the rankings prepared by Lipper Analytical Services,
Inc., CDA Technologies, Inc. or similar independent services that monitor the
performance of mutual funds or with other appropriate indexes of investment
securities. In addition, certain indexes may be used to illustrate historic
performance of select asset classes. These may include, among others, the Lehman
1 to 3 Year Treasury Index, Lehman Treasury Intermediate Index, Merrill Lynch 5
to 7 year Treasury Index, Lehman Mutual Fund Intermediate Index, Lehman Mutual
Fund General U.S. Treasury Index. The performance information may also include
evaluations of the Fund published by nationally recognized ranking services and
by financial publications that are nationally recognized, such as BUSINESS WEEK,
FORBES, FORTUNE, INSTITUTIONAL INVESTOR, MONEY and THE WALL STREET JOURNAL. If
the Fund compares its performance to other funds or to relevant indexes, the
Fund's performance will be stated in the same terms in which such comparative
data and indexes are stated, which is normally total return rather than yield.
For these purposes the performance of the Fund, as well as the performance of
such investment companies or indexes, may not reflect sales charges, which, if
reflected, would reduce performance results.
OBTAINING PERFORMANCE INFORMATION
The Fund's strategies, performance and holdings are detailed twice a year in
fund reports, which are sent to all shareholders. The SAI describes the methods
used to determine the Fund's performance. Shareholders may call 800-222-5852 for
performance information. Shareholders may also make inquiries regarding the
Fund, including current total return figures, to any representative of Great
Western Financial Securities Corporation ("GW Securities").
-9-
<PAGE> 16
YOUR ACCOUNT
- -------------------------------------------------------------------------------
WAYS TO SET UP YOUR ACCOUNT
- -------------------------------------------------------------------------------
INDIVIDUAL OR JOINT ACCOUNT
Individual accounts are owned by one person. Two types of joint accounts (having
two or more owners) can be opened:
(1) in a "joint tenancy" account, the surviving owner(s) automatically
receive(s) the shares of any owner(s) who die(s); and
(2) in a "tenants in common" account, the heir(s) of any deceased owner
receive(s) such owner's shares, rather than the surviving owners of the joint
account.
- --------------------------------------------------------------------------------
RETIREMENT
Retirement plans protect investment income and capital gains from current taxes.
Contributions to these accounts may be tax deductible. Retirement accounts
require special applications and typically have lower minimums.
- - INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") allow persons of legal age and under
70-1/2 years old with earned income to protect up to $2,000 per tax year from
certain tax effects. If your spouse has earned income of less than $250 per
year, you can protect an additional $250 per year in your spouse's name.
- - ROLLOVER IRAS permit persons to retain special tax advantages for certain
transfers from employer-sponsored retirement plans (often occurring when a
person changes employers).
- - SIMPLIFIED EMPLOYEE PENSION PLANS ("SEP-IRAS") provide small business owners
or those with self-employed income (and their eligible employees) with many of
the same advantages as a Keogh, but with fewer administrative requirements.
- --------------------------------------------------------------------------------
GIFTS OR TRANSFERS TO A MINOR CHILD ("UGMA," "UTMA")
These gifts or transfers provide a way to give money to a child and obtain tax
benefits. A parent or grandparent can give up to $10,000 a year to each child
without paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the Uniform
Transfers to Minors Act (UTMA).
- --------------------------------------------------------------------------------
TRUST
Trusts can be used for many purposes, including charitable contributions and
providing a regular income for a child until a certain age. The trust must be
established before an account can be opened.
- --------------------------------------------------------------------------------
CORPORATION OR OTHER ORGANIZATION
Corporations, associations, partnerships, institutions, or other groups may
invest for many purposes.
- --------------------------------------------------------------------------------
-10-
<PAGE> 17
HOW TO INVEST IN CLASS A SHARES OF THE FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
To Open an Account: Minimum $250 To Add to an Account: Minimum $100
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY PHONE - Exchange from another Sierra Trust - Exchange from another Sierra Trust
800-222-5852 Fund account with same registration, Fund account with the same registration,
including name, address, and taxpayer including name, address, and taxpayer
ID number (social security number for ID number.
an individual).
- Call Shareholder Services at 800-222- - Call Shareholder Services at 800-222-
5852. (Monday through Friday, 6:00 5852.
a.m. to 6:00 p.m., Pacific Time and
9:00 a.m. to 9:00 p.m., Eastern Time.
Saturday from 6:00 a.m. to 3:00 p.m.
Pacific Time and 9:00 a.m. to 6:00
p.m., Eastern Time).
- -------------------------------------------------------------------------------------------------------------
BY MAIL - Complete and sign the application. - Make your check payable to "Sierra
Make your check or negotiable bank draft Trust Funds" Indicate your Fund
payable to "Sierra Trust Funds" account number on your check. Include
the "next investment" stub from your
Mail the completed application form previous account statement. Mail the
and check to: check and stub to the address printed
on your account statement.
Sierra Trust Funds
c/o First Data Investor Services - Exchange by mail: call 800-222-5852
Group for instructions.
P.O. Box 5118
Westborough, MA 01581-5118
- -------------------------------------------------------------------------------------------------------------
IN PERSON - Visit a GW Securities representative - Visit a GW Securities representative
at your nearest Great Western Bank at your nearest Great Western Bank
branch. Call 800-222-5852 for the branch. Call 800-222-5852 for the
Great Western Bank branch nearest Great Western Bank branch nearest
you. you.
- -------------------------------------------------------------------------------------------------------------
BY WIRE - 1. Telephone Sierra Administration - Instruct your bank/financial
and give the (a) name of the account as institution to wire Federal Funds as
you wish it to be registered; (b) described at left under paragraph 2
address of the account; (c) taxpayer and inform Shareholder Services
ID number (social security number for 800-222-5852 of the incoming wire.
an individual); and (d) Fund name.
2. Instruct your bank to wire Federal
Funds exactly as follows:
Boston Safe Deposit Trust
Boston, MA
ABA #011-001234
For credit to
Sierra Trust Funds
Account #132012
Target Maturity Fund
(Customer's Name)
(Customer's Social Security
Number)
3. Mail the completed application form
to:
Sierra Trust Funds
c/o First Data Investor Services
Group
P.O. Box 5118
Westborough, MA 01581-5118
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE> 18
TO PURCHASE SHARES. Purchase, sale and exchange orders received by Sierra
Administration prior to the close of trading on any day that the New York Stock
Exchange ("NYSE") is open (a "Business Day") are effected at that day's NAV for
the Fund, plus any applicable sales charge (the "Public Offering Price").
Purchase, sale and exchange orders received after the close of the NYSE are
priced as of the time the NAV is next determined on the next Business Day.
Authorized Dealers are responsible for forwarding orders received on a Business
Day to the transfer agent by the close of trading on the NYSE the same day and
failure to do so will result in an investor being unable to obtain that day's
NAV. The NYSE is open Monday through Friday, although it is currently scheduled
to be closed on New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when any of these holidays falls on a
Saturday or Sunday, respectively.
Purchases of Class A Shares of the Fund are effected at the Fund's Public
Offering Price next determined after a purchase order has been received in
proper form. A purchase order will be deemed to be in proper form when all of
the steps required, including submission of an application form, have been
completed. In the case of an investment by wire, however, the order will be
deemed to be in proper form after the telephone order and the federal funds wire
have been received. The failure of a shareholder who purchases by wire to submit
an application form in a timely fashion may cause delays in processing
subsequent redemption requests. If a telephone order is received or if payment
by wire is received after the close of the NYSE, 4:00 p.m., Eastern Time/1:00
p.m., Pacific Time, the shares will not be credited until the next Business Day.
However, Shareholder Services will be open from 6:00 a.m. to 6:00 p.m., Pacific
Time/9:00 a.m. to 9:00 p.m., Eastern Time, Monday through Friday, except when
the NYSE is closed and from 6:00 a.m. to 3:00 p.m., Pacific Time/9:00 a.m. to
6:00 p.m., Eastern Time on Saturday.
DIVIDEND REINVESTMENT PLAN. A Dividend Reinvestment Plan will be established
automatically for each shareholder unless the shareholder specifies by
completing the appropriate section of the Fund's Account Application or
otherwise notifies the transfer agent in writing at the address provided below.
Under this plan, all income dividends and capital gain distributions will be
automatically reinvested in additional shares of the Fund at the NAV determined
on the dividend payment date. The election of reinvestment of dividends and
distributions may be made or changed by writing to First Data Investor Services
Group, Inc. ("First Data" or the "transfer agent") or by telephoning Shareholder
Services at 800-222-5852. Write to First Data at P.O. Box 5118, Westborough,
Massachusetts 01581-5118.
TIMING OF DIVIDENDS. Shares of the Fund are entitled to dividends and
distributions declared beginning the day after a purchase has been credited to
an investor's account and ending on the day a redemption order is effected.
PURCHASE OF CLASS A SHARES. Class A Shares of the Fund are sold at the Public
Offering Price. Investors purchasing Class A Shares of the Fund incur an initial
sales charge as described in the following table. Purchases of $1 million or
more and certain other purchases are not subject to the sales charge at time of
purchase, but may be subject to a 1.0% CDSC on redemptions within one year of
purchase or a 0.5% CDSC on redemptions within two years of purchase (the "Class
A CDSC"), including redemptions of Money Fund Class A Shares acquired through
exchange for such Class A Shares of the Fund. No sales charge at time of
purchase and no CDSC will be assessed on Class A Shares purchased through the
reinvestment of dividends or distributions on Class A Shares or purchased under
the 180-day reinvestment privilege described in a following section. See
"APPLICATION OF CLASS A SHARES CDSCS" subsection in this section. For other
waivers of Class A Shares sales charges, see the subsection "WAIVERS OF CLASS A
INITIAL SALES CHARGES" in this section. The table on the following page
illustrates the sales charges applicable at purchase to Class A Shares at
various investment levels.
-12-
<PAGE> 19
FOR CLASS A SHARES OF THE FUND
<TABLE>
<CAPTION>
DEALERS'
AS A % OF AS A % OF REALLOWANCE AS
OFFERING PRICE NET ASSET A % OF
AMOUNT OF TRANSACTION PER SHARE VALUE OFFERING PRICE
- -------------------------------------------- -------------- --------- --------------
<S> <C> <C> <C>
Less than $50,000 2.00% 2.04% 1.75%
$50,000 but less than $100,000 1.50% 1.52% 1.25%
$100,000 but less than $500,000 1.00% 1.01% 0.75%
$500,000 but less than $1,000,000 0.50% 0.50% 0.50%
$1,000,000 and over 0% 0% 0%*
</TABLE>
- --------------------------------------------------------------------------------
* Investors do not pay a sales charge at time of purchase of $1 million or more;
however, Sierra Services may pay the investment dealers of record on purchases
of Class A Shares of $1 million or more a fee up to 1.00% of the NAV of such
purchases.
Sierra Services, the distributor of the Class A Shares of the Fund, will pay the
appropriate dealers' reallowance to GW Securities and other broker-dealers
authorized to place orders for Fund shares ("Authorized Dealers"). The dealers'
reallowance may be changed from time to time. Upon notice, Sierra Services may
reallow up to the full applicable sales charge to GW Securities or certain
Authorized Dealers.
REDUCED SALES CHARGES AT PURCHASE
As described below, the sales charge on purchases of Class A Shares of the Fund
may be reduced through: (1) a Right of Accumulation; (2) Quantity Discounts; (3)
a Letter of Intent; and (4) Reinvestment Privileges. Reduced sales charges may
be modified or terminated at any time as to new purchases and/or letters of
intent and are subject to confirmation of an investor's holdings. For more
information about reduced sales charges, contact your representative or call
800-222-5852.
RIGHT OF ACCUMULATION. Under the Right of Accumulation, the current value of an
investor's existing Class A Shares in the Fund and the Non-Money Funds, Class B
and Class S Shares in all the funds of the Trust, Class A Common Shares of
Sierra Prime Income Fund ("SPIF") and Class A and Class B Shares of the SAM
Portfolios may be combined with the amount of the investor's current purchase of
the Fund's Class A Shares in determining the sales charge applicable to such
Class A Shares. In order to receive the cumulative quantity reduction, the
investor or the securities dealer must call previous purchases of such Class A
Common Shares, Class A, Class B and Class S Shares to the attention of Sierra
Shareholder Services at the time of the current purchase.
QUANTITY DISCOUNTS. As shown in the previous table and under the "Right of
Accumulation" section, larger purchases of the Fund's Class A Shares combined
with Class B Shares and Class S Shares of the funds of the Trust, Class A Common
Shares of SPIF and Class A and Class B Shares of the SAM Portfolios reduce the
sales charge paid on the Fund's Class A Shares. The Fund will combine purchases
of the Fund's Class A Shares with Class B and Class S Shares of the funds of the
Trust, Class A Common Shares of SPIF and Class A and Class B Shares of the SAM
Portfolios made on the same day by the investor, spouse, and any minor children
when calculating the Fund's Class A Shares sales charge. In order to receive the
cumulative quantity reduction, the investor or the securities dealer must call
related purchases of such Class A Common Shares, Class A, Class B and Class S
Shares to the attention of Sierra Shareholder Services at the time of the
current purchase.
LETTER OF INTENT. An investor may qualify for a reduced sales charge on the
Fund's Class A Shares immediately by signing a "Letter of Intent" stating the
investor's intention to invest during the following 13 months a specified amount
in the Fund's Class A Shares, Non-Money Fund Class A Shares, Class A Common
Shares of SPIF and/or Class A and Class B Shares of the SAM Portfolios, which,
if made at one time, would qualify for a reduced sales charge. Any redemptions
or repurchases of Class A Shares or Class A Common Shares made during the 13-
month period will be subtracted from the amount of purchases of Class A Shares
or Class A Common Shares in determining whether the terms of the Letter of
Intent have been met. During the term of a Letter of Intent, Sierra Shareholder
Services will hold the Fund's Class A Shares representing 5.0% of the amount
purchased in escrow for
-13-
<PAGE> 20
payment of a higher sales load if the full amount specified in the Letter of
Intent is not purchased within the 13-month period. The escrowed shares will be
released when the full amount specified has been purchased. The investor is not
bound to purchase the full amount specified, but if the full amount specified is
not purchased within the 13-month period, the investor will be required to pay
an amount equal to the difference in the dollar amount of sales charge actually
paid and the amount of sales charge the investor would have had to pay on the
investor's aggregate purchases of the Fund's Class A Shares if the total of such
purchases had been made at a single time.
REINVESTMENT PRIVILEGE. Upon redemption of Class A Shares, a shareholder may
reinvest the redemption proceeds in Class A Shares of the Fund without any sales
charge provided the reinvestment is within 180 days of the redemption from the
Fund. To receive the privilege, the shareholder must notify Shareholder Services
or GW Securities concerning the reinvestment. Write to Sierra Trust Funds at
P.O. Box 5118, Westborough, Massachusetts 01581-5118.
WAIVERS OF CLASS A INITIAL SALES CHARGES. No initial sales charge will be
assessed with respect to Class A Shares on: (1) purchases by (a) employees or
retired employees of Great Western Financial Corporation ("GWFC") or any of its
affiliates and members of their immediate families (spouses and minor children)
and IRAs, Keogh Plans or employee benefit plans for those employees and retired
employees; (b) directors, trustees, officers or advisory board members, or
persons retired from such positions, of any investment company for which GWFC or
an affiliate serves as investment advisor; (c) registered representatives or
full-time employees of Authorized Dealers or full-time employees of banks
affiliated with such dealers; (2) purchases by retirement plans created pursuant
to Section 457 of the Internal Revenue Code of 1986, as amended (the "Code");
(3) purchases that are paid for with the proceeds from the redemption of shares
of a non-money market mutual fund not affiliated with the Trust or Sierra
Services, where the purchase occurs within 15 Business Days of the prior
redemption and is evidenced by a confirmation of the redemption transaction or a
broker-to-broker transfer request (the transfer agent must be notified at the
time of purchase that the purchase being made qualifies for a purchase at NAV);
(4) purchases by employees of any of the Trust's Sub-Advisors; and (5) purchases
by accounts as to which an Authorized Dealer or a bank affiliated with an
Authorized Dealer charges an account management fee, provided that the
Authorized Dealer or bank has an agreement with the Distributor (investors may
be charged an additional service or transaction fee by the Authorized Dealer or
bank).
Additional groups of investors that are not subject to an initial sales charge
on purchases of Class A Shares through an Authorized Dealer include either (a)
investors purchasing Class A Shares of the Fund through an employee benefit
trust created pursuant to a 401(k) Plan that has invested in the aggregate more
than $1 million in the Fund, or (b) investors purchasing Class A Shares of the
Fund through a 403(b) Plan that has more than $1 million in the Fund. Investors
through 401(k) and 403(b) Plans may be subject to various account fees and
purchase and redemption procedures designated by the employer who has
established the 401(k) Plan or 403(b) Plan. Such investors should consult their
employer and/or account agreements for information relating to their accounts.
The foregoing waivers may be changed at any time.
APPLICATION OF CLASS A SHARES CDSC. The Class A CDSC of 1.0% or 0.5% may be
imposed on certain redemptions within one or two years of purchase,
respectively, with respect to Class A Shares (i) purchased at NAV without a
sales charge at time of purchase (purchases of $1 million or more), (ii)
acquired, including Class A Shares of a Money Fund acquired, through an exchange
for Class A Shares of a non-Money Fund purchased at NAV without a sales charge
at time of purchase (purchases of $1 million or more), (iii) purchased through
an employee benefit trust created pursuant to a 401(k) Plan, or (iv) purchased
through a 403(b) Plan. The CDSCs for Class A Shares are calculated on the lower
of the shares' cost or current net asset value, and in determining whether the
CDSC is payable, the Sierra Trust Funds will first redeem shares not subject to
any CDSC.
WAIVERS OF THE CLASS A SHARES CDSC. The Class A CDSC is waived for redemptions
of Class A Shares (i) that are part of exchanges for Class A Shares of other
Funds; (ii) for distributions to pay benefits to participants from a retirement
plan qualified under Section 401(a) or 401(k) of the Code, including
distributions due to the death or disability of the participant (including one
who owns the shares as a joint tenant); (iii) for distributions from a 403(b)
Plan or an IRA due to death, disability, or attainment of age 70 1/2, including
certain involuntary distributions; (iv) for tax-free returns of excess
contributions to an IRA; (v) distributions to a 401(k) Plan participant so long
as the shares were purchased through the 401(k) Plan and the 401(k) Plan
continues in effect
-14-
<PAGE> 21
with investments in Class A Shares of the Fund and (vi) for distributions by
other employee benefit plans to pay benefits. See "HOW TO BUY AND REDEEM SHARES"
in the Statement of Additional Information.
IRA INVESTMENTS. Generally, the Fund is a suitable investment for IRA accounts
because it is designed for a long term investment strategy of holding the amount
invested in the Fund until the Fund's target maturity date and reinvesting all
dividends and capital gains distributions. Such a strategy matches the tax
deferral benefits of investing in an IRA account. IRA account investments in the
Fund combine the federal tax savings available to IRA accounts with the state
tax savings available to investments in the Fund, as described in the
"Performance Information" section of this prospectus.
HOW TO SELL SHARES
You can arrange to take money out of your Fund account on any Business Day by
selling (redeeming) some or all of your shares. Your shares will be sold at the
NAV next determined after your order is received and accepted. Certain Class A
Shares may be subjected to a CDSC as described in the "Application of Class A
Shares CDSC." If you sell shares of the Fund, the maturity value of your
remaining shares of the Fund may differ substantially from the AVM for such
shares, as calculated on the purchase date.
Redemption proceeds are normally wired or mailed on the next Business Day, but
in no event later than seven days after receipt of a redemption request by the
transfer agent, until such time as regulations may require the Fund to redeem
proceeds within five days. However, if a shareholder is redeeming shares
recently purchased with a check, the redemption proceeds will not be paid to the
shareholder until the check has cleared. The check may take up to 15 days or
more to clear for deposit of the shareholder's funds into the Fund's account,
and the shareholder may not receive the redemption proceeds until after such
time period. The failure of a shareholder who purchased shares by wire to submit
an application form in a timely fashion may cause delays in processing
redemption requests.
If you wish to keep your Class A Shares account open, leave at least $250 worth
of shares in your account.
- - The table on the following page highlights the ways in which you can redeem
shares in your Fund account.
-15-
<PAGE> 22
WAYS TO SELL SHARES OF YOUR SIERRA TRUST FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Account Type Special Requirements
<S> <C> <C>
BY PHONE - All account types, except - For transfers to your Great Western
800-222-3852 retirement Bank Account, minimum $100.
- All account types - You may exchange to the same class
of All account types other funds of
the Trust if both accounts are
registered with the same name(s),
address and taxpayer ID number. (If
you exchange to a Fund of the Trust
that has a higher initial sales
load, you may have to pay up to the
difference between the sales load
amount previously paid and such
higher sales load.) You may also
redeem amounts by telephone. Checks
will be mailed to the address of
record exactly as account is
registered.
- ---------------------------------------------------------------------------------------------------
BY MAIL - Individual, Joint Accounts, Sole - The letter of instruction must be
Proprietorships, UGMA, UTMA* signed by all persons required to
sign for transactions, exactly as
- Signature guarantee is required on their names appear on the account.*
amounts of more than $50,000 Checks will be mailed to the
address of record.
- ---------------------------------------------------------------------------------------------------
BY WIRE - All account types except retirement - You must sign up for the wire
feature before using it. To verify
that it is in place, call 800-222-
5852.
- Your wire redemption request must
be received by Sierra Trust Funds
before 8:00 a.m., Pacific
Time/11:00 a.m., Eastern Time, for
money to be wired on the next
Business Day. A $5.00 fee may be
charged for each wire transfer.
Minimum amount is $1,000.
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Corporations, trusts, and retirement plans may require additional paperwork
before shares may be redeemed. Please call 800-222-5852 to verify you have the
correct paperwork and to avoid delays.
-16-
<PAGE> 23
- - BY TELEPHONE
A shareholder may withdraw any amount from the shareholder's account by
telephoning 800-222-5852. Redemption orders must include the shareholder's Fund
account name (as registered with the Fund) from which the redemption is being
made, the class of shares and the relevant Fund account number. If you gave
sweep instructions on your application form, redemption proceeds will be
deposited in the Great Western Bank account specified. Otherwise, the proceeds
will be sent to the shareholder by check at the shareholder's address of record.
For a wire transfer, if a telephone redemption is received by the transfer agent
or Shareholder Services before 8:00 a.m., Pacific Time/11:00 a.m., Eastern Time,
the proceeds will be sent by wire to the designated preauthorized account on the
next Business Day. The minimum amount for a wire is $1,000 and a $5 fee may be
charged for each wire transfer. If a telephone redemption order is received by
the transfer agent or Shareholder Services after 8:00 a.m., Pacific Time/11:00
a.m., Eastern Time, the proceeds will be wired in Federal Funds on the Business
Day after the day on which the wire would otherwise have been sent.
TO SET UP THE TELEPHONE WIRE REDEMPTION PROCEDURE, indicate your acceptance of
this procedure on the application form and designate a bank and bank account
number to receive the proceeds of withdrawals. To use this procedure after an
account has been opened or to change instructions already given, designate a
bank and bank account number to receive redemption proceeds and send a written
notice to First Data with a signature guarantee (for more information regarding
signature guarantees, see the following). (For joint accounts, all owners must
sign and have their signatures guaranteed.)
KEY ASPECTS OF TELEPHONE TRANSACTIONS. During periods of significant economic or
market changes, telephone transactions may be difficult to implement. Neither
the Trust nor its Transfer Agent will be responsible for any loss, liability,
cost or expense for acting upon wire instructions or upon telephone instructions
that it reasonably believes are genuine. The Trust and its Transfer Agent will
each employ procedures to confirm that telephone instructions are genuine. Such
procedures may include recording telephone calls. You should verify the accuracy
of telephone transactions immediately upon receipt of your confirmation
statement. If an investor is unable to contact Shareholder Services by
telephone, an investor may deliver the transaction request to Sierra Trust Funds
at P.O. Box 5118, Westborough, Massachusetts 01581-5118. Upon 30 days' prior
written notice to shareholders, the telephone transaction privileges may be
modified or terminated.
- - THROUGH GW SECURITIES
You may also sell your shares to the Fund through the transfer agent or GW
Securities and in that way be certain, providing the order is timely, of
receiving the NAV established at the end of the Business Day on which the
transfer agent or GW Securities is given the redemption order. The Fund makes no
charge for this transaction but the transfer agent or GW Securities may charge
you a service fee. GW Securities is responsible for forwarding orders received
on a Business Day to the transfer agent by the close of trading on the NYSE the
same day, and failure to do so will result in an investor being unable to obtain
that day's NAV. Redemption proceeds may be swept into a Great Western account or
wired to a designated bank account if the investor has selected these features
on the Application Form; otherwise, redemption proceeds will be mailed to the
shareholder's address of record.
IN WRITING. Write a "letter of redemption" with:
- - Your name,
- - The Fund's name and Class of Shares,
- - Your Fund account number,
- - The dollar amount or number of shares to be redeemed, and
- - Any other applicable requirements listed in the table entitled "Ways to Sell
Shares of your Sierra Trust Fund."
-17-
<PAGE> 24
Deliver the letter to your GW Securities representative (who is responsible for
forwarding the letter without undue delay to the transfer agent) or mail the
letter to:
Sierra Trust Funds
c/o First Data Investor Services Group, Inc.
P.O. Box 5118
Westborough, MA 01581-5118
NOTE: Investors using an express delivery service should not include the Post
Office Box number in the address and should contact Shareholder Services for
alternative instructions.
CERTAIN WRITTEN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. To protect you and
the Trust from fraud, your written request must include a signature guarantee if
any of the following situations apply:
- - You wish to redeem more than $50,000 worth of shares,
- - The redemption check is not being mailed to the address on your Fund account
(record address), or
- - The check is not being made out to the Fund account owner.
You should be able to obtain a signature guarantee from Great Western Bank, a
bank which is a member of the Federal Deposit Insurance Corporation, a trust
company, broker-dealer (including a GW Securities representative), credit union
(if authorized under state law), securities exchange or association, clearing
agency, or savings association. A notary public cannot provide a signature
guarantee. For joint accounts, all owners must sign and have their signatures
guaranteed.
EXCHANGE PRIVILEGES AND RESTRICTIONS
The Class A shares of the Fund may be exchanged for Class A shares of any of the
other Funds of the Trust, including the Money Funds, or the Sierra Prime Income
Fund ("SPIF," and the foregoing funds together, the "Eligible Funds"), but if
the shares acquired in the exchange are subject to a higher sales load, a sales
load may be charged in an amount up to the difference between the sales load
amount that was previously paid to purchase the Class A shares that are being
exchanged and the initial sales load applicable to the Class A shares of the
Eligible Fund that are acquired in the exchange. If Class A shares of the Money
Funds, which do not have a sales load at purchase, are acquired in such exchange
no sales load is charged, but if such Class A shares of a Money Fund are
subsequently exchanged again for Class A shares of SPIF or any of the non-Money
Funds of the Trust other than the Fund, a sales load may be charged in an amount
up to the difference between the sales load amount that was previously paid to
purchase the Class A shares that are being exchanged and the initial sales load
applicable to the Class A shares of the Eligible Funds that are acquired in the
exchange for the Money Fund Class A shares. Class A Shares of a Money Fund may
be exchanged for Class A Shares of the other Money Funds without a sales charge
at purchase. If the initial Class A shares of the Eligible Fund purchased by the
investor was not subject to any sales load on such shares, then no sales load
for Class A shares will be imposed on any subsequent exchanges involving such
shares. No initial sales charge will be assessed, however, and any applicable
CDSC will not be imposed when Class A Shares of any of the Eligible Funds,
including a Money Fund, are exchanged for Class A Shares of a Non-Money Fund
where the purchase of Class A shares of the Non-Money Fund through the exchange
is of any of the types described in "WAIVERS OF CLASS A INITIAL SALES CHARGES."
The availability of the exchange privilege with respect to shares of SPIF is
subject to the availability of shares of SPIF for exchange purposes as stated in
the prospectus and statement of additional information ("SAI") of SPIF. Also,
although shares of SPIF may be exchanged for shares of the Funds, such exchanges
of SPIF shares for shares of the Funds are permitted only once every calendar
quarter so long as SPIF makes a repurchase offer for its shares in such quarter
and so long as SPIF repurchase offer is sufficiently large to include SPIF
shares tendered for exchange. See the prospectus and SAI of SPIF for additional
information regarding the exchange privilege applicable to SPIF shares and the
availability of such exchange privilege.
Certain Class A Shares may be subject to a CDSC for redemptions within one or
two years of purchase as described in the "APPLICATION OF CLASS A SHARES CDSC"
section. The CDSCs applicable to Class A Shares will not be assessed on a
redemption that is a part of an exchange for Class A Shares of another Eligible
Fund, except that if
-18-
<PAGE> 25
the shares acquired in the exchange or a series of exchanges were then redeemed
within the CDSC period applicable to the shares redeemed initially in the
exchange or series of exchanges, the CDSC would be assessed.
Currently, shares of the Fund may not be exchanged for shares of the SAM
Portfolios. In the future, such an exchange privilege may be offered. However,
class A Shares and Class B Shares of the SAM Portfolios may be exchanged at NAV
for Class A Shares and Class B Shares, respectively, of the investment funds of
the Trust. More information regarding the exchange privilege for the SAM
Portfolios is provided in the SAM Portfolio Prospectus. Please call 800-222-5852
if you would like to obtain a Prospectus for the SAM Portfolios.
The exchange privilege is available only in those states where the offer and
sale of shares of a given Fund may legally be made. Upon 60 days' prior written
notice to shareholders, the Trust in its sole discretion may terminate or modify
the exchange privileges and restrictions and/or the Trust may begin imposing a
charge of up to $5.00 for each exchange. Shareholders exercising the exchange
privilege with any of the Funds of the Trust should review the prospectus of
each Fund carefully prior to making an exchange. Exchanges of shares are sales
and may result in a gain or loss for federal or state income tax purposes.
DIVIDENDS, CAPITAL GAINS AND TAXES
As a Fund shareholder, you are entitled to your share of the Fund's net income
and gains on its investments. The Fund passes these earnings along to its
investors as distributions. The Fund intends to avoid liability for federal
income tax and federal excise tax by making sufficient distributions to
investors.
The amount of dividends of net investment income (i.e., all income other than
long- and short-term capital gains) and distributions of net realized long- and
short-term capital gains payable to shareholders will be determined for the
Fund. Dividends from the net investment income of the Fund will be declared and
paid annually. Distributions of any net long-term capital gains earned by the
Fund will be made annually. Distributions of any net short-term capital gains
earned by the Fund will be distributed no less frequently than annually at the
discretion of the Board of Trustees.
DISTRIBUTION OPTIONS. When you open an account, specify on your Application Form
how you want to receive your distributions. The election may be made or changed
by writing to Sierra Administration or by calling 800-222-5852. The Fund offers
the following options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions will be
automatically reinvested in additional shares of the Fund, unless you instruct
the Fund on the application form or later in writing or by telephone to pay all
distributions in cash. If the Fund in which the reinvestment is made has an
initial sales charge or CDSC, you will not pay the initial sales charge or CDSC
on the reinvested amount.
2. CASH OPTION. You will be sent a check for each dividend and capital gain
distribution.
FOR RETIREMENT ACCOUNTS, all distributions are automatically reinvested. When
you are over 59 1/2 years old, you can receive distributions in cash.
EX-DIVIDEND. When a Fund goes EX-DIVIDEND (deducts a distribution from the
Fund's share price), the reinvestment price is the Fund's NAV at the close of
business that day. The mailing of distribution checks will begin within seven
days thereafter. If you buy shares shortly before an ex-dividend date ("buying a
dividend"), you will pay the full price for the shares and then receive a
portion of the price back as a taxable distribution.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the Fund or
its shareholders. Accordingly, shareholders are urged to consult their tax
advisors regarding specific questions as to federal, state and local income
taxes.
-19-
<PAGE> 26
The Fund intends to qualify separately each year as a "regulated investment
company" as defined under Subchapter M of the Code. The requirements for
qualification may cause the Fund to restrict the extent of its short-term
trading or its transactions in options or futures contracts.
As with any investment, you should consider how you will be taxed on your
investment in the Fund. If your account is not a tax-deferred retirement
account, you should be aware of the following tax implications:
TAXES ON DISTRIBUTIONS. The Fund will distribute all or substantially all of its
net investment income and net capital gains to shareholders each year.
Zero-coupon securities purchased by the Fund accrue interest (commonly referred
to as "imputed income") for federal income tax purposes even though Zero-Coupon
Securities do not pay current interest. The Fund must distribute this imputed
income to shareholders as ordinary income dividends. If shareholders do not
elect to receive such dividends in cash, but instead opt to reinvest such
dividends in the Fund, they will nonetheless be liable to pay tax on such
dividends.
Distributions generally are subject to federal income tax, but may be exempt
from certain state or local taxes. If you live outside the United States, your
distributions could also be taxed by the country in which you reside. Generally,
your distributions are taxable when they are paid. However, dividends declared
in October, November or December of any year and payable to shareholders of
record on a date in that month are deemed to have been paid by the Fund and
received by the shareholders on the last day of December if paid by the Fund at
any time during the following January. Each shareholder will receive after the
close of the calendar year an annual statement and such other written notices as
are appropriate as to the federal income tax status of the shareholder's
distributions received from the Fund for such calendar year.
For federal income tax purposes, distributions of investment company taxable
income (net investment income plus the excess of net short-term capital gain
over net long-term capital loss) are taxed to shareholders as ordinary income,
whether received in cash or in additional shares. Distributions of net capital
gain (the excess of net long-term capital gain over net short-term capital loss)
are taxed to shareholders as long-term capital gain regardless of how long you
have held your shares.
TAXES ON TRANSACTIONS. Any gain or loss recognized on a redemption, transfer or
exchange of shares of the Fund by a shareholder who is not a dealer in
securities generally will be treated as long-term capital gain or loss if the
shares have been held for more than twelve months, and otherwise generally will
be treated as a short-term capital gain or loss. Furthermore, if shares on which
a net capital gains distribution has been received are subsequently disposed of
and such shares have been held for six months or less, any loss recognized will
be treated as a long-term capital loss to the extent of the net capital gains
distribution.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually to shareholders within 60 days of the close of
the calendar year. Whenever you sell shares of the Fund, the Trust will send you
a confirmation statement showing how many shares you sold and at what price. You
also will receive a consolidated transaction statement every January. However,
it is up to you or your tax preparer to determine whether this sale resulted in
a capital gain and, if so, the amount of tax to be paid. You should retain your
regular account statements; the information they contain will be essential in
calculating the amount of your capital gains.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT A COMPLETE DESCRIPTION OF
THE FEDERAL, STATE OR LOCAL TAX CONSEQUENCES OF INVESTING IN THE FUND. YOU
SHOULD CONSULT YOUR TAX ADVISOR BEFORE INVESTING IN THE FUND.
SHAREHOLDER AND ACCOUNT POLICIES
TRANSACTION DETAILS
THE NAV of the Class A Shares of the Fund is the value of a single share of the
respective class. The NAV of the Fund is calculated by adding up the value of
the Fund's investments, cash and other assets, subtracting its liabilities, and
then dividing the result by the number of Class A Shares outstanding. Portfolio
securities and other
-20-
<PAGE> 27
assets are valued primarily on the basis of market quotations or, if quotations
are not readily available, by a method that the Board of Trustees believes
accurately reflects fair value.
THE FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF CLASS A SHARES for a
period of time. The Fund also reserves the right to reject any specific purchase
order. Purchase orders may be refused if, in the opinion of Sierra
Administration, they are of a size that would disrupt management of the Fund.
SIERRA ADMINISTRATION MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its services.
THE FUND IN DETAIL
ORGANIZATION
THE TRUST IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced business
persons who meet throughout the year to oversee the Trust's activities, review
contractual arrangements with companies that provide services to the Fund, and
review performance. The majority of trustees are not affiliated with Sierra
Services, Sierra Advisors or Sierra Administration other than as trustees of the
Trust. The Trust was organized on February 22, 1989 under the laws of the
Commonwealth of Massachusetts as a "Massachusetts business trust."
THE FUND MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. As a Massachusetts
business trust, the Fund is not required to hold annual shareholder meetings. On
occasion, however, special meetings may be called to elect or remove trustees,
change fundamental policies, approve a management contract, or for other
purposes. Trustees may be removed by shareholders at a special meeting called
upon the request of shareholders among at least 10% of the outstanding shares of
the Trust. Shareholders not attending these meetings are encouraged to vote by
proxy. Sierra Administration will mail proxy materials in advance, including a
voting card and information about the proposals to be voted on. When matters are
submitted for shareholder vote, shareholders of the Fund will have one vote for
each full share owned and proportionate, fractional votes for fractional shares
held and will have exclusive voting rights with respect to matters pertaining
solely to the Fund.
SIERRA ADVISORS, ITS AFFILIATES AND SERVICE PROVIDERS
ADVISOR
Sierra Advisors, located at 9301 Corbin Avenue, Northridge, California 91324, is
the investment advisor of the Fund. Responsibilities of Sierra Advisors include
formulating the Fund's investment policies (subject to the terms of this
Prospectus), analyzing economic trends and directing and evaluating the
investment services provided by the Sub-Advisor and monitoring the Fund's
investment performance. In connection with these activities, Sierra Advisors may
initiate action to change the Sub-Advisor if it deems such action to be in the
best interest of shareholders of the Fund.
Sierra Advisors became a registered investment advisor in 1988. Sierra Advisors
is an indirectly wholly-owned subsidiary of Sierra Capital Management
Corporation ("SCMC"), formerly known as Great Western Investment Management
Corporation, which is a wholly-owned subsidiary of Great Western Financial
Corporation ("GWFC"). GWFC is a publicly owned financial services company listed
on the New York, London and Pacific stock exchanges.
SUB-ADVISOR
BlackRock, a Delaware corporation, is located at 345 Park Avenue, 30th Floor,
New York, New York, 10154. BlackRock is an indirectly, wholly-owned subsidiary
of PNC Bank, N.A. PNC Bank, N.A. is an indirectly wholly-owned subsidiary of PNC
Bank Corp. ("PNC"). PNC is a publicly-owned multibank holding company
incorporated under the laws of the Commonwealth of Pennsylvania in 1983 and
registered under the Bank Holding
-21-
<PAGE> 28
Company Act of 1956, as amended. BlackRock provides investment advice to a wide
variety of institutional and investment company-related clients. As of June 30,
1996, BlackRock had aggregate assets under management or supervision of more
than $41 billion.
ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN
Sierra Administration provides shareholder service and other administrative
services. Sierra Administration is under common control with the Advisor and
Sierra Services. Sierra Administration is located at 9301 Corbin Avenue,
Northridge, California 91324. Pursuant to an Administration Agreement, Sierra
Administration is responsible for all administrative functions with respect to
the Trust, although it delegates certain of its responsibilities to sub-
administrators. Sierra Administration is entitled to a monthly fee at an annual
rate of 0.35% of the Fund's average daily net assets. First Data Investor
Services Group, Inc. ("First Data"), a subsidiary of First Data Corp., serves as
sub-administrator and Transfer Agent of the Trust. First Data is located at One
Exchange Place, 53 State Street, Boston, Massachusetts 02109. Sierra
Administration pays First Data for its services as sub-administrator and for its
service as Transfer Agent. Sierra Administration also pays Boston Safe Deposit
and Trust Co. ("Boston Safe"), One Boston Place, Boston, Massachusetts 02108,
for its services as custodian of the Trust. The Trust pays certain of the
Transfer Agent's and sub-administrators' out-of-pocket expenses and pays Boston
Safe certain custodial transaction charges.
DISTRIBUTOR
Sierra Services is the distributor of the Class A Shares of the Fund. Sierra
Services is located at 9301 Corbin Avenue, Northridge, California 91324. Sierra
Services, an indirectly wholly-owned subsidiary of SCMC, was established in 1992
and is a registered broker-dealer with the NASD and a registered investment
advisor. GW Securities, a wholly-owned subsidiary of GWFC, was established in
1982 and is a registered broker-dealer with the NASD. GW Securities offers a
broad range of investment products and services.
The Fund has a distribution plan (the "Rule 12b-1 Plan"), pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "Investment Company
Act") . The Fund intends to operate the Rule 12b-1 Plan in accordance with its
terms and the NASD Rules concerning sales charges. Under the Rule 12b-1 Plan,
Sierra Services (the "Distributor") is paid an annual fee as compensation in
connection with the offering and sale of Class A Shares of the Fund. The annual
fees to be paid to the Distributor under the Rule 12b-1 Plan are calculated with
respect to Class A Shares at an annual rate of up to .25% of the average daily
net assets of the Class A Shares of the Fund. These fees may be used to cover
the respective expenses of the Distributor primarily intended to result in the
sale of Class A Shares of the Fund, including payments to a Distributor's
representatives or others for selling shares. The Distributor may retain any
amount of its fee that is not so expended.
In addition to providing for the expenses discussed above, the Rule 12b-1 Plan
also recognizes that Sierra Advisors may use its investment advisory fees or
other resources to pay expenses associated with activities primarily intended to
result in the promotion and distribution of the Fund's shares. The Distributors
may, from time to time, pay to other dealers, in connection with retail sales or
the distribution of shares of a Fund, material compensation in the form of
merchandise or trips.
PORTFOLIO TRANSACTIONS AND TURNOVER. All orders for the purchase or sale of
securities on behalf of the Fund are placed by the Fund's Sub-Advisor with
broker-dealers that it selects. The Fund may, at the discretion of its
Sub-Advisor, utilize GW Securities or brokers affiliated with the Advisor or
Sub-Advisor in connection with a purchase or sale of securities in accordance
with rules adopted or exemptive orders issued by the Commission when the Fund's
Sub-Advisor believes that such broker's charge for the transaction does not
exceed usual and customary levels.
The Fund's turnover rate varies from year to year, depending on market
conditions and investment strategies. High turnover rates increase transaction
costs, and may increase taxable capital gains. See "Dividends, Capital Gains and
Taxes - Taxes." The Fund's annual portfolio turnover rate is expected to be less
than 50%. The Fund will not consider portfolio turnover rate a limiting factor
in making investment decisions consistent with their investment objectives and
policies.
-22-
<PAGE> 29
BREAKDOWN OF FUND EXPENSES
Like any mutual fund, the Fund pays expenses related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts. The Fund pays a MANAGEMENT FEE to Sierra Advisors for
managing its investments and business affairs. Sierra Advisors pays fees to
sub-contractors, including the Sub-Advisor, who provide assistance with these
services. The Fund also pays OTHER EXPENSES, which are explained on the
following pages. Sierra Advisors and/or Sierra Administration may, from time to
time, agree to reimburse the Fund for management fees and other expenses above a
specified limit. Sierra Advisors and Sierra Administration retain the ability to
be repaid by the Fund if expenses fall below the specified limit prior to the
end of the fiscal year.
MANAGEMENT FEE
The management fee will be calculated and paid to Sierra Advisors every month.
The management fee for the Fund is based upon a percentage of its average net
assets. Absent fee waivers, the total management fee for the Fund as provided in
the investment advisory agreement of the Fund is at the annual rate of .25% for
the first $500 million in assets and .20% for assets over $500 million.
The Advisor retains only the net amount of the foregoing management fees after
the advisory fees paid to the Sub-Advisor, described below, are deducted. Out of
the total management fee received by the Advisor for the Fund, the Advisor would
pay to the Sub-Advisor, absent fee waivers by the Sub-Advisor, the annual rate
of .05% of the Fund's average net assets, subject to a minimum annual fee of
$25,000.
OTHER EXPENSES
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well. In addition to the
management fee and other fees described previously, the Fund pays other
expenses, such as legal, audit, transfer agency and custodian out-of-pocket
fees; proxy solicitation costs; and the compensation of trustees who are not
affiliated with Sierra Advisors. Most Fund expenses are allocated
proportionately among all of the outstanding shares of the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE TRUST'S
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFERING OF THE TRUST'S SHARES,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER
MAY NOT LAWFULLY BE MADE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-23-
<PAGE> 30
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 31
(800) 222-5852
P.O. BOX 5118
LOGO WESTBOROUGH, MASSACHUSETTS 01581-5118
- --------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION Check one box for the account you wish to open and
complete information.
<TABLE>
<S> <C>
/ / Individual Name ______________________________________________________ SS#/Tax ID _________________________
/ / Joint Tenant Name of Add'l Owner _______________________________________ SS#/Tax ID _________________________
/ / Tenants in Common
/ / Transfer to Minors ____________________________________________ As Custodian For __________________________________
NAME OF CUSTODIAN NAME OF MINOR
Under the _____________ Uniform Transfers (Gifts) to Minors Act _____ Minor's SS# ______________
(STATE) (AGE)
/ / Other Indicate name of Corporation, other organization or fiduciary; if Trust, include date of instrument:
(Additional forms, such as a Corporate Resolution may be required. Call (800) 222-5852 for information)
Name __________________________________________________ Tax ID __________________________________
/ / Check here if you have an existing Great Western Financial Securities Brokerage Account. Acct. No. __________________
/ / I am a United States Citizen. If not, please specify Country _________________________________________________________
Street Address _________________________________________________________________ Home Phone ( ) ________________________
City ________________________________________ State ____________ Zip ____________ Business Phone ( ) ___________________
</TABLE>
- --------------------------------------------------------------------------------
2. YOUR INVESTMENT SELECTION (Minimum initial $250; Minimum subsequent $100). To
select the Sierra Milestone Series, contact your Investment Representative or
call Sierra Trust Funds at (800) 222-5852.
<TABLE>
<S> <C> <C>
Investment Amount
TARGET MATURITY 2002 FUND CLASS A SHARES $
-----------------
</TABLE>
- --------------------------------------------------------------------------------
3. YOUR PAYMENT METHOD FOR INITIAL INVESTMENT
/ / SWEEP: Transfer the initial investment from GWB or GWFS account. (Note:
Registration of your Sierra Trust Fund account must be identical in
name and form to the account from which the Fund is sweeping.)
Bank or Brokerage Acct. Name _________________ Acct. No. ___________
/ / CHECK: $ _________________ Make check payable to Sierra Trust Funds.
/ / WIRE: Call (800) 222-5852 for instructions.
- --------------------------------------------------------------------------------
4. YOUR BROKER/DEALER
Branch Number ____ Representative's Number ____ Representative's Last Name _____
Branch Address _________________ City ____________ State _______ Zip ___________
- --------------------------------------------------------------------------------
5. SPECIAL FEATURES AND PRIVILEGES
A. TELEPHONE PRIVILEGES PERMITS TRANSFER OF MONEY BY WIRE ($1,000 MINIMUM)
BETWEEN YOUR SIERRA TRUST FUND AND YOUR DESIGNATED BANK ACCOUNT.
/ / YES / / NO If "Yes," Please wire monies to the following bank:
Name of your Bank ___________________________________________________________
Acct. Name _____________________________ Acct. No. __________________________
Bank Address ____________________ City ________ State _______ Zip ___________
<PAGE> 32
B. DIVIDEND AND DISTRIBUTION PLANS Check one only; if none are checked, all
dividends/distributions will be reinvested.
/ / FULL REINVESTMENT -- Reinvest all dividends and distributions at net
asset value.
/ / CASH -- / / Pay all income dividends and distributions by check and
mail/deposit to my bank per instructions in Section "A" above.
/ / Pay all income dividends and distributions by check and mail
to the address provided in Section 1.
C. LETTER OF INTENT (LOI):
/ / I agree to the terms of the Letter of Intent and provisions for reservation
of shares as set forth in the Prospectus. Although I am not obligated to do so,
it is my intention to invest over a 13-month period in Class A Shares of the
Target Maturity 2002 Fund an aggregate amount at least equal to the amount
indicated below:
/ / $50,000 / / $100,000 / / $250,000 / / $500,000 / / $1,000,000
Effective Date _______________ Note: The effective date can be no more than
90 days prior to today's date.
______________________________________________ ______________________
Signature(s) Date
D. RIGHT OF ACCUMULATION (ROA):
In order for a cumulative quantity discount (as described in the Fund
prospectus) to be made available, the shareholder or his or her securities
dealer must notify Sierra Trust Funds (800-222-5852) or the Fund's transfer
agent of the total holdings in our group each time an order is placed.
/ / I own shares in other Sierra Trust Funds, Sierra Prime Income Fund or Sierra
Asset Management Portfolios which may entitle this purchase to have a reduced
sales charge under the provisions in the Fund prospectus. My other account
numbers are:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
______________________________________________ ______________________
Signature(s) Date
- --------------------------------------------------------------------------------
6. CLIENT SIGNATURES AND TAXPAYER CERTIFICATION (Please read and sign below.)
I am of legal age, have received and read the Prospectus, agree to its terms and
understand that by signing below (a) neither this Fund nor Sierra Investment
Services Corporation is a bank; and Fund shares are not backed or guaranteed by
any bank nor insured by the FDIC; (b) my (our) account will automatically have
the Exchange Privilege capability and that all information provided above (if
applicable) will apply to any Fund into which my (our) shares may be exchanged;
(c) I hereby ratify any instructions given on this account and any account into
which I exchange relating to items on this application and agree that the Fund,
Sierra Investment Services Corporation and Sierra Fund Administration
Corporation will not be liable for any loss, cost or expense for acting upon
such instructions (by telephone or in writing) believed by it to be genuine and
in accordance with the procedures described in the Prospectus; (d) it is my
responsibility to read the Prospectus; (e) I affirm that I/we have entered into
a broker/dealer cash account relationship with Sierra Investment Services
Corporation; and (f) I represent and warrant that I have full right, power and
authority to give the foregoing affirmations, certifications and authorizations,
and to make the investments applied for pursuant to this Application Form and,
if signing on behalf of the beneficial owner, represent and warrant that I am
duly authorized to sign this Application Form and to purchase and redeem shares
(or to deposit and withdraw funds) on behalf of the beneficial owner.
TAXPAYER IDENTIFICATION NUMBER CERTIFICATION: As required by federal law, I (we)
certify under penalties of perjury (1) that the Social Security Number ("SSN")
or Taxpayer Identification Number ("TIN") provided above is correct and (2) that
the IRS has never notified me (us) that I (we) am (are) subject to 31% backup
withholding, or has notified me (us) that I (we) am (are) no longer subject to
such backup withholding. (NOTE: IF ANY OR ALL OF PART (2) OF THE PRECEDING
SENTENCE IS NOT TRUE IN YOUR CASE, PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
If I (we) fail to furnish my (our) correct SSN or TIN, I (we) may be subject to
a penalty for each failure and my (our) account may be subject to 31% backup
withholding on distribution and redemption proceeds.
<TABLE>
<S> <C>
X
- ------------------------------------------------------------ ------------------------------------------------------------------
Registered Representative's Name and Number SIGNATURE
Date X
------------------------------------------------------- ------------------------------------------------------------------
SIGNATURE
</TABLE>
<PAGE> 33
[THIS PAGE LEFT INTENTIONALLY BLANK]
<PAGE> 34
<TABLE>
<S> <C>
PROSPECTUS SIERRA TRUST FUNDS
OCTOBER 31, 1996 P.O. BOX 5118
WESTBOROUGH, MASSACHUSETTS 01581-5118
800-222-5852
GLOBAL MONEY FUND FLORIDA INSURED MUNICIPAL FUND
U.S. GOVERNMENT MONEY FUND CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CALIFORNIA MONEY FUND NATIONAL MUNICIPAL FUND
SHORT TERM HIGH QUALITY BOND FUND GROWTH AND INCOME FUND
SHORT TERM GLOBAL GOVERNMENT FUND GROWTH FUND
U.S. GOVERNMENT FUND EMERGING GROWTH FUND
CORPORATE INCOME FUND INTERNATIONAL GROWTH FUND
CALIFORNIA MUNICIPAL FUND
</TABLE>
This prospectus describes the Class A and Class B Shares of the Sierra Trust
Funds (the "Trust"). The Trust consists of the fifteen separate investment funds
(each, a "Fund") named above, and the Target Maturity 2002 Fund, which is
described in a separate prospectus. The Class A and Class B Shares offer
investors alternative ways of paying sales charges and distribution costs.
Please read this prospectus before investing, and keep it for future reference.
It contains useful information that can help you decide whether the investment
goals of the Funds are right for you.
A Statement of Additional Information ("SAI") about the Trust, dated October 31,
1996, has been filed with the Securities and Exchange Commission (the "SEC"),
and is incorporated herein by reference (is considered legally a part of this
prospectus). The SAI is available free upon request by calling the Trust at
800-222-5852.
THE GROWTH AND EMERGING GROWTH FUNDS MAY EACH INVEST UP TO 35%, AND THE SHORT
TERM GLOBAL GOVERNMENT FUND MAY INVEST UP TO 10%, OF THE FUND'S TOTAL ASSETS,
RESPECTIVELY, IN LOWER-RATED BONDS, COMMONLY REFERRED TO AS "JUNK BONDS." BONDS
OF THIS TYPE ARE CONSIDERED TO BE SPECULATIVE WITH REGARD TO THE PAYMENT OF
INTEREST AND RETURN OF PRINCIPAL. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THESE FUNDS. SEE "SECURITIES AND INVESTMENT
PRACTICES -- LOWER-RATED SECURITIES."
INVESTMENTS IN THE FUNDS ARE NOT GUARANTEED OR INSURED BY THE U.S. GOVERNMENT,
AND THERE IS NO ASSURANCE THAT THE GLOBAL MONEY, U.S. GOVERNMENT MONEY AND
CALIFORNIA MONEY FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
THE TRUST'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS (TRUST OR
OTHERWISE) OF, OR ENDORSED OR GUARANTEED BY A BANK OR ANY AFFILIATES OR
CORRESPONDENTS. THE TRUSTS'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Financial Highlights................................................................................. 9
The Funds' Investments and Risk Considerations....................................................... 15
Performance Information.............................................................................. 42
Your Account......................................................................................... 46
How to Sell Shares................................................................................... 53
Exchange Privileges and Restrictions................................................................. 55
Dividends, Capital Gains and Taxes................................................................... 56
The Funds in Detail.................................................................................. 59
Sierra Advisors, Its Affiliates and Service Providers................................................ 60
</TABLE>
<PAGE> 35
THE SIERRA TRUST FUNDS FAMILY AT A GLANCE
The Sierra Trust Funds (the "Trust") is an open-end management investment
company with a family of sixteen investment funds each with its own investment
objectives and policies. This prospectus describes all of the investment funds,
except the Target Maturity 2002 Fund (excepting the latter fund, each, a "Fund"
and together, the "Funds"). Please call 800-222-5852 if you would like to obtain
a prospectus and further information about the Target Maturity 2002 Fund. Each
Fund offers four classes of shares, Class A Shares, Class B Shares, Class I
Shares and Class S Shares. Subject to the following restrictions, investors may
invest in one or more of the different classes, which have different sales
charges, expenses and other features.
CLASS A AND CLASS B SHARES. Class A Shares have a front-end sales charge and
Class B Shares have sales charges only if they are redeemed within four or six
years of purchase, depending on the Fund involved. Investors may purchase
directly Class A Shares of all of the Funds and Class B Shares of the Non-Money
Funds, which are the Funds other than the Global Money Fund, U.S. Government
Money Fund and California Money Fund (the "Money Funds"). Class B Shares of the
Money Funds are offered only to shareholders exchanging Class B Shares of other
Funds and therefore may not be purchased directly by investors.
CLASS I SHARES. Initially, only Global Money Fund, U.S. Government Money Fund,
Short Term High Quality Bond Fund, Short Term Global Government Fund, U.S.
Government Fund, Corporate Income Fund, Growth and Income Fund, Growth Fund,
Emerging Growth Fund and International Growth Fund will offer and sell Class I
Shares, and sales of Class I Shares will be made initially exclusively to the
various investment portfolios of Sierra Asset Management Portfolios ("SAM
Portfolios"), an open-end management investment company, and are not available
for direct purchase by investors. SAM Portfolios offer investors the opportunity
to pursue a selected asset allocation strategy that is implemented through
investment, by an investment portfolio of the SAM Portfolios, in Class I Shares
of certain of the Funds. Shares of SAM Portfolios are not offered through this
prospectus. PLEASE CALL 800-222-5852 IF YOU WOULD LIKE TO OBTAIN A PROSPECTUS
FOR THE SHARES OF THE SAM PORTFOLIOS.
CLASS S SHARES. Class S Shares are sold to investors who select the Sierra Asset
Management ("SAM") service described in "Your Account - Investment in Funds
Through a SAM Account." CLASS S SHARES OF THE FUNDS ARE NOT OFFERED THROUGH THIS
PROSPECTUS. Please call 800-222-5852 if you would like to obtain a prospectus
and further information about the Class S Shares of the Funds.
GOALS: Each Fund has a different investment goal. Each fund's investment
objective is a fundamental policy which may not be changed without the approval
of a majority of the Fund's outstanding voting securities. As with any mutual
fund, there is no assurance that a Fund will achieve its goal.
STRATEGY: Each Fund has a distinct strategy specifically designed to achieve its
goal and these strategies entail varying degrees of risk. Generally, investors
seeking higher returns must assume greater risks.
INVESTMENT MANAGEMENT: Sierra Investment Advisors Corporation ("Advisor" or
"Sierra Advisors") has overall responsibility for management of the Funds.
However, each Fund has an investment sub-advisor ("Sub-Advisor") who selects the
investments made by that Fund subject to oversight and direction by Sierra
Advisors. The Advisor and the Sub-Advisors are discussed in "The Funds in Detail
- -Sierra Advisors, Its Affiliates and Service Providers."
RISK CONSIDERATIONS: The value of a Fund's shares will fluctuate with the value
of the underlying securities in its investment portfolio, and in the case of
debt securities, with the general level of interest rates. When interest rates
decline, the value of a portfolio invested in fixed-income securities can be
expected to rise. Conversely, when interest rates rise, the value of a portfolio
invested in fixed-income securities can be expected to decline. In the case of
foreign currency denominated securities, these trends may be offset or amplified
by fluctuations in foreign currencies. Investing in securities of foreign
issuers involves certain risks and considerations not typically associated with
investing in securities of U.S. companies. See "The Funds' Investments and Risk
Considerations - Securities and Investment Practices - Foreign Investments."
High yielding fixed-income securities, such as those in which the Short Term
Global Government Fund may invest up to 10%, and the Growth and Emerging Growth
Funds up to 35%, respectively, of total assets, are subject to greater market
fluctuations and risk of loss of income and principal than investments in lower
yielding fixed-income securities. The Funds intend to employ from time to time
certain investment techniques which are designed to enhance income or total
return or hedge against market or
-1-
<PAGE> 36
currency risks but which themselves involve additional risks. These techniques
include options on securities, futures, options on futures, options on indexes,
options on foreign currencies, foreign currency exchange transactions, lending
of securities and when-issued securities and delayed-delivery transactions.
Because the Short Term Global Government, California Municipal, Florida Insured
Municipal, California Insured Intermediate Municipal and California Money Funds
are nondiversified, they are permitted greater flexibility to invest their
assets in the securities of any one issuer and therefore will be exposed to
increased risk of loss if such an investment under performs expectations. For
additional risk information, see "The Funds' Investments and Risk
Considerations" and "Securities and Investment Practices" in this prospectus and
"Investment Objectives and Policies of the Funds" in the Trust's SAI.
THE MONEY FUNDS
GLOBAL MONEY FUND
- -----------------
GOAL: To maximize current income consistent with safety of principal and
maintenance of liquidity.
STRATEGY: Investing in U.S. Dollar-denominated money market instruments of
foreign and U.S. issuers.
INVESTMENT MANAGEMENT: J.P. Morgan Investment Management, Inc. ("J.P. Morgan")
is the Sub-Advisor of the Fund.
U.S. GOVERNMENT MONEY FUND
- --------------------------
GOAL: To maximize current income consistent with safety of principal and
maintenance of liquidity.
STRATEGY: Investing primarily in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
INVESTMENT MANAGEMENT: Alliance Capital Management L.P. ("Alliance") is the
Sub-Advisor of the Fund.
CALIFORNIA MONEY FUND
- ---------------------
GOAL: To maximize current income that is excluded from gross income for federal
income tax purposes and is exempt from California State personal income
taxation, consistent with safety of principal and maintenance of liquidity.
STRATEGY: Investing in obligations that are exempt from California State
personal income tax.
INVESTMENT MANAGEMENT: Alliance is the Sub-Advisor of the Fund.
THE BOND FUNDS
SHORT TERM HIGH QUALITY BOND FUND
- ---------------------------------
GOAL: To provide as high a level of current income as is consistent with prudent
investment management and stability of principal.
STRATEGY: Investing at least 65% of its assets in investment-grade short-term
bonds and other fixed-income securities issued by the U.S. Government,
corporations and other issuers. The Fund may borrow money or enter into reverse
repurchase agreements or dollar roll transactions in the aggregate up to 10% of
its total assets, invest up to 25% of its total assets in asset-backed
securities and may engage in certain options transactions, financial futures
contracts and currency forwards or futures contracts and related options. Each
of these investments entails risks which are discussed in the "Investment
Principles and Risk Considerations" and "Securities and Investment Practices"
sections following.
INVESTMENT MANAGEMENT: Scudder, Stevens & Clark, Inc. ("Scudder") is the
Sub-Advisor of the Fund.
SHORT TERM GLOBAL GOVERNMENT FUND
- ---------------------------------
GOAL: To provide high current income consistent with protection of principal.
STRATEGY: Investing at least 65% of its assets in short-term bonds and money
market instruments issued by foreign and U.S. governments and denominated in
foreign currencies or the U.S. Dollar.
INVESTMENT MANAGEMENT: Scudder is the Sub-Advisor of the Fund.
-2-
<PAGE> 37
U.S. GOVERNMENT FUND
- --------------------
GOAL: To maximize total rate of return while providing a high level of current
income, consistent with reasonable safety of principal.
STRATEGY: Investing in a broad range of U.S. Government securities, including
mortgage-backed securities.
INVESTMENT MANAGEMENT: BlackRock Financial Management, Inc. ("BlackRock") is the
Sub-Advisor of the Fund.
CORPORATE INCOME FUND
- ---------------------
GOAL: To provide a high level of current income, consistent with the
preservation of capital.
STRATEGY: Investing primarily in investment-grade corporate bonds of U.S.
issuers.
INVESTMENT MANAGEMENT: TCW Funds Management, Inc. ("TCW Management") is the
Sub-Advisor of the Fund.
CALIFORNIA MUNICIPAL FUND
- -------------------------
GOAL: To provide as high a level of current income that is excluded from gross
income for federal income tax purposes and is exempt from California State
personal income tax as is consistent with prudent investment management and
preservation of capital.
STRATEGY: Investing in intermediate-and long-term California municipal
securities.
INVESTMENT MANAGEMENT: Van Kampen American Capital Management Inc. ("Van
Kampen") is the Sub-Advisor of the Fund.
FLORIDA INSURED MUNICIPAL FUND
- ------------------------------
GOAL: To seek as high a level of current income, exempt from federal income tax,
as is consistent with prudent investment management and preservation of capital,
and to offer shareholders the opportunity to own shares the value of which is
exempt from Florida intangible personal property tax.
STRATEGY: Investing in intermediate- and long-term Florida municipal obligations
that are "insured obligations" and offer potential for a high level of current
income relative to funds with like investment objectives. Insured obligations
are municipal obligations that at all times are fully insured as to the
scheduled payment of all installments of interest and principal.
INVESTMENT MANAGEMENT: Van Kampen is the Sub-Advisor of the Fund.
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
- ----------------------------------------------
GOAL: To provide California investors with as high a level of current income
exempt from federal and California State income tax as is consistent with
prudent investment management and preservation of capital.
STRATEGY: Investing primarily in intermediate-term California municipal
securities that are "insured obligations" and offer potential for a high level
of current income relative to funds with like investment objectives. It is a
fundamental policy of the Fund that it will invest at least 80% of the value of
its total assets in insured California municipal securities, except when
maintaining a temporary defensive position. Insured obligations are municipal
obligations that at all times are fully insured as to the scheduled payment of
all installments of interest and principal. The Fund may invest up to 20% of the
value of its total assets in municipal securities that are not insured, provided
that such securities are at least investment-grade as described in "The Funds'
Investments and Risk Considerations" section.
INVESTMENT MANAGEMENT: Van Kampen is the Sub-Advisor of the Fund.
NATIONAL MUNICIPAL FUND
- -----------------------
GOAL: To provide a high level of current income which is exempt from federal
income tax, consistent with preservation of capital.
STRATEGY: Investing in intermediate- and long-term fixed income municipal
obligations.
INVESTMENT MANAGEMENT: Van Kampen is the Sub-Advisor of the Fund.
-3-
<PAGE> 38
THE EQUITY FUNDS
GROWTH AND INCOME FUND
- ----------------------
GOAL: Long-term capital growth and current income consistent with reasonable
investment risk.
STRATEGY: Investing primarily in dividend-paying common stock of
well-established companies.
INVESTMENT MANAGEMENT: J.P. Morgan is the Sub-Advisor of the Fund.
GROWTH FUND
- -----------
GOAL: Long-term capital appreciation (increase in the value of the Fund's
shares).
STRATEGY: Investing primarily in common stock of U.S., multinational, and
foreign companies of all sizes that offer potential for growth.
INVESTMENT MANAGEMENT: Janus Capital Corporation ("Janus") is the Sub-Advisor of
the Fund.
EMERGING GROWTH FUND
- --------------------
GOAL: Long-term capital appreciation by investing primarily in equity
securities.
STRATEGY: Investing primarily in stock of small companies which are expected to
achieve accelerated growth in earnings and revenues or which are undervalued in
the market place.
INVESTMENT MANAGEMENT: Janus is the Sub-Advisor of the Fund.
INTERNATIONAL GROWTH FUND
- -------------------------
GOAL: Long-term capital appreciation by investing primarily in equity securities
of foreign issuers.
STRATEGY: Investing in stock of leading companies located outside the United
States.
INVESTMENT MANAGEMENT: Warburg, Pincus Counsellors, Inc. ("Warburg") is the
Sub-Advisor of the Fund.
-4-
<PAGE> 39
SUMMARY OF SIERRA TRUST FUNDS EXPENSES
<TABLE>
<CAPTION>
SHORT
U.S. TERM HIGH
GLOBAL MONEY GOVERNMENT CALIFORNIA QUALITY
FUND MONEY FUND MONEY FUND BOND FUND
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES (AS A
PERCENTAGE OF OFFERING PRICE)
Class A............................................ None None None 3.50%(1)
Class B............................................ None None None None
Class I............................................ None None None None
MAXIMUM SALES CHARGE IMPOSED ON REINVESTED DIVIDENDS
(AS A PERCENTAGE OF OFFERING PRICE)
Class A............................................ None None None None
Class B............................................ None None None None
Class I............................................ None None None None
DEFERRED SALES CHARGE
Class A............................................ None(2) None(2) None(2) None(2)
Class B............................................ 5.00%(3) 5.00%(3) 5.00%(3) 4.00%(3)
Class I............................................ None None None None
REDEMPTION FEES(4)
Class A............................................ None None None None
Class B............................................ None None None None
Class I............................................ None None None None
EXCHANGE FEES(5)
Class A............................................ None None None None
Class B............................................ None None None None
Class I............................................ None None None None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
MANAGEMENT FEES (AFTER VOLUNTARY WAIVERS OR
REIMBURSEMENT)(6)
Class A............................................ 0.04% 0.04% 0.14% 0.04%
Class B............................................ 0.04% 0.04% 0.14% 0.04%
Class I............................................ 0.04% 0.04% 0.14% 0.04%
12B-1 FEES(7)
Class A............................................ 0.25% 0.25% 0.25% 0.25%
Class B............................................ 1.00% 1.00% 1.00% 1.00%
Class I............................................ 0% 0% 0% 0%
OTHER EXPENSES(8)
Class A............................................ 0.36% 0.56% 0.46% 0.46%
Class B............................................ 0.36% 0.56% 0.46% 0.46%
Class I............................................ 0.36% 0.56% 0.46% 0.46%
TOTAL FUND OPERATING EXPENSES(9)
Class A............................................ 0.65% 0.85% 0.85% 0.75%
Class B............................................ 1.40% 1.60% 1.60% 1.50%
Class I............................................ 0.40% 0.60% 0.60% 0.50%
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE
GOVERNMENT GOVERNMENT INCOME
FUND FUND FUND
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES (AS A
PERCENTAGE OF OFFERING PRICE)
Class A............................................ 3.50%(1) 4.50%(1) 4.50%(1)
Class B............................................ None None None
Class I............................................ None None None
MAXIMUM SALES CHARGE IMPOSED ON REINVESTED DIVIDENDS
(AS A PERCENTAGE OF OFFERING PRICE)
Class A............................................ None None None
Class B............................................ None None None
Class I............................................ None None None
DEFERRED SALES CHARGE
Class A............................................ None(2) None(2) None(2)
Class B............................................ 4.00%(3) 5.00%(3) 5.00%(3)
Class I............................................ None None None
REDEMPTION FEES(4)
Class A............................................ None None None
Class B............................................ None None None
Class I............................................ None None None
EXCHANGE FEES(5)
Class A............................................ None None None
Class B............................................ None None None
Class I............................................ None None None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
MANAGEMENT FEES (AFTER VOLUNTARY WAIVERS OR
REIMBURSEMENT)(6)
Class A............................................ 0.10% 0.19% 0.32%
Class B............................................ 0.10% 0.19% 0.32%
Class I............................................ 0.10% 0.19% 0.32%
12B-1 FEES(7)
Class A............................................ 0.25% 0.25% 0.25%
Class B............................................ 1.00% 1.00% 1.00%
Class I............................................ 0% 0% 0%
OTHER EXPENSES(8)
Class A............................................ 0.50% 0.46% 0.43%
Class B............................................ 0.50% 0.46% 0.43%
Class I............................................ 0.50% 0.41% 0.43%
TOTAL FUND OPERATING EXPENSES(9)
Class A............................................ 0.85% 0.90% 1.00%
Class B............................................ 1.60% 1.65% 1.75%
Class I............................................ 0.60% 0.60% 0.75%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)The initial sales charge is reduced for purchases of $50,000 and over,
decreasing to zero for purchases of $1,000,000 and over for each Fund.
(2)Certain investors who purchase Non-Money Fund Class A Shares at net asset
value based on a purchase amount of $1 million or more after June 30, 1995
may be subject to a 1.0% contingent deferred sales charge ("CDSC") on
redemptions within one year of purchase or a 0.5% CDSC on redemptions after 1
year but within 2 years of purchase. Class A Shares purchased through a
qualified 401(k) or 403(b) plan may, in certain circumstances, be subject to
a CDSC of 1.0% if the shares are redeemed within two years of their initial
purchase. Money Fund Class A Shares acquired through exchange from Non-Money
Fund Class A Shares that were subject to a CDSC at the time of exchange may
also be subject to such CDSC. SEE "INITIAL SALES CHARGE ALTERNATIVE: CLASS A
SHARES" AND "APPLICATION OF CLASS A SHARES CDSCS."
(3)See "Your Account - Deferred Sales Charge Alternative: Class B Shares."
(4)A $5.00 fee may be charged for each wire transfer if shares are redeemed by
wire transfer to a shareholder's pre-authorized designated bank account.
(5)Upon 60 days' prior written notice to shareholders, the exchange privilege
may be modified or terminated and/or the Trust may begin imposing a charge of
up to $5.00 for each exchange. See "Your Account - Exchange Privileges and
Restrictions."
(6)Reflects voluntary waivers of management fees by the Advisor. In the absence
of such voluntary waivers, management fees would have been for each of the
following Funds: Global Money Fund-0.40%*; U.S. Government Money Fund-0.40%*;
California Money Fund-0.40%*; Short Term High Quality Bond Fund-0.50%; Short
Term Global Government Fund-0.65%; U.S. Government Fund-0.55%*; Corporate
Income Fund-0.65%; California Municipal Fund-0.55%*; Florida Insured
Municipal Fund-0.55%*; California Insured Intermediate Municipal Fund-0.55%*;
and National Municipal Fund-0.55%*. No management fee waivers apply to the
Growth and Income, Growth, Emerging Growth and International Growth Funds. *
Asterisked fees reflect the contractual agreement of the Advisor to limit the
annual management fee.
(7)Of the 12b-1 fees for the Class B Shares, 0.75% represents an asset-based
sales charge and 0.25% is a service charge. Due to the continuous nature of
the 12b-1 fee, long-term shareholders of a Fund may pay more than the
economic equivalent of the maximum front-end sales charge otherwise permitted
by the Conduct Rules of the National Association of Securities Dealers, Inc.
("NASD").
(8)After voluntary waivers or reimbursement. Reflects the voluntary agreement of
the Advisor to bear certain expenses and Administrator to waive fees to limit
total fund expenses for the Class A and Class B Shares.
-5-
<PAGE> 40
<TABLE>
<CAPTION>
CALIFORNIA
INSURED
CALIFORNIA FLORIDA INSURED INTERMEDIATE NATIONAL GROWTH AND EMERGING
MUNICIPAL FUND MUNICIPAL FUND MUNICIPAL FUND MUNICIPAL FUND INCOME FUND GROWTH FUND GROWTH FUND
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
4.50%(1) 4.50%(1) 4.50%(1) 4.50%(1) 5.75%(1) 5.75%(1) 5.75%(1)
None None None None None None None
None None None None None None None
None None None None None None None
None None None None None None None
None None None None None None None
None(2) None(2) None(2) None(2) None(2) None(2) None(2)
5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3)
None None None None None None None
None None None None None None None
None None None None None None None
None None None None None None None
None None None None None None None
None None None None None None None
None None None None None None None
0.27% 0.04% 0.04% 0.30% 0.78% 0.93% 0.88%
0.27% 0.04% 0.04% 0.30% 0.78% 0.93% 0.88%
0.27% 0.04% 0.04% 0.30% 0.78% 0.93% 0.88%
0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
0% 0% 0% 0% 0% 0% 0%
0.43% 0.51% 0.56% 0.45% 0.55% 0.53% 0.57%
0.43% 0.51% 0.56% 0.45% 0.55% 0.53% 0.57%
0.43% 0.51% 0.56% 0.45% 0.55% 0.53% 0.57%
0.95% 0.80% 0.85% 1.00% 1.58% 1.71% 1.70%
1.70% 1.55% 1.60% 1.75% 2.33% 2.46% 2.45%
0.70% 0.55% 0.60% 0.75% 1.33% 1.46% 1.45%
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INTERNATIONAL
GROWTH FUND
<S><C>
- --------------------------------------------------------------------------------------------------------------
5.75%(1)
None
None
None
None
None
None(2)
5.00%(3)
None
None
None
None
None
None
None
0.90%
0.90%
0.90%
0.25%
1.00%
0%
0.68%
0.68%
0.68%
1.83%
2.58%
1.58%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(9)The total fund operating expenses set forth in the foregoing table are
restated to reflect anticipated management fees and other expenses (after
voluntary waivers or reimbursements). Actual expenses for each Fund may vary
from day to day. The Advisor and Administrator anticipate voluntarily waiving
fees and/or bearing expenses for certain Funds that will result in total fund
operating expenses as set forth in the foregoing table; they are under no
obligation to continue to do so. Set forth below are total fund operating
expenses absent such fee waivers and expense reimbursements. Global Money
Fund, Class A-1.21%, Class B-1.96%, Class I-0.96%; U.S. Government Money
Fund, Class A-1.34%, Class B-2.09%, Class I-1.09%; California Money Fund,
Class A-1.15%, Class B-1.90%, Class I-0.90%; Short Term High Quality Bond
Fund, Class A-1.40%, Class B-2.15%, Class I-1.15%; Short Term Global
Government Fund, Class A-1.44%, Class B-2.19%, Class I-1.19%; U.S. Government
Fund, Class A-1.30%, Class B-2.05%, Class I-1.00%; Corporate Income Fund,
Class A-1.37%, Class B-2.12%, Class I-1.12%; California Municipal Fund, Class
A-1.27%, Class B-2.02%, Class I-1.02%; Florida Insured Municipal Fund, Class
A-1.43%, Class B-2.18%, Class I-1.18%; California Insured Intermediate
Municipal Fund, Class A-1.44%, Class B-2.19%, Class I-1.19%; and National
Municipal Fund, Class A-1.29%, Class B-2.04%, Class I-1.04%.
Waivers of fees and reimbursement of expenses have the effect of increasing
yield or improving total return for the period when such waivers and
reimbursements are in effect. These amounts are not recovered by the Advisor
or Administrator in later years. These fee waivers and agreements to
reimburse expenses are voluntary and may be discontinued at any time. Each
Fund bears its own expenses and a Fund's expenses are allocated between
classes as described in the section "Breakdown of Fund Expenses."
In addition to the Class A, Class B and Class I Shares described above, the
Trust offers Class S Shares for investors who open a SAM Account. CLASS S SHARES
ARE DESCRIBED IN MORE DETAIL IN A SEPARATE PROSPECTUS. Class S Shares are not
subject to a sales charge at the time of purchase but are subject to a CDSC that
is different from the Class A shares CDSC and the Class B shares CDSC. For all
Class S Shares, the CDSC applies if the shares are redeemed during the first six
years after purchase and the CDSC declines from 5% during the first year of
investment to zero after six years. Like Class B shares, Class S Shares pay
ongoing distribution and service fees at an annual rate of .75% and .25%,
respectively, of average daily net assets of the Class S Shares. Although each
class of a Fund pays the same management fees and certain other expenses as the
other classes of the Fund, the performance of each of the classes of a Fund may
vary due to differences in sales charges and expenses. Prospective investors may
call 800-222-5852 toll-free to obtain a prospectus and further information for
Class S Shares.
-6-
<PAGE> 41
SUMMARY OF SIERRA TRUST FUNDS EXPENSES
EXAMPLE:
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of time period.
<TABLE>
<CAPTION>
SHORT SHORT TERM
U.S. TERM HIGH GLOBAL U.S.
GLOBAL GOVERNMENT CALIFORNIA QUALITY GOVERNMENT GOVERNMENT CORPORATE
MONEY FUND MONEY FUND MONEY FUND BOND FUND FUND FUND INCOME FUND
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Class A(1)..........................
1 Year $7 $9 $9 $42 $43 $54 $55
3 Years 21 27 27 58 61 72 75
5 Years 36 47 47 75 80 93 98
10 Years 81 105 105 125 136 151 162
Class B (Assuming a complete
redemption at end of period)(2)...
1 Year $64 $66 $66 $55 $56 $67 $68
3 Years 74 80 80 67 70 82 85
5 Years 97 107 107 82 87 110 115
10 Years(3) 168 190 190 179 190 195 206
Class B (Assuming no
redemption)(4)....................
1 Year $14 $16 $16 $15 $16 $17 $18
3 Years 44 50 50 47 50 52 55
5 Years 77 87 87 82 87 90 95
10 Years(3) 168 190 190 179 190 195 206
Class I.............................
1 Year $4 $6 $6 $5 $6 $6 $8
3 Years 13 19 19 16 19 19 24
5 Years -- -- -- -- -- -- --
10 Years(3) -- -- -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
(1)Assumes deduction at the time of purchase of maximum initial sales charge for
funds other than Global Money, U.S. Government Money and California Money
Funds.
(2)Assumes deduction of maximum applicable contingent deferred sales charge.
(3)Assumes that conversion to Class A Shares does not occur.
(4)Assumes no deduction of contingent deferred sales charge.
(5)Expenses are estimated only for the one and three year periods
THESE EXAMPLES ARE NOT MEANT TO STATE ACTUAL OR EXPECTED EXPENSES OR RATES OF
RETURN, WHICH MAY BE GREATER OR LESS THAN AS SHOWN. The Advisor and the
Administrator may, at their discretion, terminate voluntary fee waivers and
expense reimbursements at any time. Absent the waiver of fees or expense
reimbursements by the Advisor and/or Administrator as described above, the
amounts in the Example above would be greater. The purpose of this table is to
assist the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Funds.
-7-
<PAGE> 42
<TABLE>
<CAPTION>
FLORIDA CALIFORNIA
CALIFORNIA INSURED INSURED NATIONAL
MUNICIPAL MUNICIPAL INTERMEDIATE MUNICIPAL GROWTH AND EMERGING INTERNATIONAL
FUND FUND MUNICIPAL FUND FUND INCOME FUND GROWTH FUND GROWTH FUND GROWTH FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
$54 $53 $53 $55 $60 $62 $62 $63
74 69 71 75 93 96 96 100
95 87 90 98 127 134 133 140
156 140 145 162 224 238 237 250
$67 $66 $66 $68 $74 $75 $75 $76
84 79 80 85 103 107 106 110
112 104 107 115 145 151 151 157
201 185 190 206 267 280 279 291
$17 $16 $16 $18 $24 $25 $25 $26
54 49 50 55 73 77 76 80
92 84 87 95 125 131 131 137
201 185 190 206 267 280 279 291
$7 $6 $6 $8 $14 $15 $15 $16
22 18 19 24 42 46 46 50
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
-8-
<PAGE> 43
FINANCIAL HIGHLIGHTS
The following information, insofar as it relates to each of the respective
periods ended June 30, 1996 or earlier, has been audited by Price Waterhouse
LLP, independent accountants. Their unqualified report is included in the
Trust's Annual Report to Shareholders (the "Annual Report"). The Financial
Statements, Notes to Financial Statements
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS
NET ASSET NET REALIZED & FROM
VALUE AT NET UNREALIZED TOTAL FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT
FUND OF PERIOD INCOME/(LOSS) INVESTMENTS OPERATIONS INCOME
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GLOBAL MONEY FUND
CLASS A SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... $ 1.00 $ 0.049 $0.000(19) $0.049 $ (0.049)
Year ended 6/30/94....... 1.00 0.030 0.000(19) 0.030 (0.030)
Year ended 6/30/93....... 1.00 0.031 - 0.031 (0.031)
Year ended 6/30/92....... .00 0.048 - 0.048 (0.048)
Year ended 6/30/91....... 1.00 0.073 - 0.073 (0.073)
Period ended
6/30/90(1).............. 1.00 0.074 - 0.074 (0.074)
CLASS B SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 1.00 0.042 0.000(19) 0.042 (0.042)
U.S. GOVERNMENT MONEY FUND
CLASS A SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 1.00 0.046 - 0.046 (0.046)
Year ended 6/30/94....... 1.00 0.027 - 0.027 (0.027)
Year ended 6/30/93....... 1.00 0.027 - 0.027 (0.027)
Year ended 6/30/92....... 1.00 0.042 0.002 0.044 (0.042)
Year ended 6/30/91....... 1.00 0.065 - 0.065 (0.065)
Period ended
6/30/90(2).............. 1.00 0.073 - 0.073 (0.073)
CLASS B SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 1.00 0.038 - 0.038 (0.038)
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 1.00 0.028 - 0.028 (0.028)
Year ended 6/30/94....... 1.00 0.018 - 0.018 (0.018)
Year ended 6/30/93....... 1.00 0.021 - 0.021 (0.021)
Year ended 6/30/92....... 1.00 0.033 - 0.033 (0.033)
Year ended 6/30/91....... 1.00 0.044 - 0.044 (0.044)
Period ended
6/30/90(2).............. 1.00 0.046 - 0.046 (0.046)
CLASS B SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 1.00 0.020 - 0.020 (0.020)
SHORT TERM HIGH QUALITY BOND
FUND
CLASS A SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 2.39 0.08 0.02 0.10 (0.08)
Period ended
6/30/94(3).............. 2.50 0.09 (0.11) (0.02) (0.09)
CLASS B SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 2.39 0.06 0.02 0.08 (0.06)
SHORT TERM GLOBAL GOVERNMENT
FUND
CLASS A SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 2.34 0.17 (0.12) 0.05 (0.02)
Year ended 6/30/94....... 2.48 0.17 (0.14) 0.03 (0.13)
Year ended 6/30/93....... 2.56 0.19 (0.04) 0.15 (0.20)
Period ended
6/30/92(4).............. 2.50 0.07 0.07 0.14 (0.08)
CLASS B SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 2.34 0.15 (0.12) 0.03 (0.00)
U. S. GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 9.45 0.70 0.22 0.92 (0.70)
Year ended 6/30/94....... 10.65 0.75 (1.21) (0.46) (0.64)
Year ended 6/30/93....... 10.52 0.74 0.16 0.90 (0.74)
Year ended 6/30/92....... 10.04 0.84 0.49 1.33 (0.84)
Year ended 6/30/91....... 9.93 0.84 0.13 0.97 (0.85)
Period ended
6/30/90(5).............. 10.00 0.76 (0.09) 0.67 (0.74)
CLASS B SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 9.45 0.63 0.22 0.85 (0.63)
CORPORATE INCOME FUND
CLASS A SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 9.87 0.68 0.78 1.46 (0.68)
Year ended 6/30/94....... 11.33 0.80 (1.35) (0.55) (0.78)
Year ended 6/30/93....... 10.52 0.84 0.84 1.68 (0.84)
Year ended 6/30/92....... 9.87 0.91 0.64 1.55 (0.90)
Period ended
6/30/91(6).............. 10.00 0.81 (0.13) 0.68 (0.81)
CLASS B SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 9.87 0.61 0.78 1.39 (0.61)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE> 44
and Report of Independent Accountants sections of the Annual Report are included
in the SAI. Further information about the performance of the Funds is contained
in the Annual Report. The SAI and Annual Report can be obtained at no charge by
calling Shareholder Services at 800-222-5852.
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DISTRIBUTIONS
IN EXCESS DISTRIBUTIONS IN EXCESS NET ASSET
OF NET FROM OF NET DISTRIBUTIONS VALUE AT
INVESTMENT NET REALIZED REALIZED FROM TOTAL END TOTAL
INCOME GAINS GAINS CAPITAL DISTRIBUTIONS OF PERIOD RETURN(11)
- -----------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C> <C> <C>
$ - $(0.000)(19) $ - $(0.049) $ 1.00 5.06%
- (0.000)(19) - $ - (0.030) 1.00 3.04
- - - - (0.031) 1.00 3.17
- - - - (0.048) 1.00 4.95
- - - - (0.073) 1.00 7.51
- - - - (0.074) 1.00 7.64
- (0.000)(19) - - (0.042) 1.00 4.29
- - - - (0.046) 1.00 4.67
- - - - (0.027) 1.00 2.67
- - - - (0.027) 1.00 2.70
- (0.002) - - (0.044) 1.00 4.45
- - - - (0.065) 1.00 6.65
- - - - (0.073) 1.00 7.52
- - - - (0.038) 1.00 3.91
- - - - (0.028) 1.00 2.79
- - - - (0.018) 1.00 1.81
- - - - (0.021) 1.00 2.07
- - - - (0.033) 1.00 3.35
- - - - (0.044) 1.00 4.52
- - - - (0.046) 1.00 4.64
- - - - (0.020) 1.00 2.04
(0.06) - - (0.00)(14) (0.14) 2.35 4.42
- - - - (0.09) 2.39 (0.73)
(0.06) - - (0.00)(14) (0.12) 2.35 3.64
(0.00)(14) (0.12)
(0.03) - (0.01) (0.12) (0.15) 2.24 2.10
- - (0.01) (0.00)(14)(16) (0.17) 2.34 1.10
- - (0.03) - (0.23) 2.48 6.03
- - - (0.08) 2.56 5.34
(0.00)(14) - (0.01) (0.12) (0.13) 2.24 1.33
- - - - (0.70) 9.67 10.17
- - (0.10) - (0.74) 9.45 (4.59)
- - - (0.03) (16) (0.77) 10.65
- - - (0.01) (16) (0.85) 10.52
- - - (0.01) (16) (0.86) 10.04
- - - - (0.74) 9.93 6.99
- - - - (0.63) 9.67 9.36
(0.09) - - (0.04) (0.81) 10.52 15.57
(0.01) (0.06) (0.06) - (0.91) 9.87 (5.32)
- - - (0.03) (16) (0.87) 11.33
- - - - (0.90) 10.52 16.29
- - - - (0.81) 9.87 7.31
(0.09) - - (0.04) (0.74) 10.52 14.73
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE> 45
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------------------------------------------------------------
RATIO OF
NET OPERATING
INVESTMENT EXPENSES
INCOME/(LOSS) TO AVERAGE
PER SHARE NET ASSETS
RATIO OF RATIO OF NET WITHOUT WITHOUT
NET ASSETS OPERATING INVESTMENT FEE WAIVERS FEE WAIVERS
END OF EXPENSES INCOME PORTFOLIO AND/OR AND/OR
PERIOD (IN TO AVERAGE TO AVERAGE TURNOVER EXPENSES EXPENSES
FUND 000'S) NET ASSETS NET ASSETS RATE ABSORBED(12) ABSORBED(13)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GLOBAL MONEY FUND
CLASS A SHARES
Year ended 6/30/96................... $ 110.01
Year ended 6/30/95................... 2 0.54% 5.08% -% $0.043 1.18%
Year ended 6/30/94................... 53,973 0.45 2.99 - 0.021 1.35
Year ended 6/30/93................... 48,283 0.41 3.15 - 0.022 1.32
Year ended 6/30/92................... 71,492 0.42 4.90 - 0.039 1.34
Year ended 6/30/91................... 92,334 0.30 6.99 - 0.060 1.51
Period ended 6/30/90(1).............. 22,834 1.00(10) 7.54(10) - 0.067 1.74(10)
CLASS B SHARES
Year ended 8/30/96...................
Year ended 6/30/95................... 241 1.29 4.33 - 0.036 1.93
U.S. GOVERNMENT MONEY FUND
CLASS A SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 47,492 0.85 4.63 - 0.042 1.25
Year ended 6/30/94................... 30,180 0.85 2.68 - 0.022 1.32
Year ended 6/30/93................... 36,802 0.85 2.69 - 0.022 1.34
Year ended 6/30/92................... 44,233 0.85 4.43 - 0.037 1.35
Year ended 6/30/91................... 62,473 0.86 6.54 - 0.058 1.52
Period ended 6/30/90(2).............. 94,789 1.00(10) 7.52(10) - 0.067 1.64(10)
CLASS B SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 123 1.60 3.88 - 0.034 2.00
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 48,836 0.85 2.73 - 0.025 1.15
Year ended 6/30/94................... 62,500 0.85 1.80 - 0.014 1.27
Year ended 6/30/93................... 68,404 0.85 2.06 - 0.016 1.29
Year ended 6/30/92................... 94,607 0.85 3.31 - 0.029 1.28
Year ended 6/30/91................... 113,392 0.83 4.48 - 0.037 1.48
Period ended 6/30/90(2).............. 147,487 1.00(10) 5.07(10) - 0.040 1.64(10)
CLASS B SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 79 1.60 1.98 - 0.017 1.90
SHORT TERM HIGH QUALITY BOND FUND
CLASS A SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 43,811 0.75 6.10 137 0.07 1.39
Period ended 6/30/94(3).............. 21,771 0.00(10) 5.70(10) 95 0.06 1.61(10)
CLASS B SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 3,015 1.50 5.35 137 0.05 2.14
SHORT TERM GLOBAL GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 103,986 0.85 7.22 217 0.16 1.44
Year ended 6/30/94................... 220,824 0.85 6.87 222 0.16 1.52
Year ended 6/30/93................... 215,348 0.73 7.67 294 0.17 1.55
Period ended 6/30/92(4).............. 106,609 0.41(10) 8.65(10) 81 0.06 1.92(10)
CLASS B SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 1,297 1.60 6.47 217 0.14 2.19
U. S. GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 459,968 0.95(18) 7.58 226 0.66 1.59
Year ended 6/30/94................... 666,566 1.05(18) 7.26 27 0.72 1.34
Year ended 6/30/93................... 842,277 0.91(18) 6.98 67 0.70 1.34
Year ended 6/30/92................... 504,776 0.72(18) 7.67 35 0.77 1.39
Year ended 6/30/91................... 166,920 1.12(18) 8.32 54 0.79 1.57
Period ended 6/30/90(5).............. 31,430 1.13(10)(18) 8.50(10) 13 0.69 1.89(10)
CLASS B SHARES
Year ended 6/30/96
Year ended 6/30/95................... 10,646 1.70(18) 6.83 226 0.59 2.34
CORPORATE INCOME FUND
CLASS A SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 383,642 0.90 8.26 55 0.64 1.40
Year ended 6/30/94................... 472,519 1.35 7.19 30 0.80 1.42
Year ended 6/30/93................... 396,357 1.24 7.67 37 0.82 1.42
Year ended 6/30/92................... 169,682 0.97 8.29 8 0.85 1.48
Period ended 6/30/91(6).............. 35,478 1.21(10) 9.01(10) 31 0.76 1.78(10)
CLASS B SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 15,145 1.65 7.51 55 0.57 2.15
</TABLE>
-11-
<PAGE> 46
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED
& DIVIDENDS
NET ASSETS UNREALIZED TOTAL FROM
VALUE AT NET GAIN/(LOSS) FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT
FUND OF PERIOD INCOME/(LOSS) INVESTMENTS OPERATIONS INCOME/(LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... $10.38 $ 0.61 $ 0.15 $ 0.76 $(0.61)
Year ended 6/30/94................... 11.22 0.61 (0.82) (0.21) (0.61)
Year ended 6/30/93................... 10.45 0.62 0.77 1.39 (0.62)
Year ended 6/30/92................... 10.07 0.65 0.38 1.03 (0.65)
Year ended 6/30/91................... 10.01 0.63 0.06 0.69 (0.63)
Period ended 6/30/90(5).............. 10.00 0.57 0.01 0.58 (0.57)
CLASS B SHARES
Year ended 8/30/96...................
Year ended 6/30/95................... 10.38 0.53 0.15 0.68 (0.53)
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96................... 0.03(15)
Year ended 6/30/95................... 9.40 0.52 (0.65) 0.55 (0.52)
Year ended 6/30/94................... 10.05 0.52 0.05 (0.13) (0.52)
Period ended 6/30/93(7).............. 10.00 0.00(14) 0.05
CLASS B SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 9.40 0.45 0.03(15) 0.48 (0.45)
CALIFORNIA INSURED INTERMEDIATE
MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 10.10 0.50 0.35 0.85 (0.50)
Year ended 6/30/94(8)................ 10.00 0.11 0.11(15) 0.22 (0.11)
CLASS B SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 10.10 0.43 0.35 0.78 (0.43)
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 10.85 0.64 0.01(15) 0.65 (0.64)
Year ended 6/30/94................... 11.65 0.65 (0.73) (0.08) (0.65)
Year ended 6/30/93................... 10.96 0.67 0.75 1.42 (0.67)
Year ended 6/30/92................... 10.16 0.72 0.79 1.51 (0.71)
Period ended 6/30/91(6)..............
CLASS B SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 10.85 0.66 0.01(15) 0.57 (0.56)
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 11.30 0.13 2.045 2.17 (0.12)
Year ended 6/30/94................... 12.09 0.12 0.72 0.84 (0.12)
Year ended 6/30/93................... 11.25 0.12 0.91 1.03 (0.12)
Year ended 6/30/92................... 10.51 0.17 0.74 0.91 (0.17)
Year ended 6/30/91................... 10.12 0.23 0.43 0.66 (0.27)
Period ended 6/30/92(5).............. 10.00 0.24 0.07 0.31 (0.19)
CLASS B SHARES
Year ended 6/30/96...................
Year ended 6/30/95................... 11.30 0.05 2.04 2.09 (0.07)
GROWTH FUND
CLASS A SHARES
Year ended 6/30/96...................
Year ended 6/30/95(17)............... 10.73 0.05 3.42 3.47 (0.02)
Year ended 6/30/94................... 10.72 (0.02) 0.03(15) 0.01 -
Period ended 6/30/93(9).............. 10.00 0.00(14) 0.72 0.72 -
CLASS B SHARES
Year ended 6/30/96...................
Year ended 6/30/95(17)............... 10.73 (0.04) 3.42 3.38 (0.01)
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/96...................
Year ended 6/30/95(17)............... 13.02 (0.00)(14) 2.77 2.77 -
Year ended 6/30/94................... 13.76 (0.09) 0.68 0.59 -
Year ended 6/30/93................... 11.67 (0.02) 2.31 2.29 -
Year ended 6/30/92(17)............... 9.62 (0.01) 2.16 2.15 (0.01)
Period ended 6/30/91(6).............. 0.09 (0.40) (0.31) (0.07)
CLASS B SHARES
Year ended 6/30/96...................
Year ended 6/30/95(17)............... 13.02 (0.10) 2.77 2.67 -
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/96...................
Year ended 6/30/95(17)............... 10.74 (0.11)(20) (0.31) (0.42) (0.04)
Year ended 6/30/94................... 9.80 0.06 1.15 1.21 (0.02)
Year ended 6/30/93................... 8.82 0.07 0.94 1.01 (0.03)
Year ended 6/30/92................... 8.27 0.05 0.55 0.60 (0.05)
Period ended 6/30/91(6).............. 10.00 0.02 (1.75) (1.73) -
CLASS B SHARES
Year ended 6/30/96...................
Year ended 6/30/95(17)............... 10.74 (0.17)(20) (0.31) (0.48) (0.03)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DISTRIBUTIONS
IN EXCESS IN EXCESS
OF DISTRIBUTIONS OF NET ASSET
NET FROM NET NET DISTRIBUTIONS VALUE AT
INVESTMENT REALIZED REALIZED FROM TOTAL END
FUND INCOME GAINS GAINS CAPITAL DISTRIBUTIONS OF PERIOD
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96.............. $ -
Year ended 6/30/95.............. $(0.00)(14) $ - $ - $(0.61) $10.53
Year ended 6/30/94.............. (0.00)(14) - (0.02) - (0.63) 10.38
Year ended 6/30/93.............. - - - - (0.62) 11.22
Year ended 6/30/92.............. - - - - (0.65) 10.45
Year ended 6/30/91.............. - - - - (0.63) 10.07
Period ended 6/30/90(5)......... - - - - (0.57) 10.01
CLASS B SHARES
Year ended 6/30/96..............
Year ended 6/30/95.............. - (0.00)(14) - - (0.53) 10.53
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96..............
Year ended 6/30/95.............. - - - - (0.52) 9.43
Year ended 6/30/94.............. (0.00)(14) - (0.00)(14) - (0.52) 9.40
Period ended 6/30/93(7)......... - - - - - 10.05
CLASS B SHARES
Year ended 6/30/96..............
Year ended 6/30/95.............. - - - - (0.45) 9.43
CALIFORNIA INSURED INTERMEDIATE
MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96..............
Year ended 6/30/95.............. - - - - (0.50) 10.45
Period ended 6/30/94(8)......... - (0.01) - - (0.12) 10.10
CLASS B SHARES
Year ended 6/30/96..............
Year ended 6/30/95.............. - - - - (0.43) 10.45
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96..............
Year ended 6/30/95.............. - (0.01) (0.09) - (0.74) 10.76
Year ended 6/30/94.............. (0.00)(14) (0.07) - - (0.72) 10.86
Year ended 6/30/93.............. - (0.06) - - (0.73) 11.65
Year ended 6/30/92.............. - - - - (0.71) 10.96
Period ended 6/30/91(6)......... - - - - (0.64) 10.16
CLASS B SHARES
Year ended 6/30/96..............
Year ended 6/30/95.............. - (0.01) (0.09) - (0.66) 10.76
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/96..............
Year ended 6/30/95.............. - (0.77) - - (0.89) 12.58
Year ended 6/30/94.............. - (1.51) - - (1.63) 11.30
Year ended 6/30/93.............. - (0.07) - - (0.19) 12.09
Year ended 6/30/92.............. - - - - (0.17) 11.25
Year ended 6/30/91.............. - - - - (0.27) 10.51
Period ended 6/30/90(5)......... - - - - (0.19) 10.12
CLASS B SHARES
Year ended 6/30/96..............
Year ended 6/30/95.............. - (0.77) - - (0.84) 12.55
GROWTH FUND
CLASS A SHARES
Year ended 6/30/96..............
Year ended 6/30/95(17).......... - (0.00)(14) - - (0.02) 14.18
Year ended 6/30/94.............. - - - - - 10.73
Period ended 6/30/93(9)......... - - - - - 10.72
CLASS B SHARES
Year ended 6/30/96..............
Year ended 6/30/95(17).......... - (0.00)(14) - - (0.01) 14.10
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/96..............
Year ended 6/30/95(17).......... - (0.32) - - (0.32) 15.47
Year ended 6/30/94.............. - (1.33) - - (1.33) 13.02
Year ended 6/30/93.............. - (0.20) - - (0.20) 13.76
Year ended 6/30/92(17).......... - (0.08) - (0.01)(16) (0.10) 11.67
Period ended 6/30/91(6)......... - - - - (0.07) 9.62
CLASS B SHARES
Year ended 6/30/96..............
Year ended 6/30/95(17).......... - (0.32) - - (0.32) 15.37
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/96................
Year ended 6/30/95(17).......... - (0.44) (0.06) - (0.54) 9.78
Year ended 6/30/94.............. - (0.25) - - (0.27) 10.74
Year ended 6/30/93.............. - - - - (0.03) 9.80
Year ended 6/30/92.............. - - - - (0.05) 8.82
Period ended 6/30/91(6)......... - - - - - 8.27
CLASS B SHARES....................
Year ended 6/30/96..............
Year ended 6/30/95(17).......... - (0.44) (0.06) - (0.53) 9.73
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE> 48
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF NET NET INVESTMENT
NET ASSETS OPERATING INVESTMENT INCOME/(LOSS) PER
END EXPENSES TO INCOME TO PORTFOLIO SHARE WITHOUT FEE
TOTAL OF PERIOD AVERAGE AVERAGE TURNOVER WAIVERS AND/OR
RETURN(11) (IN 000'S) NET ASSETS NET ASSETS RATE EXPENSES ABSORBED(12)
- -----------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C> <C>
7.57% $ 405,967 0.85% 5.89% 22% $ 0.56
(2.19) 509,233 0.79 5.45 50 0.54
13.84 511,364 0.80 5.74 41 0.56
10.56 309,146 0.94 6.08 29 0.60
7.16 202,595 1.05 6.30 16 0.58
5.99 92,972 1.01(10) 6.26(10) 38 0.49
6.78 7,230 1.60 5.14 22 0.48
6.01 33,714 0.39 5.53 44 0.42
(1.50) 38,541 0.00 5.09 83 0.36
0.50 4,837 0.00(10) 0.48(10) 0 (0.02)
5.23 3,330 1.14 4.78 44 0.35
8.71 54,507 0.42 4.95 13 0.40
2.20 34,147 0.00(10) 4.25(10) 17 0.05
7.90 12,391 1.17 4.20 13 0.33
6.32 269,033 0.83 5.97 23 0.59
(0.90) 354,501 0.87 5.60 44 0.59
13.41 390,187 0.86 5.89 83 0.61
15.42 226,984 0.64 6.34 61 0.63
8.27 44,915 0.55(10) 6.84(10) 81 0.63
5.54 4,786 1.58 5.22 23 0.51
20.47 170,177 1.56 1.11 72 0.13
6.67 125,249 1.50 1.04 127 0.11
9.20 97,873 1.46 1.01 47 0.12
8.65 83,825 1.50 1.51 16 0.16
6.70 33,930 1.52 2.48 19 0.21
3.17 20,964 1.37(10) 3.21(10) 16 0.19
19.67 6,918 2.31 0.36 72 0.05
32.33 154,763 1.76 0.28 233 0.05
0.00 126,808 1.75 (0.35) 227 (0.02)
7.30 23,323 1.44(10) (0.63)(10) 13 (0.01)
31.46 6,928 2.51 (0.47) 233 (0.04)
21.54 185,722 1.68 (0.31) 181 (0.00)(14)
3.40 124,941 1.66 (0.68) 224 (0.09)
19.75 96,646 1.59 (0.32) 28 (0.02)
22.47 27,652 1.93 (0.04) 60 (0.01)
(2.95) 8,490 1.84(10) 1.10(10) 17 0.07
20.69 10,208 2.43 (1.06) 181 (0.10)
(4.01) 91,763 1.69 0.62 81 (0.11)
12.39 127,764 1.69 0.54 44 0.06
11.51 56,962 1.80 1.07 63 0.07
7.28 24,479 2.25 0.69 66 0.04
(17.30) 11,647 2.24(10) 0.51(10) 45 0.01
(4.61) 2,268 2.44 (0.13) 81 (0.17)
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------------------------------
RATIO OF OPERATING
EXPENSES TO
AVERAGE NET
ASSETS WITHOUT FEE
WAIVERS AND/OR
EXPENSES
ABSORBED(13)
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
1.29%
1.39
1.41
1.40
1.60
1.84(10)
2.04
1.51
1.55
5.59(10)
2.26
1.41
1.95(10)
2.16
1.30
1.36
1.37
1.40
1.68(10)
2.05
1.56
1.59
1.46
1.55
1.78
2.01(10)
2.31
1.76
1.75
2.52(10)
2.51
1.68
1.66
1.59
1.93
2.11(10)
2.43
1.69
1.69
1.80
2.29
2.47(10)
2.44
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE> 49
(1) The Fund commenced operations on July 13, 1989.*
(2) The Funds commenced operations on July 10, 1989.*
(3) The Fund commenced operations on November 1, 1993.*
(4) The Fund commenced operations on February 11, 1992.*
(5) The Funds commenced operations on July 25, 1989.*
(6) The Funds commenced operations on July 18, 1990.*
(7) The Fund commenced operations on June 7, 1993.*
(8) The Fund commenced operations on April 4, 1994.*
(9) The Fund commenced operations on April 5, 1993.*
* On July 1, 1994, the Funds commenced selling Class B and Class S shares
in addition to Class A shares. Those shares in existence prior to July 1,
1994 were designated Class A shares.
(10) Annualized.
(11) Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges. The total returns would
have been lower if certain fees had not been waived and/or expenses had not
been absorbed by investment advisor, administrator and/or distributor.
(12) Net investment income per share without fee waivers and/or expenses
absorbed by investment advisor, administrator and/or distributor.
(13) Annualized operating expense ratios without fee waivers and/or expenses
absorbed by investment advisor, administrator and/or distributor.
(14) Amount represents less than $0.01 per share.
(15) The amount shown may not accord with the change in aggregate gains and
losses of portfolio securities due to the timing of sales and redemptions
of Fund shares.
(16) Amounts distributed in excess of accumulated net investment income as
determined for financial statement purposes have been reported as
distributions from paid-in capital at the fiscal year end in which the
distribution was made. Certain of these distributions which are reported as
being from paid-in capital for financial statement purposes may be reported
to shareholders as taxable distributions due to differing tax and
accounting rules.
(17) Per share numbers have been calculated using the average shares method
which more appropriately presents the per share data for the year since the
use of the undistributed income method did not accord with results of
operations.
(18) Ratio of operating expenses to average net assets including interest
expense for the period ended June 30 each year, was, for Class A shares
1.22% for 1995, 1.06% for 1994, 0.91% for 1993, 0.72% for 1992, 1.12% for
1991, 1.13% for 1990; for the Class B shares 1.97% for 1995.
(19) Amount represents less than $0.001 per share.
(20) Amount shown reflects certain reclassifications related to book to tax
difference.
THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS
The following section describes the investment objective and policies of each
Fund and some of the risk considerations of investing in the Funds. The
"Securities and Investment Practices" section that follows provides more
information about the types of securities and investment practices that the
Funds may use, and the risk considerations related to such securities and
investment practices.
INVESTMENT PRINCIPLES AND RISK CONSIDERATIONS
THE MONEY FUNDS
Each Money Fund invests only in U.S. Dollar-denominated short-term, money market
securities that present minimal credit risks and meet the rating criteria
described below. At the time of investment, no security purchased by a Money
Fund (except securities subject to repurchase agreements and variable rate
demand notes) can have a maturity exceeding 397 days, and each Money Fund's
average portfolio maturity cannot exceed 90 days. The short average maturity of
the portfolios enhances each Money Fund's ability to maintain share prices at
$1.00 which, in turn, provides both stability of value and liquidity to
shareholders. There can be no assurances, however, that any or all of the Money
Funds will be able to maintain a net asset value ("NAV") at $1.00 per share.
Each Money Fund will purchase only those instruments that meet the following
applicable quality requirements. The Money Funds will not purchase a security
(other than a U.S. Government security) unless the security or the issuer with
respect to comparable securities (i) is rated by at least two nationally
recognized statistical rating organizations ("NRSROs") (such as Standard &
Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's")) in
one of the two highest rating categories for short-term debt securities, (ii) is
rated in one of the two highest categories for short-term debt by the only NRSRO
that has issued a rating, or (iii) if not so rated, the security is determined
to be of comparable quality. In addition, with respect to the Global Money Fund,
no more
-15-
<PAGE> 50
than 5% of the Fund's total assets will be invested in securities rated in the
second highest rating category by the requisite NRSROs, and no more than 1% of
the Fund's total assets will be invested in the securities of any one such
issuer. A description of the rating systems of S&P and Moody's is contained in
the SAI.
Up to 10% of the assets of a Money Fund may be invested in securities and other
instruments that are not readily marketable, including repurchase agreements
with maturities greater than seven calendar days, time deposits maturing in more
than seven calendar days, and variable rate demand notes having a demand period
of more than seven days. In addition, a Money Fund may invest up to 5% of its
assets in the securities of issuers which have been in continuous operation for
less than three years. Each Money Fund may also borrow from banks for temporary
or other emergency purposes, but not for investment purposes, in an amount up to
30% of its total assets, and may pledge its assets to the same extent in
connection with such borrowings. Whenever these borrowings exceed 5% of the
value of a Money Fund's total assets, the Money Fund will not purchase any
securities. Except for the limitations on borrowing, the investment guidelines
set forth in this paragraph may be changed at any time without shareholder
consent by vote of the Board of Trustees of the Company, subject to applicable
law. A complete list of investment restrictions that identifies additional
restrictions that cannot be changed without the approval of a majority of an
affected Money Fund's outstanding shares is contained in the SAI.
GLOBAL MONEY FUND. The Fund's investment objective is to maximize current income
consistent with safety of principal and maintenance of liquidity. The Fund
pursues its objective by investing in a portfolio of short-term, money market
instruments, including obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Securities"); repurchase
agreements with respect to U.S. Government Securities; instruments issued by
U.S. and foreign banks and savings and loan institutions, such as time deposits,
certificates of deposit and bankers' acceptances; and commercial paper and
corporate obligations of U.S. and foreign issuers that meet the Fund's quality
and maturity criteria. Although the Fund is authorized to invest up to 50% of
its assets in any one country (other than the United States), the Fund normally
will include in its portfolio securities of issuers collectively having their
principal business activities in at least three countries, including the United
States. The Fund may not invest more than 5% of its assets in securities of any
one issuer, except that the Fund may invest in U.S. Government Securities
without limit and may have one holding that exceeds the 5% limit for up to three
days after the acquisition of such holding. At least 25% of the Fund's total
assets will be invested in bank obligations, except during temporary defensive
periods.
U.S. GOVERNMENT MONEY FUND. The Fund's investment objective is to maximize
current income consistent with safety of principal and maintenance of liquidity.
The Fund pursues its objective by maintaining a portfolio of U.S. Government
Securities and entering into repurchase agreements with respect to U.S.
Government Securities.
CALIFORNIA MONEY FUND. The Fund's investment objective is to maximize current
income that is excluded from gross income for federal income tax purposes and is
exempt from California State personal income taxation, consistent with safety of
principal and maintenance of liquidity. The Fund pursues its objective by
investing in a portfolio of high grade municipal securities, which means
municipal securities that meet the Fund's quality and maturity criteria.
"Municipal Securities" are debt obligations issued by states, territories and
possessions of the United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political subdivisions, and
"California Municipal Securities" means Municipal Securities issued by the State
of California and its political subdivisions as well as certain other
governmental issuers such as the Commonwealth of Puerto Rico. Except when the
Fund assumes a temporary defensive position, at least 80% of the Fund's total
assets will be invested in Municipal Securities and at least 65% of its total
assets will be invested in California Municipal Securities. The requirement to
invest at least 80% of the Fund's assets in Municipal Securities is a
fundamental policy that cannot be changed without the consent of the Fund's
shareholders. The Fund may invest without limitation in Municipal Securities
issued to finance certain "private activities" ("AMT-Subject Bonds"), such as
bonds used to finance airports, housing projects, student loan programs and
water and sewer projects. To reduce investment risk, the California Money Fund
may not invest more than 25% of its total assets in Municipal Securities whose
interest is paid from revenues of similar-type projects.
For temporary defensive purposes, the Fund may invest without limitation in (1)
Municipal Securities that are not exempt from California personal income tax,
and (2) short-term Municipal Securities or taxable cash equivalents, including
short-term U.S. Government Securities, certificates of deposit and bankers'
acceptances, commercial
-16-
<PAGE> 51
paper rated Prime-1 by Moody's or A-1+ or A-1 by S&P, repurchase agreements and
securities of other money market mutual funds. Under normal market conditions
the Fund may invest up to 20% of its assets in these taxable cash equivalents.
The California Money Fund is designed to generate tax-exempt income. A
shareholder of the California Money Fund may earn a higher after-tax return from
the Fund than from comparable investments that generate taxable income. For an
illustration of the benefits of tax-free investing, see the section entitled
"Performance Information." For a discussion of the tax consequences of investing
in AMT-Subject Bonds, see "Securities and Investment Practices - Municipal
Securities and AMT-Subject Bonds" and "Dividends, Capital Gains and Taxes."
The Fund may also invest in variable rate demand obligations, stand-by
commitments, when-issued securities and forward commitments.
THE BOND FUNDS
SHORT TERM HIGH QUALITY BOND FUND. The Fund's investment objective is to provide
as high a level of current income as is consistent with prudent investment
management and stability of principal. To accomplish its objective, the Fund
will invest primarily in short-term bonds and other fixed-income securities.
Under normal market conditions the Fund will maintain a dollar-weighted average
portfolio maturity of three years or less. The Fund may hold individual
securities with remaining maturities of more than three years as long as the
dollar-weighted average portfolio maturity is three years or less. For purposes
of the weighted average maturity calculation, a mortgage instrument's average
life will be considered to be its maturity.
The Fund will invest substantially all of its assets in investment-grade debt
securities, which are securities that are rated in the top four rating
categories by one or more nationally recognized statistical rating organizations
("NRSROs") or, if unrated, are judged to be of comparable quality by the Fund's
Sub-Advisor. All debt securities purchased by the Fund will be investment-grade
at the time of purchase. The Fund will invest at least 65% of its total assets
in United States Government obligations, corporate debt obligations or
mortgage-related securities rated in one of the two highest categories by an
NRSRO. Securities are rated in the two highest rating categories by an NRSRO if
they are rated at least Aa by Moody's or at least AA by S&P, Duff or Fitch or,
if unrated, are judged to be of comparable quality by the Fund's Sub-Advisor.
Investment-grade bonds are generally of medium to high quality. A bond rated in
the lower end of the investment-grade category (Baa/BBB), however, may have
speculative characteristics and may be more sensitive to economic changes and
changes in the financial condition of the issuer.
The fixed-income securities in which the Fund may invest include obligations
issued or guaranteed by domestic and foreign governments and government agencies
and instrumentalities and high-grade corporate debt obligations, such as bonds,
debentures, notes, equipment lease and trust certificates, mortgage-backed
securities, collateralized mortgage obligations and asset-backed securities.
The Fund may invest up to 10% of its assets in foreign fixed-income securities,
primarily bonds of foreign governments or their political subdivisions, foreign
companies and supranational organizations, including non-U.S. Dollar-denominated
securities and U.S. Dollar-denominated debt securities issued by foreign issuers
and foreign branches of U.S. banks. Investment in foreign securities is subject
to special risks; see "Securities and Investment Practices - Foreign
Investments."
The Fund may also invest in high-quality, short-term obligations (with
maturities of 12 months or less), such as commercial paper issued by domestic
and foreign corporations, bankers' acceptances issued by domestic and foreign
banks, certificates of deposit and demand and time deposits of domestic and
foreign banks and savings and loan associations and repurchase agreements. The
Fund may engage in certain options transactions, enter into financial futures
contracts and related options for the purpose of portfolio hedging and enter
into currency forwards or futures contracts and related options for the purpose
of currency hedging.
The Fund may invest in certain illiquid investments such as privately placed
obligations including restricted securities. The Fund may invest up to 10% of
its assets in securities of mutual funds that are not affiliated with Sierra
Advisors or any Sub-Advisor. See "Securities and Investment Practices - Holdings
in Other Investment Companies."
The Fund currently intends to borrow money or enter into reverse repurchase
agreements or dollar roll transactions in the aggregate up to 10% of its total
assets. If the Fund borrows money, its share price may be subject to greater
-17-
<PAGE> 52
fluctuation until the borrowing is paid off. To seek a high level of current
income, the Fund may enter into dollar rolls. Dollar rolls entail certain risks;
see "Securities and Investment Practices - Dollar Roll Transactions."
The Fund may invest up to 25% of its total assets in asset-backed securities,
which represent a participation in, or are secured by and payable from, a stream
of payments generated by particular assets, most often a pool of assets similar
to one another. See "Securities and Investment Practices - Asset-Backed
Securities."
Thomas M. Poor, Managing Director of Scudder, is the portfolio manager of the
Short Term High Quality Bond Fund. He joined Scudder in 1970 and has worked
entirely in fixed income research and institutional bond portfolio management.
Mr. Poor has had primary management responsibility for the Short Term High
Quality Bond Fund since its inception.
SHORT TERM GLOBAL GOVERNMENT FUND. The Fund's investment objective is to provide
high current income consistent with protection of principal. Under normal
conditions, the Fund invests primarily in government securities in at least
three different countries, one of which may be the United States. The Fund
maintains a dollar-weighted average portfolio maturity not exceeding three years
but may hold individual securities with longer maturities. This policy helps
minimize the effect of interest rate changes on the Fund's share price. The Sub-
Advisor's calculation of the expected average life of a portfolio mortgage
security is used as that security's maturity with regard to determining the
above average dollar-weighted portfolio maturity calculation. The Fund's share
price and yield will fluctuate primarily due to the movement of foreign
currencies against the U.S. Dollar and changes in worldwide interest rates. The
Fund seeks to maintain greater price stability than longer-term bond funds.
Under normal market conditions, the Fund will invest at least 65% of its assets
in: (i) obligations issued or guaranteed by foreign national governments, their
agencies, instrumentalities, or political subdivisions (including any security
which is majority owned by such government, agency, instrumentality, or
political subdivision); and (ii) U.S. Government Securities.
The Fund may also invest in non-government foreign and domestic debt securities,
including debt Securities issued or guaranteed by Supranational organizations,
corporate debt securities, bank or bank holding company obligations (e.g.,
certificates of deposit, bankers' acceptances and time deposits),
mortgage-backed or asset-backed securities, and repurchase agreements.
To protect against credit risk, the Fund invests primarily in high-grade debt
securities. At least 65% of the Fund's investments will consist of securities
rated within the three highest rating categories of S&P (AAA, AA, A) or Moody's
(Aaa, Aa, A), or, if unrated, are judged to be of comparable quality by the
Sub-Advisor.
The Fund may invest up to 10% of its assets in non-investment-grade debt
securities (commonly called "junk bonds") if portfolio management believes that
doing so will be consistent with the goal of capital appreciation. Non-
investment grade debt securities are often considered to be speculative and
involve greater risk of default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities may fluctuate more than
higher-rated securities and may decline significantly in periods of general
economic difficulty, which may follow periods of rising interest rates. See
"Securities and Investment Practices -- Lower-Rated Securities."
In addition to U.S. Dollar holdings, the Fund may invest in securities
denominated in foreign currencies and in multinational currency units, such as
the European Currency Unit ("ECU"), which is a "basket" consisting of specified
amounts of the currencies of certain states of the European Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community to reflect changes in the relative values
of the underlying currencies. Securities of issuers within a given country may
be denominated in the currency of another country. In addition, when the Fund's
Sub-Advisor believes that U.S. securities offer superior opportunities for
achieving the Fund's investment objective, or for temporary defensive purposes,
the Fund may invest substantially all of its assets in securities of U.S.
issuers or securities denominated in U.S. Dollars.
Adam M. Greshin is the lead portfolio manager for the Short Term Global
Government Fund. Mr. Greshin joined Scudder in 1986 as an international bond
analyst. Currently, he is Product Leader for Scudder's global and international
fixed-income investing. He was involved in the original design of the Fund and
has served as a member of the Fund's portfolio management team since 1991. Mr.
Greshin assumed responsibility for the Fund's day-to-day management and
investment strategies effective November 1995.
-18-
<PAGE> 53
U.S. GOVERNMENT FUND. The Fund's investment objective is to maximize total rate
of return while providing a high level of current income, consistent with
reasonable safety of principal. The Fund pursues its objective by investing at
least 65% and up to 100% of its assets in intermediate- and long-term U.S.
Government Securities. The Fund may invest in U.S. Government Securities of
varying maturities. Securities in the Fund's portfolio are high quality
securities that will generally yield less income than lower quality securities;
higher quality securities, however, generally have less credit risk and are more
readily marketable than lower quality securities. Depending on market
conditions, the Fund's portfolio will consist of various types of U.S.
Government Securities in varying proportions; it may invest up to 35% of its
total assets in (i) the types of securities in which the Corporate Income Fund
may invest except as otherwise prohibited in the Prospectus and SAI, including
corporate bonds, preferred stock, convertible corporate bonds, convertible
preferred stock, government stripped mortgage-backed securities, asset-backed
securities, and interests in lease obligations; and (ii) commercial
mortgage-backed securities, which are mortgage-backed securities that are issued
by a nongovernmental entity, such as a trust, and include collateralized
mortgage obligations and real estate mortgage investment conduits that are rated
in one of the top two rating categories. Commercial mortgage-backed securities
generally are structured with one or more types of credit enhancement and are
not guaranteed by a governmental agency or instrumentality. A substantial
portion of the Fund's assets at any time may consist of mortgage-backed
securities. For more detailed information regarding the types of securities in
which the Corporate Income Fund may invest, see "Corporate Income Fund."
The Fund may invest up to 20% of its assets in money market instruments
consisting of short-term U.S. Government Securities and repurchase agreements
with respect to such U.S. Government Securities, and for temporary defensive
purposes may invest in these instruments without limitation. In addition, the
Fund may invest up to 33 1/3% of its total assets in dollar rolls or "covered
rolls." See "Securities and Investment Practices -- Dollar Roll Transactions."
The day-to-day management of the Fund's portfolio is the responsibility of a
committee composed of individuals who are officers of BlackRock. This committee
has managed the Fund since December, 1994, and is supervised by Keith Anderson
and Andrew J. Phillips. Mr. Anderson, a Managing Director of BlackRock, has been
co-head of the Portfolio Management Group since 1988. Mr. Phillips has been a
portfolio manager of BlackRock since 1991 and a Vice President of BlackRock
since 1993.
CORPORATE INCOME FUND. The Fund's investment objective is to provide a high
level of current income, consistent with the preservation of capital. The Fund
pursues its investment objective by investing primarily in investment-grade
corporate bonds of United States issuers, which are bonds that are rated in the
top four rating categories by Moody's, S&P, Duff, or Fitch, or, if not rated,
that the Fund's Sub-Advisor believes to have credit characteristics equivalent
to such investment-grade rated corporate bonds. Generally, at least 65% of the
corporate bonds held by the Fund will have had remaining maturities of 10 years
or more at the date of purchase, unless the Fund's Sub-Advisor believes that
investing in corporate bonds with shorter maturities would be appropriate in
light of prevailing market conditions. Corporate bonds with longer maturities
generally tend to produce higher yields and are subject to greater market risk
than debt securities with shorter maturities. The value of the Fund's portfolio
securities can be expected to vary inversely with changes in the prevailing
interest rates.
The Fund may also invest in preferred stock, corporate bonds and preferred stock
that are convertible into or that carry the right to buy common stock, all of
which are rated investment-grade by an NRSRO, or, if not rated, that the Fund's
Sub-Advisor believes to have credit characteristics equivalent to such
investment-grade rated bonds; U.S. Government Securities (including government
stripped mortgage-backed securities); asset-backed securities; and interests in
lease obligations for which the payment of interest and principal is
unconditionally guaranteed by companies with debt rated at least
investment-grade by an NRSRO, provided that no more than 20% of the Fund's
assets will be invested in such lease obligations. The Fund may invest in
floating rate, inverse floating rate and variable rate obligations, including
participation interests therein. The Fund may invest in bonds issued by foreign
governments and corporations, provided that no more than 20% of the Fund's
assets will be invested in such bonds and no more than 5% will be denominated in
any one currency. In addition, the Fund may invest up to 33 1/3% of its total
assets in dollar rolls or "covered rolls." For temporary defensive purposes, the
Fund may also invest, without limitation, in money market instruments, including
short-term U.S. Government Securities, commercial paper rated Prime-1 by
Moody's, A-1 by S&P, Duff-1 by Duff or Fitch-1 by Fitch, and cash and cash
equivalents.
-19-
<PAGE> 54
As the Fund's portfolio manager, James M. Goldberg, has had primary
responsibility for the day-to-day management of the Fund's portfolio since its
inception. Mr. Goldberg has been Managing Director of TCW Management since 1989
and Managing Director of Trust Company of the West since 1984.
CALIFORNIA MUNICIPAL FUND. The Fund's investment objective is to provide as high
a level of current income that is excluded from gross income for federal income
tax purposes and is exempt from California State personal income tax as is
consistent with prudent investment management and preservation of capital. The
Fund pursues its objective by investing in intermediate and long-term California
Municipal Securities, although the average maturity of the Fund will vary
depending on anticipated market conditions. A fundamental policy that cannot be
changed without the consent of the Fund's shareholders is that under normal
market conditions, at least 80% of the Fund's total assets will be invested in
California Municipal Securities. The Fund may invest without limitation in
AMT-Subject Bonds, as described in the section "Securities and Investment
Practices - Municipal Securities and AMT-Subject Bonds."
The Fund will invest in investment-grade Municipal Securities, which are
securities rated at the time of purchase within the four highest ratings
assigned by Moody's, S&P, Duff, or Fitch, or, if unrated, are judged to be of
comparable quality by the Fund's Sub-Advisor. The higher tax-free yields sought
by the Fund are generally obtainable from medium-quality Municipal Securities
rated A or Baa by Moody's or A or BBB by S&P. For more information, see
"Securities and Investment Practices - Fixed-Income Obligations and Securities."
The Fund is designed to generate tax-exempt income. A shareholder of the Fund
may earn a higher after-tax return from the Fund than from comparable
investments that generate taxable income. For an illustration of the benefits of
tax-free investing, see the section entitled "Performance Information."
The Fund may invest up to 20%, in the aggregate, of its assets in (1) Municipal
Securities that are not exempt from California personal income tax and (2)
short-term Municipal Securities and taxable cash equivalents, including
short-term U.S. Government Securities, certificates of deposit and bankers'
acceptances, commercial paper rated Prime-1 by Moody's or A-1+ or A-1 by S&P,
repurchase agreements and securities of other money market mutual funds (subject
to the limitations set forth under "Securities and Investment Practices") and,
for temporary defensive purposes, may invest in these securities without
limitation. The Fund may at any time invest up to 20% of its total assets in
taxable cash equivalents, although it is anticipated that under normal
circumstances substantially all of the Fund's assets will be invested in
Municipal Securities generating tax-exempt income.
The Fund may engage in hedging transactions through the use of financial
futures, bond index futures and options thereon, purchase and sell securities on
a when-issued and forward commitment basis, invest in mortgage-backed
securities, enter into repurchase agreements, invest in stand-by commitments and
lend portfolio securities. The Fund may invest in floating rate, inverse
floating rate and variable rate obligations, including participation interests
therein.
Since May 1992, Joseph A. Piraro, a Vice President of Van Kampen, has had
primary responsibility for the day-to-day management of the Fund's portfolio.
Mr. Piraro has been a Vice President of Van Kampen since January 1993 and
Assistant Vice President since June 1992. Prior to joining Van Kampen, Mr.
Piraro was a Senior Municipal Bond Trader for First National Bank of Chicago
from November 1987 to May 1992.
FLORIDA INSURED MUNICIPAL FUND. The Fund's primary investment objective is to
seek as high a level of current income, exempt from federal income tax, as is
consistent with prudent investment management and preservation of capital, and
to offer shareholders the opportunity to own shares the value of which is exempt
from Florida intangible personal property tax.
To accomplish this goal, the Fund will invest primarily in insured,
intermediate- and long-term Florida Municipal Securities although the average
maturity of the Fund will vary depending on anticipated market conditions. It is
a fundamental policy of the Fund that it will invest at least 80% of the value
of its total assets (except when maintaining a temporary defensive position) in
insured Florida Municipal Securities. The Fund may invest without limitation in
AMT-Subject Bonds, as described in "Securities and Investment
Practices - Municipal Securities and AMT-Subject Bonds." Current federal income
tax laws limit the types and volume of bonds qualifying for the federal income
tax exemption of interest, which may have an effect on the ability of the Fund
to purchase sufficient amounts of tax-exempt securities.
-20-
<PAGE> 55
The "insured obligations" in the Fund's investment portfolio are insured as to
the scheduled payment of all installments of principal and interest as they fall
due. The purpose of such insurance is to minimize credit risks to the Fund and
its shareholders associated with defaults in Florida Municipal Securities owned
by the Fund. Such insurance does not insure against market risk and therefore
does not guarantee the market value of the obligations in the Fund's investment
portfolio upon which the NAV of the Fund's shares is based. Such market value
will continue to fluctuate in response to fluctuations in interest rates or the
bond market. Similarly, such insurance does not cover or guarantee the value of
the shares of the Fund.
The investment policy requiring insurance on investments applies only to Florida
Municipal Securities in the Fund's investment portfolio and will not affect the
Fund's ability to hold its assets in cash or to invest in escrow secured and
defeased bonds or in certain short-term tax-exempt obligations as set forth
herein, or affect its ability to invest in uninsured taxable obligations for
temporary or liquidity purposes or on a defensive basis in accordance with the
investment policies and restrictions of the Fund.
The Fund will invest in investment-grade Municipal Securities, which are
securities rated at the time of purchase within the four highest ratings
assigned by Moody's, S&P, Duff, or Fitch, or, if unrated, are judged to be of
comparable quality by the Fund's Sub-Advisor. The higher tax-free yields sought
by the Fund are generally obtainable from medium-quality Municipal Securities
rated A or Baa by Moody's or A or BBB by S&P. See "Securities and Investment
Practices - Fixed-Income Obligations and Securities."
The Fund may invest up to 20%, in the aggregate, of its total assets in (1)
Municipal Securities that are not insured Municipal Securities; (2) Municipal
Securities that are not exempt from Florida intangible personal property tax;
and (3) short-term Municipal Securities and taxable cash equivalents, including
short-term U.S. Government Securities, certificates of deposit, time deposits
and bankers' acceptances, commercial paper rated Prime-1 by Moody's or A-1+ or
A-1 by S&P, repurchase agreements and securities of money market mutual funds
and, for temporary defensive purposes, may invest in these securities without
limitation, except that investments in securities of money market mutual funds
are subject to the limitations set forth under "Securities and Investment
Practices - Holdings in Other Investment Companies." The Fund may at any time
invest up to 20% of its total assets in taxable cash equivalents, although it is
anticipated that under normal circumstances substantially all of the Fund's
assets will be invested in Municipal Securities generating tax-exempt income.
The Fund may invest in floating rate, inverse floating rate and variable rate
obligations, including participation interests therein.
Florida does not impose an income tax on individuals. Distributions of
investment income and capital gains by the Fund will be subject to Florida
corporate income taxes. Florida imposes a tax on intangible personal property
owned by Florida residents. Based on a ruling the Fund has received from the
Florida Department of Revenue, if the Fund's assets consist, on the last
business day of the calendar year, solely of assets exempt from Florida
intangible personal property tax, shares of the Fund owned by Florida residents
will be exempt from Florida intangible personal property tax. Assets exempt from
Florida intangible personal property tax include obligations issued by the State
of Florida and its political subdivisions, municipalities, and public
authorities; obligations of the United States Government or its agencies; and
cash.
Since June 1995, Joseph A. Piraro, a Vice President of Van Kampen, has had
primary responsibility for the day-to-day management of the Fund's portfolio.
Mr. Piraro has been a Vice President of Van Kampen since January 1993 and
Assistance Vice President since June 1992. Prior to joining Van Kampen, Mr.
Piraro was a Senior Municipal Bond Trader for First National Bank of Chicago
from November 1987 to May 1992.
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND. The Fund's investment objective
is to provide California investors with as high a level of current income exempt
from federal and California State income tax as is consistent with prudent
investment management and preservation of capital. To accomplish its investment
objective, the Fund will invest primarily in insured intermediate-term
California Municipal Securities (as described in "Securities and Investment
Practices - Municipal Securities and AMT-Subject Bonds").
It is a fundamental policy of the Fund that it will invest at least 80% of the
value of its total assets (except when maintaining a temporary defensive
position) in insured California Municipal Securities. The weighted average
-21-
<PAGE> 56
effective maturity of the securities in which the Fund invests will be ten years
or less and the maximum effective maturity of any Municipal Securities in which
the Fund invests will be fifteen years, such effective maturity to be the call
date of Municipal Securities with mandatory call provisions and to be the
expected average life of mortgage obligations underlying the Municipal
Securities.
The insured California Municipal Securities in which the Fund will invest are
insured under insurance policies that relate to the specific Municipal Security
in question ("Specific Issue Insurance") and that are issued by any insurer
having a claims-paying ability rated AAA by S&P or Aaa by Moody's. Five such
insurers are MBIA Insurance Corporation ("MBIA"), Financial Guaranty Insurance
Company ("FGIC"), AMBAC Indemnity Corporation ("AMBAC"), Financial Securities
Assurance Incorporated ("FSA") and Capital Guaranty Insurance Company ("CGIC").
S&P has rated the claims-paying ability of MBIA, FGIC, AMBAC, FSA and CGIC and
the Municipal Securities insured by these organizations AAA. Further information
with respect to MBIA, FGIC, AMBAC, FSA and CGIC is set forth in the SAI. Some
Specific Issue Insurance will have been obtained by the issuer of the Municipal
Securities or by an investor subsequent to the security's original issuance and
all premiums respecting such securities for the remaining lives thereof will
have been paid in advance by such issuer or investor. Such policies are
generally non-cancelable and will continue in force so long as the Municipal
Securities are outstanding and the insurer remains in business. Since such
Specific Issue Insurance remains in effect as long as the securities are
outstanding, the insurance may have an effect on the resale value of the
Municipal Securities. Therefore, such Specific Issue Insurance may be considered
to represent an element of market value in regard to Municipal Securities thus
insured, but the exact effect, if any, of this insurance on such market value
cannot be estimated.
The insured California Municipal Securities in which the Fund will invest are
insured as to the scheduled payment of all installments of principal and
interest as they fall due. The purpose of such insurance is to minimize credit
risks to the Fund and its shareholders associated with defaults in California
Municipal Securities owned by the Fund. Such insurance does not insure against
market risk and therefore does not guarantee the market value of the obligations
in the Fund's investment portfolio upon which the NAV of the Fund's shares is
based. Such market value will continue to fluctuate in response to fluctuations
in interest rates or the bond market. Similarly, such insurance does not cover
or guarantee the value of the shares of the Fund. The investment policy
requiring insurance on investments (that is applicable to California Municipal
Securities to the extent of 80% of the Fund's total assets) will not affect the
Fund's ability to hold its assets in cash or to invest in escrow secured and
defeased bonds or in certain short-term tax-exempt obligations as set forth
herein, or affect its ability to invest in uninsured taxable obligations for
temporary or liquidity purposes or on a defensive basis in accordance with the
investment policies and restrictions of the Fund.
The Fund's Sub-Advisor intends to retain any insured California Municipal
Securities that are in default or, in the opinion of the Fund's Sub-Advisor, in
significant risk of default and to place a value on the insurance which
ordinarily will be the difference between the market value of the defaulted
security and the market value of similar securities that are not in default. In
certain circumstances, however, the Fund's Sub-Advisor may determine that an
alternative value for the insurance, such as the difference between the market
value of the defaulted security and its par value, is more appropriate. The
Fund's Sub-Advisor will be unable to manage the Fund to the extent it holds
defaulted securities which may limit its ability in certain circumstances to
purchase other Municipal Securities.
All of the Municipal Securities in which the Fund will invest are
investment-grade securities, securities that are rated at the time of purchase
within the four highest ratings assigned by Moody's, S&P, Duff, or Fitch, or, if
unrated, are judged to be of comparable quality by the Fund's Sub-Advisor. The
higher tax-free yields sought by the Fund are generally obtainable from
medium-quality Municipal Securities rated A or Baa by Moody's or A or BBB by
S&P. Municipal Securities rated in the lower end of the investment-grade
category (Baa/BBB), however, may have speculative characteristics and may be
more sensitive to economic changes and changes in the financial condition of the
issuer. For more information, see "Securities and Investment
Practices - Fixed-Income Obligations and Securities."
The Fund is designed to generate tax-exempt income. A shareholder of the Fund
may earn a higher after-tax return from the Fund than from comparable
investments that generate taxable income. Current federal income tax laws limit
the types and volume of bonds qualifying for the federal income tax exemption of
interest, which may have an
-22-
<PAGE> 57
effect on the ability of the Fund to purchase sufficient amounts of tax-exempt
securities. For an illustration of the benefits of tax-free investing, see the
section entitled, "Performance Information." The Fund may invest without
limitation in AMT-Subject Bonds, as described in "Securities and Investment
Practices - Municipal Securities and AMT-Subject Bonds."
The Fund may invest up to 20%, in the aggregate, of its assets in (1) Municipal
Securities that are not insured Municipal Securities; (2) Municipal Securities
that are not exempt from California personal income tax; and (3) short-term
Municipal Securities and taxable cash equivalents, including short-term U.S.
Government Securities, certificates of deposit, time deposits and bankers'
acceptances, commercial paper rated Prime-1 by Moody's or A-1+ or A-1 by S&P,
repurchase agreements and securities of investment companies that are money
market funds and, for temporary defensive purposes, may invest in these
securities without limitation, except that investments in securities of money
market mutual funds are subject to the limitations set forth under "Securities
and Investment Practices - Holdings in Other Investment Companies." The Fund may
at any time invest up to 20% of its total assets in taxable cash equivalents,
although it is anticipated that under normal circumstances substantially all of
the Fund's assets will be invested in Municipal Securities generating tax-exempt
income.
The Fund may engage in hedging transactions through the use of financial
futures, bond index futures and options thereon, purchase and sell securities on
a when-issued or forward commitment basis, invest in mortgage-backed securities,
enter into repurchase agreements, invest in stand-by commitments and lend
portfolio securities. The Fund may invest in floating rate, inverse floating
rate and variable rate obligations, including participation interests therein.
Since the Fund's inception, Joseph A. Piraro, a Vice President of Van Kampen,
has had primary responsibility for the day-to-day management of the Fund's
portfolio. Mr. Piraro has been a Vice President of Van Kampen since January 1993
and Assistant Vice President since June 1992. Prior to joining Van Kampen, Mr.
Piraro was a Senior Municipal Bond Trader for First National Bank of Chicago
from November 1987 to May 1992.
NATIONAL MUNICIPAL FUND. The Fund's investment objective is to provide a high
level of current income which is exempt from federal income tax, consistent with
preservation of capital. The Fund pursues its investment objective by investing
in intermediate and long-term Municipal Securities. It is a fundamental policy
of the Fund that it will invest at least 80% of its assets in Municipal
Securities. Under normal conditions, debt obligations with intermediate and
long-term maturities can be expected to pay higher yields and experience greater
fluctuations in value than bonds with short-term maturities. Under normal market
conditions, the longer the average maturity of Municipal Securities held in the
Fund's portfolio, the greater its expected yield and price volatility. For an
illustration of the benefits of tax-free investing, see the section entitled
"Performance Information."
The Fund will invest substantially all of its portfolio in investment-grade
Municipal Securities, which are securities that are rated at the time of
purchase within the four highest ratings assigned by Moody's, S&P, Duff, or
Fitch, or, if unrated, that the Fund's Sub-Advisor believes to have credit
characteristics equivalent to such investment-grade rated securities. The higher
tax-free yields sought by the Fund are generally obtainable from medium-quality
Municipal Securities rated A or Baa by Moody's or A or BBB by S&P. For more
information, see "Securities and Investment Practices - Fixed-Income
Securities." The Fund may also invest in unrated tax-exempt securities that the
Fund's Sub-Advisor believes to have credit characteristics equivalent to rated
investment-grade Municipal Securities.
The Fund also may invest in "Municipal Leases," which are generally
participations in intermediate and short-term debt obligations issued by
municipalities consisting of leases or installment purchase contracts for
property or equipment. In addition, the Fund may invest without limitation in
AMT-Subject Bonds as described in "Securities and Investment
Practices - Municipal Securities and AMT-Subject Bonds."
The Fund also may invest, for temporary defensive purposes in abnormal market
conditions, more than 20% of its assets in taxable cash equivalents.
The Fund also may invest in U.S. Government Securities and mortgage-backed
securities, engage in hedging transactions through the use of financial futures
contracts, bond index futures and options thereon, purchase and sell securities
on a when-issued and forward commitment basis, enter into repurchase agreements,
invest in stand-by
-23-
<PAGE> 58
commitments and lend portfolio securities. The Fund may invest in floating rate,
inverse floating rate and variable rate obligations, including participation
interests therein.
Since the Fund's inception, David C. Johnson, a Senior Vice President of Van
Kampen, has had primary responsibility for the day-to-day management of the
Fund's portfolio. Mr. Johnson has been the Portfolio Manager of the Fund since
its inception. Mr. Johnson has been a Senior Vice President of Van Kampen since
January 1995 and a First Vice President since January 1993. Mr. Johnson has been
employed by Van Kampen since April 1989.
THE EQUITY FUNDS
GROWTH AND INCOME FUND. The investment objective of the Fund is long-term
capital growth and current income consistent with reasonable investment risk.
The Fund pursues its investment objective by investing primarily in
dividend-paying common stock. The Fund will also invest in other equity
securities, consisting of nondividend-paying common stock, preferred stock and
securities convertible into common stock, such as convertible preferred stock,
convertible bonds rated in the highest three rating categories by Moody's or
S&P, or, if unrated, judged to be of comparable quality by the Fund's
Sub-Advisor, and warrants. The Fund is not subject to any limit on the size of
companies in which it may invest, but intends to be primarily invested, under
normal circumstances, in the large-and medium-sized companies included in the
S&P 500 Index. The Fund may also invest up to 10% of its total assets in
American Depositary Receipts.
The Fund is designed for investors who want an actively managed diversified
portfolio of selected equity securities that seeks to outperform the total
return of the S&P 500 Index. The Fund attempts to reduce risk by investing in
many different economic sectors, industries and companies. The Fund's
Sub-Advisor may under- or over-weight selected economic sectors against the S&P
500 Index's sector weightings to seek to enhance the Fund's total return or
reduce fluctuations in market value relative to the S&P 500 Index.
During normal market conditions, the Sub-Advisor will keep the Fund essentially
fully invested in the equity securities described above. The Fund's Sub-Advisor
may, however, invest in money market instruments, including U.S. Government
Securities; short-term bank obligations rated in the highest two rating
categories by Moody's or S&P, or, if unrated, judged to be of comparable quality
by the Fund's Sub-Advisor, including certificates of deposit, time deposits and
banker's acceptances issued by U.S. and foreign banks and savings and loan
institutions with assets of at least $10 billion as of the end of their most
recent fiscal year; and commercial paper and corporate obligations, including
such securities in the form of variable rate demand notes, that are issued by
U.S. and foreign issuers and that are rated in the highest two rating categories
by Moody's or S&P, or, if unrated, are judged to be of comparable quality by the
Fund's Sub-Advisor. Under normal circumstances, the Fund will invest in such
money market instruments to invest temporary cash balances or to maintain
liquidity to meet redemptions. The Fund may also, however, invest in these
instruments, without limitation, as a temporary defensive measure taken during,
or in anticipation of, adverse market conditions.
As the Fund's portfolio managers, Henry D. Cavanna, Managing Director of J.P.
Morgan, and William M. Riegel, Vice President of J.P. Morgan, have had primary
management responsibility for the Fund since September 1993. Mr. Cavanna, who
joined J.P. Morgan in 1971, is a senior portfolio manager in its Equity and
Balanced Accounts Group. Mr. Riegel, who joined J.P. Morgan in 1979, is a senior
equity portfolio manager in its Equity and Balanced Accounts Group.
GROWTH FUND. The Fund's primary investment objective is long-term capital
appreciation. The generation of income is not an objective of the Fund, and any
income received on the Fund's assets will be incidental to its primary
investment objective, which is a fundamental policy of the Fund. The Fund
intends to invest primarily in common stock believed by the Sub-Advisor to have
significant appreciation potential. However, no class of security offers at all
times the greatest promise for capital appreciation. Therefore, the Fund may
invest in debt securities, bonds, convertible bonds, preferred stock and
convertible preferred stock, including non-investment-grade debt securities, if
in the opinion of the Sub-Advisor, doing so would further the long-term capital
appreciation objective of the Fund.
The Fund may invest up to 35% of its assets in non-investment-grade debt
securities (commonly called "junk bonds"), which are securities rated Ba or BB
or below, respectively, by Moody's or S&P. Non-investment-grade
-24-
<PAGE> 59
debt securities are often considered to be speculative and involve greater risk
of default or price changes due to changes in the issuer's creditworthiness. The
market prices of these securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates. See "Securities
and Investment Practices - Lower-Rated Securities."
If the Sub-Advisor is unable to locate investment opportunities with desirable
risk/reward characteristics or in an effort to protect its assets against major
adverse market declines, the Fund may pursue a policy of investing part or all
of its assets in cash or cash equivalents.
The Fund may invest up to 25% of its assets in foreign securities, usually
foreign common stocks, and up to 5% of its assets in securities of companies in
(or governments of) developing or emerging countries (sometimes referred to as
"emerging markets"). A developing or emerging country is generally considered by
the international financial community, and in the opinion of Sierra Advisors or
the Sub-Advisor, to be a country that is in the initial stages of its
industrialization cycle. The Fund may also engage in certain options
transactions, enter into financial futures contracts and related options for the
purpose of portfolio hedging and enter into currency forwards or futures
contracts and related options for the purpose of currency hedging.
Pursuant to an exemptive order granted by the SEC, the Growth Fund and Emerging
Growth Fund (and other funds advised by Janus Capital Corporation) may transfer
daily uninvested cash balances into one or more joint trading accounts. Assets
in the joint trading accounts are invested in money market instruments and the
proceeds are allocated to the participating funds on a pro rata basis.
As portfolio manager of the Growth Fund, Warren B. Lammert has had primary
management responsibility for the Fund since its inception. Mr. Lammert is a
Vice President of Janus, the Portfolio Manager of the Janus Mercury Fund and a
CoPortfolio Manager of the Janus Venture Fund. Mr. Lammert joined Janus in 1987
and his duties at Janus include the management of separate equity accounts.
EMERGING GROWTH FUND. The Fund's investment objective is long-term capital
appreciation, while income is only an incidental consideration of the Fund. The
Fund normally invests primarily in equity securities of companies with market
capitalization of less than $1.4 billion at the time of purchase. A company's
market capitalization is calculated by multiplying the total number of shares of
its common stock outstanding by the market price per share of its stock. The
Fund may invest up to 25% of its assets in securities of foreign issuers and up
to 5% of its assets in securities in developing or emerging countries.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of small capitalization companies are traded
in lower volume than those issued by larger companies and may be more volatile
and less liquid than those of larger companies. In light of these
characteristics of small capitalization companies and their securities, the Fund
may be subject to greater investment risk than that assumed when investing in
the equity securities of larger capitalization companies. The Fund has been
designed to provide investors with potentially greater long-term rewards than
those provided by an investment in a fund that seeks capital appreciation from
equity securities of larger, more established companies. Small capitalization
companies generally are not as well known to the investing public and have less
of an investor following than larger companies. In selecting investments for the
Fund, the Fund's Sub-Advisor seeks small capitalization companies that it
believes are undervalued in the marketplace, or that the Fund's Sub-Advisor
believes have earnings that may be expected to grow faster than the United
States economy in general.
The Fund may invest up to 35% of its assets in non-investment-grade debt
securities (commonly called "junk bonds") if portfolio management believes that
doing so will be consistent with the goal of capital appreciation. Non-
investment grade debt securities are considered to be speculative and involve
greater risk of default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities may fluctuate more than
higher-rated securities and may decline significantly in periods of general
economic difficulty, which may follow periods of rising interest rates. See
"Securities and Investment Practices - Lower-Rated Securities."
The Fund may invest in other equity securities, including convertible bonds,
convertible preferred stock and warrants to purchase common stock, as well as
cash and cash equivalents. Furthermore, the Emerging Growth Fund
-25-
<PAGE> 60
may transfer daily uninvested cash balances into one or more joint trading
accounts advised by the Sub-Advisor. See "Growth Fund."
James P. Goff is the portfolio manager of the Emerging Growth Fund and has had
primary management responsibility for the Fund since September 1993. Mr. Goff is
a Vice President of Janus, the Portfolio Manager of the Janus Enterprise Fund
and a Co-Portfolio Manager of the Janus Venture Fund. Mr. Goff joined Janus in
July 1988 and his duties at Janus include the management of separate equity
accounts.
INTERNATIONAL GROWTH FUND. The Fund's investment objective is long-term capital
appreciation. Generation of income is not an objective of the Fund, and any
income received will be incidental. The Fund invests primarily in equity
securities of issuers located in a variety of different foreign regions and
countries that the Fund's Sub-Advisor deems to have attractive investment
opportunities. The Fund will emphasize established companies, although it may
invest in companies of varying sizes as measured by assets, sales and
capitalization.
More than 25% of the Fund's total assets may be invested in the securities of
issuers located in the same country. The relative strength or weakness of a
particular country's currency or economy may dictate whether securities of
issuers located in such country will be purchased or sold. Criteria for
determining the appropriate distribution of investments among various countries
and regions include prospects for relative economic growth among foreign
countries, expected levels of inflation, government policies influencing
business conditions, the outlook for currency relationships, and the range of
investment opportunities available to international investors.
The Fund invests in common stock and may invest in other securities with equity
characteristics, consisting of trust or limited partnership interests, preferred
stock, rights and warrants. The Fund may also invest in convertible securities,
consisting of debt securities or preferred stock that may be converted into
common stock or that carry the right to purchase common stock. The Fund invests
in securities listed on foreign or domestic securities exchanges and securities
traded in foreign or domestic over-the-counter markets, and may invest in
restricted or unlisted securities.
The Fund intends to stay invested in the securities described above to the
extent practical. Fund assets may be invested in short-term debt instruments to
meet anticipated day-to-day operating expenses, and for temporary defensive
purposes. In addition, when the Fund experiences large cash inflows, the Fund
may hold short-term investments pending availability of desirable equity
securities.
The short-term instruments in which the Fund may invest include foreign and
domestic: (i) short-term obligations of foreign governments, their agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities rated A or higher by Moody's or S&P, or if unrated, of
comparable quality in the opinion of the Fund's Sub-Advisor; (iii) commercial
paper, including master notes; (iv) bank obligations, including negotiable
certificates of deposit, time deposits, bankers' acceptances, and Euro-currency
instruments and securities; and (v) repurchase agreements. At the time the Fund
invests in any commercial paper, bank obligations or repurchase agreements, the
issuer must have outstanding debt rated A or higher by Moody's or S&P; the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by S&P; or, if no such ratings are available,
the investment must be of comparable quality in the opinion of the Fund's
Sub-Advisor.
The Fund may invest up to 30% of its assets in the securities of companies in or
governments of developing or emerging countries (sometimes referred to as
"emerging markets") approved by the Board of Trustees, provided that no more
than 5% of the Fund's total assets are invested in any one such country. For
temporary defensive purposes, the Fund may invest a major portion of its assets
in securities of United States issuers. Furthermore, the Fund may invest up to
5% of its total assets in corporate debt securities having maturities longer
than one year and which are rated BBB or better by S&P, including Euro-currency
instruments and securities.
The following people have been primarily responsible for managing the Fund since
April 8, 1996. Richard H. King, Senior Managing Director, joined Warburg to
found the international equity department and has 28 years of investment
experience. Prior to joining Warburg, Mr. King was chief investment officer and
a director of Fiduciary Trust Company International S.A. in London from 1984
until 1988. P. Nicholas Edwards, Senior Vice President, has 12 years of
investment experience. Prior to joining Warburg, Mr. Edwards was a director and
senior analyst at Jardine Fleming Investment Advisers in Tokyo from 1991 to
1995. Harold W. Ehrlich, CFA, CIC, Senior Vice
-26-
<PAGE> 61
President, has 13 years of investment experience. Prior to joining Warburg, Mr.
Ehrlich was a senior vice president, portfolio manager and analyst at Templeton
Investment Counsel Inc. from 1987 to 1995. Nicholas P.W. Horsley, Senior Vice
President, has 15 years of investment experience. Prior to joining Warburg, Mr.
Horsley was a director, portfolio manager and analyst at Barclays de Zoete Wedd
in New York from 1986 to 1993. Vincent J. McBride, Vice President, has 9 years
of investment experience. Prior to joining Warburg, Mr. McBride was an
international equity analyst at Smith Barney Inc. from 1993 to 1994. He was an
international equity analyst at General Electric Investments from 1992 to 1993
and a portfolio manager/analyst at United Jersey Bank from 1989 to 1992.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of securities
in which the Funds may invest, and strategies a Fund's Sub-Advisor may employ in
pursuit of that Fund's investment objective. A summary of risks and restrictions
associated with these security types and investment practices is included as
well. All policies and limitations are considered at the time of purchase; the
sale of securities is not required in the event of a subsequent change in
circumstances.
A Fund might not buy all of these securities or use all of these techniques to
the full extent permitted unless its Sub-Advisor, subject to oversight by Sierra
Advisors, believes that doing so will help the Fund achieve its goal. Sierra
Advisors may, from time to time, direct a Sub-Advisor with respect to investment
policies and strategies. As a shareholder, you will receive fund reports every
six months detailing your Fund's holdings and describing recent investment
practices.
Except for the limitations on borrowing, the investment guidelines set forth
below may be changed at any time by vote of the Board of Trustees of the Trust
without shareholder consent. A complete list of investment restrictions that
identifies additional restrictions that cannot be changed without the approval
of a majority of an affected Fund's outstanding shares is contained in the SAI.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. All Funds except
the U.S. Government Fund, the Municipal Funds and the Money Funds may invest in
securities of foreign issuers directly or in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") or other similar
securities representing securities of foreign issuers. These securities may not
necessarily be denominated in the same currency as the securities they
represent. ADRs are receipts typically issued by a United States bank or trust
company evidencing ownership of the underlying foreign securities. EDRs are
receipts issued by a European financial institution evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
United States securities markets, and EDRs, in bearer form, are designed for use
in European securities markets.
ASSET-BACKED SECURITIES. The Growth and Income, Emerging Growth, Corporate
Income, Short Term High Quality Bond, U.S. Government and Short Term Global
Government Funds may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of motor vehicle
installment purchase obligations, credit card receivables and home equity loans.
These Funds will not invest more than 10% of their total assets in asset-backed
securities, except the Short Term High Quality Bond Fund, which may invest up to
25% of its total assets in such securities.
BANK OBLIGATIONS. All of the Funds may invest in bank obligations, which include
certificates of deposit, time deposits and bankers' acceptances of U.S.
commercial banks or savings and loan institutions with assets of at least $500
million as of the end of their most recent fiscal year.
BORROWING. All Funds may borrow money for temporary or emergency purposes.
However, if a Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. If the Fund makes additional
investments while borrowings are outstanding, this may be construed as a form of
leverage.
A Fund may borrow money from banks solely for temporary or emergency purposes,
but not in an amount exceeding 30% of its total assets. For each of the Funds
except the U.S. Government, Short Term High Quality Bond and Corporate Income
Funds, whenever borrowings by a Fund, including reverse repurchase agreements,
exceed 5% of
-27-
<PAGE> 62
the value of a Fund's total assets, the Fund will not purchase any securities.
The U.S. Government, Short Term High Quality Bond and Corporate Income Funds are
prohibited from borrowing money or entering reverse repurchase agreements or
dollar roll transactions in the aggregate in excess of 33 1/3% of the Fund's
total assets (after giving effect to such borrowings). This investment guideline
may be changed only with shareholder consent and by vote of the Board of
Trustees of the Trust. However, the Short Term High Quality Bond Fund currently
intends to borrow money or enter into reverse repurchase agreements or dollar
roll transactions in the aggregate in excess of 10% of its total assets (after
giving effect to such borrowings); provided, however, that it may be able to
raise this limitation up to 33 1/3% of its total assets with approval of the
Board of Trustees of the Trust.
Under a credit agreement by and between the Trust and Deutsche Bank, AG, New
York ("Deutsche Bank") certain Funds may borrow money from Deutsche Bank
pursuant to a line of credit in compliance with its investment objective,
policies and limitations as set forth in the Prospectus and Statement of
Additional Information of the Trust.
COMMON STOCK, CONVERTIBLE SECURITIES AND OTHER EQUITY SECURITIES. The Corporate
Income Fund, U.S. Government Fund and the Equity Funds may invest in common
stocks, which represent an equity (ownership) interest in a corporation. This
ownership interest generally gives a Fund the right to vote on measures
affecting the company's organization and operations.
The Funds may also buy securities such as convertible debt, preferred stock,
warrants or other securities exchangeable for shares of common stock. In
selecting equity investments for a Fund, each Fund's Sub-Advisor will invest the
Fund's assets in industries and companies that it believes are experiencing
favorable demand for their products and services and which operate in a
favorable competitive and regulatory climate.
A Fund may not own more than 10% of the outstanding voting securities of a
single issuer other than U.S. Government Securities and may not invest more than
10% of the Fund's assets in securities in the aggregate where a market quotation
is not readily available.
A convertible security is a security that may be converted either at a stated
price or rate within a specified period of time into a specified number of
shares of common stock. By investing in convertible securities, a Fund seeks the
opportunity, through the conversion feature, to participate in the capital
appreciation of the common stock into which the securities are convertible,
while obtaining a higher fixed rate of return than is available in common
stocks.
CURRENCY MANAGEMENT. A Fund's flexibility to participate in higher yielding debt
markets outside of the United States may allow the Fund to achieve higher yields
than those generally obtained by domestic money market funds and short-term bond
investments. If a Fund invests significantly in securities denominated in
foreign currencies, however, movements in foreign currency exchange rates versus
the U.S. Dollar are likely to impact the Fund's share price stability relative
to domestic short-term income funds. Fluctuations in foreign currencies can have
a positive or negative impact on returns. Normally, to the extent that the Fund
is invested in foreign securities, a weakening in the U.S. Dollar relative to
the foreign currencies underlying a Fund's investments should help increase the
NAV of the Fund. Conversely, a strengthening in the U.S. Dollar versus the
foreign currencies in which a Fund's securities are denominated will generally
lower the NAV of the Fund. A Fund's Sub-Advisor attempts to minimize exchange
rate risk through active portfolio management, including altering currency
exposure through the use of futures, options and forward currency transactions
and attempting to identify bond markets with strong or stable currencies. Funds
authorized to invest in securities of foreign issuers may engage in currency
management strategies.
DEBT SECURITIES ISSUED OR GUARANTEED BY SUPRANATIONAL ORGANIZATIONS. Funds
authorized to invest in securities of foreign issuers may invest assets in debt
securities issued or guaranteed by supranational organizations, such as
obligations issued or guaranteed by the Asian Development Bank, Inter-American
Development Bank, International Bank for Reconstruction and Development (World
Bank), African Development Bank, European Coal and Steel Community, European
Economic Community, European Investment Bank and the Nordic Investment Bank.
DOLLAR ROLL TRANSACTIONS. In order to seek a high level of current income, the
U.S. Government, Short Term High Quality Bond and Corporate Income Funds may
enter into dollar rolls in which the Fund sells securities for delivery in the
current month and simultaneously contracts to repurchase, typically in 30 or 60
days, substantially
-28-
<PAGE> 63
similar (same type, coupon and maturity) securities on a specified future date.
The proceeds of the initial sale of securities in the dollar roll transactions
may be used to purchase long-term securities which will be held during the roll
period. During the roll period, the Fund forgoes principal and interest paid on
the securities sold at the beginning of the roll period. The Fund is compensated
by the difference between the current sales price and the forward price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. A "covered roll" is a specific
type of dollar roll for which there is an offsetting cash position or cash
equivalent securities position that matures on or before the forward settlement
date of the dollar roll transaction. As used herein the term "dollar roll"
refers to dollar rolls that are not "covered rolls." At the end of the roll
commitment period, the Fund may or may not take delivery of the securities the
Fund has contracted to purchase. To the extent that the proceeds of the initial
sale of securities are invested in long-term bonds, the proceeds are subject to
the higher volatility in price of such long-term bonds in comparison to
short-term bonds. See "Fixed Income Obligations and Securities" following.
The Fund will establish a segregated account with its custodian in which it will
maintain cash, U.S. Government securities or other liquid high-grade debt
obligations equal in value at all times to its obligations in respect of dollar
rolls, and, accordingly, the Fund will not treat such obligations as senior
securities for purposes of the 1940 Act. "Covered rolls" are not subject to
these segregation requirements. Each of the Funds is prohibited from borrowing
money or entering into reverse repurchase agreements or dollar roll transactions
in the aggregate in excess of 33 1/3% of the Fund's total assets (after giving
effect to any such borrowings). The Short Term High Quality Bond Fund intends to
invest up to 10% of its total assets in dollar roll transactions, but may invest
up to 33 1/3% of its total assets in such transactions.
EXCHANGE RATE-RELATED SECURITIES. Each of the Funds, except for the Money Funds,
may invest in securities which are indexed to certain specific foreign currency
exchange rates. The terms of such security provide that the principal amount or
interest payments are adjusted upwards or downwards (but not below zero) at
payment to reflect fluctuations in the exchange rate between two currencies
while the obligation is outstanding, depending on the terms of the specific
security. The Fund will purchase such security with the currency in which it is
denominated and will receive interest and principal payments thereon in the
currency, but the amount of principal or interest payable by the issuer will
vary in proportion to the change (if any) in the exchange rate between the two
specified currencies between the date the instrument is issued and the date the
principal or interest payment is due. The staff of the SEC is currently
considering whether a mutual fund's purchase of this type of security would
result in the issuance of a "senior security" within the meaning of the 1940
Act. The Trust believes that such investments do not involve the creation of
such a senior security, but nevertheless undertakes, pending the resolution of
this issue by the staff, to establish a segregated account with respect to such
investments and to maintain in such account cash not available for investment or
U.S. Government Securities or other liquid high quality debt securities having a
value equal to the aggregate principal amount of outstanding securities of this
type.
Investments in exchange rate-related securities entail certain risks. There is
the possibility of significant changes in rates of exchange between the U.S.
Dollar and any foreign currency to which an exchange rate-related security is
linked. In addition, there is no assurance that sufficient trading interest to
create a liquid secondary market will exist for a particular exchange
rate-related security due to conditions in the debt and foreign currency
markets. Illiquidity in the forward foreign exchange market and the high
volatility of the foreign exchange market may from time to time combine to make
it difficult to sell an exchange rate-related security prior to maturity without
incurring a significant price loss.
FIXED-INCOME OBLIGATIONS AND SECURITIES. The market value of fixed-income
obligations and securities held by a Fund and, consequently, the NAV per share
of the Fund can be expected to vary inversely to changes in prevailing interest
rates. Investors should also recognize that, in periods of declining interest
rates, the yield of the Fund will tend to be somewhat higher than prevailing
market rates and, in periods of rising interest rates, the Fund's yield will
tend to be somewhat lower. Also, when interest rates are falling, the inflow of
net new money to the Fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of its assets,
thereby reducing current yield. In periods of rising interest rates, the
opposite can be expected to occur. While securities with longer maturities tend
to produce higher yields, the prices of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest rates.
In addition, obligations purchased by a Fund that are rated in the lowest of the
top four ratings (Baa by Moody's or BBB by
-29-
<PAGE> 64
S&P) are considered to have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
securities.
FLOATING RATE, INVERSE FLOATING RATE AND VARIABLE RATE OBLIGATIONS. The
Municipal Funds and the Corporate Income Fund may purchase floating rate,
inverse floating rate and variable rate obligations, including participation
interests therein. Floating rate obligations have an interest rate that changes
whenever there is a change in the external interest rate, while variable rate
obligations provide for a specified periodic adjustment in the interest rate.
The interest rate on an inverse floating rate obligation (an "inverse floater")
can be expected to move in the opposite direction from the market rate of
interest to which the inverse floater is indexed. The Funds may purchase
floating rate, inverse floating rate and variable rate obligations that carry a
demand feature which would permit the Funds to tender them back to the issuer or
remarketing agent at par value prior to maturity. Frequently, floating rate,
inverse floating rate and variable rate obligations are secured by letters of
credit or other credit support arrangements provided by banks.
The Corporate Income Fund may purchase mortgage-backed securities that are
floating rate, inverse floating rate and variable rate obligations. Municipal
Securities purchased by the Municipal Funds may include floating rate, inverse
floating rate and variable rate obligations. Municipal Securities purchased by
the California Money and Global Money Funds and the Municipal Funds may include
variable rate demand notes issued by industrial development authorities and
other governmental entities, as well as participation interests therein.
Although variable rate demand notes are frequently not rated by credit rating
agencies, a Fund may purchase unrated notes that are determined by the Fund's
Sub-Advisor to be of comparable quality at the time of purchase to rated
instruments that may be purchased by the Fund. Moreover, while there may be no
active secondary market with respect to a particular variable rate demand note
purchased by a Fund, the Fund may, upon the notice specified in the note, demand
payment of the principal of and accrued interest on the note at any time and may
resell the note at any time to a third party. The absence of such an active
secondary market, however, could make it difficult for a Fund to dispose of a
particular variable rate demand note in the event the issuer of the note
defaulted on its payment obligations, and the Fund could, for this or other
reasons, suffer a loss to the extent of the default.
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in their market values.
Accordingly, the duration of an inverse floater may exceed its stated final
maturity.
FLORIDA MUNICIPAL SECURITIES. The Florida Constitution and Statutes mandate that
the State budget as a whole, and each separate fund within the State budget, be
kept in balance from currently available revenues each fiscal year. Florida's
Constitution permits issuance of Florida Municipal Securities pledging the full
faith and credit of the State, with a vote of the electors, to finance or
refinance fixed capital outlay projects authorized by the Legislature provided
that the outstanding principal does not exceed 50% of the total tax revenues of
the State for the two preceding years. Florida's Constitution also provides that
the Legislature shall appropriate monies sufficient to pay debt service on State
bonds pledging the full faith and credit of the State as such debt service
becomes due. All State tax revenues, other than trust funds dedicated by
Florida's Constitution for other purposes, would be available for such an
appropriation, if required.
An amendment to the State Constitution was approved by statewide ballot in the
November 8, 1994 general election which is commonly referred to as the
"Limitation on State Revenues Amendment." This amendment provides that State
revenues collected for any fiscal year shall be limited to State revenues
allowed under the amendment for the prior fiscal year plus an adjustment for
growth. Growth is defined as an amount equal to the average annual rate of
growth in State personal income over the most recent twenty quarters times the
State revenues allowed under the amendment for the prior fiscal year. State
revenues collected for any fiscal year in excess of this limitation are required
to be transferred to the budget stabilization fund until the fund reaches the
maximum balance specified in Section 19(g) of Article III of the State
Constitution, and thereafter is required to be refunded to taxpayers as provided
by general law. The limitation on State revenues imposed by the amendment may be
increased by the Legislature, by a two-thirds vote of each house.
-30-
<PAGE> 65
The term "State revenues," as used in the amendment, means taxes, fees,
licenses, and charges for services imposed by the Legislature on individuals,
businesses, or agencies outside State government. However, the term "State
revenues" does not include: (i) revenues that are necessary to meet the
requirements set forth in documents authorizing the issuance of bonds by the
State; (ii) revenues that are used to provide matching funds for the federal
Medicaid program with the exception of the revenues used to support the Public
Medical Assistance Trust Fund or its successor program and with the exception of
State matching funds used to fund elective expansions made after July 1, 1994;
(iii) proceeds from the State lottery returned as prizes; (iv) receipts of the
Florida Hurricane Catastrophe Fund; (v) balances carried forward from prior
fiscal years; (vi) taxes, licenses, fees and charges for services imposed by
local, regional, or school district governing bodies; or (vii) revenue from
taxes, licenses, fees and charges for services required to be imposed by any
amendment or revision to the State Constitution after July 1, 1994. The
amendment took effect on January 1, 1995 and is applicable to State fiscal year
1995-96.
It should be noted that many of the provisions of the amendment are ambiguous,
and likely will not be clarified until State courts have ruled on their
meanings. Furthermore, it is unclear how the Legislature will implement the
language of the amendment and whether such implementing legislation itself will
be the subject of further court interpretation.
The Fund cannot predict the impact of the amendment on State finances. To the
extent local governments traditionally receive revenues from the State which are
subject to, and limited by, the amendment, the future distribution of such State
revenues may be adversely affected by the amendment.
Revenue bonds may be issued by the State or its agencies without a vote of
Florida's electors only to finance or refinance the cost of State fixed capital
outlay projects which shall be payable solely from funds derived directly from
sources other than State tax revenues. Estimated fiscal year 1994-95 General
Revenue plus Working Capital and Budget Stabilization funds available total
$14,683,000,000, an increase of approximately 6.1% over comparable figures in
fiscal 1993-94. Total effective appropriations for the 1994-95 fiscal year were
$14,330,800,000, with unencumbered reserves at the end of 1994-95 estimated at
$352,100,000. Estimated fiscal year 1995-96 General Revenue plus Working Capital
and Budget Stabilization funds available total $15,168,700,000, an increase of
approximately 3.3% over comparable figures for fiscal year 1994-95. Total
effective appropriations for the 1995-96 fiscal year are estimated to be
$14,853,200,000, with unencumbered reserves at the end of 1995-96 estimated at
$315,500,000.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. All of the Funds except the U.S.
Government Fund, the Municipal Funds and the Money Funds may engage in foreign
currency exchange transactions. Funds that buy and sell securities denominated
in currencies other than the U.S. Dollar, and receive interest, dividends and
sale proceeds in currencies other than the U.S. Dollar, may enter into foreign
currency exchange transactions to convert to and from different foreign
currencies and to convert foreign currencies to and from the U.S. Dollar. The
Fund either enters into these transactions on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or uses forward
contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement, and is traded at a net
price without commission. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of the Fund's portfolio
securities or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.
A Fund may enter into foreign currency hedging transactions in an attempt to
protect against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered
-31-
<PAGE> 66
into and the date it matures. The projection of currency market movements is
extremely difficult, and the successful execution of a hedging strategy is
highly uncertain. In addition, when the Sub-Advisor believes that the currency
of a specific country may deteriorate against another currency, it may enter
into a forward contract to sell the less attractive currency and buy the more
attractive one. The amount in question could be less than or equal to the value
of the Fund's securities denominated in the less attractive currency. The Fund
may also enter into a forward contract to sell a currency which is linked to a
currency or currencies in which some or all of the Fund's portfolio securities
are or could be denominated, and to buy U.S. Dollars. These practices are
referred to as "cross hedging" and "proxy hedging."
Forward currency exchange contracts are agreements to exchange one currency for
another - for example, to exchange a certain amount of U.S. Dollars for a
certain amount of Japanese Yen - at a future date and specified price.
Typically, the other party to a currency exchange contract will be a commercial
bank or other financial institution. Because there is a risk of loss to the Fund
if the other party does not complete the transaction, the Fund's Sub-Advisor
will enter into foreign currency exchange contracts only with parties approved
by the Fund's Board of Trustees.
A Fund may maintain "short" positions in forward currency exchange transactions,
which would involve the Fund's agreeing to exchange currency that it currently
does not own for another currency - for example, to exchange an amount of
Japanese Yen that it does not own for a certain amount of U.S. Dollars - at a
future date and specified price in anticipation of a decline in the value of the
currency sold short relative to the currency that the Fund has contracted to
receive in the exchange.
While such actions are intended to protect the Fund from adverse currency
movements, there is a risk that currency movements involved will not be properly
anticipated. Use of this currency hedging technique may also be limited by
management's need to protect the status of the Fund as a regulated investment
company under the Code. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.
FOREIGN INVESTMENTS. All of the Funds except the U.S. Government Fund, the U.S.
Government Money Fund, the California Money Fund and the Municipal Funds may
invest in securities of foreign issuers. There are certain risks involved in
investing in foreign securities, including those resulting from (i) fluctuations
in currency exchange rates, (ii) devaluation of currencies, (iii) future
political or economic developments and the possible imposition of currency
exchange blockages or other foreign governmental laws or restrictions, (iv)
reduced availability of public information concerning issuers, and (v) the fact
that foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards or to other regulatory practices and
requirements comparable to those applicable to domestic companies. Moreover,
securities of many foreign companies may be less liquid and the prices more
volatile than those of securities of comparable domestic companies. Although the
Funds' Sub-Advisors do not intend to expose the Funds to such risks, with
respect to certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal of
funds or other assets of the Funds, including the withholding of dividends. A
Fund may use Forward Foreign currency contracts to hedge the value of the Fund's
portfolio against potential adverse movements in foreign currency markets.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Funds hold various foreign currencies
from time to time, the value of the net assets of the Funds as measured in U.S.
Dollars will be affected favorably or unfavorably by changes in exchange rates.
Generally, the Funds' currency exchange transactions will be conducted on a spot
(i.e., cash) basis at the spot rate prevailing in the currency exchange market.
The cost of the Funds' currency exchange transactions will generally be the
difference between the bid and offer spot rate of the currency being purchased
or sold. In order to protect against uncertainty in the level of future foreign
currency exchange rates, the Funds are authorized to enter into certain foreign
currency exchange transactions. Investors should be aware that exchange rate
movements can be significant and can endure for long periods of time. The
Sub-Advisors of the International Growth and Short Term Global Government Funds
attempt to manage exchange rate risk through active currency management.
Extensive research of the economic, political and social factors that influence
global markets is conducted by the Sub-Advisors. Particular attention is
-32-
<PAGE> 67
given to country-specific analysis, reviewing the strength or weakness of a
country's overall economy, the government policies influencing business
conditions and the outlook for the country's currency.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange ("NYSE"). Accordingly, the Funds'
foreign investments may be less liquid and their prices may be more volatile
than comparable investments in securities of United States companies. Moreover,
the settlement periods for foreign securities, which are often longer than those
for securities of United States issuers, may affect portfolio liquidity. In
buying and selling securities on foreign exchanges, the Fund normally pays fixed
commissions that are generally higher than the negotiated commissions charged in
the United States. In addition, there is generally less governmental supervision
and regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.
FUTURES AND OPTIONS ON FUTURES. When deemed advisable by its Sub-Advisor,
certain Funds may enter into financial futures and related options that are
traded on a U.S. exchange or board of trade. If entered into, these transactions
will be made for the purpose of hedging against the effects of changes in the
value of portfolio securities due to anticipated changes in interest rates and
market conditions, when the transactions are economically appropriate to the
reduction of risks inherent in the management of the Funds, and for the other
purposes described in the section "Strategic Transactions." A Fund may not enter
into futures and options contracts for which aggregate initial margin deposits
and premiums paid for unexpired options entered into for purposes other than
"bona fide hedging" as defined in regulations adopted by the Commodity Futures
Trading Commission exceed 5% of the fair market value of the Fund's assets, such
market value to be determined after taking into account unrealized profits and
unrealized losses on futures contracts into which it has entered. With respect
to each long position in a futures contract or option thereon, the underlying
commodity value of such contract will always be covered by cash and cash
equivalents set aside plus accrued profits held at the futures commission
merchant.
A financial futures contract provides for the future sale by one party and the
purchase by the other party of a specified amount of a particular financial
instrument (debt security) at a specified price, date, time and place. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the difference between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written. An option on a financial or
index futures contract generally gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract at a specified
exercise price at any time prior to the expiration date of the option.
The purpose of entering into a futures contract by a Fund is to protect the Fund
from fluctuations in the value of its securities caused by anticipated changes
in interest rate or market conditions without necessarily buying or selling the
securities. The use of futures contracts and options on futures contracts as
hedging devices involves several risks. There can be no assurance that there
will be a correlation between price movements in the underlying securities,
currencies or index, on the one hand, and price movements in the securities
which are the subject of the hedge, on the other hand. Positions in futures
contracts and options on futures contracts may be closed out only on the
exchange or board of trade on which they were entered into, and there can be no
assurance that an active market will exist for a particular contract or option
at any particular time. If a Fund has hedged against the possibility of an
increase in interest rates or bond prices adversely affecting the value of
securities held in its portfolio and rates or prices decreased instead, a Fund
will lose part or all of the benefit of the increased value of securities that
it has hedged because it will have offsetting losses in its futures positions.
In addition, in such situations, if a Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements at a time when it
may be disadvantageous to do so. These sales of securities may, but will not
necessarily, be at increased prices that reflect the decline in interest rates
or bond prices, as the case may be. In addition, the Fund would pay commissions
and other costs in connection with such investments, which may increase the
Fund's expenses and reduce its return. While utilization of options, futures
contracts and similar instruments may be advantageous to the Fund, if the Fund's
Sub-Advisor is not successful in employing such instruments in managing the
Fund's investments, the Fund's performance will be worse than if the Fund did
not make such investments. Losses incurred in hedging transactions and the costs
of these transactions will adversely affect a Fund's performance.
The Money Funds will not invest in futures and options on futures. In addition,
because any income earned from transactions in futures contracts and options on
futures contracts will be taxable, it is anticipated that the California
-33-
<PAGE> 68
Municipal, Florida Insured Municipal, California Insured Intermediate Municipal
and National Municipal Funds will invest in these instruments only in unusual
circumstances, such as when the Fund's Sub-Advisor anticipates an extreme change
in interest rates or market conditions.
GEOGRAPHICAL AND INDUSTRY CONCENTRATION. Potential investors in the California
Money, California Municipal, California Insured Intermediate Municipal and
Florida Insured Municipal Funds should consider the possibly greater risk
arising from the geographic concentration of their investments, as well as the
current and past financial condition of California and Florida municipal
issuers, respectively. Certain California and Florida constitutional amendments,
legislative measures, executive orders, administrative regulations, court
decisions and voter initiatives could result in certain adverse consequences
affecting California and Florida municipal obligations, respectively. See the
SAI for a more detailed description of these and other risks relating to the
California Money Fund's, California Municipal Fund's and California Insured
Intermediate Municipal Fund's investments in California municipal obligations
and the Florida Insured Municipal Fund's investments in Florida municipal
obligations.
The Global Money Fund will invest at least 25% of its assets in bank obligations
unless the Fund is in a temporary defensive position. As a result of this
concentration policy, which is a fundamental policy of the Fund, the Fund's
investments may be subject to greater risk than a fund that does not concentrate
in the banking industry. In particular, bank obligations may be subject to the
risks associated with interest rate volatility, changes in federal and state
laws and regulations governing banking and the inability of borrowers to pay
principal and interest when due. In addition, foreign banks present the risks of
investing in foreign securities generally and are not subject to reserve
requirements and other regulations comparable to those of U.S. banks.
GOVERNMENT STRIPPED MORTGAGE-BACKED SECURITIES. The Short Term High Quality
Bond, Short Term Global Government, U.S. Government and Corporate Income Funds
may invest in government stripped mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC"). These securities represent beneficial ownership interests
in either periodic principal distributions ("principal-only") or interest
distributions ("interest-only") on mortgage-backed certificates issued by GNMA,
FNMA or FHLMC, as the case may be. The certificates underlying the government
stripped mortgage-backed securities represent all or part of the beneficial
interest in pools of mortgage loans. The Funds will invest in interest-only
government stripped mortgage-backed securities in order to enhance yield or to
benefit from anticipated appreciation in value of the securities at times when
the appropriate Sub-Advisor believes that interest rates will remain stable or
increase. In periods of rising interest rates, the value of interest-only
government stripped mortgage-backed securities may be expected to increase
because of the diminished expectation that the underlying mortgages will be
prepaid. In this situation the expected increase in the value of interest-only
government stripped mortgage-backed securities may offset all or a portion of
any decline in value of the portfolio securities of the Funds. Investing in
government stripped mortgage-backed securities involves the risks normally
associated with investing in mortgage-backed securities issued by government or
government-related entities. See "Mortgage-Backed Securities" section. In
addition, the yields on interest-only and principal-only government stripped
mortgage-backed securities are extremely sensitive to the prepayment experience
on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on
interest-only government stripped mortgage-backed securities and increasing the
yield to maturity on principal-only government stripped mortgage-backed
securities. Conversely, if an increase in the level of prevailing interest rates
results in a rate of principal prepayments lower than anticipated, distributions
of principal will be deferred, thereby increasing the yield to maturity on
interest-only government stripped mortgage-backed securities and decreasing the
yield to maturity on principal-only government stripped mortgage-backed
securities. Sufficiently high prepayment rates could result in the Fund's not
fully recovering its initial investment in an interest-only government stripped
mortgage-backed security. Government stripped mortgage-backed securities are
currently traded in an over-the-counter market maintained by several large
investment banking firms. There can be no assurance that the Fund will be able
to effect a trade of a government stripped mortgage-backed security at a time
when it wishes to do so. The Funds will acquire government stripped
mortgage-backed securities only if a liquid secondary market for the securities
exists at the time of acquisition.
-34-
<PAGE> 69
HOLDINGS IN OTHER INVESTMENT COMPANIES. When the Sub-Advisor of each Fund
believes that it would be beneficial to the Fund and appropriate under the
circumstances, the Sub-Advisor may invest up to 10% of the Fund's assets in
securities of mutual funds that are not affiliated with Sierra Advisors or any
Sub-Advisor. As a shareholder in any such mutual fund, the Fund will bear its
ratable share of the mutual fund's expenses, including management fees, and will
remain subject to the Fund's advisory and administration fees with respect to
the assets so invested.
ILLIQUID SECURITIES. Up to 15% of the assets of each Non-Money Fund, and up to
10% of the assets of each Money Fund, may be invested in securities that are not
readily marketable, including: (1) repurchase agreements with maturities greater
than seven calendar days; (2) time deposits maturing in more than seven calendar
days; (3) to the extent a liquid secondary market does not exist for the
instruments, futures contracts and options thereon; (4) certain over-the-counter
options, as described in the SAI; (5) except for the Short-Term Global
Government Fund, certain variable rate demand notes having a demand period of
more than seven days; and (6) securities the disposition of which is restricted
under federal securities laws (excluding Rule 144A Securities, described below).
The Funds will not include for purposes of the restrictions on illiquid
investments securities sold pursuant to Rule 144A under the Securities Act of
1933, as amended, so long as such securities meet liquidity guidelines
established by the Trust's Board of Trustees. Under Rule 144A, securities which
would otherwise be restricted may be sold to persons other than issuers or
dealers to qualified institutional buyers.
LEASE OBLIGATION BONDS. Lease obligation bonds are mortgages on a facility that
is secured by the facility and are paid by a lessee over a long term. The rental
stream to service the debt as well as the mortgage are held by a collateral
trustee on behalf of the public bondholders. The primary risk of such instrument
is the risk of default. Under the lease indenture, the failure to pay rent is an
event of default. The remedy to cure default is to rescind the lease and sell
the asset. If the lease obligation is not readily marketable or market
quotations are not readily available, such lease obligations will be subject to
a Fund's 15% limit on illiquid securities. The Money Funds will not invest in
Lease Obligation Bonds.
LENDING OF SECURITIES. All of the Funds except the U.S. Government, California
Municipal and Florida Insured Municipal Funds have the ability to lend portfolio
securities to brokers and other financial organizations. By lending its
securities, a Fund can increase its income by continuing to receive interest on
the loaned securities as well as by either investing the cash collateral in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government Securities are used as collateral. These loans, if
and when made, may not exceed 20% of a Fund's total assets. Loans of portfolio
securities by a Fund will be collateralized by cash, letters of credit or U.S.
Government Securities that are maintained at all times in an amount at least
equal to the current market value of the loaned securities. Any gain or loss in
the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Fund involved. Each Fund's Sub-Advisor
will monitor on an ongoing basis the credit worthiness of the institutions to
which the Fund lends securities.
LOWER-RATED SECURITIES. The Growth and Emerging Growth Funds may each invest up
to 35%, and the Short Term Global Government Fund may invest up to 10%, of the
total assets of the Fund, respectively, in debt securities rated lower than BBB
by S&P or Baa by Moody's, or of equivalent quality as determined by that Fund's
Sub-Advisor. Non-investment-grade debt securities are securities rated BB or
lower and are commonly referred to as "junk bonds."
Securities rated below investment-grade, as well as unrated securities, usually
entail greater risk (including the possibility of default or bankruptcy of the
issuers), and generally involve greater price volatility and risk of principal
and income, and may be less liquid, than securities in higher rated categories.
Both price volatility and illiquidity may make it difficult for the Fund to
value certain of these securities at certain times and these securities may be
difficult to sell under certain market conditions. Prices for
non-investment-grade debt securities may be affected by legislative and
regulatory developments. For further information, see "Investment Objectives and
Policies of the Funds -- Strategies Available to Short Term Global Government
Fund, Growth Fund and Emerging Growth Fund" in the SAI.
Non-investment-grade debt securities are often considered to be speculative and
involve greater risk of default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities may fluctuate
-35-
<PAGE> 70
more than higher-rated securities and may decline significantly in periods of
general economic difficulty, which may follow periods of rising interest rates.
The Growth Fund has no pre-established minimum quality standards and may invest
in debt securities of any quality, including non-investment-grade debt
securities that may offer higher yields because of the greater risks involved in
such investments.
MORTGAGE-BACKED SECURITIES. All of the Funds may invest in mortgage-backed U.S.
Government Securities which represent an interest in a pool of mortgage loans.
Each of the Money Funds may invest in such securities pursuant to its authority
to make money market investments. The primary government issuers or guarantors
of mortgage-backed securities are GNMA, FNMA and FHLMC. Mortgage-backed
securities provide a monthly payment consisting of interest and principal
payments. Additional payments may be made out of unscheduled repayments of
principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-related securities may tend to increase due
to refinancing of mortgages as interest rates decline. Prompt payment of
principal and interest on GNMA mortgage pass-through certificates is backed by
the full faith and credit of the United States. FNMA guaranteed mortgage
pass-through certificates and FHLMC participation certificates are solely the
obligations of those entities but are supported by the discretionary authority
of the U.S. Government to purchase the agencies' obligations. Collateralized
Mortgage Obligations are a type of bond secured by an underlying pool of
mortgages or mortgages pass-through certificates that are structured to direct
payments on underlying collateral to different series or classes of the
obligations. In addition, the U.S. Government Fund may invest in commercial
Mortgage-Backed Securities, which are similar to the above Mortgage-Backed
Securities, except they are issued by non-governmental entities and are created
by pooling together commercial and multifamily mortgage loans into trusts that
are structured into different classes or series based upon the prioritization of
cash flows. Commercial Mortgage-Backed Securities include Collateralized
Mortgage Obligations and real estate mortgage investment conduits ("REMICs").
While commercial Mortgage-Backed Securities are generally structured with one or
more types of credit enhancement, they typically lack a guarantee by an entity
having the credit status of a governmental agency or instrumentality.
To the extent that a Fund purchases mortgage-related or mortgage-backed
securities at a premium, mortgage foreclosures and prepayments of principal
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of the
Fund may be affected by reinvestment of prepayments at higher or lower rates
than the original investment. In addition, like other debt securities, the value
of mortgage-related securities, including government and government-related
mortgage pools, will generally fluctuate in response to market interest rates.
MUNICIPAL LEASES. The California Insured Intermediate Municipal and National
Municipal Funds may acquire participations in lease obligations or installment
purchase contract obligations (hereinafter collectively called "lease
obligations") of municipal authorities or entities. Although lease obligations
do not constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation is ordinarily backed
by the municipality's covenant to budget for, appropriate, and make the payments
due under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. In addition to the
"non-appropriation" risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional bonds. In the case of a "non-appropriation" lease, the Fund's
ability to recover under the lease in the event of non-appropriation or default
will be limited solely to the repossession of the leased property in the event
foreclosure might prove difficult.
The Fund will not invest more than 5% of its total investment assets in lease
obligations that contain "non-appropriation" clauses where (1) the nature of the
leased equipment or property is such that its ownership or use is essential to a
governmental function of the municipality, (2) the lease payments will commence
amortization of principal at an early date resulting in an average life of seven
years or less for the lease obligation, (3) appropriate covenants will be
obtained from the municipal obligor prohibiting the substitution or purchase of
similar equipment if lease payments are not appropriate, (4) the lease obligor
has maintained good market acceptability in the past, (5) the investment is of a
size that will be attractive to institutional investors, and (6) the underlying
leased
-36-
<PAGE> 71
equipment has elements of probability and/or use that enhance its marketability
in the event foreclosure on the underlying equipment were ever required. The
Fund will not invest in lease obligations that contain "non-appropriation"
clauses that do not meet these criteria. The Fund has not imposed any percentage
limitations with respect to its investment in lease obligations not subject to
the "non-appropriation" risk.
To reduce investment risk, the Municipal Funds may not invest more than 25% of
their respective total assets in Municipal Securities the interest on which is
paid from revenues of similar-type projects. Except for the limitations on
borrowing, the investment guidelines set forth in this paragraph may be changed
at any time without shareholder consent by vote of the Board of Trustees of the
Trust. A complete list of investment restrictions that identifies additional
restrictions that cannot be changed without the approval of a majority of an
affected Fund's outstanding shares is contained in the SAI.
MUNICIPAL SECURITIES AND AMT-SUBJECT BONDS. "Municipal Securities" are debt
obligations issued by states, territories and possessions of the United States,
the District of Columbia and their respective authorities, agencies,
instrumentalities and political subdivisions. "California Municipal Securities"
are Municipal Securities issued by the State of California and its political
subdivisions, as well as certain other governmental issuers such as the
Commonwealth of Puerto Rico. "Florida Municipal Securities" are Municipal
Securities issued by the State of Florida and its political subdivisions.
"AMT-Subject Bonds" are Municipal Securities issued to finance certain "private
activities," such as bonds used to finance airports, housing projects, student
loan programs and water and sewer projects. Interest on AMT-Subject Bonds is a
specific tax preference item for purposes of the federal individual and
corporate alternative minimum taxes. In the past, AMT-Subject Bonds have
provided, and may continue to provide, somewhat higher yields than comparable
Municipal Securities, the interest on which is not a specific tax preference
item for purposes of the federal individual and corporate alternative minimum
taxes. See "Dividends, Capital Gains and Taxes" for a discussion of the tax
consequences of investing in AMT-Subject Bonds.
NEW ISSUERS. All of the Funds except the Money Funds may invest up to 5% of its
assets in the securities of issuers which have been in continuous operation for
less than three years.
NON-DIVERSIFIED STATUS. Each of the California Money, Short Term Global
Government, California Municipal, Florida Insured Municipal and California
Insured Intermediate Municipal Funds is classified as a "non-diversified"
investment company under the 1940 Act, which means that the Fund is not limited
by the 1940 Act in the proportion of its assets that may be invested in the
obligations of a single issuer. Each of these Funds must, however, meet certain
diversification standards to qualify as a regulated investment company under the
Code. See the section "Taxes" in the SAI. Each of these Funds may assume large
positions in the obligations of a small number of issuers which may subject the
Fund to greater credit and other risks than a more broadly diversified
portfolio.
OPTIONS ON SECURITIES.
OPTION PURCHASE. All of the Funds except the Municipal Funds and the Money Funds
may purchase put and call options on portfolio securities in which it may invest
that are traded on a U.S. or foreign securities exchange or in the
over-the-counter market. A Fund may utilize up to 10% of its assets to purchase
put options on portfolio securities and may do so at or about the same time that
it purchases the underlying security or at a later time. By buying a put, a Fund
limits its risk of loss from a decline in the market value of the security until
the put expires. Any appreciation in the value of the underlying security,
however, will be partially offset by the amount of the premium paid for the put
option and any related transaction costs. A Fund may also utilize up to 10% of
its assets to purchase call options on securities in which it is authorized to
invest. Call options may be purchased by a Fund in order to acquire the
underlying securities for the Fund at a price that avoids any additional cost
that would result from a substantial increase in the market value of a security.
A Fund may also purchase call options to increase its return to investors at a
time when the call is expected to increase in value due to anticipated
appreciation of the underlying security. Prior to their expirations, put and
call options may be sold in closing sale transactions (sales by the Fund, prior
to the exercise of options that it has purchased, of options of the same
series), and profit or loss from the sale will depend on whether the amount
received is more or less than the premium paid for the option plus the related
transaction costs.
-37-
<PAGE> 72
COVERED OPTION WRITING. Certain Funds may write put and call options on
securities for hedging purposes and the other purposes described in the section
"Strategic Transactions." A Fund realizes fees (referred to as "premiums") for
granting the rights evidenced by the options. A put option embodies the right of
its purchaser to compel the writer of the option to purchase from the option
holder an underlying security at a specified price at any time during the option
period. In contrast, a call option embodies the right of its purchaser to compel
the writer of the option to sell to the option holder an underlying security at
a specified price at any time during the option period.
Upon the exercise of a put option written by a Fund, the Fund may suffer a loss
equal to the difference between the price at which the Fund is required to
purchase the underlying security and its market value at the time of the option
exercise, less the premium received for writing the option. Upon the exercise of
a call option written by the Fund, the Fund may suffer a loss equal to the
excess of the security's market value at the time of the option exercise over
the Fund's acquisition cost of the security, less the premium received for
writing the option.
Certain Funds may write covered options on portfolio securities to enhance
current return. Accordingly, whenever a Fund writes a call option, it will
continue to own or have the present right to acquire the underlying security
without the payment of additional consideration for as long as it remains
obligated as the writer of the option. To support its obligation to purchase the
underlying security if a put option is exercised, a Fund will either (1) deposit
with the Trust's custodian in a segregated account cash, U.S. Government
Securities or other short-term, high-grade debt obligations having a value at
least equal to the exercise price of the underlying securities or (2) continue
to own an equivalent number of puts on the same "series" (that is, puts on the
same underlying security having the same exercise prices and expiration dates as
those written by the Fund), or an equivalent number of puts on the same "class"
(that is, puts on the same underlying security) with exercise prices greater
than those that it has written (or, if the exercise prices of the puts it holds
are less than the exercise prices of those it has written, it will deposit the
difference with the custodian in a segregated account).
The principal reason for writing covered call and put options on a securities
portfolio is to attempt to realize, through the receipt of premiums, a greater
return than would be realized on the securities alone. In return for a premium,
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the call writer retains the risk of a decline in the price of the underlying
security. Similarly, the principal reason for writing covered put options is to
realize income in the form of premiums. The writer of the covered put option
accepts the risk of a decline in the price of the underlying security. The size
of the premiums that the Funds may receive may be adversely affected as new or
existing institutions, including other investment companies, engage in or
increase their option-writing activities.
A Fund may engage in closing purchase transactions to realize a profit, to
prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, a Fund would purchase,
prior to the holder's exercise of an option that the Fund has written, an option
of the same series as that on which the Fund desires to terminate its
obligation. The obligation of the Fund under an option that it has written would
be terminated by a closing purchase transaction, but the Fund would not be
deemed to own an option as the result of the transaction. There can be no
assurance that the Fund will be able to effect closing purchase transactions at
a time when it wishes to do so. The ability of the Fund to engage in closing
transactions with respect to options depends on the existence of a liquid
secondary market. While the Fund will generally purchase or write options only
if there appears to be a liquid secondary market for the options purchased or
sold, for some options no such secondary market may exist or the market may
cease to exist. To facilitate closing purchase transactions, however, the Fund
will ordinarily write options only if a secondary market for the options exists
on a U.S. securities exchange or in the over-the-counter market.
Option writing for the Funds may be limited by position and exercise limits
established by U.S. securities exchanges and the NASD and by requirements of the
Code for qualification as a regulated investment company. In addition to writing
covered put and call options to generate current income, the Funds may enter
into options transactions as hedges to reduce investment risk, generally by
making an investment expected to move in the opposite direction of a portfolio
position. A hedge is designed to offset a loss on a portfolio position with a
gain on the hedge position; at the same time, however, a properly correlated
hedge will result in a gain on the portfolio position's being offset by a
-38-
<PAGE> 73
loss on the hedge position. The Funds bear the risk that the prices of the
securities being hedged will not move in the same amount as the hedge. A Fund
will engage in hedging transactions only when deemed advisable by its Sub-
Advisor. Successful use by the Fund of options will depend on its Sub-Advisor's
ability to correctly predict movements in the direction of the stock underlying
the option used as a hedge. Losses incurred in hedging transactions and the
costs of these transactions will adversely affect the Fund's performance.
OPTIONS ON FOREIGN CURRENCIES. All of the Funds except the U.S. Government Fund,
the Municipal Funds and the Money Funds may purchase and write put and call
options on foreign currencies for the purpose of hedging against declines in
U.S. Dollar value on foreign currency-denominated portfolio securities and
against increases in the U.S. Dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency constitutes only a partial hedge, up to the amount of the
premium received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates, although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. There is no specific percentage limitation on
the Fund's investments in options on foreign currencies. See the SAI for further
discussion of the use, risks and costs of options on foreign currencies.
OPTIONS ON FOREIGN STOCK INDEXES. The International Growth, Growth, Growth and
Income, Emerging Growth, Short Term High Quality Bond, Short Term Global
Government and California Insured Intermediate Municipal Funds may, subject to
applicable securities regulations, purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges for the
purposes of hedging its portfolio. A stock index fluctuates with changes in the
market values of the stocks included in the index. Examples of foreign stock
indexes are the Canadian Market Portfolio Index (Montreal Stock Exchange), The
Financial Times -- Stock Exchange 100 (London Stock Exchange) and the Toronto
Stock Exchange Composite 300 (Toronto Stock Exchange).
Options on stock indexes are generally similar to options on stock except for
different delivery requirements. Instead of giving the right to take or make
delivery of stock at a specified price, an option on a stock index gives the
holder the right to receive a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and the exercise price of the option expressed in U.S.
Dollars or a foreign currency, as the case may be, times a specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. The writer may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or the option may expire unexercised.
The effectiveness of purchasing or writing stock index options as a hedging
technique will depend upon the extent to which price movements in the portion of
the securities portfolio of the Fund correlate with price movements of the stock
index selected. Because the value of an index option depends upon movements in
the level of the index rather than the price of a particular stock, whether the
Fund will realize a gain or loss from the purchase or writing of options on an
index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use of options on stock indexes by the Fund will be subject to its
Sub-Advisor's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.
Options on securities indexes entail risks in addition to the risks of options
on securities. Because exchange trading of options on securities indexes is
relatively new, the absence of a liquid secondary market to close out an option
position is more likely to occur, although the Fund generally will only purchase
or write such an option if the Sub-Advisor believes the option can be closed
out. Because options on securities indexes require settlement in cash, the Fund
may be forced to liquidate portfolio securities to meet settlement obligations.
The Fund will engage in stock index options transactions only when determined by
its Sub-Advisor to be consistent with its efforts to control risk.
-39-
<PAGE> 74
There can be no assurance that such judgment will be accurate or that the use of
these portfolio strategies will be successful.
When the Fund writes an option on a stock index, it will establish a segregated
account with the Trust's custodian or with a foreign sub-custodian in which the
Fund will deposit cash or cash equivalents or a combination of both in an amount
equal to the market value of the option, and will maintain the account while the
option is open.
OVER THE COUNTER OPTIONS. Each of the Funds except the U.S. Government, U.S.
Government Money, California Money and Municipal Funds may write or purchase
options in privately negotiated domestic or foreign transactions ("OTC
Options"), as well as exchange-traded or "listed" options on foreign currencies.
Each of the Funds except the Municipal and Money Funds may write or purchase OTC
Options on securities. OTC Options can be closed out only by agreement with the
other party to the transaction, and thus any OTC Options purchased by a Fund
will be considered an illiquid security. In addition, certain OTC Options on
foreign currencies are traded through financial institutions acting as
market-makers in such options and the underlying currencies.
OTC Options entail risks in addition to the risks of exchange-traded options.
Exchange-traded options are in effect guaranteed by the Options Clearing
Corporation while a Fund relies on the party from whom it purchases an OTC
Option to perform if the Fund exercises the option. With OTC Options, if the
transacting dealer fails to make or take delivery of the securities or amount of
foreign currency underlying an option it has written, in accordance with the
terms of that option, the Fund will lose the premium paid for the option as well
as any anticipated benefit of the transaction. Furthermore, OTC Options are less
liquid than exchange-traded options.
REPURCHASE AGREEMENTS. All of the Funds may invest in repurchase agreements,
which are agreements to purchase underlying debt obligations from financial
institutions, such as banks and broker-dealers, subject to the seller's
agreement to repurchase the obligations at an established time and price. The
collateral for such repurchase agreements will be held by the Fund's custodian
or a duly appointed sub-custodian. A Fund will enter into repurchase agreements
only with banks and broker-dealers that have been determined to be creditworthy
by the Fund's Board of Trustees under criteria established with the assistance
of the Advisor. The seller under a repurchase agreement would be required to
maintain the value of the obligations subject to the repurchase agreement at not
less than the repurchase price. Default by the seller would, however, expose the
Fund to possible loss because of adverse market action or delay in connection
with the disposition of the underlying obligations. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the obligations, the
Fund may be delayed or limited in its ability to sell the collateral.
Investments by the California Money Fund in repurchase agreements, if any, are
limited by the restrictions of that Fund's investment in taxable instruments.
REVERSE REPURCHASE AGREEMENTS. Each of the Funds except the Money Funds may
engage in reverse repurchase agreements. Reverse repurchase agreements are the
same as repurchase agreements except that, in this instance, the Funds would
assume the role of seller/borrower in the transaction. The Funds will maintain
segregated accounts with the Trust's custodian consisting of U.S. Government
Securities, cash or money market instruments that at all times are in an amount
equal to their obligations under reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the repurchase price of the securities and, if
the proceeds from the reverse purchase agreement are invested in securities,
that the market value of the securities bought may decline below the repurchase
price of the securities sold. Each Fund's Sub-Advisor, acting under the
supervision of the Board of Trustees, reviews, on an ongoing basis the
creditworthiness of the partners with which it enters into reverse repurchase
agreements. Under the Investment Company Act, reverse repurchase agreements may
be considered borrowings by the seller. For each of the Funds except the U.S.
Government, Short Term High Quality Bond and Corporate Income Funds, whenever
borrowings by a Fund, including reverse repurchase agreements, exceed 5% of the
value of a Fund's total assets, the Fund will not purchase any securities. The
U.S. Government, Short Term High Quality Bond and Corporate Income Funds are
prohibited from borrowing money or entering reverse repurchase agreements or
dollar roll transactions in the aggregate in excess of 33 1/3 percent of the
Fund's total assets (after giving effect to such borrowings).
STAND-BY COMMITMENTS. The California Money Fund and the Municipal Funds may
acquire "stand-by commitments" with respect to Municipal Securities held in
their portfolios. Under a stand-by commitment, a dealer agrees to purchase, at a
Fund's option, specified Municipal Securities at a specified price. A Fund may
pay for
-40-
<PAGE> 75
stand-by commitments either separately in cash or by paying a higher price for
the securities acquired with the commitment, thus increasing the cost of the
securities and reducing the yield otherwise available from them. Each Fund
intends to enter into stand-by commitments only with brokers, dealers and banks
that, in the opinion of its Sub-Advisor, present minimal credit risks. In
evaluating the creditworthiness of the issuer of a stand-by commitment, the
Sub-Advisors will periodically review relevant financial information concerning
the issuer's assets, liabilities and contingent claims. The Funds will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
STRATEGIC TRANSACTIONS. Subject to the investment limitations and restrictions
for each of the Funds as stated elsewhere in the prospectus and SAI, each of the
Funds, except the Money Funds, may, but is not required to, utilize various
other investment strategies as described below to hedge various market risks, to
manage the effective maturity or duration of fixed-income securities, or to seek
potentially higher returns. Utilizing these investment strategies, the Fund may
purchase and sell, to the extent not otherwise limited or restricted for such
Fund, exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Some Strategic Transactions may
also be used to seek potentially higher returns, although no more than 5% of the
Fund's assets will be used as the initial margin or purchase price of options
for Strategic Transactions entered into for purposes other than "bona fide
hedging" positions as defined in the regulations adopted by the Commodity
Futures Trading Commission. Any or all of these investment techniques may be
used at any time, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The use of Strategic Transactions
involves special considerations and risks, for example (1) the ability of the
Fund to utilize these Strategic Transactions successfully will depend on the
Sub-Advisor's ability to predict, which cannot be assured, pertinent market
movements; and (2) there might be imperfect correlation, or even no correlation,
between price movements of Strategic Transactions and price movements of the
related portfolio positions. Strategic Transactions can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements or of unfavorable currency fluctuations in the related portfolio or
currency positions, but can also reduce opportunity for gain by offsetting the
positive effect of favorable price movements in positions. The Fund will comply
with applicable regulatory requirements when utilizing Strategic Transactions.
Strategic Transactions involving financial futures and options thereon will be
purchased, sold or entered into only for bona fide hedging, risk management or
portfolio management purposes. For more information see discussion in other
sections of "Securities and Investment Practices" and the SAI.
U.S. GOVERNMENT SECURITIES. All of the Funds may invest in U.S. Government
Securities, which include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes and bonds) and obligations directly issued or guaranteed
by U.S. Government agencies or instrumentalities. Some obligations issued or
guaranteed by agencies or instrumentalities of the U.S. Government are backed by
the full faith and credit of the U.S. Government (such as GNMA Bonds), others
are backed only by the right of the issuer to borrow from the U.S. Treasury
(such as securities of Federal Home Loan Banks) and still others are backed only
by the credit of the instrumentality (such as FNMA and FHLMC Bonds).
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. In order to secure
yields or prices deemed advantageous at the time, all of the Funds except the
Money Funds may purchase or sell securities on a when-issued or a
delayed-delivery basis. The Funds will enter into a when-issued transaction for
the purpose of acquiring portfolio securities and not for the purpose of
leverage. In such transactions delivery of the securities occurs beyond the
normal settlement periods, but no payment or delivery is made by, and no
interest accrues to, the Funds prior to the actual delivery or payment by the
other party to the transaction. Due to fluctuations in the value of securities
-41-
<PAGE> 76
purchased on a when-issued or a delayed-delivery basis, the yields obtained on
such securities may be higher or lower than the yields available in the market
on the dates when the investments are actually delivered to the buyers.
Similarly, the sale of securities for delayed-delivery can involve the risk that
the prices available in the market when delivery is made may actually be higher
than those obtained in the transaction itself. The Funds will establish a
segregated account with Boston Safe consisting of cash, U.S. Government
Securities or other high grade debt obligations in an amount equal to the amount
of its when-issued and delayed-delivery commitments.
WHEN-ISSUED MUNICIPAL SECURITIES AND FORWARD COMMITMENTS. The California Money
Fund and the Municipal Funds may purchase Municipal Securities offered on a
"when-issued" basis and may purchase or sell Municipal Securities on a "forward
commitment" basis. When such transactions are negotiated, the price, which is
generally expressed in yield terms, is fixed at the time the commitment is made,
but delivery and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated. During the period
between a commitment and settlement, no payment is made for the Municipal
Securities purchased by the purchaser and, thus, no interest accrues to the
purchaser from the transaction.
The use of when-issued transactions and forward commitments enables the Funds to
hedge against anticipated changes in interest rates and prices. For instance, in
periods of rising interest rates and falling bond prices, a Fund might sell
Municipal Securities that it owned on a forward commitment basis to limit its
exposure to falling prices. In periods of falling interest rates and rising bond
prices, a Fund might sell a Municipal Security and purchase the same or a
similar security on a when-issued or forward commitment basis, thereby obtaining
the benefit of currently higher cash yields. However, if the relevant Fund's
Sub-Advisor were to forecast incorrectly the direction of interest rate
movements, the Fund might be required to complete such when-issued or forward
transactions at prices inferior to then-current market values.
When-issued Municipal Securities and forward commitments may be sold prior to
the settlement date, but a Fund enters into when-issued and forward commitments
only with the intention of actually receiving or delivering the Municipal
Securities, as the case may be. If a Fund, however, chooses to dispose of the
right to acquire a when-issued security prior to its acquisition or dispose of
its right to deliver or receive against a forward commitment, it may incur a
gain or loss. When-issued Municipal Securities may include bonds purchased on a
"when, as and if issued" basis, under which the issuance of the securities
depends on the occurrence of a subsequent event, such as approval of a proposed
financing by appropriate municipal authorities. Any significant commitment of a
Fund's assets to the purchase of securities on a "when, as and if issued" basis
may increase the volatility of the Fund's NAV. No when-issued or forward
commitments will be made by a Fund if, as a result, more than 20% of the value
of the Fund's total assets would be committed to such transactions.
PERFORMANCE INFORMATION
YIELD
THE MONEY FUNDS. From time to time, advertisements or shareholder reports
concerning the Money Funds may describe YIELD and EFFECTIVE YIELD. The YIELD of
a Fund refers to the income generated by an investment in the Fund over a 7-day
period identified in the advertisement. This income is then "annualized." That
is, the amount of income generated by the investment 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 similarly but, when annualized,
the income earned by an investment in a Fund is assumed to be reinvested.
EFFECTIVE YIELD will be slightly higher than the YIELD because of the
compounding effect of this assumed reinvestment.
THE BOND FUNDS. From time to time, the Bond Funds (including the Municipal
Funds) may advertise the 30-day YIELD. The 30-day YIELD of a Bond Fund refers to
the income generated by an investment in such Fund over the 30-day period
identified in the advertisement, and is computed by dividing the net investment
income per share earned by the Fund during the period by the maximum Public
Offering Price per share on the last day of the 30-day period. This income is
"annualized" by assuming that the amount of income is generated each month over
a one-year period and is compounded semiannually. The annualized income is then
shown as a percentage of the maximum Public Offering Price. In addition, the
Bond Funds may advertise a similar 30-day yield computed in the same manner
except that the NAV per share is used in place of the Public Offering Price per
share.
-42-
<PAGE> 77
THE MUNICIPAL FUNDS. The Municipal Funds and the California Money Fund may also
quote TAX EQUIVALENT YIELD. TAX EQUIVALENT YIELD shows the taxable yields an
investor would have to earn before taxes to equal the Fund's tax-free yields. A
tax-equivalent yield is calculated by dividing a Fund's tax-exempt yield by the
result of one minus the sum of a stated federal and applicable state tax rate,
based upon the highest marginal tax rate and adjusted for the federal deduction
of state taxes paid. To the extent that a Fund's yield for a particular investor
is not taxable by cities and counties, the tax equivalent yields experienced by
the investor will be higher than the tax equivalent yields quoted by the Fund.
If only a portion of a Fund's income is tax-exempt, only that portion is
adjusted in the calculation.
TOTAL RETURN
From time to time, a Fund may advertise its average annual total return over
various periods of time. Such TOTAL RETURN figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in shares of the Fund.
Figures will be given for recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis).
ADDITIONAL PERFORMANCE QUOTATIONS. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Similarly, a Fund
may provide yield quotations in investor communications based on the Fund's NAV
(rather than its Public Offering Price) per share on the last day of the period
covered by the yield computation. Because these additional quotations will not
reflect the maximum sales charge payable, such performance quotations will be
higher than the performance quotations that include the maximum sales charge.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT A PREDICTION OF
FUTURE PERFORMANCE.
PERFORMANCE COMPARISONS
In reports or other communications to shareholders or in advertising material, a
Fund may compare the performance of its Class A. Class B and Class I Shares with
that of other mutual funds as listed in the rankings prepared by Lipper
Analytical Services, Inc., CDA Technologies, Inc. or similar independent
services that monitor the performance of mutual funds or with other appropriate
indexes of investment securities. In addition, certain indexes may be used to
illustrate historic performance of select asset classes. These may include,
among others, the Dimensional Fund Advisor's Small Cap Index, the Lehman
Brothers GNMA Index, the S&P 100 Index, the Lehman Brothers Index of Baa-rated
Corporate Bonds, the T-Bill Index, the Bank Rate Monitor, Donoghue's Money Fund
Averages and the "Stocks, Bonds and Inflation Index" published annually by
Ibbotson Associates. The performance information may also include evaluations of
the Funds published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Business Week, Forbes,
Fortune, Institutional Investor, Money and The Wall Street Journal. The
International Growth, Short Term Global Government and Growth Funds may compare
their performance to other investments or relevant indexes consisting of Salomon
Brothers Short Term Global Bond Index, J.P. Morgan Global Government Traded
Index, Morgan Stanley Capital International EAFE Index, the Standard & Poor's
500 Index, the Lipper International Fund Index and The Financial Times World
Stock Index. If a Fund compares its performance to other funds or to relevant
indexes, the Fund's performance will be stated in the same terms in which such
comparative data and indexes are stated, which is normally total return rather
than yield. For these purposes the performance of the Fund, as well as the
performance of such investment companies or indexes, may not reflect sales
charges, which, if reflected, would reduce performance results.
In addition, the Municipal Funds and the California Money Fund may attempt to
illustrate in advertising or sales literature the benefits of tax-free
investing. For example, Table 1 on the following page shows California investors
the approximate yield that a taxable investment must earn at various sample
income brackets to produce after-tax yields equivalent to those of tax-exempt
investments, such as the California Municipal, California Insured Intermediate
Municipal and California Money Funds, yielding from 2.00% to 7.00%. Table 2 on
the following page shows taxpayers how to translate federal tax savings from
investments, such as the National Municipal Fund, into
-43-
<PAGE> 78
an equivalent yield from a taxable investment. The yields, tax rates and income
brackets following are for illustration purposes only and are not intended to
represent current or future yields for the Funds, current tax rates or income
brackets. The yields, tax rates and income brackets following may be higher or
lower than the yields, tax rates and income brackets shown. Calculations are
computed in accordance with standard SEC calculations of 30-day yield. The
California marginal tax rates presented assume payment of the highest California
tax rate for the particular federal marginal tax rate quoted. The income
brackets and tax rates presented are only samples since the Internal Revenue
Service ("IRS") adjusts the brackets annually for inflation, and tax rates are
subject to change by legislation. Investors should consult their tax adviser
with specific reference to their own tax situation.
Performance information is computed separately for each Fund's Class A and Class
B Shares. Because Class B Shares bear the expense of the higher distribution and
service fees, it is expected that performance for a Fund's Class B Shares will
be lower than that for a Fund's Class A or Class I Shares. Because Class I
Shares do not bear any distribution or service fees, performance for a Fund's
Class I Shares will be higher than that for a Fund's Class A or Class B Shares.
-44-
<PAGE> 79
TAX EQUIVALENT YIELDS
TABLE 1
<TABLE>
<CAPTION>
Combined
Federal Tax-Exempt Yield
Sample 1995 Federal and ----------------------------------------
Taxable Income Brackets Federal California California 2.00% 2.50% 3.00% 3.50% 4.00%
---------------------------------------- Marginal Marginal Marginal ----------------------------------------
Single Return Joint Return Tax Rate+ Tax Rate* Tax Rate** Taxable Yield
------------------ ------------------ --------- --------- ---------- ----------------------------------------
<S><C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$23,350 $0-$39,000 15% 6.00% 20.10% 2.50% 3.13% 3.75% 4.38% 5.01%
$23,350-$56,550 $39,000-$94,250 28% 9.30% 34.70% 3.06% 3.83% 4.59% 5.36% 6.13%
$56,550-$117,950 $94,250-$143,600 31% 9.30% 37.42% 3.20% 3.99% 4.79% 5.59% 6.39%
$117,950-$256,500 $143,600-$256,500 36% 9.30% 41.95% 3.44% 4.31% 5.17% 6.03% 6.89%
$256,500 and up $256,500 and up 39.6% 9.30% 45.22% 3.65% 4.56% 5.48% 6.39% 7.30%
</TABLE>
<TABLE>
<CAPTION>
Combined
Federal Tax-Exempt Yield
Sample 1995 Federal and ----------------------------------
Taxable Income Brackets Federal California California 4.50% 5.00% 5.50% 6.00%
---------------------------------------- Marginal Marginal Marginal ----------------------------------
Single Return Joint Return Tax Rate+ Tax Rate* Tax Rate** Taxable Yield
------------------ ------------------ --------- --------- ---------- ----------------------------------
<S><C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$23,350 $0-$39,000 15% 6.00% 20.10% 5.63% 6.26% 6.88% 7.51%
$23,350-$56,550 $39,000-$94,250 28% 9.30% 34.70% 6.89% 7.66% 8.42% 9.19%
$56,550-$117,950 $94,250-$143,600 31% 9.30% 37.42% 7.19% 7.99% 8.79% 9.59%
$117,950-$256,500 $143,600-$256,500 36% 9.30% 41.95% 7.75% 8.61% 9.47% 10.34%
$256,500 and up $256,500 and up 39.6% 9.30% 45.22% 8.21% 9.13% 10.04% 10.95%
<CAPTION>
6.50% 7.00%
------------------
<S><C> <C> <C>
8.14% 8.76%
9.95% 10.72%
10.39% 11.19%
11.20% 12.06%
11.87% 12.78%
</TABLE>
TABLE 2
<TABLE>
<CAPTION>
Tax-Exempt Yield
Sample 1995 Federal ---------------------------------------------------
Taxable Income Brackets 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
---------------------------------------- Federal Marginal ---------------------------------------------------
Single Retrun Joint Return Tax Rate+ Taxable Yield
------------------ ------------------ ---------------- ---------------------------------------------------
<S><C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$23,350 $0-$39,000 15% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$22,350-$56,550 $39,000-$94,250 28% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
$56,550-$117,950 $94,250-$143,600 31% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
$117,950-$256,500 $143,600-$256,500 36% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
$256,500 and up $256,500 and up 39.6% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59%
</TABLE>
- ------------------------------------
* California taxable income may differ due to differences in exemptions,
itemized deductions and other items.
** Rates do not include the phase-out of personal exemptions or itemized
deductions. Rates include the federal deduction of state taxes paid.
+ Rates do not include the phase-out of personal exemptions or itemized
deductions.
OBTAINING PERFORMANCE INFORMATION
Each Fund's strategies, performance, and holdings are detailed twice a year in
fund reports, which are sent to all shareholders. The SAI describes the methods
used to determine a Fund's performance. Shareholders may call 800-222-5852 for
performance information. Shareholders may make inquiries regarding a Fund,
including current total return figures, to any Authorized Dealer, or by calling
Shareholder Services at 800-222-5852.
-45-
<PAGE> 80
YOUR ACCOUNT
- --------------------------------------------------------------------------------
WAYS TO SET UP YOUR ACCOUNT
- --------------------------------------------------------------------------------
INDIVIDUAL OR JOINT ACCOUNT
Individual accounts are owned by one person. Two types of joint accounts (having
two or more owners) can be opened:
(1) in a "joint tenancy" account, the surviving owner(s) automatically
receive(s) the shares of any owner(s) who die(s); and
(2) in a "tenants in common" account, the heir(s) of any deceased owner
receive(s) such owner's shares, rather than the surviving owners of the joint
account.
- --------------------------------------------------------------------------------
RETIREMENT
Retirement plans protect investment income and capital gains from current taxes.
Contributions to these accounts may be tax deductible. Retirement accounts
require special applications and typically have lower minimums.
- - INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") allow persons of legal age and under
70 1/2 years old with earned income to protect up to $2,000 per tax year from
certain tax effects. If your spouse has earned income of less than $250 per
year, you can protect an additional $250 per year in your spouse's name.
- - ROLLOVER IRAS permit persons to retain special tax advantages for certain
transfers from employer-sponsored retirement plans (often occurring when a
person changes employers).
- - SIMPLIFIED EMPLOYEE PENSION PLANS ("SEP-IRAS") provide small business owners
or those with self-employed income (and their eligible employees) with many of
the same advantages as a Keogh, but with fewer administrative requirements.
- --------------------------------------------------------------------------------
GIFTS OR TRANSFERS TO A MINOR CHILD ("UGMA," "UTMA")
These gifts or transfers provide a way to give money to a child and obtain tax
benefits. A parent or grandparent can give up to $10,000 a year to each child
without paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the Uniform
Transfers to Minors Act (UTMA).
- --------------------------------------------------------------------------------
TRUST
Trusts can be used for many purposes, including charitable contributions and
providing a regular income for a child until a certain age. The trust must be
established before an account can be opened.
- --------------------------------------------------------------------------------
CORPORATION OR OTHER ORGANIZATION
Corporations, associations, partnerships, institutions, or other groups may
invest for many purposes.
- --------------------------------------------------------------------------------
-46-
<PAGE> 81
HOW TO INVEST IN THE FUNDS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
To Open an Account: Minimum $250 To Add to an Account: Minimum $100
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY PHONE - Exchange from another Sierra Trust Fund - Exchange from another Sierra Trust
800-222-5852 account with same registration, including Fund account with the same
name, address, and taxpayer ID number registration, including name, address,
(social security number for an and taxpayer ID number.
individual).
- Call Shareholder Services at 800-222- 5852. - Call Shareholder Services at 800-222-
(6:00 a.m. to 6:00 p.m., Pacific Time/9:00 5852.
a.m. to 9:00 p.m., Eastern Time, Monday
through Friday and 6:00 a.m. to 3:00 p.m.,
Pacific Time/9:00 a.m. to 6:00 p.m.,
Eastern Time, on Saturdays)
- --------------------------------------------------------------------------------------------------------------
BY MAIL - Complete and sign the application. Make - Make your check payable to "Sierra
your check or negotiable bank draft Trust Funds." Indicate your Fund
payable to "Sierra Trust Funds." account number on your check. Include
the "next investment" stub from your
Mail the completed application form and previous account statement. Mail the
check to: check and stub to the address printed
Sierra Trust Funds on your account statement.
c/o First Data Investor Services Group
P.O. Box 5118 - Exchange by mail: call 800-222-5852
Boston, MA 01581-5118 for instructions.
- --------------------------------------------------------------------------------------------------------------
BY WIRE 1. Telephone Shareholder Services and give - Instruct your bank/financial
the (a) name of the account as you wish institution to wire Federal Funds as
it to be registered; (b) address of the described at left under paragraph 2.
account; (c) taxpayer ID number (social
security number for an individual); and
(d) Fund name and class of shares.
2. Instruct your bank to wire Federal Funds
exactly as follows:
Boston Safe Deposit Trust
Boston, MA
ABA# 011-001234
For credit to: Sierra Trust Funds
Account #132012
(Fund Name and class of shares)
(Customer's Name)
(Customer's Social Security Number)
3. Mail the completed application form to:
Sierra Trust Funds
c/o First Data Investor Services Group
P.O. Box 5118
Westborough, MA 01581-5118
- --------------------------------------------------------------------------------------------------------------
AUTOMATICALLY 1. Obtain and complete an application form. - Pre-authorized monthly investments are
now processed automatically. (Minimum
(Minimum New 2. Attach a voided check or deposit slip Amount $25)
Account amount from the bank account you would like the
$100) investments transferred from on the 15th
of each month.
3. Mail the application to the address
listed above.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-47-
<PAGE> 82
INVESTMENT IN FUNDS THROUGH A SAM ACCOUNT. In addition to the considerable
diversification among individual securities you receive by investing in a
particular Fund, you can further reduce risk by spreading your assets among
several different Funds that each have different risk and return
characteristics. SAM is an active investment management service offered by
Sierra Investment Services Corporation ("Sierra Services"), the SAM investment
advisor, that allocates your investments across a combination of either Class A
or Class S Shares of certain of the Funds selected to meet long-term investment
objectives as well as, in certain circumstances, current income objectives.
CLASS S SHARES ARE DESCRIBED IN MORE DETAIL IN A SEPARATE PROSPECTUS, WHICH MAY
BE OBTAINED BY CALLING 800-222-5852 TOLL-FREE.
Sierra Services has developed investment strategies for SAM Accounts to meet the
diverse financial needs of different investors. You can open a SAM Account by
meeting with one of the investment professionals of an Authorized Dealer who
will review your situation and help you identify your long-term investment
objectives. After using SAM criteria to determine your long-term objectives, you
can choose one of several investment strategies. Based on your chosen strategy,
your initial investment will be allocated among a number of the Funds and the
Class A or Class S Shares of such Funds. Depending on market conditions, Sierra
Services from time to time (normally quarterly) reallocates the combination of
Funds or the amounts invested in the respective Class A or Class S Shares of
each to implement your SAM investment strategy. In addition, your SAM Account
will be periodically rebalanced to maintain your SAM strategy's current asset
allocation mix, if and when the Funds' performance unbalances the strategy's
mix. You will pay Sierra Services a fee for the SAM Account service that is in
addition to and separate from the fees and expenses you will pay directly or
indirectly as an investor in the Funds. See "Summary of Sierra Trust Funds
Expenses" and "Exchange Privileges and Restrictions."
From time to time, one or more of the Funds used for investment by the SAM
Accounts may experience relatively large investments or redemptions due to SAM
Account allocations or rebalancings recommended by Sierra Services. These
transactions will affect the Funds, since Funds that experience redemptions as a
result of reallocations or rebalancings may have to sell portfolio securities
and Funds that receive additional cash will have to invest it. While it is
impossible to predict the overall impact of these transactions over time, there
could be adverse effects on portfolio management to the extent that Funds may be
required to sell securities or invest cash at times when they would not
otherwise do so. These transactions could also have tax consequences if sales of
securities resulted in gains and could also increase transaction costs. The
Advisor, representing the interests of the Funds, is committed to minimizing the
impact of SAM Account transactions on the Funds; Sierra Services, representing
the interest of the SAM Accounts, is also committed to minimizing such impact on
the Funds to the extent it is consistent with pursuing the investment objective
of the SAM Accounts. The Advisor and Sierra Services will nevertheless face
conflicts in fulfilling their respective responsibilities because they are
affiliates and employ some of the same professionals. In addition, Sierra
Services is the Fund's distributor and is compensated on the sale of shares and
may be compensated for distribution services on the sale of certain Class B and
Class S Shares. See "Initial Sales Charge Alternative: Class A Shares," and
"Exchange Privileges and Restrictions." The Advisor will monitor the impact of
SAM Account transactions on the Funds.
TO PURCHASE SHARES. Purchase, sale and exchange orders received by Shareholder
Services prior to the close of trading on any day that the New York Stock
Exchange ("NYSE") is open (a "Business Day") are effected at that day's NAV for
the Class of the Fund, plus any applicable sales charge (the "Public Offering
Price"). Purchase, sale and exchange orders received after the close of the NYSE
are priced as of the time the NAV is next determined on the next Business Day.
Authorized Dealers are responsible for forwarding orders received on a Business
Day to Shareholder Services by the close of trading on the NYSE the same day and
failure to do so will result in an investor being unable to obtain that day's
NAV. The NYSE is open Monday through Friday, although it is currently scheduled
to be closed on New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when any of these holidays falls on a
Saturday or Sunday, respectively.
Purchases of each Class of the Fund shares are effected at the Fund's Public
Offering Price next determined after a purchase order has been received in
proper form. A purchase order will be deemed to be in proper form when all of
the steps required, including submission of an application form, have been
completed. In the case of an investment by wire, however, the order will be
deemed to be in proper form after the telephone order and the federal funds wire
have been received. The failure of a shareholder who purchases by wire to submit
an application form in a timely
-48-
<PAGE> 83
fashion may cause delays in processing subsequent redemption requests. If a
telephone order is received or if payment by wire is received after the close of
the NYSE, 4:00 p.m. Eastern Time/1:00 p.m., Pacific Time, the shares will not be
credited until the next Business Day. However, Shareholder Services will be open
from 6:00 a.m. to 6:00 p.m., Pacific Time/9:00 a.m. to 9:00 p.m., Eastern Time,
Monday through Friday, except when the NYSE is closed and 6:00 a.m. to 3:00
p.m., Pacific Time/ 9:00 a.m. to 6:00 p.m., Eastern Time, on Saturdays.
TIMING OF DIVIDENDS. Shares of certain Funds are entitled to dividends and
distributions declared beginning the day after a purchase has been credited to
an investor's account and ending on the day a redemption order is effected.
CLASS A AND B SHARES: ALTERNATIVE PURCHASE ARRANGEMENTS. The alternative
purchase arrangements offered by the Trust enable you to choose the method of
purchasing Fund shares that is most beneficial given the amount of your
purchase, the length of time you expect to hold the shares and other
circumstances. You should consider whether, during the anticipated life of your
investment in the Trust, the accumulated continuing distribution and service
fees and CDSCs on Class B Shares would be less than the initial sales charge and
accumulated distribution fee on Class A Shares purchased at the same time, and
to what extent such differential would be offset by the anticipated higher
return of Class A Shares.
As an illustration, if you qualify for significantly reduced sales charges, you
might elect to purchase Class A Shares, which carry an initial sales load,
because no similar reductions in CDSC are available for the Class B Shares.
Also, Class A Shares are subject to a lower distribution fee and, accordingly,
such shares are expected to pay correspondingly higher dividends on a per share
basis. However, because initial sales charges are deducted at the time of
purchase of Class A Shares, the amount of your funds actually invested would be
reduced by the amount of the sales charge and you would initially own fewer
shares. For this reason, you might determine that it would be more advantageous
to purchase Class B Shares, so that all of your funds will be invested
initially, although you would be subject to a CDSC for a four or six-year period
and higher ongoing distribution and service fees. In addition, if you expect to
maintain your investment for an extended period of time (and even if you do not
qualify for reduced initial sales charges), you might consider purchasing Class
A Shares because the accumulated continuing distribution charges on Class B
Shares may still exceed the initial sales charge and distribution charges
applicable to Class A Shares during the same period.
LARGE PURCHASES OF CLASS B SHARES. When choosing between classes, investors
should carefully consider the ongoing annual expenses along with the initial or
contingent deferred sales charges. The relative impact of the initial sales
charges, CDSCs and ongoing annual expenses will depend on the length of time a
share is held. In almost all cases, investors planning to purchase $250,000 or
more of Fund shares will pay lower aggregate charges and expenses by purchasing
Class A Shares.
INITIAL SALES CHARGE ALTERNATIVE: CLASS A SHARES. Class A Shares of the Sierra
Trust Funds are sold at the Public Offering Price. Investors purchasing Class A
Shares of the Non-Money Funds incur a sales charge at purchase as described in
the following tables. Purchases of $1 million or more and certain other
purchases are not subject to the sales charge at the time of purchase, but may
be subject to a 1.0% CDSC on redemptions within one year of purchase or a 0.5%
CDSC on redemptions during the second year after purchase (the "Class A CDSC"),
including redemptions of Money Fund Class A Shares acquired through exchange for
such Non-Money Fund Class A Shares. No sales charge at time of purchase and no
CDSC will be assessed on purchases of Class A Shares of a Money Fund, on the
reinvestment of dividends or distributions on Class A Shares or on purchases of
Class A Shares under the 180-day reinvestment privilege described in a following
section. Class A Shares purchased through a qualified 401(k) or 403(b) plan may,
in certain circumstances, be subject to a CDSC of 1.0% if the shares are
redeemed within two years of their initial purchase. See "APPLICATION OF CLASS A
SHARES CDSCS" subsection in this section. For other waivers of Class A Shares
sales charges, see the section "WAIVERS OF CLASS A INITIAL SALES CHARGES." The
following tables illustrate the sales charges applicable at purchase to Class A
Shares at various investment levels.
-49-
<PAGE> 84
FOR CLASS A SHARES OF NON-MONEY FUNDS
OTHER THAN THE SHORT TERM GLOBAL GOVERNMENT FUND,
THE SHORT TERM HIGH QUALITY BOND FUND AND THE EQUITY FUNDS
<TABLE>
<CAPTION>
DEALERS'
AS A % OF AS A % OF REALLOWANCE
OFFERING PRICE NET ASSET AS A % OF
AMOUNT OF TRANSACTION PER SHARE VALUE OFFERING PRICE
- ------------------------------------------------------ --------------- ---------- ---------------
<S> <C> <C> <C>
Less than $50,000..................................... 4.50% 4.71% 4.00%
$50,000 but less than $100,000........................ 4.00% 4.17% 3.50%
$100,000 but less than $250,000....................... 3.50% 3.63% 3.00%
$250,000 but less than $500,000....................... 3.00% 3.09% 2.50%
$500,000 but less than $1,000,000..................... 2.00% 2.04% 1.75%
$1,000,000 and over................................... 0% 0% 0%+
</TABLE>
FOR CLASS A SHARES OF SHORT TERM GLOBAL GOVERNMENT FUND AND
THE SHORT TERM HIGH QUALITY BOND FUND
<TABLE>
<CAPTION>
DEALERS'
AS A % OF AS A % OF REALLOWANCE
OFFERING PRICE NET ASSET AS A % OF
AMOUNT OF TRANSACTION PER SHARE VALUE OFFERING PRICE
- ------------------------------------------------------ --------------- ---------- ---------------
<S> <C> <C> <C>
Less than $50,000..................................... 3.50% 3.63% 3.00%
$50,000 but less than $100,000........................ 3.00% 3.09% 2.50%
$100,000 but less than $250,000....................... 2.50% 2.56% 2.00%
$250,000 but less than $500,000....................... 2.25% 2.30% 2.00%
$500,000 but less than $1,000,000..................... 2.00% 2.04% 1.75%
$1,000,000 and over................................... 0% 0% 0%+
</TABLE>
FOR CLASS A SHARES OF THE EQUITY FUNDS
<TABLE>
<CAPTION>
DEALERS'
AS A % OF AS A % OF REALLOWANCE
OFFERING PRICE NET ASSET AS A % OF
AMOUNT OF TRANSACTION PER SHARE VALUE OFFERING PRICE
- ------------------------------------------------------ --------------- ---------- ---------------
<S> <C> <C> <C>
Less than $50,000..................................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000........................ 4.75% 4.99% 4.00%
$100,000 but less than $250,000....................... 3.75% 3.90% 3.00%
$250,000 but less than $500,000....................... 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000..................... 2.00% 2.04% 1.75%
$1,000,000 and over................................... 0% 0% 0%+
</TABLE>
- --------------------------------------------------------------------------------
+Investors do not pay a sales charge at time of purchase on purchases of $1
million or more; however, except as waived by the dealer of record as stated on
the preceding page, Sierra Services may pay the investment dealers of record on
purchases of Class A Shares of $1 million or more a fee of up to 1.00% of the
net asset value of such purchase.
Sierra Services, the distributor of the shares of the Funds, will pay the
appropriate dealers' reallowance to Authorized Dealers. The dealers' reallowance
may be changed from time to time. Upon notice, Sierra Services may reallow up to
the full applicable sales charge to certain Authorized Dealers. Authorized
Dealers may receive different compensation for selling one class of a Fund
rather than another class of the Fund.
-50-
<PAGE> 85
REDUCED SALES CHARGES AT PURCHASE.
As described below, the sales charge on purchases of Class A Shares of the Funds
may be reduced through: (1) a Right of Accumulation; (2) Quantity Discounts; (3)
a Letter of Intent; and (4) Reinvestment Privileges. Reduced sales charges may
be modified or terminated at any time as to new purchases and/or letters of
intent and are subject to confirmation of an investor's holdings. FOR MORE
INFORMATION ABOUT REDUCED SALES CHARGES, CONTACT YOUR REPRESENTATIVE OR CALL
800-222-5852.
RIGHT OF ACCUMULATION. Under the Right of Accumulation, the current value of an
investor's existing Class A Shares in the Non-Money Fund(s), Class B and Class S
Shares in all the funds of the Trust, Class A Common Shares of Sierra Prime
Income Fund ("SPIF") and Class A and Class B Shares of the SAM Portfolios may be
combined with the amount of the investor's current purchase of Non-Money Fund
Class A Shares in determining the sales charge applicable to such Class A
Shares. In order to receive the cumulative quantity reduction, the investor or
the securities dealer must call previous purchases of such Class A Common
Shares, Class A, Class B and Class S Shares of the Trust and Class A and Class B
Shares of the SAM Portfolios to the attention of Sierra Shareholder Services at
the time of the current purchase.
QUANTITY DISCOUNTS. As shown in the tables previously and under the "Right of
Accumulation" section, larger purchases of the Non-Money Fund Class A Shares of
the Funds combined with Class B Shares and Class S Shares of the Funds, Class A
Common Shares of SPIF and Class A and Class B Shares of the SAM Portfolios
reduce the sales charge paid on the Non-Money Fund Class A Shares. The Funds
will combine purchases of the Non-Money Fund Class A Shares with Class B and
Class S Shares of the Funds, Class A Common Shares of SPIF and Class A and Class
B Shares of the SAM Portfolios made on the same day by the investor, spouse, and
any minor children when calculating the Non-Money Fund Class A Shares sales
charge. In order to receive the cumulative quantity reduction, the investor or
the securities dealer must call related purchases of such Class A Common Shares,
Class A, Class B and Class S Shares of the Trust and Class A and Class B Shares
of the SAM Portfolios to the attention of Sierra Shareholder Services at the
time of the current purchase.
LETTER OF INTENT. An investor may qualify for a reduced sales charge on
Non-Money Fund Class A Shares immediately by signing a "Letter of Intent"
stating the investor's intention to invest during the following 13 months a
specified amount in the Non-Money Fund Class A Shares, Class A Common Shares of
SPIF and/or Class A and Class B Shares of the SAM Portfolios, which, if made at
one time, would qualify for a reduced sales charge. Any redemptions or
repurchases of Class A Shares or Class A Common Shares made during the 13-month
period will be subtracted from the amount of purchases of Class A Shares or
Class A Common Shares in determining whether the terms of the Letter of Intent
have been met. During the term of a Letter of Intent, Sierra Shareholder
Services will hold Non-Money Fund Class A Shares representing 5.00% of the
amount purchased in escrow for payment of a higher sales load if the full amount
specified in the Letter of Intent is not purchased within the 13-month period.
The escrowed shares will be released when the full amount specified has been
purchased. The investor is not bound to purchase the full amount specified, but
if the full amount specified is not purchased within the 13-month period, the
investor will be required to pay an amount equal to the difference in the dollar
amount of sales charge actually paid and the amount of sales charge the investor
would have had to pay on the investor's aggregate purchases of Non-Money Fund
Class A Shares if the total of such purchases had been made at a single time.
REINVESTMENT PRIVILEGE. Upon redemption of Class A Shares, a shareholder may
reinvest any or all of the redemption proceeds in Class A Shares of a Fund
without any sales charge provided the reinvestment is within 180 days of the
redemption from the Fund. To receive the privilege, the shareholder must notify
the Authorized Dealer or Shareholder Services concerning the reinvestment.
WAIVERS OF CLASS A INITIAL SALES CHARGES. No initial sales charge will be
assessed with respect to Class A Shares on: (1) purchases by (a) employees or
retired employees of Great Western Financial Corporation ("GWFC") or any of its
affiliates and members of their immediate families (spouses and minor children)
and IRAs, Keogh Plans or employee benefit plans for those employees and retired
employees; (b) directors, trustees, officers or advisory board members, or
persons retired from such positions, of any investment company for which GWFC or
an affiliate serves as investment advisor; (c) registered representatives or
full-time employees of Authorized Dealers or full-time employees of banks
affiliated with such dealers; (2) purchases by retirement plans created pursuant
to Section 457 of the Code; (3) purchases that are paid for with the proceeds
from the redemption
-51-
<PAGE> 86
of shares of a non-money market mutual fund not affiliated with the Trust or
Sierra Services, where the purchase occurs within 15 Business Days of the prior
redemption and is evidenced by a confirmation of the redemption transaction or a
broker-to-broker transfer request (Shareholder Services must be notified at the
time of purchase that the purchase being made qualifies for a purchase at NAV);
(4) purchases by employees of any of the Funds' Sub-Advisors; and (5) purchases
by accounts as to which an Authorized Dealer or a bank affiliated with an
Authorized Dealer charges an account management fee, provided that the
Authorized Dealer or bank has an agreement with the Distributor (investors may
be charged an additional service or transaction fee by the Authorized Dealer or
bank).
Additional groups of investors that are not subject to an initial sales charge
on purchases of Class A Shares through an Authorized Dealer include either (a)
investors purchasing Class A Shares of a Fund through an employee benefit trust
created pursuant to a 401(k) Plan that has invested in the aggregate more than
$1 million in the Funds, or (b) investors purchasing Class A Shares of a Fund
through a 403(b) Plan that has more than $1 million in the Funds. Investors
through 401(k) and 403(b) Plans may be subject to various account fees and
purchase and redemption procedures designated by the employer who has
established the 401(k) Plan or 403(b) Plan. Such investors should consult their
employer and/or account agreements for information relating to their accounts.
The foregoing waivers may be changed at any time.
APPLICATION OF CLASS A SHARES CDSC. The Class A CDSC of 1.0% or 0.5% may be
imposed on certain redemptions within one or two years of purchase,
respectively, with respect to Class A Shares (i) purchased at NAV without a
sales charge at time of purchase due to purchases of $1 million or more, or (ii)
acquired, including Class A Shares of a Money Fund acquired, through an exchange
for Class A Shares of a Non-Money Fund purchased at NAV without a sales charge
at time of purchase due to purchases of $1 million or more. The CDSCs for Class
A Shares are calculated on the lower of the shares' cost or current net asset
value, and in determining whether the CDSC is payable, the Sierra Trust Funds
will first redeem shares not subject to any CDSC.
With respect to certain investors who purchase Class A Shares through an
Authorized Dealer and who receive a waiver of the entire initial sales charge on
Class A Shares because the Class A Shares were purchased through a plan
qualified under Section 401(k) of the Code ("401(k) Plan") or through a plan
qualified under Section 403(b) of the Code ("403(b) Plan") meeting certain
criteria, as described in "Your Account - Waivers of Class A Initial Sales
Charges," or who hold Class A Shares of a Money Fund that were acquired through
an exchange for Non-Money Fund Class A Shares that were purchased at NAV through
one of such plans, a CDSC of 1% may be imposed on the amount that was invested
through the plan in such Class A Shares and that is redeemed (i) if, within the
first two years after the plan's initial investment in the Funds, the named
fiduciary of the plan withdraws the plan from investing in the Funds in a manner
that causes all shares held by the plan's participants to be redeemed; or (ii)
by a plan participant in a 403(b) Plan within two years of the plan
participant's purchase of such Class A Shares. This CDSC will be waived on
redemptions in connection with certain involuntary distributions, including
distributions arising out of the death or disability of a shareholder (including
one who owns the shares as joint tenant). See "How to Buy and Redeem Shares" in
the SAI.
WAIVERS OF CLASS A SHARES CDSC. The Class A CDSC is waived for redemptions of
Class A Shares (i) that are part of exchanges for Class A Shares of other Funds;
(ii) for distributions to pay benefits to participants from a retirement plan
qualified under Section 401(a) or 401(k) of the Code, including distributions
due to the death or disability of the participant (including one who owns the
shares as a joint tenant); (iii) for distributions from a 403(b) Plan or an IRA
due to death, disability, or attainment of age 70 1/2, including certain
involuntary distributions; (iv) for tax-free returns of excess contributions to
an IRA; (v) for distributions by other employee benefit plans to pay benefits;
(vi) in connection with certain automatic withdrawals; and (vii) by a 401(k)
Plan participant so long as the shares were purchased through the 401(k) Plan
and the 401(k) Plan continues in effect with investments in Class A Shares of
the Fund. See "How to Buy and Redeem Shares" in the SAI.
DEFERRED SALES CHARGE ALTERNATIVE: CLASS B SHARES. If you choose the deferred
sales charge alternative, you will purchase Class B Shares at their NAV per
share without the imposition of a sales charge at the time of purchase. Class B
Shares of the Short Term High Quality Bond and Short Term Global Government
Funds (the "Short Term Funds") that are redeemed within four years of purchase,
and Class B Shares of the remaining Funds
-52-
<PAGE> 87
(the "Long Term Funds") that are redeemed within six years of purchase, however,
will be subject to a CDSC as described on the following page. CDSC payments and
distribution fees on Class B Shares may be used to fund commissions payable to
Authorized Dealers.
No charge will be imposed with respect to shares having a value equal to any net
increase in the value of shares purchased during the preceding four or six years
and shares acquired by reinvestment of net investment income and capital gain
distributions. The amount of the charge is determined as a percentage of the
lesser of (1) the NAV of the Class B Shares at the time of purchase or (2) the
NAV of the Class B Shares at the time of redemption. The percentage used to
calculate the CDSC will depend on the number of years since you invested the
dollar amount being redeemed, according to the following table:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
------------------------------------
Year of Redemption After Purchase Long Term Funds Short Term Funds
------------------------------------------- --------------- ----------------
<S> <C> <C>
First...................................... 5% 4%
Second..................................... 4% 3%
Third...................................... 3% 2%
Fourth..................................... 3% 1%
Fifth...................................... 2% 0
Sixth...................................... 1% 0
Seventh and following...................... 0 0
</TABLE>
All purchases are considered made on the last day of the month of purchase. To
determine the CDSC payable on a redemption of Class B Shares, a Fund will first
redeem Class B Shares not subject to a CDSC. Thereafter, to determine the
applicability and rate of any CDSC, it will be assumed that shares representing
the reinvestment of dividends and capital gain distributions are redeemed first
and shares held for the longest period of time are redeemed next. Using this
method, your sales charge, if any, will be at the lowest possible CDSC rate.
The Trust will adopt procedures to convert Class B Shares, without payment of
any sales charges, into Class A Shares, which have lower distribution fees,
after the passage of a number of years after purchase. Such conversion may occur
in approximately eight years.
WAIVERS OF CLASS B CDSCS. No CDSC charges will be assessed on redemptions of
Class B Shares in the case of systematic withdrawals in amounts of 1% or less
per month; death of the shareholder; and redemptions in connection with certain
involuntary distributions, including distributions arising out of the death or
disability of a shareholder, from IRAs. The foregoing waivers may be changed at
any time.
HOW TO SELL SHARES
You can arrange to take money out of your Fund account on any Business Day by
selling (redeeming) some or all of your shares. Your shares will be sold at the
NAV next determined after your order is received and accepted. Certain Class A
Shares may be subject to a CDSC as described in the "Application of Class A
Shares CDSCs" section.
Redemption proceeds are normally wired or mailed on the next Business Day, but
in no event later than seven days after receipt of a redemption request by
Shareholder Services, until such time as regulations may require the Funds to
redeem proceeds within five days. However, if a shareholder is redeeming shares
recently purchased with a check, the redemption proceeds will not be paid to the
shareholder until the check has cleared. The check may take up to 15 days or
more to clear for deposit of the shareholder's funds into the Fund's account,
and the shareholder may not receive the redemption proceeds until after such
time period. The failure of a shareholder who purchased shares by wire to submit
an application form in a timely fashion may cause delays in processing
redemption requests.
If you wish to keep your Class A or Class B Shares account open, leave at least
$250 worth of shares in your account, unless you are a participant in the Sierra
Automatic Investment Plan.
- - The table on the following page highlights the ways in which you can redeem
shares in your Fund account.
-53-
<PAGE> 88
WAYS TO SELL SHARES OF YOUR SIERRA TRUST FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Account Type Special Requirements
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY CHECKWRITING All Money Fund Class A Shares - Before redeeming Class A Shares through
account types checkwriting, you must complete the
signature card. Call 800-222-5852 to
request one. Class B Shares may not be
redeemed through checkwriting. Minimum
$250 or more and $10 fee for returned
check.*
- ---------------------------------------------------------------------------------------------------------
BY PHONE All account types, except - You may exchange to the same class of
800-222-5852 retirement other funds of the Trust if both
accounts are registered with the same
name(s), address, and taxpayer ID
number. You may also redeem amounts by
telephone. Checks will be mailed to the
address of record exactly as account is
registered.
- ---------------------------------------------------------------------------------------------------------
BY MAIL Individual, Joint Accounts, Sole - The letter of instruction must be signed
Proprietorships, UGMA, UTMA** by all persons required to sign for
transactions, exactly as their names
appear on the account.** Checks will be
mailed to the address of record.
- Signature guarantee is required on
amounts of more than $50,000.
- ---------------------------------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL All Shareholder(s) - When shares are valued at NAV at $10,000
PLAN or more shareholders may elect to
establish a Systematic Withdrawal Plan
and receive a monthly, quarterly,
semiannual or annual check. Privilege
may be terminated by the shareholder(s)
on thirty days written notice or by the
Trust at any time.
- ---------------------------------------------------------------------------------------------------------
BY WIRE All account types except - You must sign up for the wire feature
retirement before using it. To verify that it is in
place, call 800-222-5852.
- Your wire redemption request must be
received by Sierra Trust Funds before
8:00 a.m., Pacific Time/11:00 a.m.,
Eastern Time for money to be wired on
the next Business Day. A $5.00 fee may
be charged for each wire transfer.
Minimum amount is $1,000.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Upon 30 days' prior written notice to shareholders, the privilege may be
modified or terminated.
** Corporations, trusts, and retirement plans may require additional paperwork
before shares may be redeemed. Please call 1-800-222-5852 to verify you have
the correct paperwork and to avoid delays.
- - BY TELEPHONE
TO SET UP THE TELEPHONE WIRE REDEMPTION PROCEDURE, indicate your acceptance of
this procedure on the application form and designate a bank and bank account
number to receive the proceeds of withdrawals. To use this procedure after an
account has been opened or to change instructions already given, designate a
bank and bank account number to receive redemption proceeds and send a written
notice to Shareholder Services with a signature
-54-
<PAGE> 89
guarantee (for more information regarding signature guarantees, see the
following). For joint accounts, all owners must sign and have their signatures
guaranteed.
- - THROUGH SHAREHOLDER SERVICES OR AUTHORIZED DEALERS
You may also sell your shares to the Fund through your Authorized Dealer and in
that way be certain, providing the order is timely, of receiving the NAV
established at the end of the day on which your Authorized Dealer is given the
redemption order. The Fund makes no charge for this transaction but the dealer
may charge you a service fee.
CERTAIN WRITTEN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. To protect you and
the Trust from fraud, a written request must include a signature guarantee if
any of the following situations apply:
- - You wish to redeem more than $50,000 worth of shares,
- - The redemption check is not being mailed to the address on your Fund account
(record address), or
- - The check is not being made out to the Fund account owner.
You should be able to obtain a signature guarantee from a bank which is a member
of the Federal Deposit Insurance Corporation, a trust company, broker-dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee. For joint accounts, all owners must sign and have
their signatures guaranteed.
EXCHANGE PRIVILEGES AND RESTRICTIONS
The exchange privilege is available only in those states where the offer and
sale of shares of a given Fund may legally be made. Upon 60 days' prior written
notice to shareholders, the Trust in its sole discretion may terminate or modify
the exchange privileges and restrictions and/or the Trust may begin imposing a
charge of up to $5.00 for each exchange.
CLASS A SHARES. You may exchange at NAV shares of any class of Funds, where
applicable sales charges have been paid, for any Fund within the same class of
shares. Shareholders exercising the exchange privilege with any of the Funds of
the Sierra Trust Funds should review the prospectus of each Fund carefully prior
to making an exchange. Exchanges of shares are sales and may result in a gain or
loss for federal and state income tax purposes.
Class A Shares of a Non-Money Fund may be exchanged for Class A Shares of any of
the other Funds of the Trust, including the Money Funds, or SPIF and (the
foregoing funds together, the "Eligible Funds") without a sales charge at
purchase. If shares of the money Funds so acquired are subsequently exchanged
again for Class A Shares of a Non-Money Fund or SPIF, no sales charge at
purchase will be assessed. The availability of the exchange privilege with
respect to shares of SPIF is subject to the availability of shares of SPIF for
exchange purposes as stated in the prospectus and statement of additional
information ("SAI") of SPIF. Also, although shares of SPIF may be exchanged for
shares of the Funds, such exchanges of SPIF shares for shares of the Funds are
permitted approximately once every calendar quarter so long as SPIF makes a
repurchase offer for its shares in such quarter and so long as the SPIF
repurchase offer is sufficiently large to include the SPIF shares tendered for
exchange. See the prospectus and SAI of SPIF for additional information
regarding the exchange privilege applicable to SPIF shares and the availability
of such exchange privilege. Please call 800-222-5852 if you would like to obtain
a prospectus for SPIF.
Class A Shares of a Money fund may be exchanged for Class A Shares of the other
Money Funds without a sales charge at purchase. When Class A Shares of the Money
Funds are exchanged for Class A Shares of a Non-Money Fund or SPIF, the initial
sales charge applicable to such non-Money Fund or SPIF will be assessed unless
the Class A Shares of the Money Funds given in exchange were acquired through a
previous exchange or series of exchanges for shares of a Non-Money Fund or SPIF.
Certain Class A Shares may be subject to a CDSC for redemptions within one or
two years of purchase as described in the "APPLICATION OF CLASS A SHARES CDSC"
section. The CDSCs applicable to Class A Shares will not be assessed on a
redemption that is part of an exchange for Class A Shares of another Fund,
except that if the shares
-55-
<PAGE> 90
acquired in the exchange or a series of exchanges were then redeemed within the
CDSC period applicable to the shares redeemed initially for the exchange or
series of exchanges, the CDSC would be assessed.
CLASS B SHARES. Class B Shares of a Fund may be exchanged for Class B Shares of
any other Fund (including the Money Funds) without having to pay any CDSC at the
time of the exchange. If you exchange into Class B Shares of another Fund and
subsequently redeem such shares, the period of time during which you held your
investment in Class B Shares of the previous Fund will be included in the period
during which that investment is deemed to be invested in the Trust for purposes
of calculating the CDSC. If the initial Class B Shares purchased by the
shareholder were not subject to the Class B CDSC, then no Class B CDSC will be
imposed on any subsequent exchanges or redemptions involving those shares. In
the event of redemptions of Class B Shares after exchanges, the amount you
initially invested (the "Investment Amount") will be subject to the CDSC
schedule and rate of the Fund in which the Investment Amount was initially
invested.
Class B Shares that are subject to the longer six-year CDSC schedule and the
higher CDSC rate applicable to the Class B Shares of the Long Term Funds may
also be exchanged for Class S Shares of a SAM Account fund if the investor (1)
has a SAM Account prior to making the exchange, or (2) opens a SAM Account prior
to making the exchange and invests at least the minimum for such SAM Account,
through any combination of such an exchange and initial purchase of Class S
Shares. ADDITIONAL INFORMATION REGARDING CLASS S SHARES AND SAM ACCOUNTS IS
AVAILABLE IN A SEPARATE PROSPECTUS WHICH YOU MAY OBTAIN WITHOUT CHARGE BY
CALLING 800-222-5852 TOLL-FREE.
NO EXCHANGE PRIVILEGES TO SAM PORTFOLIOS. Initially, shares of the Funds may not
be exchanged for shares of the SAM Portfolios. In the future, such an exchange
privilege may be offered. However, Class A Shares and Class B Shares of the SAM
Portfolios may be exchanged at NAV for Class A Shares and Class B Shares,
respectively, of the Funds. More information regarding the exchange privilege
for the SAM Portfolios is provided in the SAM Portfolios' Prospectus. PLEASE
CALL 800-222-5852 IF YOU WOULD LIKE TO OBTAIN A PROSPECTUS FOR THE SAM
PORTFOLIOS.
KEY ASPECTS OF TELEPHONE TRANSACTIONS. During periods of significant economic or
market changes, telephone transactions may be difficult to implement. Neither
the Trust nor its Transfer Agent will be responsible for any loss, liability,
cost or expense for acting upon wire instructions or upon telephone instructions
that it reasonably believes are genuine. The Trust and its Transfer Agent will
each employ procedures to confirm that telephone instructions are genuine. Such
procedures may include recording telephone calls. You should verify the accuracy
of telephone transactions immediately upon receipt of your confirmation
statement. If an investor is unable to contact Shareholder Services by
telephone, an investor may deliver the transaction request to Shareholder
Services at P.O. Box 5118, Westborough, Massachusetts 01581-5118. Upon 30 days'
prior written notice to shareholders, the telephone transaction privileges may
be modified or terminated.
DIVIDENDS, CAPITAL GAINS AND TAXES
As a Fund shareholder, you are entitled to your share of the Fund's net income
and gains on its investments. The Fund passes these earnings along to its
investors as DISTRIBUTIONS. Each Fund intends to avoid liability for federal
income tax and federal excise tax by making sufficient distributions to
investors.
The amount of dividends of net investment income (i.e., all income other than
long- and short-term capital gains) and distributions of net realized long- and
short-term capital gains payable to shareholders will be determined separately
for each Fund. Dividends from the net investment income of the Money Funds will
be declared daily and paid monthly. Dividends from the net investment income of
the Bond Funds will be declared daily and paid monthly. Dividends from the net
investment income of the Growth and Income Fund will be declared and paid
quarterly. Dividends from the net investment income of the Growth Fund will be
declared and paid semi-annually. Dividends from the net investment income of the
Emerging Growth and International Growth Funds will be declared and paid
annually. Distributions of any net long-term capital gains earned by a Fund will
be made annually. Distributions of any net short-term capital gains earned by a
Fund will be distributed no less frequently than annually at the discretion of
the Board of Trustees.
-56-
<PAGE> 91
DISTRIBUTION OPTIONS. When you open an account, specify on your Application Form
how you want to receive your distributions. The election may be made or changed
by writing to Shareholder Services or by calling 800-222-5852. Each Fund offers
three options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions will be
automatically reinvested in additional shares of the same Fund, unless you
instruct the Fund on the application form or later in writing or by telephone to
pay all distributions in cash. Distributions from a class of one Fund may be
reinvested in the same class of the same Fund or a different Fund. If the Fund
in which the reinvestment is made has an initial sales charge or CDSC, you will
not pay the initial sales charge or CDSC on the reinvested amount.
2. CASH OPTION. You will be sent a check for each dividend and capital gain
distribution.
3. SYSTEMATIC WITHDRAWAL PLAN. If you have more than $10,000 in any Trust
account, you can elect to receive a check on a regular monthly, quarterly,
semiannual or annual basis. Withdrawals may result in a gain or loss for tax
purposes, may involve the use of principal and may eventually deplete all of the
shares in the account.
FOR RETIREMENT ACCOUNTS, all distributions are automatically reinvested. When
you are over 59 1/2 years old, you can receive distributions in cash without tax
penalties for early withdrawal.
EX-DIVIDEND. When a Fund goes EX-DIVIDEND (deducts a distribution from the
Fund's share price), the reinvestment price is the Fund's NAV at the close of
business that day. The mailing of distribution checks will begin within seven
days thereafter. If you buy shares shortly before an ex-dividend date ("buying a
dividend"), you will pay the full price for the shares and then receive a
portion of the price back as a taxable distribution.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of a Fund or its
shareholders. Accordingly, shareholders are urged to consult their tax advisors
regarding specific questions as to federal, state and local income taxes.
Each Fund intends to qualify separately each year as a "regulated investment
company" as defined under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). The requirements for qualification may cause a Fund to
restrict the extent of its short-term trading or its transactions in options or
futures contracts.
As with any investment, you should consider how you will be taxed on your
investment in the Fund. If your account is not a tax-deferred retirement
account, you should be aware of the following tax implications:
TAXES ON DISTRIBUTIONS. Distributions generally are subject to federal income
tax, and may also be subject to state or local taxes. If you live outside the
United States, your distributions could also be taxed by the country in which
you reside. Generally, your distributions are taxable when they are paid.
However, dividends declared in October, November or December of any year and
payable to shareholders of record on a date in that month are deemed to have
been paid by the Fund and received by the shareholders on the last day of
December if paid by the Fund at any time during the following January. Each
shareholder will receive after the close of the calendar year an annual
statement and such other written notices as are appropriate as to the federal
income tax status of the shareholder's distributions received from the Fund for
such calendar year.
For federal income tax purposes, distributions of investment company taxable
income (net investment income plus the excess of net short-term capital gain
over net long-term capital loss) are taxed to shareholders as ordinary income,
whether received in cash or in additional shares. Distributions of net capital
gain (the excess of net long-term capital gain over net short-term capital loss)
are taxed to shareholders as long-term capital gain regardless of how long you
have held your shares.
TAXES ON TRANSACTIONS. Any gain or loss recognized on a redemption, transfer, or
exchange of shares of the Fund by a shareholder who is not a dealer in
securities generally will be treated as long-term capital gain or loss if the
shares have been held for more than twelve months, and otherwise generally will
be treated as a short-term capital gain or loss. Any loss recognized by a
shareholder upon the disposition of shares of the Fund held for six
-57-
<PAGE> 92
months or less, however, will be disallowed to the extent of any
"exempt-interest dividends" received by the shareholder with respect to such
shares. Furthermore, if shares on which a net capital gains distribution has
been received are subsequently disposed of and such shares have been held for
six months or less, any loss recognized will be treated as a long-term capital
loss to the extent of the net capital gains distribution.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually to shareholders within 60 days of the close of
the calendar year. These statements set forth the dollar amount of dividends and
NAV excluded or exempt from federal income taxes or Florida intangible personal
property taxes and the dollar amount, if any, subject to such taxes. Whenever
you sell shares of the Fund, the Trust will send you a confirmation statement
showing how many shares you sold and at what price. You also will receive a
consolidated transaction statement every January. However, it is up to you or
your tax preparer to determine whether this sale resulted in a capital gain and,
if so, the amount of tax to be paid. You should retain your regular account
statements; the information they contain will be essential in calculating the
amount of your capital gains.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE MUNICIPAL FUNDS AND THE
CALIFORNIA MONEY FUND. Dividends paid by any of the Municipal Funds or the
California Money Fund that are derived from interest earned on qualifying
tax-exempt obligations will be "exempt-interest" dividends, which shareholders
may exclude from their gross incomes for federal income tax purposes, if at the
close of each quarter of that Fund's taxable year, at least 50 percent of the
Fund's total assets consist of obligations the interest on which is excludable
from gross income for federal income tax purposes. To the extent that any of
these Funds invests in AMT-Subject Bonds, any exempt-interest dividends derived
from interest on such AMT-Subject Bonds are a specific preference item for
purposes of the federal individual and corporate alternative minimum taxes. In
any event, all exempt-interest dividends will be a component of adjusted current
earnings for purposes of computing the federal corporate alternative minimum tax
and the federal corporate environmental tax.
Current federal income tax laws limit the types and volume of bonds qualifying
for the federal income tax exemption of interest, which may have an effect on
the ability of the Municipal Funds to purchase sufficient amounts of tax-exempt
securities to satisfy the requirements for the payment of "exempt-interest"
dividends.
Interest on indebtedness incurred or continued by shareholders to purchase or
carry shares of the Municipal Funds and the California Money Fund is not
deductible for federal income tax purposes. The Municipal Funds and the
California Money Fund may not be an appropriate investment for persons
(including corporations and other business entities) who are not currently
subject to federal income tax (such as certain qualified retirement accounts) or
who are substantial users (or who are related to substantial users) of
facilities financed by "private activity bonds" or certain industrial
development bonds. "Substantial user" is defined generally as including a
"non-exempt person" who regularly uses in a trade or business a part of a
facility financed from the proceeds of such bonds. Entities or persons who are
"substantial users" (or persons related to "substantial users") should consult
their tax advisors before purchasing shares of the Municipal Funds or the
California Money Fund.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE FLORIDA INSURED MUNICIPAL
FUND. Florida does not impose an income tax on individuals. Accordingly,
dividends or distributions by the Florida Insured Municipal Fund to an
individual who is a Florida resident are not subject to state income tax in
Florida. However, Florida imposes an intangible personal property tax on shares
of the Fund owned by a Florida resident on January 1 of each year unless such
shares qualify for an exemption from the tax.
The Fund has received a Technical Assistance Advisement from the State of
Florida, Department of Revenue, to the effect that Fund shares owned by a
Florida resident will be exempt from the intangible personal property tax so
long as the Fund's portfolio includes only assets, such as notes, bonds, and
other obligations issued by the State of Florida or its municipalities,
counties, and other taxing districts, the United States Government, and its
agencies, Puerto Rico, Guam, and the U.S. Virgin Islands, which are exempt from
that tax.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE CALIFORNIA MONEY FUND,
CALIFORNIA MUNICIPAL FUND AND CALIFORNIA INSURED INTERMEDIATE MUNICIPAL
FUND. If, at the close of each quarter of its taxable year, at least 50% of the
value of the total assets of each of the California Money Fund, California
Municipal Fund and California Insured Intermediate Municipal Fund (the
"California Funds") consist of obligations the interest on which would be exempt
from California personal income tax if the obligations were held by an
individual
-58-
<PAGE> 93
("California Tax Exempt Obligations"), and if each of the California Funds
continues to qualify as a regulated investment company for federal income tax
purposes, then each respective California Fund will be qualified to pay
dividends, subject to certain limitations, to its shareholders that are exempt
from California State personal income tax, but not from California State
franchise tax or California State corporate income tax ("California exempt-
interest dividends"). However, the total amount of California exempt-interest
dividends paid by each of the California Funds to each of the California Fund's
non-corporate shareholders with respect to any taxable year cannot exceed the
amount of interest received by such California Fund during such year on
California Tax Exempt Obligations less any expenses and expenditures (including
any dividends paid to corporate shareholders) deemed to have been paid from such
interest. If the aggregate dividends exceed the amount that may be treated as
California exempt-interest dividends, only that percentage of each dividend
distribution equal to the ratio of aggregate California exempt-interest
dividends to aggregate dividends will be treated as a California exempt-interest
dividend. Dividend distributions that do not qualify for treatment as California
exempt-interest dividends will be taxable to shareholders at ordinary tax rates
for California personal income tax purposes.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT A COMPLETE DESCRIPTION OF
THE FEDERAL, STATE OR LOCAL TAX CONSEQUENCES OF INVESTING IN THE FUNDS. YOU
SHOULD CONSULT YOUR TAX ADVISOR BEFORE INVESTING IN THE FUNDS.
SHAREHOLDER AND ACCOUNT POLICIES
TRANSACTION DETAILS
THE NAV of each class of the Fund is the value of a single share of the
respective class. The NAV is calculated separately for each class of the Funds
and is calculated by adding up the value of the Fund's investments, cash and
other assets, subtracting its liabilities (including the liabilities
attributable exclusively to that class), and then dividing the result by the
number of shares of that class outstanding.
Although the legal rights of Class A, Class B and Class I Shares will be
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B Shares will generally be lower than the
NAV of Class A Shares as a result of the larger distribution fees charged to
Class B Shares. It is expected, however, that the NAV per share of these classes
will tend to converge immediately after the recording of dividends, which will
differ by approximately the amount of the distribution expense accrual
differential between the classes.
Portfolio securities and other assets are valued primarily on the basis of
market quotations or, if quotations are not readily available, by a method that
the Board of Trustees believes accurately reflects fair value. Foreign
securities are valued on the basis of quotations from the primary market in
which they are traded, and are translated from the local currency into U.S.
Dollars using current exchange rates.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF CLASS A OR CLASS B
SHARES for a period of time. Each Fund also reserves the right to reject any
specific purchase order, including certain purchases by exchange. Purchase
orders may be refused if, in the opinion of Shareholder Services, they are of a
size that would disrupt management of a Fund.
SHAREHOLDER SERVICES MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its services.
THE FUNDS IN DETAIL
ORGANIZATION
THE TRUST IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced business
persons who meet throughout the year to oversee the Trust's activities, review
contractual arrangements with companies that provide services to the Funds, and
review performance. The majority of trustees are not affiliated with Sierra
Services, Sierra Advisors or Sierra Administration other than as trustees of the
Trust. The Trust was organized on February 22, 1989 under the laws of the
Commonwealth of Massachusetts as a "Massachusetts business trust."
-59-
<PAGE> 94
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. As a Massachusetts
business trust, the Funds are not required to hold annual shareholder meetings.
On occasion, however, special meetings may be called to elect or remove
trustees, change fundamental policies, approve a management contract, or for
other purposes. Trustees may be removed by shareholders at a special meeting
called upon the request of shareholders among at least 10% of the outstanding
shares of the Trust. Shareholders not attending these meetings are encouraged to
vote by proxy. Sierra Administration will mail proxy materials in advance,
including a voting card and information about the proposals to be voted on. When
matters are submitted for shareholder vote, shareholders of each Fund and class
will have one vote for each full share owned and proportionate, fractional votes
for fractional shares held and will have exclusive voting rights with respect to
matters pertaining solely to such Fund or class, respectively, such as the
distribution plan for a class.
SIERRA ADVISORS, ITS AFFILIATES AND SERVICE PROVIDERS
ADVISOR
Sierra Advisors, located at 9301 Corbin Avenue, Northridge, California 91324, is
the investment advisor of the Funds. Responsibilities of Sierra Advisors include
formulating the Funds' investment policies (subject to the terms of this
Prospectus), analyzing economic trends and directing and evaluating the
investment services provided by the Sub-Advisors and monitoring each Fund's
investment performance. In connection with these activities, Sierra Advisors may
initiate action to change a Sub-Advisor if it deems such action to be in the
best interests of a Fund and its shareholders.
Sierra Advisors became a registered investment advisor in 1988. Sierra Advisors
is an indirectly wholly-owned subsidiary of GWFC. GWFC is a publicly owned
financial services company listed on the New York, London and Pacific stock
exchanges. As of June 30, 1996, Sierra Advisors and its affiliates had total
assets under management of more than $ million.
SUB-ADVISORS
The following organizations, under the supervision of Sierra Advisors, act as
Sub-Advisors to the Funds:
ALLIANCE is located at 1345 Avenue of the Americas, New York, NY 10105. Alliance
is a Delaware limited partnership registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. Alliance Capital Management
Corporation, an indirect wholly-owned subsidiary of The Equitable Life Assurance
Society of the United States, is the general partner of Alliance. As of June 30,
1996, total assets under management were over $168 billion.
BLACKROCK is located at 345 Park Avenue, 30th floor, New York, New York 10154.
BlackRock is a corporation organized under the laws of the State of Delaware in
February, 1995. BlackRock is an indirectly, wholly-owned subsidiary of PNC Bank
Corp., a bank holding company organized under the laws of the Commonwealth of
Pennsylvania in 1983 and located at 5th Avenue and Wood Street, Pittsburgh,
Pennsylvania 15222. BlackRock and its predecessor have provided investment
advice to a wide variety of institutional and investment company-related clients
since 1988. As of June 30, 1996, BlackRock had aggregate assets under management
or supervision of more than $41 billion.
JANUS is located at 100 Fillmore Street, Denver, Colorado 80206. Janus is an
indirectly majority owned subsidiary of Kansas City Southern Industries, Inc.,
("KCSI"). KCSI is a publicly traded holding company whose primary subsidiaries
are engaged in transportation, information processing and financial services.
Janus has been providing investment advice to mutual funds or other large
institutional clients since 1970. As of June 30, 1996, Janus had over $38
billion in assets under investment management.
J.P. MORGAN is located at 522 Fifth Avenue, New York, New York 10036. J.P.
Morgan and Morgan Guaranty Trust Company of New York are wholly owned
subsidiaries of J.P. Morgan & Co. Incorporated, a publicly traded company. J.P.
Morgan provides investment services to employee benefit plans of corporations,
labor unions and state and local governments and the accounts of other
institutional investors. As of June 30, 1996, J.P. Morgan and its affiliates had
investment management authority with respect to approximately $190 billion of
assets.
-60-
<PAGE> 95
SCUDDER is located at Two International Place, Boston, Massachusetts 02110.
Scudder is a privately held corporation owned and operated by active firm
employees, concentrating primarily on investment management. Scudder provides
investment management services for institutions, individuals and mutual funds.
As of September 30, 1996, Scudder's assets under management were in excess of
$ billion.
TCW MANAGEMENT is located at 865 South Figueroa, Suite 1800, Los Angeles,
California 90017. TCW Management is a wholly owned subsidiary of The TCW Group,
Inc., a privately held company. TCW Management and its affiliates, including
Trust Company of the West, provide a variety of trust, investment management and
investment advisory services for institutional investors, including investment
companies, and other investment counsel clients. As of June 30, 1996, TCW
Management and its affiliated advisers had just over $ billion under
management or committed to management.
VAN KAMPEN is located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
Van Kampen is a wholly-owned subsidiary of Van Kampen American Capital, Inc.,
which is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is
controlled, through the ownership of a substantial majority of its common stock,
by The Clayton & Dubilier Private Equity Fund IV Limited Partnership ("C&D
L.P."), a Connecticut limited partnership. C&D L.P. is managed by Clayton,
Dubilier & Rice, Inc., a New York based private investment firm. The General
Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited Partnership
("C&D Assoc. L.P."). The general partners of C&D Assoc. L.P. are Joseph L. Rice,
III, B. Charles Ames, Alberto Cribiore, Donald J. Gogel and Hubbard C. Howe. Van
Kampen provides investment advice to a wide variety of individual, institutional
and investment company clients and, together with its affiliates, had aggregate
assets under management or supervision, as of September 30, 1996, of more than
$ billion.
On June 24, 1996, VK/AC Holding, Inc. announced it had entered into an Agreement
and Plan of Merger among Morgan Stanley Group Inc., MSAM Holdings II, Inc. and
MSAM Acquisition Inc., pursuant to which MSAM Acquisition Inc. will be merged
with and into VK/AC Holding, Inc. and VK/AC Holding, Inc. will be the surviving
corporation. The proposed transaction may be deemed to cause an assignment,
within the meaning of the Investment Company Act of 1940 and the Investment
Advisers Act of 1940, of the investment sub-advisory agreement between Van
Kampen and the Fund. Accordingly, the completion of the transaction is
contingent upon, among other things and subject to certain de minimis
exceptions, the approval of both the Board of Trustees of the Fund and the
shareholders of the Fund of a new investment advisory agreement between the Fund
and Adviser. Management of the Fund also currently anticipates recommending to
the Fund's Board of Trustees that a special meeting of shareholders be called to
obtain such approval and that the record date for such shareholder meeting be a
date in early September. Management of the Fund also anticipates that investment
sub-advisory fees under the new investment advisory agreement to be voted on at
such meeting will be in the same amount as those paid under the current
sub-advisory agreement between the Fund and the Adviser.
MSAM Acquisition Inc. is a wholly owned subsidiary of MSAM Holdings II, Inc.
which, in turn, is a wholly owned subsidiary of Morgan Stanley Group Inc.
Subject to a number of conditions being met, it is currently anticipated that a
closing will occur on or about November 29, 1996. Thereafter, VK/AC Holding,
Inc. and its affiliated entities shall be part of Morgan Stanley Group Inc.
WARBURG is located at 466 Lexington Avenue, New York, New York 10017-3147.
Warburg is a professional investment counseling firm which provides investment
services to investment endowment funds, foundations and other institutions and
individuals. As of June 30, 1996, Warburg managed approximately $16.0 billion of
assets, including approximately $8.6 billion of investment company assets.
Incorporated in 1970, Warburg is a wholly-owned subsidiary of Warburg, Pincus
Counsellors G.P. ("Counsellors G.P."), a New York General partnership. E.M.
Warburg, Pincus & Co., Inc. ("EMW") controls Warburg through its ownership of a
class of voting preferred stock of Warburg. Lionel I. Pincus may be deemed a
controlling person of EMW. Counsellors G.P. has no business other than being a
holding company of Warburg and its subsidiaries.
ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN
Sierra Administration provides shareholder service and other administrative
services. Sierra Administration is under common control with the Advisor and
Sierra Services. Sierra Administration is located at 9301 Corbin Avenue,
Northridge, California 91324. Pursuant to an Administration Agreement, Sierra
Administration is responsible for
-61-
<PAGE> 96
all administrative functions with respect to the Trust, although it delegates
certain of its responsibilities to sub-administrators. Sierra Administration is
entitled to a monthly fee at an annual rate of 0.35% of each Non-Money Fund's
average daily net assets and at an annual rate of 0.30% of each Money Fund's
average daily net assets. First Data Investor Services Group, Inc. ("First
Data"), a subsidiary of First Data Corp., serves as sub-administrator and
Transfer Agent of the Trust. First Data is located at One Exchange Place, 53
State Street, Boston, Massachusetts 02109-2873. Sierra Administration pays First
Data for its services as sub-administrator and Transfer Agent. Sierra
Administration also pays Boston Safe Deposit and Trust Co. ("Boston Safe"), One
Boston Place, Boston, MA 02108, for its services as custodian of the Trust. The
Trust pays certain of the Transfer Agent's and subadministrator's out-of-pocket
expenses and pays Boston Safe certain custodial transaction charges.
DISTRIBUTOR
Sierra Services is the distributor of the Class A, Class B and Class S shares of
the Funds. Sierra Services is located at 9301 Corbin Avenue, Northridge,
California 91324. Sierra Services, an indirectly wholly-owned subsidiary of
GWFC, was established in 1992 and is a registered broker-dealer with the NASD
and a registered investment advisor.
Each of the Funds has three distribution plans, pursuant to Rule 12b-1 under the
1940 Act, applicable to each class of Shares of the Trust (each, a "Rule 12b-1
Plan"). Each Fund intends to operate the Rule 12b-1 Plans in accordance with its
terms and the NASD Rules concerning sales charges. Under the applicable Rule
12b-1 Plans, Sierra Services is paid an annual fee as compensation in connection
with the offering and sale of Class A and Class B Shares of the Funds. The
annual fees to be paid to Sierra Services under Rule 12b-1 Plans are calculated
with respect to Class A Shares at an annual rate of up to .25% of the average
daily net assets of the Class A Shares of the Fund and with respect to Class B
Shares at an annual rate of up to .75% of the average daily net assets of the
Class B Shares of the Fund. These fees may be used to cover the expenses of
Sierra Services primarily intended to result in the sale of Class A and Class B
Shares of the Funds, including payments to Sierra Services' representatives or
others for selling shares. Sierra Services may retain any amount of its fee that
is not so expended. Class B Shares are also subject to a service fee at an
annual fee of .25% of the average daily net assets of the Class B Shares of the
Fund.
In addition to providing for the expenses discussed above, each Rule 12b-1 Plan
also recognizes that Sierra Advisors may use its investment advisory fees or
other resources to pay expenses associated with activities primarily intended to
result in the promotion and distribution of the Fund's shares. Sierra Services
may, from time to time, pay to other dealers, in connection with retail sales or
the distribution of shares of a Fund, material compensation in the form of
merchandise or trips. Salespersons and any other person entitled to receive any
compensation for selling or servicing Fund shares may receive different
compensation with respect to one particular class of shares over another in the
Fund.
PORTFOLIO TRANSACTIONS AND TURNOVER. All orders for the purchase or sale of
securities on behalf of each Fund are placed by the Fund's Sub-Advisor with
broker-dealers that it selects. Each Fund may, at the discretion of its
Sub-Advisor, utilize Authorized Dealers or brokers affiliated with the Advisor
or Sub-Advisor in connection with a purchase or sale of securities in accordance
with rules adopted or exemptive orders issued by the SEC when the Fund's
Sub-Advisor believes that such broker's charge for the transaction does not
exceed usual and customary levels.
Each Fund's turnover rate varies from year to year, depending on market
conditions and investment strategies. High turnover rates increase transaction
costs, and may increase taxable capital gains. The Growth and Short Term Global
Government Funds may experience an annual portfolio turnover rate over 100% as a
result of its investment strategies. Also, the Short Term High Quality Bond
Fund's annual portfolio turnover rate is expected to be as high as 200%. The
Funds will not consider portfolio turnover rate a limiting factor in making
investment decisions consistent with their investment objectives and policies.
-62-
<PAGE> 97
BREAKDOWN OF FUND EXPENSES
Like any mutual fund, each Fund pays expenses related to its daily operations.
Expenses paid out of a Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts. Each Fund pays a MANAGEMENT FEE to Sierra Advisors for
managing its investments and business affairs. Sierra Advisors pays fees to
sub-contractors, including the Sub-Advisors, who provide assistance with these
services. Each Fund also pays OTHER EXPENSES, which are explained on the
following pages. Sierra Advisors and/or Sierra Administration may, from time to
time, agree to reimburse the Funds for management fees and other expenses above
a specified limit. Sierra Advisors and Sierra Administration retain the ability
to be repaid by a Fund if expenses fall below the specified limit prior to the
end of the fiscal year.
MANAGEMENT FEE
The management fee is calculated and paid to Sierra Advisors every month. The
management fee for each Fund is based upon a percentage of the average net
assets of such Fund. Absent fee waivers, the total management fee for each Fund
as provided in the investment advisory agreement of the Fund is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Amount of
Assets After 50; After 75; After 100; After 125; After 150; After 200; After 300; After 400;
($ Mil.) First 50 next 25 next 25 next 25 next 25 next 50 next 100 next 100 next 100
-----------------------------------------------------------------------------------------------------------------------
Each Money Fund* .50% .50% .50% .50% .50% .50% .50% .50% .50%
-----------------------------------------------------------------------------------------------------------------------
Short Term High Quality
Bond Fund .50% .50% .50% .50% .50% .50% .45% .45% .45%
-----------------------------------------------------------------------------------------------------------------------
Short Term Global
Government Fund .65% .65% .65% .65% .65% .65% .65% .65% .65%
-----------------------------------------------------------------------------------------------------------------------
U.S. Government Fund* .60% .60% .60% .60% .60% .60% .60% .60% .60%
-----------------------------------------------------------------------------------------------------------------------
Corporate Income Fund .65% .65% .65% .65% .65% .65% .65% .65% .65%
-----------------------------------------------------------------------------------------------------------------------
California Municipal
Fund* .65% .65% .65% .65% .65% .65% .65% .65% .65%
-----------------------------------------------------------------------------------------------------------------------
Florida Insured
Municipal Fund* .60% .60% .60% .60% .60% .60% .60% .60% .60%
-----------------------------------------------------------------------------------------------------------------------
California Insured
Intermediate Municipal
Fund* .65% .65% .65% .65% .65% .65% .65% .65% .65%
-----------------------------------------------------------------------------------------------------------------------
National Municipal Fund* .60% .60% .60% .60% .60% .60% .60% .60% .60%
-----------------------------------------------------------------------------------------------------------------------
Growth and Income Fund .80% .80% .80% .75% .75% .75% .70% .70% .65%
-----------------------------------------------------------------------------------------------------------------------
Growth Fund .95% .95% .95% .90% .90% .90% .875% .875% .875%
-----------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund .90% .90% .90% .85% .85% .85% .85% .85% .85%
-----------------------------------------------------------------------------------------------------------------------
International Growth Fund .95% .85% .85% .85% .65% .65% .65% .65% .65%
-----------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------
-----------------------
Amount of
Assets Over
($ Mil.) 500
-----------------------
Each Money Fund* .40%
-----------------------
Short Term High Quality
Bond Fund .40%
-----------------------
Short Term Global
Government Fund .55%
-----------------------
U.S. Government Fund* .50%
-----------------------
Corporate Income Fund .50%
-----------------------
California Municipal
Fund* .50%
-----------------------
Florida Insured
Municipal Fund* .45%
-----------------------
California Insured
Intermediate Municipal
Fund* .50%
-----------------------
National Municipal Fund* .45%
-----------------------
Growth and Income Fund .575%
-----------------------
Growth Fund .875%
-----------------------
Emerging Growth Fund .75%
-----------------------
International Growth Fund .65%
-----------------------
-----------------------
</TABLE>
* For these Funds, the Advisor has contractually agreed to limit the annual
management fees that are payable under the investment advisory agreements with
the Funds to the percentages as set forth in footnote 6 to the Summary of Sierra
Trust Funds Expenses table.
-63-
<PAGE> 98
The Advisor retains only the net amount of the foregoing management fees after
the advisory fees paid to the Sub-Advisors described below, are deducted. Out of
the total management fee received by the Advisor for each Fund, the Advisor
would pay to the Sub-Advisor, absent fee waivers by the Sub-Advisor, a monthly
fee at an annual rate of the following percentages of the average net assets of
each Fund:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
=============================================================================================================================
Amount of
Assets After 50; After 75; After 100; After 125; After 150; After 200; After 300; After 400;
($ Mil.) First 50 next 25 next 25 next 25 next 25 next 50 next 100 next 100 next 100
-----------------------------------------------------------------------------------------------------------------------------
Each Money
Fund .15% .15% .15% .15% .15% .15% .15% .15% .15%
-----------------------------------------------------------------------------------------------------------------------------
Short Term
High Quality
Bond Fund .15% .15% .15% .15% .15% .15% .10% .10% .10%
-----------------------------------------------------------------------------------------------------------------------------
Short Term
Global
Government
Fund(1) .28% .28% .28% .28% .28% .28% .10% .10% .10%
-----------------------------------------------------------------------------------------------------------------------------
U.S.
Government
Fund (2) (2) (2) (2) (2) (2) (2) (2) (2)
-----------------------------------------------------------------------------------------------------------------------------
Corporate
Income Fund .30% .30% .30% .30% .30% .30% .30% .30% .30%
-----------------------------------------------------------------------------------------------------------------------------
California
Municipal
Fund(3) .20% .20% .20% .20% .20% .15% .15% .15% .15%
-----------------------------------------------------------------------------------------------------------------------------
Florida
Insured
Municipal
Fund .20% .20% .125% .125% .125% .125% .125% .125% .125%
-----------------------------------------------------------------------------------------------------------------------------
California
Insured
mediate
Municipal
Fund .20% .20% .125% .125% .125% .125% .125% .125% .125%
-----------------------------------------------------------------------------------------------------------------------------
National
Municipal
Fund(3) .20% .20% .20% .20% .20% .15% .15% .15% .15%
-----------------------------------------------------------------------------------------------------------------------------
Growth and
Income Fund .45% .45% .45% .40% .40% .40% .35% .35% .30%
-----------------------------------------------------------------------------------------------------------------------------
Growth Fund .55% .55% .55% .50% .50% .50% .50% .50% .50%
-----------------------------------------------------------------------------------------------------------------------------
Emerging
Growth Fund .55% .55% .55% .50% .50% .50% .50% .50% .50%
-----------------------------------------------------------------------------------------------------------------------------
International
Growth Fund .50% .50% .50% .50% .50% .50% .50% .50% .50%
=============================================================================================================================
<CAPTION>
==================================
Amount of
Assets Over
($ Mil.) 500
----------------------------------
Each Money
Fund .15%
----------------------------------
Short Term
High Quality
Bond Fund .10%
----------------------------------
Short Term
Global
Government
Fund(1) .10%
----------------------------------
U.S.
Government
Fund (2)
----------------------------------
Corporate
Income Fund .25%
----------------------------------
California
Municipal
Fund(3) .15%
----------------------------------
Florida
Insured
Municipal
Fund .125%
----------------------------------
California
Insured
mediate
Municipal
Fund .125%
----------------------------------
National
Municipal
Fund(3) .15%
----------------------------------
Growth and
Income Fund .30%
----------------------------------
Growth Fund .50%
----------------------------------
Emerging
Growth Fund .50%
----------------------------------
International
Growth Fund .50%
==================================
</TABLE>
(1) Sierra Advisors pay the Sub-Advisor of the Short Term Global Government Fund
a minimum annual fee of $137,500.
(2) BlackRock is paid fees monthly at the following annual rate under the
sub-advisory agreement for the Fund: (i) .185% of the Fund's average daily
net assets if the combined average daily net assets of the Fund and The
Sierra Variable Trust's U.S. Government Fund (together, the "Government
Funds' Combined Assets") are equal to or less than $650,000,000; (ii) .15%
of the Fund's average daily net assets if the Government Funds' Combined
Assets are more than $650,000,000 but less than $1,000,000,000; or (iii)
.10% of the Fund's average daily net assets if the Government Funds'
Combined Assets are more than $1,000,000,000.
(3) Pursuant to the investment sub-advisory agreements with respect to each of
the California Municipal and National Municipal Funds, when the combined
average daily net assets of the California Municipal and National Municipal
Funds (the "Combined Assets") exceed $750 million, the Sub-Advisor will be
paid a fee with respect to each Fund in proportion to each Fund's average
net assets at the following annual rate: .15% of the Combined Assets up to
$1 billion; plus .125% of the Combined Assets over $1 billion.
-64-
<PAGE> 99
Advisory fees paid by the International Growth, Growth and Income, Growth and
Emerging Growth Funds are higher than those paid by most other investment
companies; however, the Board of Trustees believes that the fees are competitive
with advisory fees paid by investment companies with similar investment
objectives and policies.
OTHER EXPENSES
While the management fee is a significant component of each Fund's annual
operating costs, each Fund has other expenses as well. In addition to the
management fee and other fees described previously, each Fund pays other
expenses, such as legal, audit, transfer agency and custodian out-of-pocket
fees; proxy solicitation costs; and the compensation of trustees who are not
affiliated with Sierra Advisors. Most Fund expenses are allocated
proportionately among all of the outstanding shares of the Fund. However, the
Rule 12b-1 Plans' fees and service fees for the Class B Shares are class
expenses that are charged proportionately only to the outstanding shares of that
class.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE TRUST'S
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFERING OF THE TRUST'S SHARES,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER
MAY NOT LAWFULLY BE MADE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-65-
<PAGE> 100
(800) 222-5852
P.O. BOX 5118
LOGO WESTBOROUGH, MASSACHUSETTS 01581-5118
- --------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION Check one box for the account you wish to open and
complete information.
<TABLE>
<S> <C>
/ / Individual Name ___________________________________________________________ SS#/Tax ID __________________
/ / Joint Tenant Name of Add'l Owner ____________________________________________ SS#/Tax ID __________________
/ / Tenants in Common
/ / Transfer to Minors ______________________________________ As Custodian For _______________________________________
NAME OF CUSTODIAN NAME OF MINOR
Under the __________ Uniform Transfers (Gifts) to Minors Act _____ Minor's SS# ________________
(STATE) (AGE)
/ / Other Indicate name of Corporation, other organization or fiduciary; if Trust, include date of instrument:
(Additional forms, such as a Corporate Resolution may be required. Call (800) 222-5852 for information)
Name ___________________________________________________ Tax ID _______________________________
/ / I am a United States Citizen. If not, please specify Country ________________________________________________________
Street Address ________________________________________________________ Home Phone ( ) ________________________________
City __________________________________ State ________________ Zip ________________ Business Phone ( ) ________________
</TABLE>
- --------------------------------------------------------------------------------
2. YOUR INVESTMENT SELECTION (Minimum initial $250; Minimum subsequent $100)
Fund Investment Amount
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
U.S. Government Money Fund
Class A Shares $ ----------------------------
California Money Fund
Class A Shares $ ----------------------------
Global Money Fund
Class A Shares $ ----------------------------
Short Term High Quality Bond
Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
Short Term Global Government
Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
U.S. Government Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
Corporate Income Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
Florida Insured Municipal Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
National Municipal Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
Growth and Income Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
Growth Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
International Growth Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
Emerging Growth Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
California Municipal Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
California Insured mediate
Municipal Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
Other ___________________ $ -------------------------
Total investment $ ----------------------------
</TABLE>
- --------------------------------------------------------------------------------
3. YOUR PAYMENT METHOD FOR INITIAL INVESTMENT
/ / CHECK: $ _________________ Make check payable to Sierra Asset
Management Portfolios.
/ / WIRE: Call (800) 222-5852 for instructions.
- --------------------------------------------------------------------------------
<PAGE> 101
- --------------------------------------------------------------------------------
4. YOUR BROKER/DEALER
Dealer Number_________ Branch Number__________ Representative's Number__________
Firm Name______________________ Representative's Last Name______________________
Branch____________ Address____________ City___________ State________ Zip________
5. SPECIAL FEATURES AND PRIVILEGES
A. TELEPHONE PRIVILEGES PERMITS TRANSFER OF MONEY BY WIRE ($1,000 MINIMUM)
BETWEEN YOUR SIERRA TRUST FUND AND YOUR DESIGNATED BANK
ACCOUNT.
/ / YES / / NO If "Yes," Please wire monies to the following bank:
Name of your
Bank____________________________________________________________________________
Acct. Name______________________________ Acct. No.______________________________
Bank____________ Address____________ City__________ State_________ Zip__________
B. DIVIDEND AND DISTRIBUTION Plans Check one only; if none are checked, all
dividends/distributions will be reinvested.
/ / FULL REINVESTMENT -- Reinvest all dividends and distributions at net asset
value.
/ / CASH -- Pay all income dividends and distributions by check and mail/deposit
to my bank per instructions in Section "A" above.
/ / Pay all income dividends and distributions by check and mail to the address
provided in Section 1.
/ / SYSTEMATIC (AUTOMATIC) WITHDRAWAL PLAN -- If you have more than $10,000 in a
Sierra Trust Funds mutual fund account, you can elect to receive a regular
check as follows:
Frequency: / / Monthly / / Quarterly / / Semi-Annually / / Annually Amount
(not less than $100): $
Check the date of payment you prefer: / / 10th day OR / / 20th day of month
C. CHECKWRITING PRIVILEGES Available for Class A Shares of the money market
funds only; minimum of $250 per check.
If you wish to redeem monies by check, complete the Signature Card (see
following page).
D. SIERRA AUTOMATIC INVESTMENT PLAN (OPTIONAL). ----------------------------
ATTACH VOIDED CHECK HERE
----------------------------
I authorize the Fund's Agent to withdraw funds from the bank account provided
below in the amount of $_______ (minimum $25), on the / / 15th of______________
(month) and on the same day of each month thereafter. If the date falls on a
weekend or holiday, funds will be invested on the next Business Day. The
investment will be applied to this Fund account.
Name of Bank_________________________ Bank Account No._________________________
(the account must have check or draft writing privileges)
Address_________________________________________________________________________
City_______________________ State_______________________ Zip____________________
E. LETTER OF INTENT (LOI):
/ / I agree to the terms of the Letter of Intent and provisions for reservation
of shares as set forth in the Prospectus. Although I am not obligated to do so,
it is my intention to invest over a 13-month period in Class A Shares of one or
more funds (excluding all Sierra Trust Funds Money Market Funds) an aggregate
amount at least equal to the amount indicated below:
/ / $50,000 / / $100,000 / / $250,000 / / $500,000 / / $1,000 ,000
____________________ Note: The effective date can be no more than 90 days
Effective Date prior to today's date.
____________________________________ ____________________________________
Signature(s) Date
APPLICATION CONTINUED ON THE NEXT PAGE
<PAGE> 102
F. RIGHT OF ACCUMULATION (ROA):
In order for a cumulative quantity discount (as described in the Portfolios
prospectus) to be made available, the shareholder or his or her securities
dealer must notify Sierra Shareholder Services (800-222-5852) or the Portfolio's
transfer agent of the total holdings in our group (excluding all Sierra Trust
Funds Money Market Funds Class A Shares) each time an order is placed.
/ / I own shares in other Portfolios, Sierra Trust Funds or Sierra Prime Income
Fund which may entitle this purchase to have a reduced sales charge under the
provisions in the Portfolios prospectus. My other account numbers are:
- ------------------------------------- ------------------------------------
- ------------------------------------- ------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ----------------------------------------------------------- -----------------
Signature(s) Date
- --------------------------------------------------------------------------------
6. CLIENT SIGNATURES AND TAXPAYER CERTIFICATION (Please read and sign below.)
I am of legal age, have received and read the Prospectus, agree to its terms and
understand that by signing below (a) neither the Portfolios nor Sierra
Investment Services Corporation is a bank; and Portfolio shares are not backed
or guaranteed by any bank nor insured by the FDIC; (b) my (our) account will
automatically have the Exchange Privilege capability and that all information
provided above (if applicable) will apply to any Portfolio into which my (our)
shares may be exchanged; (c) I hereby ratify any instructions given on this
account and any account into which I exchange relating to items on this
application and agree that the Portfolios, Sierra Investment Services
Corporation and Sierra Fund Administration Corporation will not be liable for
any loss, cost or expense for acting upon such instructions (by telephone or in
writing) believed by it to be genuine and in accordance with the procedures
described in the Prospectus; (d) it is my responsibility to read the Prospectus;
(e) I affirm that I/we have entered into a broker/dealer cash account
relationship with Sierra Investment Services Corporation; and (f) I represent
and warrant that I have full right, power and authority to give the foregoing
affirmations, certifications and authorizations, and to make the investments
applied for pursuant to this Application Form and, if signing on behalf of the
beneficial owner, represent and warrant that I am duly authorized to sign this
Application Form and to purchase and redeem shares (or to deposit and withdraw
funds) on behalf of the beneficial owner.
TAXPAYER IDENTIFICATION NUMBER CERTIFICATION: As required by federal law, I (we)
certify under penalties of perjury (1) that the Social Security Number ("SSN")
or Taxpayer Identification Number ("TIN") provided above is correct and (2) that
the IRS has never notified me (us) that I (we) am (are) subject to 31% backup
withholding, or has notified me (us) that I (we) am (are) no longer subject to
such backup withholding. (NOTE: IF ANY OR ALL OF PART (2) OF THE PRECEDING
SENTENCE IS NOT TRUE IN YOUR CASE, PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
If I (we) fail to furnish my (our) correct SSN or TIN, I (we) may be subject to
a penalty for each failure and my (our) account may be subject to 31% backup
withholding on distribution and redemption proceeds.
<TABLE>
<S> <C>
X
- ------------------------------------------------------- ----------------------------------------------
Registered Representative's Name and Number SIGNATURE
Date X
--------------------------------------------------- ----------------------------------------------
SIGNATURE
</TABLE>
<PAGE> 103
- --------------------------------------------------------------------------------
LOGO
A Family of Mutual Funds
SIGNATURE CARD
Boston Safe Deposit and Trust Co.
---------------------------------------
Account Number
All Registered Owners must
sign this Signature Card.
Please check the Fund(s) for which you wish to have Checkwriting Privileges:
/ / U.S. GOVERNMENT MONEY FUND
/ / CALIFORNIA MONEY FUND
/ / GLOBAL MONEY FUND
PLEASE PRINT
Last Name __________________ First Name ______________ Mid. Init. _______
X _______________________________________________________________________
SIGNATURE
Last Name __________________ First Name ______________ Mid. Init. _______
X _______________________________________________________________________
SIGNATURE
/ / Check here if only one signature is required on checks. If neither
box is checked,
/ / Check here if both signatures are required on checks. all checks
will require both signatures.
- --------------------------------------------------------------------------------
The payment of redemption proceeds is authorized by the signature(s) appearing
on the reverse side. Each signatory guarantees the genuineness of the other
signatures.
Boston Safe Deposit and Trust Co. ("Boston Safe") is hereby appointed agent by
the person(s) signing this card (the "Shareholder(s)") and, as agent is
authorized and directed, upon presentment of checks to Boston Safe to, in the
case of investments in the U.S. Government, California Money and Global Money
Funds (the "Funds"), transmit such checks to the Fund or its transfer agent as
requests to redeem shares registered in the name of the Shareholders in the
amounts of such checks for deposit in this checking account; Sierra Fund
Administration Corporation is hereby further authorized to accept and execute
instructions relating to such withdrawals.
This checking arrangement is subject to the applicable terms and restrictions,
including charges, set forth in the current prospectus for each Sierra Trust
Funds mutual fund to which the Shareholder has arranged to redeem shares or
withdraw funds by checkwriting. Boston Safe is further authorized to effect
withdrawals or redemptions to defray Boston Safe's charges relating to this
checking arrangement. The Shareholder agrees that he/she shall be subject to the
rules and regulations of Boston Safe pertaining to this checking arrangement as
amended from time to time; that Boston Safe has the right not to honor checks
which do not meet Boston Safe's normal standards for checks presented to it,
that Boston Safe and Sierra Trust Funds have the right to change, modify or
terminate this checkwriting service at any time, and that Boston Safe, with
respect to these checkwriting services shall be liable to the Shareholder and/or
the Funds only for its own willful misfeasance, bad faith or gross negligence.
Please sign and return this Card (with any necessary authorizing documentation)
to:
SIERRA TRUST FUNDS
P.O. Box 5118
Westborough, MA 01581-5118
<PAGE> 104
<TABLE>
<C> <S>
PROSPECTUS SIERRA TRUST FUNDS
OCTOBER 31, 1996 P.O. BOX 5118
WESTBOROUGH, MASSACHUSETTS 01581-5118
(800) 222-5852
GLOBAL MONEY FUND FLORIDA INSURED MUNICIPAL FUND
U.S. GOVERNMENT MONEY FUND CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CALIFORNIA MONEY FUND NATIONAL MUNICIPAL FUND
SHORT TERM HIGH QUALITY BOND FUND GROWTH AND INCOME FUND
SHORT TERM GLOBAL GOVERNMENT FUND GROWTH FUND
U.S. GOVERNMENT FUND EMERGING GROWTH FUND
CORPORATE INCOME FUND INTERNATIONAL GROWTH FUND
CALIFORNIA MUNICIPAL FUND
</TABLE>
This prospectus describes the Class A and Class S Shares of the Sierra Trust
Funds (the "Trust"). The Trust consists of the fifteen separate investment funds
(each, a "Fund") named above, and the Target Maturity 2002 Fund, which is
described in a separate prospectus. The Class A and Class S Shares offer
investors alternative ways of paying sales charges and distribution costs.
Please read this prospectus before investing, and keep it for future reference.
It contains useful information that can help you decide whether the investment
goals of the Funds are right for you.
A Statement of Additional Information ("SAI") about the Trust, dated October 31,
1996, has been filed with the Securities and Exchange Commission (the "SEC"),
and is incorporated herein by reference (is considered legally a part of this
prospectus). The SAI is available free upon request by calling the Trust at
800-222-5852.
The Growth and Emerging Growth Funds may each invest up to 35%, and the Short
Term Global Government Fund may invest up to 10%, of the Fund's total assets,
respectively, in lower-rated bonds, commonly referred to as "junk bonds." Bonds
of this type are considered to be speculative with regard to the payment of
interest and return of principal. Purchasers should carefully assess the risks
associated with an investment in these Funds. See "Securities and Investment
Practices -- Lower-Rated Securities."
Investments in the Funds are not guaranteed or insured by the U.S. Government,
and there is no assurance that the Global Money, U.S. Government Money and
California Money Funds will be able to maintain a stable net asset value of
$1.00 per share.
THE TRUST'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS (TRUST OR
OTHERWISE) OF, OR ENDORSED OR GUARANTEED BY A BANK OR ANY AFFILIATES OR
CORRESPONDENTS. THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Expenses & Financial Highlights........................................................... 7
The Funds' Investments and Risk Considerations....................................................... 15
Performance Information.............................................................................. 40
Your Account -- How to Invest in a SAM Account....................................................... 43
How to Sell Shares................................................................................... 50
Exchange Privileges and Restrictions................................................................. 52
Dividends, Capital Gains and Taxes................................................................... 53
The Funds in Detail.................................................................................. 57
Sierra Advisors, Its Affiliates and Service Providers................................................ 57
Breakdown of Fund Expenses........................................................................... 59
</TABLE>
<PAGE> 105
THE SIERRA TRUST FUNDS FAMILY AT A GLANCE
The Sierra Trust Funds (the "Trust") is an open-end management investment
company with a family of sixteen investment funds, each with its own investment
objectives and policies. This prospectus describes all of the investment funds,
except the Target Maturity 2002 Fund (excepting the latter fund, each, a "Fund"
and together, the "Funds"). Please call 800-222-5852 if you would like to obtain
a prospectus and further information about the Target Maturity 2002 Fund. The
Global Money, U.S. Government Money and California Money Funds (the "Money
Funds") are money market funds. The rest of the Funds (the "Non-Money Funds")
are classified as either "Bond Funds" or "Equity Funds." Each Fund offers four
classes of shares, Class A Shares, Class B Shares, Class I Shares and Class S
Shares. Subject to the following restrictions, investors may invest in one or
more of the different classes, which have different sales charges, expenses and
other features.
CLASS A AND CLASS S SHARES: Class A Shares have a front-end sales charge, while
Class S Shares have sales charges only if they are redeemed within six years.
Class S Shares are sold to investors who select the Sierra Asset Management
("SAM") service described in "Your Account - Investment in Funds Through a SAM
Account." Investors may purchase directly Class A Shares of all of the Funds and
Class S Shares of ten of the Funds (the "SAM Account Funds") that currently are
used for investment by SAM Accounts.
SHARES OF THE TARGET MATURITY 2002 FUND AND THE CLASS B SHARES AND CLASS I
SHARES ARE NOT OFFERED THROUGH THIS PROSPECTUS. Class I Shares are currently
sold exclusively to the various investment portfolios of Sierra Asset Management
Portfolios ("SAM Portfolios"), an open-end management investment company, and
are available for direct purchase by investors. Please call 800-222-5852 if you
would like to obtain a prospectus and further information about the Target
Maturity 2002 Fund or the Class B Shares of the Funds.
GOALS: Each Fund has a different investment goal. Each fund's investment
objective is a fundamental policy which may not be changed without the approval
of a majority of the Fund's outstanding voting securities. As with any mutual
fund, there is no assurance that a Fund will achieve its goal.
STRATEGY: Each Fund has a distinct strategy specifically designed to achieve its
goal and these strategies entail varying degrees of risk. Generally, investors
seeking higher returns must assume greater risks.
INVESTMENT MANAGEMENT: Sierra Investment Advisors Corporation ("Advisor" or
"Sierra Advisors") has overall responsibility for management of the Funds.
However, each Fund has an investment sub-advisor ("Sub-Advisor") who selects the
investments made by that Fund subject to oversight and direction by Sierra
Advisors. The Advisor and the Sub-Advisors are discussed in "The Funds in
Detail - Sierra Advisors, Its Affiliates and Service Providers".
RISK CONSIDERATIONS: The value of a Fund's shares will fluctuate with the value
of the underlying securities in its investment portfolio, and in the case of
debt securities, with the general level of interest rates. When interest rates
decline, the value of a portfolio invested in fixed-income securities can be
expected to rise. Conversely, when interest rates rise, the value of a portfolio
invested in fixed-income securities can be expected to decline. In the case of
foreign currency denominated securities, these trends may be offset or amplified
by fluctuations in foreign currencies. Investing in securities of foreign
issuers involves certain risks and considerations not typically associated with
investing in securities of U.S. companies. See "The Funds' Investments and Risk
Considerations - Securities and Investment Practices - Foreign Investments."
High yielding fixed-income securities, such as those in which the Short Term
Global Government Fund may invest up to 10%, and the Growth and Emerging Growth
Funds up to 35%, respectively, of total assets, are subject to greater market
fluctuations and risk of loss of income and principal than investments in lower
yielding fixed-income securities. The Funds intend to employ from time to time
certain investment techniques which are designed to enhance income or total
return or hedge against market or currency risks but which themselves involve
additional risks. These techniques include options on securities, futures,
options on futures, options on indexes, options on foreign currencies, foreign
currency exchange transactions, lending of securities and when-issued securities
and delayed-delivery transactions. Because the Short Term Global Government,
California Municipal, Florida Insured Municipal, California Insured Intermediate
Municipal and California Money Funds are non-diversified, they are permitted
greater flexibility to invest their assets in the securities of any one issuer
and therefore will be exposed to increased risk of loss if such an investment
underperforms expectations. For additional risk information, see "The Funds'
Investments and Risk
-1-
<PAGE> 106
Considerations" and "Securities and Investment Practices" in this prospectus and
"Investment Objectives and Policies of the Funds" in the Trust's SAI.
THE MONEY FUNDS
GLOBAL MONEY FUND
- -----------------
GOAL: To maximize current income consistent with safety of principal and
maintenance of liquidity.
STRATEGY: Investing in U.S. Dollar-denominated money market instruments of
foreign and U.S. issuers.
INVESTMENT MANAGEMENT: J.P. Morgan Investment Management Inc. ("J.P. Morgan") is
the Sub-Advisor of the Fund.
U.S. GOVERNMENT MONEY FUND
- --------------------------
GOAL: To maximize current income consistent with safety of principal and
maintenance of liquidity.
STRATEGY: Investing primarily in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
INVESTMENT MANAGEMENT: Alliance Capital Management L.P. ("Alliance") is the
Sub-Advisor of the Fund.
CALIFORNIA MONEY FUND
- ---------------------
GOAL: To maximize current income that is excluded from gross income for federal
income tax purposes and is exempt from California State personal income
taxation, consistent with safety of principal and maintenance of liquidity.
STRATEGY: Investing in obligations that are exempt from California State
personal income tax.
INVESTMENT MANAGEMENT: Alliance is the Sub-Advisor of the Fund.
THE BOND FUNDS
SHORT TERM HIGH QUALITY BOND FUND
- ---------------------------------
GOAL: To provide as high a level of current income as is consistent with prudent
investment management and stability of principal.
STRATEGY: Investing at least 65% of its assets in investment-grade short-term
bonds and other fixed-income securities issued by the U.S. Government,
corporations and other issuers. The Fund may borrow money or enter into reverse
repurchase agreements or dollar roll transactions in the aggregate up to 10% of
its total assets, invest up to 25% of its total assets in asset-backed
securities and may engage in certain options transactions, financial futures
contracts and currency forwards or futures contracts and related options. Each
of these investments entails risks which are discussed in the "Investment
Principles and Risk Considerations" and "Securities and Investment Practices"
sections following.
INVESTMENT MANAGEMENT: Scudder, Stevens & Clark, Inc. ("Scudder") is the
Sub-Advisor of the Fund.
SHORT TERM GLOBAL GOVERNMENT FUND
- ---------------------------------
GOAL: To provide high current income consistent with protection of principal.
STRATEGY: Investing at least 65% of its assets in short-term bonds and money
market instruments issued by foreign and U.S. governments and denominated in
foreign currencies or the U.S. Dollar.
INVESTMENT MANAGEMENT: Scudder is the Sub-Advisor of the Fund.
U.S. GOVERNMENT FUND
- --------------------
GOAL: To maximize total rate of return while providing a high level of current
income, consistent with reasonable safety of principal.
STRATEGY: Investing in a broad range of U.S. Government securities, including
mortgage-backed securities.
INVESTMENT MANAGEMENT: BlackRock Financial Management, Inc. ("BlackRock") is the
Sub-Advisor of the Fund.
-2-
<PAGE> 107
CORPORATE INCOME FUND
- ---------------------
GOAL: To provide a high level of current income, consistent with the
preservation of capital.
STRATEGY: Investing primarily in investment-grade corporate bonds of U.S.
issuers.
INVESTMENT MANAGEMENT: TCW Funds Management, Inc. ("TCW Management") is the
Sub-Advisor of the Fund.
CALIFORNIA MUNICIPAL FUND
- -------------------------
GOAL: To provide as high a level of current income that is excluded from gross
income for federal income tax purposes and is exempt from California State
personal income tax as is consistent with prudent investment management and
preservation of capital.
STRATEGY: Investing in intermediate- and long-term California municipal
securities.
INVESTMENT MANAGEMENT: Van Kampen American Capital Management Inc. ("Van
Kampen") is the Sub-Advisor of the Fund.
FLORIDA INSURED MUNICIPAL FUND
- ------------------------------
GOAL: To seek as high a level of current income, exempt from federal income tax,
as is consistent with prudent investment management and preservation of capital,
and to offer shareholders the opportunity to own shares the value of which is
exempt from Florida intangible personal property tax.
STRATEGY: Investing in intermediate- and long-term Florida municipal obligations
that are "insured obligations" and offer potential for a high level of current
income relative to funds with like investment objectives. Insured obligations
are municipal obligations that at all times are fully insured as to the
scheduled payment of all installments of interest and principal.
INVESTMENT MANAGEMENT: Van Kampen is the Sub-Advisor of the Fund.
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
- ----------------------------------------------
GOAL: To provide California investors with as high a level of current income
exempt from federal and California State income tax as is consistent with
prudent investment management and preservation of capital.
STRATEGY: Investing primarily in intermediate-term California municipal
securities that are "insured obligations" and offer potential for a high level
of current income relative to funds with like investment objectives. It is a
fundamental policy of the Fund that it will invest at least 80% of the value of
its total assets in insured California municipal securities, except when
maintaining a temporary defensive position. Insured obligations are municipal
obligations that at all times are fully insured as to the scheduled payment of
all installments of interest and principal. The Fund may invest up to 20% of the
value of its total assets in municipal securities that are not insured, provided
that such securities are at least investment-grade as described in "The Funds'
Investments and Risk Considerations" section.
INVESTMENT MANAGEMENT: Van Kampen is the Sub-Advisor of the Fund.
NATIONAL MUNICIPAL FUND
- -----------------------
GOAL: To provide a high level of current income which is exempt from federal
income tax, consistent with preservation of capital.
STRATEGY: Investing in intermediate- and long-term fixed income municipal
obligations.
INVESTMENT MANAGEMENT: Van Kampen is the Sub-Advisor of the Fund.
THE EQUITY FUNDS
GROWTH AND INCOME FUND
- ----------------------
GOAL: Long-term capital growth and current income consistent with reasonable
investment risk.
STRATEGY: Investing primarily in dividend-paying common stock of
well-established companies.
INVESTMENT MANAGEMENT: J.P. Morgan is the Sub-Advisor of the Fund.
-3-
<PAGE> 108
GROWTH FUND
- -----------
GOAL: Long-term capital appreciation (increase in the value of the Fund's
shares).
STRATEGY: Investing primarily in common stock of U.S., multinational, and
foreign companies of all sizes that offer potential for growth.
INVESTMENT MANAGEMENT: Janus Capital Corporation ("Janus") is the Sub-Advisor of
the Fund.
EMERGING GROWTH FUND
- --------------------
GOAL: Long-term capital appreciation by investing primarily in equity
securities.
STRATEGY: Investing primarily in stock of small companies which are expected to
achieve accelerated growth in earnings and revenues or which are undervalued in
the market place.
INVESTMENT MANAGEMENT: Janus is the Sub-Advisor of the Fund.
INTERNATIONAL GROWTH FUND
- -------------------------
GOAL: Long-term capital appreciation by investing primarily in equity securities
of foreign issuers. STRATEGY: Investing in stock of leading companies located
outside the United States.
INVESTMENT MANAGEMENT: Warburg, Pincus Counsellors, Inc. ("Warburg") is the
Sub-Advisor of the Fund.
-4-
<PAGE> 109
SUMMARY OF SIERRA TRUST FUNDS EXPENSES
<TABLE>
<CAPTION>
SHORT
U.S. TERM HIGH
GLOBAL MONEY GOVERNMENT CALIFORNIA QUALITY
FUND MONEY FUND MONEY FUND BOND FUND
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES (AS A
PERCENTAGE OF OFFERING PRICE)
Class A......................................... None None None 3.50%(1)
Class S......................................... None None None None
MAXIMUM SALES CHARGE IMPOSED ON REINVESTED
DIVIDENDS (AS A PERCENTAGE OF OFFERING PRICE)
Class A......................................... None None None None
Class S......................................... None None None None
DEFERRED SALES CHARGE
Class A......................................... None(2) None(2) None(2) None(2)
Class S......................................... 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3)
REDEMPTION FEES(4)
Class A......................................... None None None None
Class S......................................... None None None None
EXCHANGE FEES(5)
Class A......................................... None None None None
Class S......................................... None None None None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
MANAGEMENT FEES (AFTER VOLUNTARY WAIVERS OR
REIMBURSEMENT)(6)
Class A......................................... 0.04% 0.04% 0.14% 0.04%
Class S......................................... 0.04% 0.04% 0.14% 0.04%
12B-1 FEES(7)
Class A......................................... 0.25% 0.25% 0.25% 0.25%
Class S......................................... 1.00% 1.00% 1.00% 1.00%
OTHER EXPENSES(8)
Class A......................................... 0.36% 0.56% 0.46% 0.46%
Class S......................................... 0.36% 0.56% 0.46% 0.46%
TOTAL FUND OPERATING EXPENSES(9)
Class A......................................... 0.65% 0.85% 0.85% 0.75%
Class S......................................... 1.40% 1.60% 1.60% 1.50%
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
SHORT TERM
GLOBAL U.S.
GOVERNMENT GOVERNMENT CORPORATE
FUND FUND INCOME FUND
<S> <C<C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES (AS A
PERCENTAGE OF OFFERING PRICE)
Class A......................................... 3.50%(1) 4.50%(1) 4.50%(1)
Class S......................................... None None None
MAXIMUM SALES CHARGE IMPOSED ON REINVESTED
DIVIDENDS (AS A PERCENTAGE OF OFFERING PRICE)
Class A......................................... None None None
Class S......................................... None None None
DEFERRED SALES CHARGE
Class A......................................... None(2) None(2) None(2)
Class S......................................... 5.00%(3) 5.00%(3) 5.00%(3)
REDEMPTION FEES(4)
Class A......................................... None None None
Class S......................................... None None None
EXCHANGE FEES(5)
Class A......................................... None None None
Class S......................................... None None None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
MANAGEMENT FEES (AFTER VOLUNTARY WAIVERS OR
REIMBURSEMENT)(6)
Class A......................................... 0.10% 0.19% 0.32%
Class S......................................... 0.10% 0.19% 0.32%
12B-1 FEES(7)
Class A......................................... 0.25% 0.25% 0.25%
Class S......................................... 1.00% 1.00% 1.00%
OTHER EXPENSES(8)
Class A......................................... 0.50% 0.46% 0.43%
Class S......................................... 0.50% 0.46% 0.43%
TOTAL FUND OPERATING EXPENSES(9)
Class A......................................... 0.85% 0.90% 1.00%
Class S......................................... 1.60% 1.65% 1.75%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Fees charged for the SAM Service, which are in addition to and separate from
the fees and expenses paid directly or indirectly by an investor in the
Funds, are not reflected in the expense summary. See "Investment in Funds
through a SAM Account."
(1)The initial sales charge is reduced for purchases of $50,000 and over,
decreasing to zero for purchases of $1,000,000 and over for each Fund.
(2)Certain investors who purchased Non-Money Fund Class A Shares at net asset
value based on a purchase amount of $2.5 million or more before July 1, 1995
are subject to a 1.0% contingent deferred sales charge ("CDSC") on
redemptions within one year of purchase (the "Prior Class A CDSC"). Certain
investors who purchase Non-Money Fund Class A Shares at net asset value based
on a purchase amount of $1 million or more after June 30, 1995 may be subject
to a 1.0% CDSC on redemptions within one year of purchase or a 0.5% CDSC on
redemptions after 1 year but within 2 years of purchase. Class A Shares
purchased through a qualified 401(k) or 403(b) plan may, in certain
circumstances, be subject to a CDSC of 1.0% if the shares are redeemed within
two years of their initial purchase. Money Fund Class A Shares acquired
through exchange from Non-Money Fund Class A Shares that were subject to a
CDSC at the time of exchange may also be subject to such CDSC. See "Initial
Sales Charge Alternative: Class A Shares" and "Application of Class A Shares
CDSCs."
(3)See "Your Account -- Deferred Sales Charge Alternative: Class S Shares."
(4)A $5.00 fee may be charged for each wire transfer if shares are redeemed by
wire transfer to a shareholder's pre-authorized designated bank account.
(5)Upon 60 days' prior written notice to shareholders, the exchange privilege
may be modified or terminated and/or the Trust may begin imposing a charge of
up to $5.00 for each exchange. See "Your Account -- Exchange Privileges and
Restrictions."
(6)Reflects voluntary waivers of management fees by the Advisor. In the absence
of such voluntary waivers, management fees would have been for each of the
following Funds: Global Money Fund-0.40%*; U.S. Government Money Fund-0.40%*;
California Money Fund-0.40%*; Short Term High Quality Bond Fund-0.50%; Short
Term Global Government Fund-0.65%; U.S. Government Fund-0.55%*; Corporate
Income Fund-0.65%; California Municipal Fund0.55%*; Florida Insured Municipal
Fund-0.55%*; California Insured Intermediate Municipal Fund-0.55%*; and
National Municipal Fund-0.55%*. No management fee waivers apply to the Growth
and Income, Growth, Emerging Growth and International Growth Funds. *
Asterisked fees reflect the contractual agreement of the Advisor to limit the
annual management fee.
(7)Of the 12b-1 fees for the Class S Shares, 0.75% represents an asset-based
sales charge and 0.25% is a service charge. Due to the continuous nature of
the 12b-1 fee, long-term shareholders of a Fund may pay more than the
economic equivalent of the maximum front-end sales charge otherwise permitted
by the Conduct Rules of the National Association of Securities Dealers, Inc.
("NASD").
(8)After voluntary waivers or reimbursement. Reflects the voluntary agreement of
the Advisor to bear certain expenses and Administrator to waive fees to limit
total fund expenses for the Class A and Class S Shares.
(9)The total fund operating expenses set forth in the foregoing table are
restated to reflect anticipated management fees and other expenses (after
voluntary waivers or reimbursements). Actual expenses for each Fund may vary
from day to day. The Advisor and Administrator anticipate voluntarily waiving
fees and/or bearing expenses for certain Funds that will result in total fund
operating expenses as set forth in the foregoing table; they are under no
obligation to continue to do so.
-5-
<PAGE> 110
<TABLE>
<CAPTION>
CALIFORNIA
INSURED
CALIFORNIA FLORIDA INSURED INTERMEDIATE NATIONAL GROWTH AND EMERGING
MUNICIPAL FUND MUNICIPAL FUND MUNICIPAL FUND MUNICIPAL FUND INCOME FUND GROWTH FUND GROWTH FUND
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
4.50%(1) 4.50%(1) 4.50%(1) 4.50%(1) 5.75%(1) 5.75%(1) 5.75%(1)
None None None None None None None
None None None None None None None
None None None None None None None
None(2) None(2) None(2) None(2) None(2) None(2) None(2)
5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3)
None None None None None None None
None None None None None None None
None None None None None None None
None None None None None None None
0.27% 0.04% 0.04% 0.30% 0.78% 0.93% 0.88%
0.27% 0.04% 0.04% 0.30% 0.78% 0.93% 0.88%
0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
0.43% 0.51% 0.56% 0.45% 0.55% 0.53% 0.57%
0.43% 0.51% 0.56% 0.45% 0.55% 0.53% 0.57%
0.95% 0.80% 0.85% 1.00% 1.58% 1.71% 1.70%
1.70% 1.55% 1.60% 1.75% 2.33% 2.46% 2.45%
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INTERNATIONAL
GROWTH FUND
<S><C>
- --------------------------------------------------------------------------------------------------------------
5.75%(1)
None
None
None
None(2)
5.00%(3)
None
None
None
None
0.90%
0.90%
0.25%
1.00%
0.68%
0.68%
1.83%
2.58%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Set forth below are total fund operating expenses absent such fee waivers and
expense reimbursements. Global Money Fund, Class A-1.21%, Class S-1.96%, U.S.
Government Money Fund, Class A-1.34%, Class S-2.09%; California Money Fund,
Class A-1.15%, Class S-1.90%; Short Term High Quality Bond Fund, Class
A-1.40%, Class S-2.15%; Short Term Global Government Fund, Class A-1.44%,
Class S-2.19%; U.S. Government Fund, Class A-1.30%, Class S-2.05%; Corporate
Income Fund, Class A-1.37%, Class S-2.12%; California Municipal Fund, Class
A-1.27%, Class S-2.02%; Florida Insured Municipal Fund, Class A-1.43%, Class
S-2.18%; California Insured Intermediate Municipal Fund, Class A-1.44%, Class
S-2.19%; and National Municipal Fund, Class A-1.29%, Class S-2.04%.
Waivers of fees and reimbursement of expenses have the effect of increasing
yield or improving total return for the period when such waivers and
reimbursements are in effect. These amounts are not recovered by the Advisor
or Administrator in later years. These fee waivers and agreements to reimburse
expenses are voluntary and may be discontinued at any time. Each Fund bears
its own expenses and a Fund's expenses are allocated between classes as
described in the section "Breakdown of Fund Expenses."
In addition to the Class A and Class S shares described above, the Trust offers
Class B Shares for investors who invest other than through a SAM Account, and
Class I Shares, which are currently sold exclusively to SAM Portfolios. Class B
and Class I Shares are described in more detail in a separate prospectus. Class
B Shares are not subject to a sales charge at the time of purchase but are
subject to a CDSC that is different from the Class A Shares CDSC and the Class S
Shares CDSC. For Class B Shares of the Short Term High Quality Bond and Short
Term Global Government Funds (the "Short Term Funds"), the CDSC applies if the
shares are redeemed during the first four years after purchase and the CDSC
declines from 4% during the first year of investment to zero after four years.
For Class B Shares of the Funds other than the Short Term Funds (the "Long Term
Funds"), the CDSC applies if the shares are redeemed during the first six years
after purchase. The CDSC for Class B Shares of the Long Term Funds declines from
5% during the first year of investment to zero after six years. Like Class S
Shares, Class B Shares pay ongoing distribution and service fees at an annual
rate of .75% and .25%, respectively, of average daily net assets. Although each
class of a Fund pays the same management fees and certain other expenses as the
other classes of the Fund, the performance of each of the classes of a Fund may
vary due to differences in sales charges and expenses. Prospective investors may
call 800-222-5852 toll-free to obtain a prospectus and further information for
Class B Shares.
-6-
<PAGE> 111
SUMMARY OF SIERRA TRUST FUNDS EXPENSES
EXAMPLE:
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of time period.
<TABLE>
<CAPTION>
U.S. SHORT TERM SHORT TERM
GLOBAL GOVERNMENT CALIFORNIA HIGH GLOBAL U.S. CORPORATE
MONEY MONEY MONEY QUALITY GOVERNMENT GOVERNMENT INCOME
FUND FUND FUND BOND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A(1)
1 Year............... $7 $9 $9 $42 $43 $54 $55
3 Years.............. 21 27 27 58 61 72 75
5 Years.............. 36 47 47 75 80 93 98
10 Years.............. 81 105 105 125 136 151 162
Class S (Assuming a
complete redemption at
end of period)(2)
1 Year............... $64 $66 $66 $65 $65 $67 $68
3 Years.............. 74 80 80 77 80 82 85
5 Years.............. 97 107 107 102 107 110 115
10 Years(3)........... 168 190 190 179 190 195 206
Class S (Assuming no
redemption)(4)
1 Year............... $14 $16 $16 $15 $16 $17 $18
3 Years.............. 44 50 50 47 50 52 55
5 Years.............. 77 87 87 82 87 90 95
10 Years(3)........... 168 190 190 179 190 195 206
</TABLE>
- --------------------------------------------------------------------------------
(1) Assumes deduction at the time of purchase of maximum initial sales charge
for funds other than Global Money, U.S. Government Money and California
Money Funds.
(2) Assumes deduction of maximum applicable contingent deferred sales charge.
(3) Assumes that conversion to Class A Shares does not occur.
(4) Assumes no deduction of contingent deferred sales charge.
THESE EXAMPLES ARE NOT MEANT TO STATE ACTUAL OR EXPECTED EXPENSES OR RATES OF
RETURN, WHICH MAY BE GREATER OR LESS THAN AS SHOWN. The Advisor and the
Administrator may, at their discretion, terminate voluntary fee waivers and
expense reimbursements at any time. Absent the waiver of fees or expense
reimbursements by the Advisor and/or Administrator as described above, the
amounts in the Example above would be greater. The purpose of this table is to
assist the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Funds.
-7-
<PAGE> 112
<TABLE>
<CAPTION>
FLORIDA CALIFORNIA
CALIFORNIA INSURED INSURED NATIONAL GROWTH AND
MUNICIPAL MUNICIPAL INTERMEDIATE MUNICIPAL INCOME EMERGING INTERNATIONAL
FUND FUND MUNICIPAL FUND FUND FUND GROWTH FUND GROWTH FUND GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$54 $53 $53 $55 $60 $62 $62 $63
74 69 71 75 93 96 96 100
95 87 90 98 127 134 133 140
156 140 145 162 224 238 237 250
$67 $66 $66 $68 $74 $75 $75 $76
84 79 80 85 103 107 106 110
112 104 107 115 145 151 151 157
201 185 190 206 267 280 279 291
$17 $16 $16 $18 $24 $25 $25 $26
54 49 50 55 73 77 76 80
92 84 87 95 125 131 131 137
201 185 190 206 267 280 279 291
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE> 113
FINANCIAL HIGHLIGHTS
The following information, insofar as it relates to each of the respective
periods ended June 30, 1996 or earlier, has been audited by Price Waterhouse
LLP, independent accountants. Their unqualified report is included in the
Trust's Annual Report to Shareholders (the "Annual Report"). The Financial
Statements, Notes to Financial Statements
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS
NET ASSET NET REALIZED & FROM
VALUE AT NET UNREALIZED TOTAL FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT
FUND OF PERIOD INCOME/(LOSS) INVESTMENTS OPERATIONS INCOME
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GLOBAL MONEY FUND
CLASS A SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... $ 1.00 $ 0.049 $0.000(19) $0.049 $ (0.049)
Year ended 6/30/94....... 1.00 0.030 0.000(19) 0.030 (0.030)
Year ended 6/30/93....... 1.00 0.031 - 0.031 (0.031)
Year ended 6/30/92....... 1.00 0.048 - 0.048 (0.048)
Year ended 6/30/91....... 1.00 0.073 - 0.073 (0.073)
Period ended
6/30/90(1).............. 1.00 0.074 - 0.074 (0.074)
CLASS S SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 1.00 0.042 0.000(9) 0.042 (0.042)
U.S. GOVERNMENT MONEY FUND
CLASS A SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 1.00 0.046 - 0.046 (0.046)
Year ended 6/30/94....... 1.00 0.027 - 0.027 (0.027)
Year ended 6/30/93....... 1.00 0.027 - 0.027 (0.027)
Year ended 6/30/92....... 1.00 0.042 0.002 0.044 (0.042)
Year ended 6/30/91....... 1.00 0.065 - 0.065 (0.065)
Period ended
6/30/90(2).............. 1.00 0.073 - 0.073 (0.073)
CLASS S SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 1.00 0.038 - 0.038 (0.038)
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 1.00 0.028 - 0.028 (0.028)
Year ended 6/30/94....... 1.00 0.018 - 0.018 (0.018)
Year ended 6/30/93....... 1.00 0.021 - 0.021 (0.021)
Year ended 6/30/92....... 1.00 0.033 - 0.033 (0.033)
Year ended 6/30/91....... 1.00 0.044 - 0.044 (0.044)
Period ended
6/30/90(2).............. 1.00 0.046 - 0.046 (0.046)
CLASS S SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 1.00 0.020 - 0.020 (0.020)
SHORT TERM HIGH QUALITY BOND
FUND
CLASS A SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 2.39 0.08 0.02 0.10 (0.08)
Period ended
6/30/94(3).............. 2.50 0.09 (0.11) (0.02) (0.09)
CLASS S SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 2.39 0.06 0.02 0.08 (0.06)
SHORT TERM GLOBAL GOVERNMENT
FUND
CLASS A SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 2.34 0.17 (0.12) 0.05 (0.02)
Year ended 6/30/94....... 2.48 0.17 (0.14) 0.03 (0.13)
Year ended 6/30/93....... 2.56 0.19 (0.04) 0.15 (0.20)
Period ended
6/30/92(4).............. 2.50 0.07 0.07 0.14 (0.08)
CLASS S SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 2.34 0.15 (0.12) 0.03 (0.00)(14)
U. S. GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 9.45 0.70 0.22 0.92 (0.70)
Year ended 6/30/94....... 10.65 0.75 (1.21) (0.46) (0.64)
Year ended 6/30/93....... 10.52 0.74 0.16 0.90 (0.74)
Year ended 6/30/92....... 10.04 0.84 0.49 1.33 (0.84)
Year ended 6/30/91....... 9.93 0.84 0.13 0.97 (0.85)
Period ended
6/30/90(5).............. 10.00 0.76 (0.09) 0.67 (0.74)
CLASS S SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 9.45 0.63 0.22 0.85 (0.63)
CORPORATE INCOME FUND
CLASS A SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 9.87 0.68 0.78 1.46
Year ended 6/30/94....... 11.33 0.80 (1.35) (0.55)
Year ended 6/30/93....... 10.52 0.84 0.84 1.68 (0.68)
Year ended 6/30/92....... 9.87 0.91 0.64 1.55 (0.78)
Period ended
6/30/91(6).............. 10.00 0.81 (0.13) 0.68 (0.84)
CLASS S SHARES
Year ended 6/30/96.......
Year ended 6/30/95....... 9.87 0.61 0.78 1.39 (0.61)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE> 114
and Report of Independent Accountants sections of the Annual Report are included
in the SAI. Further information about the performance of the Funds is contained
in the Annual Report. The SAI and Annual Report can be obtained at no charge by
calling Shareholder Services at 800-222-5852.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DISTRIBUTIONS
IN EXCESS DISTRIBUTIONS IN EXCESS NET ASSET
OF NET FROM OF NET DISTRIBUTIONS VALUE AT
INVESTMENT NET REALIZED REALIZED FROM TOTAL END TOTAL
INCOME GAINS GAINS CAPITAL DISTRIBUTIONS OF PERIOD RETURN(11)
<S><C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
$ - (0.000)(19) $ - $ - $(0.049) $1.00 5.06%
- $(0.000)(19) - - (0.030) 1.00 3.04
- - - - (0.031) 1.00 3.17
- - - - (0.048) 1.00 4.95
- - - - (0.073) 1.00 7.51
- - - (0.074) 1.00 7.64
- (0.000)(19) - - (0.042) 1.00 4.29
- - - - (0.046) 1.00 4.67
- - - - (0.027) 1.00 2.67
- - - - (0.027) 1.00 2.70
- (0.002) - - (0.044) 1.00 4.45
- - - - (0.065) 1.00 6.65
- - - - (0.073) 1.00 7.52
- - - - (0.038) 1.00 3.91
- - - - (0.028) 1.00 2.79
- - - - (0.018) 1.00 1.81
- - - - (0.021) 1.00 2.07
- - - - (0.033) 1.00 3.35
- - - - (0.044) 1.00 4.52
- - - - (0.046) 1.00 4.64
- - - - (0.020) 1.00 2.04
(0.06) - - (0.00)(14) (0.14) 2.35 4.42
- - - - (0.09) 2.39 (0.73)
(0.06) - - (0.00)(14) (0.12) 2.35 3.64
(0.00)(14) - (0.01) (0.12) (0.15) 2.24 2.10
(0.03) - (0.01) (0.00)(14)(16) (0.17) 2.34 1.10
- - (0.03) - (0.23) 2.48 6.03
- - - - (0.08) 2.56 5.34
(0.00)(14) - (0.01) (0.12) (0.13) 2.24 1.33
- - - - (0.70) 9.67 10.17
- - (0.10) (0.74) 9.45 (4.59)
- - - (0.01)(16) (0.77) 10.65 8.87
- - - (0.85) 10.52 13.74
- - - (0.01)(16) (0.86) 10.04 10.14
- - - - (0.74) 9.93 6.99
- - - - (0.63) 9.67 9.36
(0.09) - - (0.04) (0.81) 10.52 15.57
(0.01) (0.06) (0.06) - (0.91) 9.87 (5.32)
- - - (0.03)(16) (0.87) 11.33 16.64
- - - - (0.90) 10.52 16.29
- - - - (0.81) 9.87 7.31
(0.09) - - (0.04) (0.74) 10.52 14.73
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE> 115
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
RATIO OF
NET OPERATING
INVESTMENT EXPENSES
INCOME/(LOSS) TO AVERAGE
RATIO OF PER SHARE NET ASSETS
NET RATIO OF NET WITHOUT WITHOT FEE
NET ASSETS OPERATING INVESTMENT FEE WAIVERS WAIVERS
END OF EXPENSES INCOME PORTFOLIO AND/OR AND/OR
PERIOD (IN TO AVERAGE TO AVERAGE TURNOVER EXPENSES EXPENSES
FUND 000'S) NET ASSETS NET ASSETS RATE ABSORBED(12) ABSORVED(13)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GLOBAL MONEY FUND
CLASS A SHARES
Year ended 6/30/96................
Year ended 6/30/95................ $110,012 0.54% 5.08% -% $0.043 1.18%
Year ended 6/30/94................ 53,973 0.45 2.99 - 0.021 1.35
Year ended 6/30/93................ 48,283 0.41 3.15 - 0.022 1.32
Year ended 6/30/92................ 71,492 0.42 4.90 - 0.039 1.34
Year ended 6/30/91................ 92,334 0.30 6.99 - 0.060 1.51
Period ended 6/30/90 (1).......... 22,834 1.00(10) 7.54(10) - 0.067 1.74(10)
CLASS S SHARES
Year ended 6/30/96................
Year ended 6/30/95................ 7,399 1.29 4.33 - 0.036 1.93
U.S. GOVERNMENT MONEY FUND
CLASS A SHARES
Year ended 6/30/96................
Year ended 6/30/95................ 47,492 0.85 4.63 - 0.042 1.25
Year ended 6/30/94................ 30,180 0.85 2.68 - 0.022 1.32
Year ended 6/30/93................ 36,802 0.85 2.69 - 0.022 1.34
Year ended 6/30/92................ 44,233 0.85 4.43 - 0.037 1.35
Year ended 6/30/91................ 62,473 0.86 6.54 - 0.058 1.52
Period ended 6/30/90 (2).......... 94,789 1.00(10) 7.52(10) - 0.067 1.64(10)
CLASS S SHARES
Year ended 6/30/96................
Year ended 6/30/95................ 737 1.60 3.88 - 0.034 2.00
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/96................
Year ended 6/30/95................ 48,836 0.85 2.73 - 0.025 1.15
Year ended 6/30/94................ 62,500 0.85 1.80 - 0.014 1.27
Year ended 6/30/93................ 68,404 0.85 2.06 - 0.016 1.29
Year ended 6/30/92................ 94,607 0.85 3.31 - 0.029 1.28
Year ended 6/30/91................ 113,392 0.83 4.48 - 0.037 1.48
Period ended 6/30/90 (2).......... 147,487 1.00(10) 5.07(10) - 0.040 1.64(10)
CLASS S SHARES
Year ended 6/30/96................
Year ended 6/30/95................ 10 1.60 1.98 - 0.017 1.90
SHORT TERM HIGH QUALITY BOND FUND
CLASS A SHARES
Year ended 6/30/96................
Year ended 6/30/95................ 43,811 0.75 6.10 137 0.07 1.39
Period ended 6/30/94 (3).......... 21,771 0.00(10) 5.70(10) 95 0.06 1.61(10)
CLASS S SHARES
Year ended 6/30/96................
Year ended 6/30/95................ 2,303 1.50 5.35 137 0.05 2.14
SHORT TERM GLOBAL GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/96................
Year ended 6/30/95................ 103,986 0.85 7.22 217 0.16 1.44
Year ended 6/30/94................ 220,824 0.85 6.87 222 0.16 1.52
Year ended 6/30/93................ 215,348 0.73 7.67 294 0.17 1.55
Period ended 6/30/92 (4).......... 106,609 0.41(10) 8.65(10) 81 0.06 1.92(10)
CLASS S SHARES
Year ended 6/30/96................
Year ended 6/30/95................ 2,286 1.60 6.47 217 0.14 2.19
U. S.
GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/96................
Year ended 6/30/95................ 459,968 0.95(18) 7.58 226 1.59
Year ended 6/30/94................ 666,566 1.05(18) 7.26 27 0.66 1.34
Year ended 6/30/93................ 842,277 0.91(18) 6.98 67 0.72 1.34
Year ended 6/30/92................ 504,776 0.72(18) 7.67 35 0.70 1.39
Year ended 6/30/91................ 166,920 1.12(18) 8.32 54 0.77 1.57
Period ended 6/30/90 (5).......... 31,430 1.13(10)(18) 8.50(10) 13 0.79 1.89(10)
CLASS S SHARES 0.69
Year ended 6/30/96................
Year ended 6/30/95................ 6,839 1.70(18) 6.83 226 0.59 2.34
CORPORATE INCOME FUND
CLASS A SHARES
Year ended 6/30/96................
Year ended 6/30/95................ 383,642 0.90 8.26 55 0.64 1.40
Year ended 6/30/94................ 472,519 1.35 7.19 30 0.80 1.42
Year ended 6/30/93................ 396,357 1.24 7.67 37 0.82 1.42
Year ended 6/30/92................ 169,682 0.97 8.29 8 0.85 1.48
Period ended 6/30/91 (6).......... 35,478 1.21(10) 9.01(10) 31 0.76 1.78(10)
CLASS S SHARES
Year ended 6/30/96................
Year ended 6/30/95................ 8,701 1.65 7.51 55 0.57 2.15
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE> 116
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED & DIVIDENDS
VALUE AT NET UNREALIZED TOTAL FROM FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT
FUND OF PERIOD INCOME/(LOSS) INVESTMENTS OPERATIONS INCOME
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96....................
Year ended 6/30/95.................... $ 10.38 $ 0.61 $ 0.15 $ 0.76 $(0.61)
Year ended 6/30/94.................... 11.22 0.61 (0.82) (0.21) (0.61)
Year ended 6/30/93.................... 10.45 0.62 0.77 1.39 (0.62)
Year ended 6/30/92.................... 10.07 0.65 0.38 1.03 (0.65)
Year ended 6/30/91.................... 10.01 0.63 0.06 0.69 (0.63)
Period ended 6/30/90 (5).............. 10.00 0.57 0.01 0.58 (0.57)
CLASS S SHARES
Year ended 6/30/96....................
Year ended 6/30/95.................... 10.38 0.53 0.15 0.68 (0.53)
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96....................
Year ended 6/30/95.................... 9.40 0.52 0.03(15) 0.55 (0.52)
Year ended 6/30/94.................... 10.05 0.52 (0.65) (0.13) (0.52)
Period ended 6/30/93 (7).............. 10.00 0.00(14) 0.05 0.05 -
CLASS S SHARES
Year ended 6/30/96....................
Year ended 6/30/95.................... 9.40 0.45 0.03(15) 0.48 (0.45)
CALIFORNIA INSURED INTERMEDIATE
MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96....................
Year ended 6/30/95.................... 10.10 0.50 0.35 0.85 (0.50)
Period ended 6/30/94 (8).............. 10.00 0.11 0.11(15) 0.22 (0.11)
CLASS S SHARES
Year ended 6/30/96....................
Year ended 6/30/95.................... 10.10 0.43 0.35 0.78 (0.43)
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96....................
Year ended 6/30/95.................... 10.85 0.64 0.01(15) 0.65 (0.64)
Year ended 6/30/94.................... 11.65 0.65 (0.73) (0.08) (0.65)
Year ended 6/30/93.................... 10.96 0.67 0.75 1.42 (0.67)
Year ended 6/30/92.................... 10.16 0.72 0.79 1.51 (0.71)
Period ended 6/30/91 (6).............. 10.00 0.64 0.16 0.80 (0.64)
CLASS S SHARES
Year ended 6/30/96....................
Year ended 6/30/95.................... 10.85 0.56 0.01(15) 0.57 (0.56)
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/96....................
Year ended 6/30/95.................... 11.30 0.13 2.04 2.17 (0.12)
Year ended 6/30/94.................... 12.09 0.12 0.72 0.84 (0.12)
Year ended 6/30/93.................... 11.25 0.12 0.91 1.03 (0.12)
Year ended 6/30/92.................... 10.51 0.17 0.74 0.91 (0.17)
Year ended 6/30/91.................... 10.12 0.23 0.43 0.66 (0.27)
Period ended 6/30/90 (5).............. 10.00 0.24 0.07 0.31 (0.19)
CLASS S SHARES
Year ended 6/30/96....................
Year ended 6/30/95.................... 11.30 0.05 2.04 2.09 (0.07)
GROWTH FUND
CLASS A SHARES
Year ended 6/30/96....................
Year ended 6/30/95 (17)............... 10.73 0.05 3.42 3.47 (0.02)
Year ended 6/30/94.................... 10.72 (0.02) 0.03(15) 0.01 -
Period ended 6/30/93 (9).............. 10.00 0.00 0.72 0.72 -
CLASS S SHARES
Year ended 6/30/96....................
Year ended 6/30/95 (17)............... 10.73 (0.04) 3.42 3.38 (0.00)(14)
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/96....................
Year ended 6/30/95 (17)............... 13.02 (0.00)(14) 2.77 2.77 -
Year ended 6/30/94.................... 13.76 (0.09) 0.68 0.59 -
Year ended 6/30/93.................... 11.67 (0.02) 2.31 2.29 -
Year ended 6/30/92 (17)............... 9.62 (0.01) 2.16 2.15 (0.01)
Period ended 6/30/91 (6).............. 10.00 0.09 (0.40) (0.31) (0.07)
CLASS S SHARES
Year ended 6/30/96....................
Year ended 6/30/95 (17)............... 13.02 (0.10) 2.77 2.67 -
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/96....................
Year ended 6/30/95 (17)............... 10.74 (0.11)(20) (0.31) (0.42) (0.04)
Year ended 6/30/94.................... 9.80 0.06 1.15 1.21 (0.02)
Year ended 6/30/93.................... 8.82 0.07 0.94 1.01 (0.03)
Year ended 6/30/92.................... 8.27 0.05 0.55 0.60 (0.05)
Period ended 6/30/91 (6).............. 10.00 0.02 (1.75) (1.73) -
CLASS S SHARES
Year ended 6/30/96....................
Year ended 6/30/95 (17)............... 10.74 (0.17)(20) (0.31) (0.48) (0.03)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE> 117
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DISTRIBUTIONS
IN EXCESS DISTRIBUTIONS IN EXCESS NET ASSET
OF NET FROM NET OF NET DISTRIBUTIONS VALUE AT
INVESTMENT REALIZED REALIZED FROM TOTAL END
FUND INCOME GAINS GAINS CAPITAL DISTRIBUTIONS OF PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96.............
Year ended 6/30/95............. $ - $ (0.00)(14) $ - $ - $ (0.61) $ 10.53
Year ended 6/30/94............. (0.00)(14) - (0.02) - (0.63) 10.38
Year ended 6/30/93............. - - - - (0.62) 11.22
Year ended 6/30/92............. - - - - (0.65) 10.45
Year ended 6/30/91............. - - - - (0.63) 10.07
Period ended 6/30/90(5)........ - - - - (0.57) 10.01
CLASS S SHARES
Year ended 6/30/96.............
Year ended 6/30/95............. - (0.00)(14) - - (0.53) 10.53
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96.............
Year ended 6/30/95............. - - - - (0.52) 9.43
Year ended 6/30/94............. (0.00)(14) - (0.00)(14) - (0.52) 9.40
Period ended 6/30/93(7)........ - - - - - 10.05
CLASS S SHARES
Year ended 6/30/96.............
Year ended 6/30/95............. - - - - (0.45) 9.43
CALIFORNIA INSURED INTERMEDIATE
MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96.............
Year ended 6/30/95............. - - - - (0.50) 10.45
Period ended 6/30/94(8)........ - (0.01) - - (0.12) 10.10
CLASS S SHARES
Year ended 6/30/96.............
Year ended 6/30/95............. - - - - (0.43) 10.45
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96.............
Year ended 6/30/95............. - (0.01) (0.09) - (0.74) 10.76
Year ended 6/30/94............. (0.00)(14) (0.07) - - (0.72) 10.85
Year ended 6/30/93............. - (0.06) - - (0.73) 11.65
Year ended 6/30/92............. - - - - (0.71) 10.96
Period ended 6/30/91(6)........ - - - - (0.64) 10.16
CLASS S SHARES
Year ended 6/30/96.............
Year ended 6/30/95............. - (0.01) (0.09) - (0.66) 10.76
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/96.............
Year ended 6/30/95............. - (0.77) - - (0.89) 12.58
Year ended 6/30/94............. - (1.51) - - (1.63) 11.30
Year ended 6/30/93............. - (0.07) - - (0.19) 12.09
Year ended 6/30/92............. - - - - (0.17) 11.25
Year ended 6/30/91............. - - - - (0.27) 10.51
Period ended 6/30/90(5)........ - - - - (0.19) 10.12
CLASS S SHARES
Year ended 6/30/96.............
Year ended 6/30/95............. - (0.77) - - (0.84) 12.55
GROWTH FUND
CLASS A SHARES
Year ended 6/30/96.............
Year ended 6/30/95(17)......... - (0.00)(14) - - (0.02) 14.18
Year ended 6/30/94............. - - - - - 10.73
Period ended 6/30/93(9)........ - - - - - 10.72
CLASS S SHARES
Year ended 6/30/96.............
Year ended 6/30/95(17)......... - (0.00)(14) - - (0.00) 14.11
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/96.............
Year ended 6/30/95(17)......... - (0.32) - - (0.32) 15.47
Year ended 6/30/94............. - (1.33) - - (1.33) 13.02
Year ended 6/30/93............. - - (0.20) - - (0.20)
Year ended 6/30/92(17)......... (0.08) - (0.01) (16) (0.10) 11.67
Period ended 6/30/91(6)........ - - - - (0.07) 9.62
CLASS S SHARES
Year ended 6/30/96.............
Year ended 6/30/95(17)......... - (0.32) - - (0.32) 16.37
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/96.............
Year ended 6/30/95(17)......... - (0.44) (0.06) - (0.54) 9.78
Year ended 6/30/94............. - (0.25) - - (0.27) 10.74
Year ended 6/30/93............. - - - - (0.03) 9.80
Year ended 6/30/92............. - - - - (0.05) 8.82
Period ended 6/30/91(6)........ - - - - - 8.27
CLASS S SHARES
Year ended 6/30/96.............
Year ended 6/30/95(17).........
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE> 118
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------------------------------------------------------
RATIO OF OPERATING
RATIO OF NET NET INVESTMENT EXPENSES TO AVERAGE
INVESTMENT INCOME/(LOSS) PER NET ASSETS WITHOUT
NET ASSETS END RATIO OF OPERATING INCOME TO PORTFOLIO SHARE WITHOUT FEE FEE WAIVERS
TOTAL OF PERIOD EXPENSES TO AVERAGE AVERAGE NET TURNOVER WAIVERS AND/OR AND/OR EXPENSES
RETURN(11) (IN 000'S) NET ASSETS ASSETS RATE EXPENSES ABSORBED(12) ABSORBED(13)
- --------------------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C> <C> <C>
7.57% $ 405,967 0.85% 5.89% 22% $ 0.56 1.29%
(2.19) 509,233 0.79 5.45 50 0.54 1.39
13.84 511,364 0.80 5.74 41 0.56 1.41
10.56 309,146 0.94 6.08 29 0.60 1.40
7.16 202,595 1.05 6.30 16 0.58 1.60
5.99 92,972 1.01(10) 6.26(10) 38 0.49 1.84(10)
6.78 7,230 1.60 5.14 22 0.48 2.04
6.01 33,714 0.39 5.53 44 0.42 1.51
(1.50) 38,541 0.00 5.09 83 0.36 1.55
0.50 4,837 0.00(10) 0.48(10) 0 (0.02) 5.59(10)
5.23 11 1.14 4.78 44 0.35 2.26
8.71 54,507 0.42 4.95 13 0.40 1.41
2.20 34,147 0.00(10) 4.25(10) 17 0.06 1.95(10)
7.90 11 1.17 4.20 13 0.33 2.16
6.32 269,033 0.83 5.97 23 0.59 1.30
(0.90) 354,501 0.87 5.60 44 0.59 1.36
13.41 390,187 0.86 5.89 83 0.61 1.37
15.42 226,984 0.64 6.34 61 0.63 1.40
8.27 44,915 0.55(10) 6.84(10) 81 0.53 1.68(10)
5.54 4,786 1.58 5.22 23 0.51 2.05
20.47 170,177 1.56 1.11 72 0.13 1.56
6.67 125,249 1.50 1.04 127 0.11 1.59
9.20 97,873 1.46 1.01 47 0.12 1.46
8.65 83,825 1.50 1.51 16 0.16 1.55
6.70 33,930 1.52 2.48 19 0.21 1.78
3.17 20,964 1.37(10) 3.21(10) 16 0.19 2.01(10)
19.75 14,368 2.31 0.36 72 0.05 2.31
32.33 154,763 1.76 0.28 233 0.05 1.76
0.00 126,808 1.75 (0.35) 227 (0.02) 1.75
7.30 23,323 1.44(10) (0.63)(10) 13 (0.01) 2.52(10)
31.44 18,730 2.51 (0.47) 233 (0.04) 2.51
21.54 185,722 1.68 (0.31) 181 (0.00)(14) 1.68
3.40 124,941 1.66 (0.68) 224 (0.09) 1.66
19.75 96,646 1.59 (0.32) 28 (0.02) 1.59
22.47 27,652 1.93 (0.04) 60 (0.01) 1.93
(2.95) 8,490 1.84(10) 1.10(10) 17 0.07 2.11(10)
20.78 11,840 2.43 (1.06) 181 (0.10) 2.43
(4.01) 91,763 1.69 0.62 81 (0.11) 1.69
12.39 127,764 1.69 0.54 44 0.06 1.69
11.51 56,962 1.80 1.07 63 0.07 1.80
7.28 24,479 2.25 0.69 66 0.04 2.29
(17.30) 11,647 2.24(10) 0.51(10) 45 0.01 2.47(10)
(4.61) 11,120 2.44 (0.13) 81 (0.17) 2.44
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE> 119
(1) The Fund commenced operations on July 13, 1989.*
(2) The Funds commenced operations on July 10, 1989.*
(3) The Fund commenced operations on November 1, 1993.*
(4) The Fund commenced operations on February 11, 1992.*
(5) The Funds commenced operations on July 25, 1989.*
(6) The Funds commenced operations on July 18, 1990.*
(7) The Fund commenced operations on June 7, 1993.*
(8) The Fund commenced operations on April 4, 1994.*
(9) The Fund commenced operations on April 5, 1993.*
- On July 1, 1994, the Funds commenced selling Class B and Class S shares in
addition to Class A shares. Those shares in existence prior to July 1,
1994 were designated Class A shares.
(10) Annualized.
(11) Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges. The total returns would
have been lower if certain fees had not been waived and/or expenses had not
been absorbed by investment advisor, administrator and/or distributor.
(12) Net investment income per share without fee waivers and/or expenses
absorbed by investment advisor, administrator and/or distributor.
(13) Annualized operating expense ratios without fee waivers and/or expenses
absorbed by investment advisor, administrator and/or distributor.
(14) Amount represents less than $0.01 per share.
(15) The amount shown may not accord with the change in aggregate gains
and losses of portfolio securities due to the timing of sales and
redemptions of Fund shares.
(16) Amounts distributed in excess of accumulated net investment income as
determined for financial statement purposes have been reported as
distributions from paid-in capital at the fiscal year end in which the
distribution was made. Certain of these distributions which are reported as
being from paid-in capital for financial statement purposes may be reported
to shareholders as taxable distributions due to differing tax and
accounting rules.
(17) Per share numbers have been calculated using the average shares method,
which more appropriately presents the per share data for the year since the
use of the undistributed income method did not accord with results of
operations.
(18) Ratio of operating expenses to average net assets including interest
expense for the period ended June 30 each year, was, for Class A shares
1.22% for 1995, 1.06% for 1994, 0.91% for 1993, 0.72% for 1992, 1.12% for
1991, 1.13% for 1990; for the Class S shares 1.97% for 1995.
(19) Amount represents less than $0.001 per share.
(20) Amount shown reflects certain reclassifications related to book to tax
differences.
THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS
The following section describes the investment objective and policies of each
Fund and some of the risk considerations of investing in the Funds. The
"Securities and Investment Practices" section that follows provides more
information about the types of securities and investment practices that the
Funds may use, and the risk considerations related to such securities and
investment practices.
INVESTMENT PRINCIPLES AND RISK CONSIDERATIONS
THE MONEY FUNDS
Each of the Global Money, U.S. Government Money and California Money Funds
invests only in U.S. Dollar-denominated short-term, money market securities that
present minimal credit risks and meet the rating criteria described below. At
the time of investment, no security purchased by a Money Fund (except securities
subject to repurchase agreements and variable rate demand notes) can have a
maturity exceeding 397 days, and each Money Fund's average portfolio maturity
cannot exceed 90 days. The short average maturity of the portfolios enhances
each Money Fund's ability to maintain share prices at $1.00 which, in turn,
provides both stability of value and liquidity to shareholders. There can be no
assurances, however, that any or all of the Money Funds will be able to maintain
a net asset value ("NAV") at $1.00 per share.
Each Money Fund will purchase only those instruments that meet the following
applicable quality requirements. The Money Funds will not purchase a security
(other than a U.S. Government security) unless the security or the issuer with
respect to comparable securities (i) is rated by at least two nationally
recognized statistical rating organizations ("NRSROs") (such as Standard &
Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's")) in
one of the two highest rating categories for short-term debt securities, (ii) is
rated in one of the two highest categories for short-term debt by the only NRSRO
that has issued a rating, or (iii) if not so rated, the security is determined
to be of comparable quality. In addition, with respect to the Global Money Fund,
no more than 5% of the Fund's total assets will be invested in securities rated
in the second highest rating category by the requisite NRSROs, and no more than
1% of the Fund's total assets will be invested in the securities of any one such
issuer. A description of the rating systems of S&P and Moody's is contained in
the SAI.
-15-
<PAGE> 120
Up to 10% of the assets of a Money Fund may be invested in securities and other
instruments that are not readily marketable, including repurchase agreements
with maturities greater than seven calendar days, time deposits maturing in more
than seven calendar days, and variable rate demand notes having a demand period
of more than seven days. In addition, a Money Fund may invest up to 5% of its
assets in the securities of issuers which have been in continuous operation for
less than three years. Each Money Fund may also borrow from banks for temporary
or other emergency purposes, but not for investment purposes, in an amount up to
30% of its total assets, and may pledge its assets to the same extent in
connection with such borrowings. Whenever these borrowings exceed 5% of the
value of a Money Fund's total assets, the Money Fund will not purchase any
securities. Except for the limitations on borrowing, the investment guidelines
set forth in this paragraph may be changed at any time without shareholder
consent by vote of the Board of Trustees of the Company, subject to applicable
law. A complete list of investment restrictions that identifies additional
restrictions that cannot be changed without the approval of a majority of an
affected Money Fund's outstanding shares is contained in the SAI.
GLOBAL MONEY FUND. The Fund's investment objective is to maximize current income
consistent with safety of principal and maintenance of liquidity. The Fund
pursues its objective by investing in a portfolio of short-term, money market
instruments, including obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Securities"); repurchase
agreements with respect to U.S. Government Securities; instruments issued by
U.S. and foreign banks and savings and loan institutions, such as time deposits,
certificates of deposit and bankers' acceptances; and commercial paper and
corporate obligations of U.S. and foreign issuers that meet the Fund's quality
and maturity criteria. Although the Fund is authorized to invest up to 50% of
its assets in any one country (other than the United States), the Fund normally
will include in its portfolio securities of issuers collectively having their
principal business activities in at least three countries, including the United
States. The Fund may not invest more than 5% of its assets in securities of any
one issuer, except that the Fund may invest in U.S. Government Securities
without limit and may have one holding that exceeds the 5% limit for up to three
days after the acquisition of such holding. At least 25% of the Fund's total
assets will be invested in bank obligations, except during temporary defensive
periods.
U.S. GOVERNMENT MONEY FUND. The Fund's investment objective is to maximize
current income consistent with safety of principal and maintenance of liquidity.
The Fund pursues its objective by maintaining a portfolio of U.S. Government
Securities and entering into repurchase agreements with respect to U.S.
Government Securities.
CALIFORNIA MONEY FUND. The Fund's investment objective is to maximize current
income that is excluded from gross income for federal income tax purposes and is
exempt from California State personal income taxation, consistent with safety of
principal and maintenance of liquidity. The Fund pursues its objective by
investing in a portfolio of high grade municipal securities, which means
municipal securities that meet the Fund's quality and maturity criteria.
"Municipal Securities" are debt obligations issued by states, territories and
possessions of the United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political subdivisions, and
"California Municipal Securities" means Municipal Securities issued by the State
of California and its political subdivisions as well as certain other
governmental issuers such as the Commonwealth of Puerto Rico. Except when the
Fund assumes a temporary defensive position, at least 80% of the Fund's total
assets will be invested in Municipal Securities and at least 65% of its total
assets will be invested in California Municipal Securities. The requirement to
invest at least 80% of the Fund's assets in Municipal Securities is a
fundamental policy that cannot be changed without the consent of the Fund's
shareholders. The Fund may invest without limitation in Municipal Securities
issued to finance certain "private activities" ("AMT-Subject Bonds"), such as
bonds used to finance airports, housing projects, student loan programs and
water and sewer projects. To reduce investment risk, the California Money Fund
may not invest more than 25% of its total assets in Municipal Securities whose
interest is paid from revenues of similar-type projects.
For temporary defensive purposes, the Fund may invest without limitation in
(1) Municipal Securities that are not exempt from California personal income
tax, and (2) short-term Municipal Securities or taxable cash equivalents,
including short-term U.S. Government Securities, certificates of deposit and
bankers' acceptances, commercial paper rated Prime-1 by Moody's or A-1+ or A-1
by S&P, repurchase agreements and securities of other money market mutual funds.
Under normal market conditions the Fund may invest up to 20% of its assets in
these taxable cash equivalents.
The California Money Fund is designed to generate tax-exempt income. A
shareholder of the California Money Fund may earn a higher after-tax return from
the Fund than from comparable investments that generate taxable income. For an
illustration of the benefits of tax-free investing, see the section entitled
"Performance Information." For a discussion of the tax consequences of investing
in AMT-Subject Bonds, see "Securities and Investment Practices - Municipal
Securities and AMT-Subject Bonds" and "Dividends, Capital Gains and Taxes."
-16-
<PAGE> 121
The Fund may also invest in variable rate demand obligations, stand-by
commitments, when-issued securities and forward commitments.
THE BOND FUNDS
SHORT TERM HIGH QUALITY BOND FUND. The Fund's investment objective is to provide
as high a level of current income as is consistent with prudent investment
management and stability of principal. To accomplish its objective, the Fund
will invest primarily in short-term bonds and other fixed-income securities.
Under normal market conditions the Fund will maintain a dollar-weighted average
portfolio maturity of three years or less. The Fund may hold individual
securities with remaining maturities of more than three years as long as the
dollar-weighted average portfolio maturity is three years or less. For purposes
of the weighted average maturity calculation, a mortgage instrument's average
life will be considered to be its maturity.
The Fund will invest substantially all of its assets in investment-grade debt
securities, which are securities that are rated in the top four rating
categories by one or more nationally recognized statistical rating organizations
("NRSROs") or, if unrated, are judged to be of comparable quality by the Fund's
Sub-Advisor. All debt securities purchased by the Fund will be investment-grade
at the time of purchase. The Fund will invest at least 65% of its total assets
in United States Government obligations, corporate debt obligations or
mortgage-related securities rated in one of the two highest categories by an
NRSRO. Securities are rated in the two highest rating categories by an NRSRO if
they are rated at least Aa by Moody's or at least AA by S&P, Duff or Fitch or,
if unrated, are judged to be of comparable quality by the Fund's Sub-Advisor.
Investment-grade bonds are generally of medium to high quality. A bond rated in
the lower end of the investment-grade category (Baa/BBB), however, may have
speculative characteristics and may be more sensitive to economic changes and
changes in the financial condition of the issuer.
The fixed-income securities in which the Fund may invest include obligations
issued or guaranteed by domestic and foreign governments and government agencies
and instrumentalities and high-grade corporate debt obligations, such as bonds,
debentures, notes, equipment lease and trust certificates, mortgage-backed
securities, collateralized mortgage obligations and asset-backed securities.
The Fund may invest up to 10% of its assets in foreign fixed-income securities,
primarily bonds of foreign governments or their political subdivisions, foreign
companies and supranational organizations, including non-U.S. Dollar-denominated
securities and U.S. Dollar-denominated debt securities issued by foreign issuers
and foreign branches of U.S. banks. Investment in foreign securities is subject
to special risks, see "Securities and Investment Practices - Foreign
Investments."
The Fund may also invest in high-quality, short-term obligations (with
maturities of 12 months or less), such as commercial paper issued by domestic
and foreign corporations, bankers' acceptances issued by domestic and foreign
banks, certificates of deposit and demand and time deposits of domestic and
foreign banks and savings and loan associations and repurchase agreements. The
Fund may engage in certain options transactions, enter into financial futures
contracts and related options for the purpose of portfolio hedging and enter
into currency forwards or futures contracts and related options for the purpose
of currency hedging.
The Fund may invest in certain illiquid investments such as privately placed
obligations including restricted securities. The Fund may invest up to 10% of
its assets in securities of mutual funds that are not affiliated with Sierra
Advisors or any Sub-Advisor. See "Securities and Investment Practices - Holdings
in Other Investment Companies."
The Fund currently intends to borrow money or enter into reverse repurchase
agreements or dollar roll transactions in the aggregate up to 10% of its total
assets. If the Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. To seek a high level of current
income, the Fund may enter into dollar rolls. Dollar rolls entail certain risks;
see "Securities and Investment Practices - Dollar Roll Transactions."
The Fund may invest up to 25% of its total assets in asset-backed securities,
which represent a participation in, or are secured by and payable from, a stream
of payments generated by particular assets, most often a pool of assets similar
to one another. See "Securities and Investment Practices - Asset-Backed
Securities."
Thomas M. Poor, Managing Director of Scudder, is the portfolio manager of the
Short Term High Quality Bond Fund. He joined Scudder in 1970 and has worked
entirely in fixed income research and institutional bond portfolio management.
Mr. Poor has had primary management responsibility for the Short Term High
Quality Bond Fund since its inception.
SHORT TERM GLOBAL GOVERNMENT FUND. The Fund's investment objective is to provide
high current income consistent with protection of principal. Under normal
conditions, the Fund invests primarily in government
-17-
<PAGE> 122
securities in at least three different countries, one of which may be the United
States. The Fund maintains a dollar-weighted average portfolio maturity not
exceeding three years but may hold individual securities with longer maturities.
This policy helps minimize the effect of interest rate changes on the Fund's
share price. The Sub-Advisor's calculation of the expected average life of a
portfolio mortgage security is used as that security's maturity with regard to
determining the above average dollar-weighted portfolio maturity calculation.
The Fund's share price and yield will fluctuate primarily due to the movement of
foreign currencies against the U.S. Dollar and changes in worldwide interest
rates. The Fund seeks to maintain greater price stability than longer-term bond
funds.
Under normal market conditions, the Fund will invest at least 65% of its assets
in: (i) obligations issued or guaranteed by foreign national governments, their
agencies, instrumentalities, or political subdivisions (including any security
which is majority owned by such government, agency, instrumentality, or
political subdivision); and (ii) U.S. Government Securities.
The Fund may also invest in non-government foreign and domestic debt securities,
including debt securities issued or guaranteed by supranational organizations,
corporate debt securities, bank or bank holding company obligations (e.g.,
certificates of deposit, bankers' acceptances and time deposits),
mortgage-backed or asset-backed securities, and repurchase agreements.
To protect against credit risk, the Fund invests primarily in high-grade debt
securities. At least 65% of the Fund's investments will consist of securities
rated within the three highest rating categories of S&P (AAA, AA, A) or Moody's
(Aaa, Aa, A), or, if unrated, are judged to be of comparable quality by the
Sub-Advisor. The Fund may invest up to 10% of its assets in non-investment-grade
debt securities (commonly called "junk bonds") if portfolio management believes
that doing so will be consistent with the goal of capital appreciation.
Non-investmentgrade debt securities are often considered to be speculative and
involve greater risk of default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities may fluctuate more than
higher-rated securities and may decline significantly in periods of general
economic difficulty, which may follow periods of rising interest rates. See
"Securities and Investment Practices - Lower-Rated Securities."
In addition to U.S. Dollar holdings, the Fund may invest in securities
denominated in foreign currencies and in multinational currency units, such as
the European Currency Unit ("ECU"), which is a "basket" consisting of specified
amounts of the currencies of certain states of the European Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community to reflect changes in the relative values
of the underlying currencies. Securities of issuers within a given country may
be denominated in the currency of another country. In addition, when the Fund's
Sub-Advisor believes that U.S. securities offer superior opportunities for
achieving the Fund's investment objective, or for temporary defensive purposes,
the Fund may invest substantially all of its assets in securities of U.S.
issuers or securities denominated in U.S. Dollars.
Adam M. Greshin is the lead portfolio manager for the Short Term Global
Government Fund. Mr. Greshin joined Scudder in 1986 as an international bond
analyst. Currently, he is Product Leader for Scudder's global and international
fixed-income investing. He was involved in the original design of the Fund and
has served as a member of the Fund's portfolio management team since 1991. Mr.
Greshin assumed responsibility for the Fund's day-to-day management and
investment strategies effective November 1, 1995.
U.S. GOVERNMENT FUND. The Fund's investment objective is to maximize total rate
of return while providing a high level of current income, consistent with
reasonable safety of principal. The Fund pursues its objective by investing at
least 65% and up to 100% of its assets in intermediate- and long-term U.S.
Government Securities. The Fund may invest in U.S. Government Securities of
varying maturities. Securities in the Fund's portfolio are high quality
securities that will generally yield less income than lower quality securities;
higher quality securities, however, generally have less credit risk and are more
readily marketable than lower quality securities. Depending on market
conditions, the Fund's portfolio will consist of various types of U.S.
Government Securities in varying proportions; it may invest up to 35% of its
total assets in (i) the types of securities in which the Corporate Income Fund
may invest except as otherwise prohibited in the Prospectus and SAI, including
corporate bonds, preferred stock, convertible corporate bonds, convertible
preferred stock, government stripped mortgage-backed securities, asset-backed
securities, and interests in lease obligations; and (ii) commercial
mortgage-backed securities, which are mortgage-backed securities that are issued
by a nongovernmental entity, such as a trust, and include collateralized
mortgage obligations and real estate mortgage investment conduits that are rated
in one of the top two rating categories. Commercial mortgage-baked securities
generally are structured with one or more types of credit enhancement and are
not guaranteed by a governmental agency or instrumentality. A substantial
portion of the Fund's assets at any time may consist of mortgage-backed
securities. For more detailed information regarding the types of securities in
which the Corporate Income Fund may invest, see "Corporate Income Fund."
-18-
<PAGE> 123
The Fund may invest up to 20% of its assets in money market instruments
consisting of short-term U.S. Government Securities and repurchase agreements
with respect to such U.S. Government Securities, and for temporary defensive
purposes may invest in these instruments without limitation. In addition, the
Fund may invest up to 33 1/3% of its total assets in dollar rolls or "covered
rolls." See "Securities and Investment Practices - Dollar Roll Transactions."
The day-to-day management of the Fund's portfolio is the responsibility of a
committee composed of individuals who are officers of BlackRock. This committee
has managed the Fund since December, 1994, and is supervised by Keith Anderson
and Andrew J. Phillips. Mr. Anderson, a Managing Director of BlackRock, has been
co-head of the Portfolio Management Group since 1988. Mr. Phillips has been a
portfolio manager of BlackRock since 1991 and a Vice President of BlackRock
since 1993.
CORPORATE INCOME FUND. The Fund's investment objective is to provide a high
level of current income, consistent with the preservation of capital. The Fund
pursues its investment objective by investing primarily in investment-grade
corporate bonds of United States issuers, which are bonds that are rated in the
top four rating categories by Moody's, S&P, Duff, or Fitch, or, if not rated,
that the Fund's Sub-Advisor believes to have credit characteristics equivalent
to such investment-grade rated corporate bonds. Generally, at least 65% of the
corporate bonds held by the Fund will have had remaining maturities of 10 years
or more at the date of purchase, unless the Fund's Sub-Advisor believes that
investing in corporate bonds with shorter maturities would be appropriate in
light of prevailing market conditions. Corporate bonds with longer maturities
generally tend to produce higher yields and are subject to greater market risk
than debt securities with shorter maturities. The value of the Fund's portfolio
securities can be expected to vary inversely with changes in the prevailing
interest rates.
The Fund may also invest in preferred stock, corporate bonds and preferred stock
that are convertible into or that carry the right to buy common stock, all of
which are rated investment-grade by an NRSRO, or, if not rated, that the Fund's
Sub-Advisor believes to have credit characteristics equivalent to such
investment-grade rated bonds; U.S. Government Securities (including government
stripped mortgage-backed securities); asset-backed securities; and interests in
lease obligations for which the payment of interest and principal is
unconditionally guaranteed by companies with debt rated at least
investment-grade by an NRSRO, provided that no more than 20% of the Fund's
assets will be invested in such lease obligations. The Fund may invest in
floating rate, inverse floating rate and variable rate obligations, including
participation interests therein. The Fund may invest in bonds issued by foreign
governments and corporations, provided that no more than 20% of the Fund's
assets will be invested in such bonds and no more than 5% will be denominated in
any one currency. In addition, the Fund may invest up to 33 1/3% of its total
assets in dollar rolls or "covered rolls." For temporary defensive purposes, the
Fund may also invest, without limitation, in money market instruments, including
short-term U.S. Government Securities, commercial paper rated Prime-1 by
Moody's, A-1 by S&P, Duff-1 by Duff or Fitch-1 by Fitch, and cash and cash
equivalents.
As the Fund's portfolio manager, James M. Goldberg, has had primary
responsibility for the day-to-day management of the Fund's portfolio since its
inception. Mr. Goldberg has been Managing Director of TCW Management since 1989
and Managing Director of Trust Company of the West since 1984.
CALIFORNIA MUNICIPAL FUND. The Fund's investment objective is to provide as high
a level of current income that is excluded from gross income for federal income
tax purposes and is exempt from California State personal income tax as is
consistent with prudent investment management and preservation of capital. The
Fund pursues its objective by investing in intermediate and long-term California
Municipal Securities, although the average maturity of the Fund will vary
depending on anticipated market conditions. A fundamental policy that cannot be
changed without the consent of the Fund's shareholders is that under normal
market conditions, at least 80% of the Fund's total assets will be invested in
California Municipal Securities. The Fund may invest without limitation in
AMT-Subject Bonds, as described in the section "Securities and Investment
Practices - Municipal Securities and AMT-Subject Bonds."
The Fund will invest in investment-grade Municipal Securities, which are
securities rated at the time of purchase within the four highest ratings
assigned by Moody's, S&P, Duff, or Fitch, or, if unrated, are judged to be of
comparable quality by the Fund's Sub-Advisor. The higher tax-free yields sought
by the Fund are generally obtainable from medium-quality Municipal Securities
rated A or Baa by Moody's or A or BBB by S&P. For more information, see
"Securities and Investment Practices - Fixed-Income Obligations and Securities."
The Fund is designed to generate tax-exempt income. A shareholder of the Fund
may earn a higher after-tax return from the Fund than from comparable
investments that generate taxable income. For an illustration of the benefits of
tax-free investing, see the section entitled "Performance Information."
-19-
<PAGE> 124
The Fund may invest up to 20%, in the aggregate, of its assets in (1) Municipal
Securities that are not exempt from California personal income tax and (2)
short-term Municipal Securities and taxable cash equivalents, including
short-term U.S. Government Securities, certificates of deposit and bankers'
acceptances, commercial paper rated Prime-1 by Moody's or A-1+ or A-1 by S&P,
repurchase agreements and securities of other money market mutual funds (subject
to the limitations set forth under "Securities and Investment Practices") and,
for temporary defensive purposes, may invest in these securities without
limitation. The Fund may at any time invest up to 20% of its total assets in
taxable cash equivalents, although it is anticipated that under normal
circumstances substantially all of the Fund's assets will be invested in
Municipal Securities generating tax-exempt income.
The Fund may engage in hedging transactions through the use of financial
futures, bond index futures and options thereon, purchase and sell securities on
a when-issued and forward commitment basis, invest in mortgage-backed
securities, enter into repurchase agreements, invest in stand-by commitments and
lend portfolio securities. The Fund may invest in floating rate, inverse
floating rate and variable rate obligations, including participation interests
therein.
Since May 1992, Joseph A. Piraro, a Vice President of Van Kampen, has had
primary responsibility for the day-to-day management of the Fund's portfolio.
Mr. Piraro has been a Vice President of Van Kampen since January 1993 and
Assistant Vice President since June 1992. Prior to joining Van Kampen, Mr.
Piraro was a Senior Municipal Bond Trader for First National Bank of Chicago
from November 1987 to May 1992.
FLORIDA INSURED MUNICIPAL FUND. The Fund's primary investment objective is to
seek as high a level of current income, exempt from federal income tax, as is
consistent with prudent investment management and preservation of capital, and
to offer shareholders the opportunity to own shares the value of which is exempt
from Florida intangible personal property tax.
To accomplish this goal, the Fund will invest primarily in insured,
intermediate- and long-term Florida Municipal Securities although the average
maturity of the Fund will vary depending on anticipated market conditions. It is
a fundamental policy of the Fund that it will invest at least 80% of the value
of its total assets (except when maintaining a temporary defensive position) in
insured Florida Municipal Securities. The Fund may invest without limitation in
AMT-Subject Bonds, as described in "Securities and Investment
Practices - Municipal Securities and AMT-Subject Bonds." Current federal income
tax laws limit the types and volume of bonds qualifying for the federal income
tax exemption of interest, which may have an effect on the ability of the Fund
to purchase sufficient amounts of tax-exempt securities.
The "insured obligations" in the Fund's investment portfolio are insured as to
the scheduled payment of all installments of principal and interest as they fall
due. The purpose of such insurance is to minimize credit risks to the Fund and
its shareholders associated with defaults in Florida Municipal Securities owned
by the Fund. Such insurance does not insure against market risk and therefore
does not guarantee the market value of the obligations in the Fund's investment
portfolio upon which the NAV of the Fund's shares is based. Such market value
will continue to fluctuate in response to fluctuations in interest rates or the
bond market. Similarly, such insurance does not cover or guarantee the value of
the shares of the Fund.
The investment policy requiring insurance on investments applies only to Florida
Municipal Securities in the Fund's investment portfolio and will not affect the
Fund's ability to hold its assets in cash or to invest in escrow secured and
defeased bonds or in certain short-term tax-exempt obligations as set forth
herein, or affect its ability to invest in uninsured taxable obligations for
temporary or liquidity purposes or on a defensive basis in accordance with the
investment policies and restrictions of the Fund.
The Fund will invest in investment-grade Municipal Securities, which are
securities rated at the time of purchase within the four highest ratings
assigned by Moody's, S&P, Duff, or Fitch, or, if unrated, are judged to be of
comparable quality by the Fund's Sub-Advisor. The higher tax-free yields sought
by the Fund are generally obtainable from medium-quality Municipal Securities
rated A or Baa by Moody's or A or BBB by S&P. See "Securities and Investment
Practices - Fixed-Income Obligations and Securities."
The Fund may invest up to 20%, in the aggregate, of its total assets in (1)
Municipal Securities that are not insured Municipal Securities; (2) Municipal
Securities that are not exempt from Florida intangible personal property tax;
and (3) short-term Municipal Securities and taxable cash equivalents, including
short-term U.S. Government Securities, certificates of deposit, time deposits
and bankers' acceptances, commercial paper rated Prime-1 by Moody's or A-1+ or
A-1 by S&P, repurchase agreements and securities of money market mutual funds
and, for temporary defensive purposes, may invest in these securities without
limitation, except that investments in securities of money market mutual funds
are subject to the limitations set forth under "Securities and Investment
Practices -
-20-
<PAGE> 125
Holdings in Other Investment Companies." The Fund may at any time invest up to
20% of its total assets in taxable cash equivalents, although it is anticipated
that under normal circumstances substantially all of the Fund's assets will be
invested in Municipal Securities generating tax-exempt income. The Fund may
invest in floating rate, inverse floating rate and variable rate obligations,
including participation interests therein.
Florida does not impose an income tax on individuals. Distributions of
investment income and capital gains by the Fund will be subject to Florida
corporate income taxes. Florida imposes a tax on intangible personal property
owned by Florida residents. Based on a ruling the Fund has received from the
Florida Department of Revenue, if the Fund's assets consist, on the last
business day of the calendar year, solely of assets exempt from Florida
intangible personal property tax, shares of the Fund owned by Florida residents
will be exempt from Florida intangible personal property tax. Assets exempt from
Florida intangible personal property tax include obligations issued by the State
of Florida and its political subdivisions, municipalities, and public
authorities; obligations of the United States Government or its agencies; and
cash.
Since June 1995, Joseph A. Piraro, a Vice President of Van Kampen, has had
primary responsibility for the day-to-day management of the Fund's portfolio.
Mr. Piraro has been a Vice President of Van Kampen since January 1993 and
Assistant Vice President since June 1992. Prior to joining Van Kampen, Mr.
Piraro was a Senior Municipal Bond Trader for First National Bank of Chicago
from November 1987 to May 1992.
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND. The Fund's investment objective
is to provide California investors with as high a level of current income exempt
from federal and California State income tax as is consistent with prudent
investment management and preservation of capital. To accomplish its investment
objective, the Fund will invest primarily in insured intermediate-term
California Municipal Securities (as described in "Securities and Investment
Practices - Municipal Securities and AMT-Subject Bonds").
It is a fundamental policy of the Fund that it will invest at least 80% of the
value of its total assets (except when maintaining a temporary defensive
position) in insured California Municipal Securities. The weighted average
effective maturity of the securities in which the Fund invests will be ten years
or less and the maximum effective maturity of any Municipal Securities in which
the Fund invests will be fifteen years, such effective maturity to be the call
date of Municipal Securities with mandatory call provisions and to be the
expected average life of mortgage obligations underlying the Municipal
Securities.
The insured California Municipal Securities in which the Fund will invest are
insured under insurance policies that relate to the specific Municipal Security
in question ("Specific Issue Insurance") and that are issued by any insurer
having a claims-paying ability rated AAA by S&P or Aaa by Moody's. Five such
insurers are MBIA Insurance Corporation ("MBIA"), Financial Guaranty Insurance
Company ("FGIC"), AMBAC Indemnity Corporation ("AMBAC"), Financial Securities
Assurance Incorporated ("FSA") and Capital Guaranty Insurance Company ("CGIC").
S&P has rated the claims-paying ability of MBIA, FGIC, AMBAC, FSA and CGIC and
the Municipal Securities insured by these organizations AAA. Further information
with respect to MBIA, FGIC, AMBAC, FSA and CGIC is set forth in the SAI. Some
Specific Issue Insurance will have been obtained by the issuer of the Municipal
Securities or by an investor subsequent to the security's original issuance and
all premiums respecting such securities for the remaining lives thereof will
have been paid in advance by such issuer or investor. Such policies are
generally non-cancelable and will continue in force so long as the Municipal
Securities are outstanding and the insurer remains in business. Since such
Specific Issue Insurance remains in effect as long as the securities are
outstanding, the insurance may have an effect on the resale value of the
Municipal Securities. Therefore, such Specific Issue Insurance may be considered
to represent an element of market value in regard to Municipal Securities thus
insured, but the exact effect, if any, of this insurance on such market value
cannot be estimated.
The insured California Municipal Securities in which the Fund will invest are
insured as to the scheduled payment of all installments of principal and
interest as they fall due. The purpose of such insurance is to minimize credit
risks to the Fund and its shareholders associated with defaults in California
Municipal Securities owned by the Fund. Such insurance does not insure against
market risk and therefore does not guarantee the market value of the obligations
in the Fund's investment portfolio upon which the NAV of the Fund's shares is
based. Such market value will continue to fluctuate in response to fluctuations
in interest rates or the bond market. Similarly, such insurance does not cover
or guarantee the value of the shares of the Fund. The investment policy
requiring insurance on investments (that is applicable to California Municipal
Securities to the extent of 80% of the Fund's total assets) will not affect the
Fund's ability to hold its assets in cash or to invest in escrow secured and
defeased bonds or in certain short-term tax-exempt obligations as set forth
herein, or affect its ability to invest in uninsured taxable obligations for
temporary or liquidity purposes or on a defensive basis in accordance with the
investment policies and restrictions of the Fund.
-21-
<PAGE> 126
The Fund's Sub-Advisor intends to retain any insured California Municipal
Securities that are in default or, in the opinion of the Fund's Sub-Advisor, in
significant risk of default and to place a value on the insurance which
ordinarily will be the difference between the market value of the defaulted
security and the market value of similar securities that are not in default. In
certain circumstances, however, the Fund's Sub-Advisor may determine that an
alternative value for the insurance, such as the difference between the market
value of the defaulted security and its par value, is more appropriate. The
Fund's Sub-Advisor will be unable to manage the Fund to the extent it holds
defaulted securities which may limit its ability in certain circumstances to
purchase other Municipal Securities.
All of the Municipal Securities in which the Fund will invest are
investment-grade securities, securities that are rated at the time of purchase
within the four highest ratings assigned by Moody's, S&P, Duff, or Fitch, or, if
unrated, are judged to be of comparable quality by the Fund's Sub-Advisor. The
higher tax-free yields sought by the Fund are generally obtainable from
medium-quality Municipal Securities rated A or Baa by Moody's or A or BBB by
S&P. Municipal Securities rated in the lower end of the investment-grade
category (Baa/BBB), however, may have speculative characteristics and may be
more sensitive to economic changes and changes in the financial condition of the
issuer. For more information, see "Securities and Investment
Practices - Fixed-Income Obligations and Securities."
The Fund is designed to generate tax-exempt income. A shareholder of the Fund
may earn a higher after-tax return from the Fund than from comparable
investments that generate taxable income. Current federal income tax laws limit
the types and volume of bonds qualifying for the federal income tax exemption of
interest, which may have an effect on the ability of the Fund to purchase
sufficient amounts of tax-exempt securities. For an illustration of the benefits
of tax-free investing, see the section entitled, "Performance." The Fund may
invest without limitation in AMT-Subject Bonds, as described in "Securities and
Investment Practices - Municipal Securities and AMT-Subject Bonds."
The Fund may invest up to 20%, in the aggregate, of its assets in (1) Municipal
Securities that are not insured Municipal Securities; (2) Municipal Securities
that are not exempt from California personal income tax; and (3) short-term
Municipal Securities and taxable cash equivalents, including short-term U.S.
Government Securities, certificates of deposit, time deposits and bankers'
acceptances, commercial paper rated Prime-1 by Moody's or A-1+ or A-1 by S&P,
repurchase agreements and securities of investment companies that are money
market funds and, for temporary defensive purposes, may invest in these
securities without limitation, except that investments in securities of money
market mutual funds are subject to the limitations set forth under "Securities
and Investment Practices - Holdings in Other Investment Companies." The Fund may
at any time invest up to 20% of its total assets in taxable cash equivalents,
although it is anticipated that under normal circumstances substantially all of
the Fund's assets will be invested in Municipal Securities generating tax-exempt
income.
The Fund may engage in hedging transactions through the use of financial
futures, bond index futures and options thereon, purchase and sell securities on
a when-issued or forward commitment basis, invest in mortgage-backed securities,
enter into repurchase agreements, invest in stand-by commitments and lend
portfolio securities. The Fund may invest in floating rate, inverse floating
rate and variable rate obligations, including participation interests therein.
Since the Fund's inception, Joseph A. Piraro, a Vice President of Van Kampen,
has had primary responsibility for the day-to-day management of the Fund's
portfolio. Mr. Piraro has been a Vice President of Van Kampen since January 1993
and Assistant Vice President since June 1992. Prior to joining Van Kampen, Mr.
Piraro was a Senior Municipal Bond Trader for First National Bank of Chicago
from November 1987 to May 1992.
NATIONAL MUNICIPAL FUND. The Fund's investment objective is to provide a high
level of current income which is exempt from federal income tax, consistent with
preservation of capital. The Fund pursues its investment objective by investing
in intermediate and long-term Municipal Securities. It is a fundamental policy
of the Fund that it will invest at least 80% of its assets in Municipal
Securities. Under normal conditions, debt obligations with intermediate and
long-term maturities can be expected to pay higher yields and experience greater
fluctuations in value than bonds with short-term maturities. Under normal market
conditions, the longer the average maturity of Municipal Securities held in the
Fund's portfolio, the greater its expected yield and price volatility. For an
illustration of the benefits of tax-free investing, see the section entitled
"Performance."
The Fund will invest substantially all of its portfolio in investment-grade
Municipal Securities, which are securities that are rated at the time of
purchase within the four highest ratings assigned by Moody's, S&P, Duff, or
Fitch, or, if unrated, that the Fund's Sub-Advisor believes to have credit
characteristics equivalent to such investment-grade rated securities. The higher
tax-free yields sought by the Fund are generally obtainable from medium-quality
Municipal Securities rated A or Baa by Moody's or A or BBB by S&P. For more
information, see "Securities and
-22-
<PAGE> 127
Investment Practices - Fixed-Income Securities." The Fund may also invest in
unrated tax-exempt securities that the Fund's Sub-Advisor believes to have
credit characteristics equivalent to rated investment-grade Municipal
Securities.
The Fund also may invest in "Municipal Leases," which are generally
participations in intermediate and short-term debt obligations issued by
municipalities consisting of leases or installment purchase contracts for
property or equipment. In addition, the Fund may invest without limitation in
AMT-Subject Bonds as described in "Securities and Investment
Practices - Municipal Securities and AMT-Subject Bonds."
The Fund also may invest, for temporary defensive purposes in abnormal market
conditions, more than 20% of its assets in taxable cash equivalents.
The Fund also may invest in U.S. Government Securities and mortgage-backed
securities, engage in hedging transactions through the use of financial futures
contracts, bond index futures and options thereon, purchase and sell securities
on a when-issued and forward commitment basis, enter into repurchase agreements,
invest in stand-by commitments and lend portfolio securities. The Fund may
invest in floating rate, inverse floating rate and variable rate obligations,
including participation interests therein.
Since the Fund's inception, David C. Johnson, a Senior Vice President of Van
Kampen, has had primary responsibility for the day-to-day management of the
Fund's portfolio. Mr. Johnson has been the Portfolio Manager of the Fund since
its inception. Mr. Johnson has been a Senior Vice President of Van Kampen since
January 1995 and a First Vice President since January 1993. Mr. Johnson has been
employed by Van Kampen since April 1989.
THE EQUITY FUNDS
GROWTH AND INCOME FUND. The investment objective of the Fund is long-term
capital growth and current income consistent with reasonable investment risk.
The Fund pursues its investment objective by investing primarily in
dividend-paying common stock. The Fund will also invest in other equity
securities, consisting of nondividend-paying common stock, preferred stock and
securities convertible into common stock, such as convertible preferred stock,
convertible bonds rated in the highest three rating categories by Moody's or
S&P, or, if unrated, judged to be of comparable quality by the Fund's
Sub-Advisor, and warrants. The Fund is not subject to any limit on the size of
companies in which it may invest, but intends to be primarily invested, under
normal circumstances, in the large-and medium-sized companies included in the
S&P 500 Index. The Fund may also invest up to 10% of its total assets in
American Depositary Receipts.
The Fund is designed for investors who want an actively managed diversified
portfolio of selected equity securities that seeks to outperform the total
return of the S&P 500 Index. The Fund attempts to reduce risk by investing in
many different economic sectors, industries and companies. The Fund's
Sub-Advisor may under- or over-weight selected economic sectors against the S&P
500 Index's sector weightings to seek to enhance the Fund's total return or
reduce fluctuations in market value relative to the S&P 500 Index.
During normal market conditions, the Sub-Advisor will keep the Fund essentially
fully invested in the equity securities described above. The Fund's Sub-Advisor
may, however, invest in money market instruments, including U.S. Government
Securities; short-term bank obligations rated in the highest two rating
categories by Moody's or S&P, or, if unrated, judged to be of comparable quality
by the Fund's Sub-Advisor, including certificates of deposit, time deposits and
banker's acceptances issued by U.S. and foreign banks and savings and loan
institutions with assets of at least $10 billion as of the end of their most
recent fiscal year; and commercial paper and corporate obligations, including
such securities in the form of variable rate demand notes, that are issued by
U.S. and foreign issuers and that are rated in the highest two rating categories
by Moody's or S&P, or, if unrated, are judged to be of comparable quality by the
Fund's Sub-Advisor. Under normal circumstances, the Fund will invest in such
money market instruments to invest temporary cash balances or to maintain
liquidity to meet redemptions. The Fund may also, however, invest in these
instruments, without limitation, as a temporary defensive measure taken during,
or in anticipation of, adverse market conditions.
As the Fund's portfolio managers, Henry D. Cavanna, Managing Director of J.P.
Morgan, and William M. Riegel, Vice President of J.P. Morgan, have had primary
management responsibility for the Fund since September 1993. Mr. Cavanna, who
joined J.P. Morgan in 1971, is a senior portfolio manager in its Equity and
Balanced Accounts Group. Mr. Riegel, who joined J.P. Morgan in 1979, is a senior
equity portfolio manager in its Equity and Balanced Accounts Group.
GROWTH FUND. The Fund's primary investment objective is long-term capital
appreciation. The generation of income is not an objective of the Fund, and any
income received on the Fund's assets will be incidental to its
-23-
<PAGE> 128
primary investment objective, which is a fundamental policy of the Fund. The
Fund intends to invest primarily in common stock believed by the Sub-Advisor to
have significant appreciation potential. However, no class of security offers at
all times the greatest promise for capital appreciation. Therefore, the Fund may
invest in debt securities, bonds, convertible bonds, preferred stock and
convertible preferred stock, including non-investment-grade debt securities, if
in the opinion of the Sub-Advisor, doing so would further the long-term capital
appreciation objective of the Fund.
The Fund may invest up to 35% of its assets in non-investment-grade debt
securities (commonly called "junk bonds"), which are securities rated Ba or BB
or below, respectively, by Moody's or S&P. Non-investment-grade debt securities
are often considered to be speculative and involve greater risk of default or
price changes due to changes in the issuer's creditworthiness. The market prices
of these securities may fluctuate more than higher-rated securities and may
decline significantly in periods of general economic difficulty, which may
follow periods of rising interest rates. See "Securities and Investment
Practices - Lower-Rated Securities."
If the Sub-Advisor is unable to locate investment opportunities with desirable
risk/reward characteristics or in an effort to protect its assets against major
adverse market declines, the Fund may pursue a policy of investing part or all
of its assets in cash or cash equivalents.
The Fund may invest up to 25% of its assets in foreign securities, usually
foreign common stocks, and up to 5% of its assets in securities of companies in
(or governments of) developing or emerging countries (sometimes referred to as
"emerging markets"). A developing or emerging country is generally considered by
the international financial community, and in the opinion of Sierra Advisors or
the Sub-Advisor, to be a country that is in the initial stages of its
industrialization cycle. The Fund may also engage in certain options
transactions, enter into financial futures contracts and related options for the
purpose of portfolio hedging and enter into currency forwards or futures
contracts and related options for the purpose of currency hedging.
Pursuant to an exemptive order granted by the SEC, the Growth Fund and Emerging
Growth Fund (and other funds advised by Janus Capital Corporation) may transfer
daily uninvested cash balances into one or more joint trading accounts. Assets
in the joint trading accounts are invested in money market instruments and the
proceeds are allocated to the participating funds on a pro rata basis.
As portfolio manager of the Growth Fund, Warren B. Lammert has had primary
management responsibility for the Fund since its inception. Mr. Lammert is a
Vice President of Janus, the Portfolio Manager of the Janus Mercury Fund and a
CoPortfolio Manager of the Janus Venture Fund. Mr. Lammert joined Janus in 1987
and his duties at Janus include the management of separate equity accounts.
EMERGING GROWTH FUND. The Fund's investment objective is long-term capital
appreciation, while income is only an incidental consideration of the Fund. The
Fund normally invests primarily in equity securities of companies with market
capitalization of less than $1.4 billion at the time of purchase. A company's
market capitalization is calculated by multiplying the total number of shares of
its common stock outstanding by the market price per share of its stock. The
Fund may invest up to 25% of its assets in securities of foreign issuers and up
to 5% of its assets in securities in developing or emerging countries.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of small capitalization companies are traded
in lower volume than those issued by larger companies and may be more volatile
and less liquid than those of larger companies. In light of these
characteristics of small capitalization companies and their securities, the Fund
may be subject to greater investment risk than that assumed when investing in
the equity securities of larger capitalization companies. The Fund has been
designed to provide investors with potentially greater long-term rewards than
those provided by an investment in a fund that seeks capital appreciation from
equity securities of larger, more established companies. Small capitalization
companies generally are not as well known to the investing public and have less
of an investor following than larger companies. In selecting investments for the
Fund, the Fund's Sub-Advisor seeks small capitalization companies that it
believes are undervalued in the marketplace, or that the Fund's Sub-Advisor
believes have earnings that may be expected to grow faster than the United
States economy in general.
The Fund may invest up to 35% of its assets in non-investment-grade debt
securities (commonly called "junk bonds") if portfolio management believes that
doing so will be consistent with the goal of capital appreciation. Non-
investmentgrade debt securities are considered to be speculative and involve
greater risk of default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities may fluctuate more than
higher-rated securities and may decline significantly in periods of general
economic difficulty, which may follow periods of rising interest rates. See
"Securities and Investment Practices - Lower-Rated Securities."
-24-
<PAGE> 129
The Fund may invest in other equity securities, including convertible bonds,
convertible preferred stock and warrants to purchase common stock, as well as
cash and cash equivalents. Furthermore, the Emerging Growth Fund may transfer
daily uninvested cash balances into one or more joint trading accounts advised
by the Sub-Advisor. See "Growth Fund."
James P. Goff is the portfolio manager of the Emerging Growth Fund and has had
primary management responsibility for the Fund since September 1993. Mr. Goff is
a Vice President of Janus, the Portfolio Manager of the Janus Enterprise Fund
and a Co-Portfolio Manager of the Janus Venture Fund. Mr. Goff joined Janus in
July 1988 and his duties at Janus include the management of separate equity
accounts.
INTERNATIONAL GROWTH FUND. The Fund's investment objective is long-term capital
appreciation. Generation of income is not an objective of the Fund, and any
income received will be incidental. The Fund invests primarily in equity
securities of issuers located in a variety of different foreign regions and
countries that the Fund's Sub-Advisor deems to have attractive investment
opportunities. Income is only an incidental consideration of the Fund. The Fund
will emphasize established companies, although it may invest in companies of
varying sizes as measured by assets, sales and capitalization.
More than 25% of the Fund's total assets may be invested in the securities of
issuers located in the same country. The relative strength or weakness of a
particular country's currency or economy may dictate whether securities of
issuers located in such country will be purchased or sold. Criteria for
determining the appropriate distribution of investments among various countries
and regions include prospects for relative economic growth among foreign
countries, expected levels of inflation, government policies influencing
business conditions, the outlook for currency relationships, and the range of
investment opportunities available to international investors.
The Fund invests in common stock and may invest in other securities with equity
characteristics, consisting of trust or limited partnership interests, preferred
stock, rights and warrants. The Fund may also invest in convertible securities,
consisting of debt securities or preferred stock that may be converted into
common stock or that carry the right to purchase common stock. The Fund invests
in securities listed on foreign or domestic securities exchanges and securities
traded in foreign or domestic over-the-counter markets, and may invest in
restricted or unlisted securities.
The Fund intends to stay invested in the securities described above to the
extent practical. Fund assets may be invested in short-term debt instruments to
meet anticipated day-to-day operating expenses, and for temporary defensive
purposes. In addition, when the Fund experiences large cash inflows, the Fund
may hold short-term investments pending availability of desirable equity
securities.
The short-term instruments in which the Fund may invest include foreign and
domestic: (i) short-term obligations of foreign governments, their agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities rated A or higher by Moody's or S&P, or if unrated, of
comparable quality in the opinion of the Fund's Sub-Advisor; (iii) commercial
paper, including master notes; (iv) bank obligations, including negotiable
certificates of deposit, time deposits, bankers' acceptances, and Euro-currency
instruments and securities; and (v) repurchase agreements. At the time the Fund
invests in any commercial paper, bank obligations or repurchase agreements, the
issuer must have outstanding debt rated A or higher by Moody's or S&P; the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by S&P; or, if no such ratings are available,
the investment must be of comparable quality in the opinion of the Fund's
Sub-Advisor.
The Fund may invest up to 30% of its assets in the securities of companies in or
governments of developing or emerging countries (sometimes referred to as
"emerging markets") approved by the Board of Trustees, provided that no more
than 5% of the Fund's total assets are invested in any one such country. For
temporary defensive purposes, the Fund may invest a major portion of its assets
in securities of United States issuers. Furthermore, the Fund may invest up to
5% of its total assets in corporate debt securities having maturities longer
than one year and which are rated BBB or better by S&P, including Euro-currency
instruments and securities.
The following people have been primarily responsible for managing the Fund since
April 8, 1996. Richard H. King, Senior Managing Director, joined Warburg to
found the international equity department and has 28 years of investment
experience. Prior to joining Warburg, Mr. King was chief investment officer and
a director of Fiduciary Trust Company International S.A. in London from 1984
until 1988. P. Nicholas Edwards, Senior Vice President, has 12 years of
investment experience. Prior to joining Warburg, Mr. Edwards was a director and
senior analyst at Jardine Fleming Investment Advisers in Tokyo from 1991 to
1995. Harold W. Ehrlich, CFA, CIC, Senior Vice President, has 13 years of
investment experience. Prior to joining Warburg, Mr. Ehrlich was a senior vice
president, portfolio manager and analyst at Templeton Investment Counsel Inc.
from 1987 to 1995. Nicholas P.W. Horsley, Senior Vice President, has 15 years of
investment experience. Prior to joining Warburg, Mr. Horsley was a director,
-25-
<PAGE> 130
portfolio manager and analyst at Barclays de Zoete Wedd in New York from 1986 to
1993. Vincent J. McBride, Vice President, has 9 years of investment experience.
Prior to joining Warburg, Mr. McBride was an international equity analyst at
Smith Barney Inc. from 1993 to 1994. He was an international equity analyst at
General Electric Investments from 1992 to 1993 and a portfolio manager/analyst
at United Jersey Bank from 1989 to 1992.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of securities
in which the Funds may invest, and strategies a Fund's Sub-Advisor may employ in
pursuit of that Fund's investment objective. A summary of risks and restrictions
associated with these security types and investment practices is included as
well. All policies and limitations are considered at the time of purchase; the
sale of securities is not required in the event of a subsequent change in
circumstances.
A Fund might not buy all of these securities or use all of these techniques to
the full extent permitted unless its Sub-Advisor, subject to oversight by Sierra
Advisors, believes that doing so will help the Fund achieve its goal. Sierra
Advisors may, from time to time, direct a Sub-Advisor with respect to investment
policies and strategies. As a shareholder, you will receive fund reports every
six months detailing your Fund's holdings and describing recent investment
practices.
Except for the limitations on borrowing, the investment guidelines set forth
below may be changed at any time by vote of the Board of Trustees of the Trust
without shareholder consent. A complete list of investment restrictions that
identifies additional restrictions that cannot be changed without the approval
of a majority of an affected Fund's outstanding shares is contained in the SAI.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. All Funds except
the U.S. Government Fund, the Municipal Funds and the Money Funds may invest in
securities of foreign issuers directly or in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") or other similar
securities representing securities of foreign issuers. These securities may not
necessarily be denominated in the same currency as the securities they
represent. ADRs are receipts typically issued by a United States bank or trust
company evidencing ownership of the underlying foreign securities. EDRs are
receipts issued by a European financial institution evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
United States securities markets, and EDRs, in bearer form, are designed for use
in European securities markets.
ASSET-BACKED SECURITIES. The Growth and Income, Emerging Growth, Corporate
Income, Short Term High Quality Bond, U.S. Government and Short Term Global
Government Funds may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of motor vehicle
installment purchase obligations, credit card receivables and home equity loans.
These Funds will not invest more than 10% of their total assets in asset-backed
securities, except the Short Term High Quality Bond Fund, which may invest up to
25% of its total assets in such securities.
BANK OBLIGATIONS. All of the Funds may invest in bank obligations, which include
certificates of deposit, time deposits and bankers' acceptances of U.S.
commercial banks or savings and loan institutions with assets of at least $500
million as of the end of their most recent fiscal year.
BORROWING. All Funds may borrow money for temporary or emergency purposes.
However, if a Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. If the Fund makes additional
investments while borrowings are outstanding, this may be construed as a form of
leverage.
A Fund may borrow money from banks solely for temporary or emergency purposes,
but not in an amount exceeding 30% of its total assets. For each of the Funds
except the U.S. Government, Short Term High Quality Bond and Corporate Income
Funds, whenever borrowings by a Fund, including reverse repurchase agreements,
exceed 5% of the value of a Fund's total assets, the Fund will not purchase any
securities. The U.S. Government, Short Term High Quality Bond and Corporate
Income Funds are prohibited from borrowing money or entering reverse repurchase
agreements or dollar roll transactions in the aggregate in excess of 33 1/3% of
the Fund's total assets (after giving effect to such borrowings). This
investment guideline may be changed only with shareholder consent and by vote of
the Board of Trustees of the Trust. However, the Short Term High Quality Bond
Fund currently intends to borrow money or enter into reverse repurchase
agreements or dollar roll transactions in the aggregate in excess of 10% of its
total assets (after giving effect to such borrowings); provided, however, that
it may be able to raise this limitation up to 33 1/3% of its total assets with
approval of the Board of Trustees of the Trust.
Under a credit
-26-
<PAGE> 131
agreement by and between the Trust and Deutsche Bank, AG, New York ("Deutsche
Bank") certain Funds may borrow money from Deutsche Bank pursuant to a line of
credit in compliance with its investment objective, policies and limitations as
set forth in the Prospectus and Statement of Additional Information of the
Trust.
COMMON STOCK, CONVERTIBLE SECURITIES AND OTHER EQUITY SECURITIES. The Corporate
Income Fund, U.S. Government Fund and the Equity Funds may invest in common
stocks, which represent an equity (ownership) interest in a corporation. This
ownership interest generally gives a Fund the right to vote on measures
affecting the company's organization and operations.
The Funds may also buy securities such as convertible debt, preferred stock,
warrants or other securities exchangeable for shares of common stock. In
selecting equity investments for a Fund, each Fund's Sub-Advisor will invest the
Fund's assets in industries and companies that it believes are experiencing
favorable demand for their products and services and which operate in a
favorable competitive and regulatory climate.
A Fund may not own more than 10% of the outstanding voting securities of a
single issuer other than U.S. Government Securities and may not invest more than
10% of the Fund's assets in securities in the aggregate where a market quotation
is not readily available.
A convertible security is a security that may be converted either at a stated
price or rate within a specified period of time into a specified number of
shares of common stock. By investing in convertible securities, a Fund seeks the
opportunity, through the conversion feature, to participate in the capital
appreciation of the common stock into which the securities are convertible,
while obtaining a higher fixed rate of return than is available in common
stocks.
CURRENCY MANAGEMENT. A Fund's flexibility to participate in higher yielding debt
markets outside of the United States may allow the Fund to achieve higher yields
than those generally obtained by domestic money market funds and short-term bond
investments. If a Fund invests significantly in securities denominated in
foreign currencies, however, movements in foreign currency exchange rates versus
the U.S. Dollar are likely to impact the Fund's share price stability relative
to domestic short-term income funds. Fluctuations in foreign currencies can have
a positive or negative impact on returns. Normally, to the extent that the Fund
is invested in foreign securities, a weakening in the U.S. Dollar relative to
the foreign currencies underlying a Fund's investments should help increase the
NAV of the Fund. Conversely, a strengthening in the U.S. Dollar versus the
foreign currencies in which a Fund's securities are denominated will generally
lower the NAV of the Fund. A Fund's Sub-Advisor attempts to minimize exchange
rate risk through active portfolio management, including altering currency
exposure through the use of futures, options and forward currency transactions
and attempting to identify bond markets with strong or stable currencies. Funds
authorized to invest in securities of foreign issuers may engage in currency
management strategies.
DEBT SECURITIES ISSUED OR GUARANTEED BY SUPRANATIONAL ORGANIZATIONS. Funds
authorized to invest in securities of foreign issuers may invest assets in debt
securities issued or guaranteed by supranational organizations, such as
obligations issued or guaranteed by the Asian Development Bank, Inter-American
Development Bank, International Bank for Reconstruction and Development (World
Bank), African Development Bank, European Coal and Steel Community, European
Economic Community, European Investment Bank and the Nordic Investment Bank.
DOLLAR ROLL TRANSACTIONS. In order to seek a high level of current income, the
U.S. Government, Short Term High Quality Bond and Corporate Income Funds may
enter into dollar rolls in which the Fund sells securities for delivery in the
current month and simultaneously contracts to repurchase, typically in 30 or 60
days, substantially similar (same type, coupon and maturity) securities on a
specified future date. The proceeds of the initial sale of securities in the
dollar roll transactions may be used to purchase long-term securities which will
be held during the roll period. During the roll period, the Fund forgoes
principal and interest paid on the securities sold at the beginning of the roll
period. The Fund is compensated by the difference between the current sales
price and the forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale. A "covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or cash equivalent securities position that matures on
or before the forward settlement date of the dollar roll transaction. As used
herein the term "dollar roll" refers to dollar rolls that are not "covered
rolls." At the end of the roll commitment period, the Fund may or may not take
delivery of the securities the Fund has contracted to purchase. To the extent
that the proceeds of the initial sale of securities are invested in long-term
bonds, the proceeds are subject to the higher volatility in price of such
long-term bonds in comparison to short-term bonds. See "Fixed Income Obligations
and Securities" following.
The Fund will establish a segregated account with its custodian in which it will
maintain cash, U.S. Government securities or other liquid high-grade debt
obligations equal in value at all times to its obligations in respect of dollar
-27-
<PAGE> 132
rolls, and, accordingly, the Fund will not treat such obligations as senior
securities for purposes of the 1940 Act. "Covered rolls" are not subject to
these segregation requirements. Each of the Funds is prohibited from borrowing
money or entering into reverse repurchase agreements or dollar roll transactions
in the aggregate in excess of 33 1/3% of the Fund's total assets (after giving
effect to any such borrowings). The Short Term High Quality Bond Fund intends to
invest up to 10% of its total assets in dollar roll transactions, but may invest
up to 33 1/3% of its total assets in such transactions.
EXCHANGE RATE-RELATED SECURITIES. Each of the Funds, except for the Money Funds,
may invest in securities which are indexed to certain specific foreign currency
exchange rates. The terms of such security provide that the principal amount or
interest payments are adjusted upwards or downwards (but not below zero) at
payment to reflect fluctuations in the exchange rate between two currencies
while the obligation is outstanding, depending on the terms of the specific
security. The Fund will purchase such security with the currency in which it is
denominated and will receive interest and principal payments thereon in the
currency, but the amount of principal or interest payable by the issuer will
vary in proportion to the change (if any) in the exchange rate between the two
specified currencies between the date the instrument is issued and the date the
principal or interest payment is due. The staff of the SEC is currently
considering whether a mutual fund's purchase of this type of security would
result in the issuance of a "senior security" within the meaning of the 1940
Act. The Trust believes that such investments do not involve the creation of
such a senior security, but nevertheless undertakes, pending the resolution of
this issue by the staff, to establish a segregated account with respect to such
investments and to maintain in such account cash not available for investment or
U.S. Government Securities or other liquid high quality debt securities having a
value equal to the aggregate principal amount of outstanding securities of this
type.
Investments in exchange rate-related securities entail certain risks. There is
the possibility of significant changes in rates of exchange between the U.S.
Dollar and any foreign currency to which an exchange rate-related security is
linked. In addition, there is no assurance that sufficient trading interest to
create a liquid secondary market will exist for a particular exchange
rate-related security due to conditions in the debt and foreign currency
markets. Illiquidity in the forward foreign exchange market and the high
volatility of the foreign exchange market may from time to time combine to make
it difficult to sell an exchange rate-related security prior to maturity without
incurring a significant price loss.
FIXED-INCOME OBLIGATIONS AND SECURITIES. The market value of fixed-income
obligations and securities held by a Fund and, consequently, the NAV per share
of the Fund can be expected to vary inversely to changes in prevailing interest
rates. Investors should also recognize that, in periods of declining interest
rates, the yield of the Fund will tend to be somewhat higher than prevailing
market rates and, in periods of rising interest rates, the Fund's yield will
tend to be somewhat lower. Also, when interest rates are falling, the inflow of
net new money to the Fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of its assets,
thereby reducing current yield. In periods of rising interest rates, the
opposite can be expected to occur. While securities with longer maturities tend
to produce higher yields, the prices of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest rates.
In addition, obligations purchased by a Fund that are rated in the lowest of the
top four ratings (Baa by Moody's or BBB by S&P) are considered to have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade securities.
FLOATING RATE, INVERSE FLOATING RATE AND VARIABLE RATE OBLIGATIONS. The
Municipal Funds and the Corporate Income Fund may purchase floating rate,
inverse floating rate and variable rate obligations, including participation
interests therein. Floating rate obligations have an interest rate that changes
whenever there is a change in the external interest rate, while variable rate
obligations provide for a specified periodic adjustment in the interest rate.
The interest rate on an inverse floating rate obligation (an "inverse floater")
can be expected to move in the opposite direction from the market rate of
interest to which the inverse floater is indexed. The Funds may purchase
floating rate, inverse floating rate and variable rate obligations that carry a
demand feature which would permit the Funds to tender them back to the issuer or
remarketing agent at par value prior to maturity. Frequently, floating rate,
inverse floating rate and variable rate obligations are secured by letters of
credit or other credit support arrangements provided by banks.
The Corporate Income Fund may purchase mortgage-backed securities that are
floating rate, inverse floating rate and variable rate obligations. Municipal
Securities purchased by the Municipal Funds may include floating rate, inverse
floating rate and variable rate obligations. Municipal Securities purchased by
the California Money and Global Money Funds and the Municipal Funds may include
variable rate demand notes issued by industrial development authorities and
other governmental entities, as well as participation interests therein.
Although variable
-28-
<PAGE> 133
rate demand notes are frequently not rated by credit rating agencies, a Fund may
purchase unrated notes that are determined by the Fund's Sub-Advisor to be of
comparable quality at the time of purchase to rated instruments that may be
purchased by the Fund. Moreover, while there may be no active secondary market
with respect to a particular variable rate demand note purchased by a Fund, the
Fund may, upon the notice specified in the note, demand payment of the principal
of and accrued interest on the note at any time and may resell the note at any
time to a third party. The absence of such an active secondary market, however,
could make it difficult for a Fund to dispose of a particular variable rate
demand note in the event the issuer of the note defaulted on its payment
obligations, and the Fund could, for this or other reasons, suffer a loss to the
extent of the default.
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in their market values.
Accordingly, the duration of an inverse floater may exceed its stated final
maturity.
FLORIDA MUNICIPAL SECURITIES. The Florida Constitution and Statutes mandate that
the State budget as a whole, and each separate fund within the State budget, be
kept in balance from currently available revenues each fiscal year. Florida's
Constitution permits issuance of Florida Municipal Securities pledging the full
faith and credit of the State, with a vote of the electors, to finance or
refinance fixed capital outlay projects authorized by the Legislature provided
that the outstanding principal does not exceed 50% of the total tax revenues of
the State for the two preceding years. Florida's Constitution also provides that
the Legislature shall appropriate monies sufficient to pay debt service on State
bonds pledging the full faith and credit of the State as such debt service
becomes due. All State tax revenues, other than trust funds dedicated by
Florida's Constitution for other purposes, would be available for such an
appropriation, if required.
An amendment to the State Constitution was approved by statewide ballot in the
November 8, 1994 general election which is commonly referred to as the
"Limitation on State Revenues Amendment." This amendment provides that State
revenues collected for any fiscal year shall be limited to State revenues
allowed under the amendment for the prior fiscal year plus an adjustment for
growth. Growth is defined as an amount equal to the average annual rate of
growth in State personal income over the most recent twenty quarters times the
State revenues allowed under the amendment for the prior fiscal year. State
revenues collected for any fiscal year in excess of this limitation are required
to be transferred to the budget stabilization fund until the fund reaches the
maximum balance specified in Section 19(g) of Article III of the State
Constitution, and thereafter is required to be refunded to taxpayers as provided
by general law. The limitation on State revenues imposed by the amendment may be
increased by the Legislature, by a two-thirds vote of each house.
The term "State revenues," as used in the amendment, means taxes, fees,
licenses, and charges for services imposed by the Legislature on individuals,
businesses, or agencies outside State government. However, the term "State
revenues" does not include: (i) revenues that are necessary to meet the
requirements set forth in documents authorizing the issuance of bonds by the
State; (ii) revenues that are used to provide matching funds for the federal
Medicaid program with the exception of the revenues used to support the Public
Medical Assistance Trust Fund or its successor program and with the exception of
State matching funds used to fund elective expansions made after July 1, 1994;
(iii) proceeds from the State lottery returned as prizes; (iv) receipts of the
Florida Hurricane Catastrophe Fund; (v) balances carried forward from prior
fiscal years; (vi) taxes, licenses, fees and charges for services imposed by
local, regional, or school district governing bodies; or (vii) revenue from
taxes, licenses, fees and charges for services required to be imposed by any
amendment or revision to the State Constitution after July 1, 1994. The
amendment took effect on January 1, 1995 and is applicable to State fiscal year
1995-96.
It should be noted that many of the provisions of the amendment are ambiguous,
and likely will not be clarified until State courts have ruled on their
meanings. Furthermore, it is unclear how the Legislature will implement the
language of the amendment and whether such implementing legislation itself will
be the subject of further court interpretation.
The Fund cannot predict the impact of the amendment on State finances. To the
extent local governments traditionally receive revenues from the State which are
subject to, and limited by, the amendment, the future distribution of such State
revenues may be adversely affected by the amendment.
Revenue bonds may be issued by the State or its agencies without a vote of
Florida's electors only to finance or refinance the cost of State fixed capital
outlay projects which shall be payable solely from funds derived directly from
sources other than State tax revenues. Estimated fiscal year 1994-95 General
Revenue plus Working Capital and Budget Stabilization funds available total
$14,683,000,000, an increase of approximately 6.1% over comparable figures in
fiscal 1993-94. Total effective appropriations for the 1994-95 fiscal year were
$14,330,800,000, with
-29-
<PAGE> 134
unencumbered reserves at the end of 1994-95 estimated at $352,100,000. Estimated
fiscal year 1995-96 General Revenue plus Working Capital and Budget
Stabilization funds available total $15,168,700,000, an increase of
approximately 3.3% over comparable figures for fiscal year 1994-95. Total
effective appropriations for the 1995-96 fiscal year are estimated to be
$14,853,200,000, with unencumbered reserves at the end of 1995-96 estimated at
$315,500,000.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. All of the Funds except the U.S.
Government Fund, the Municipal Funds and the Money Funds may engage in foreign
currency exchange transactions. Funds that buy and sell securities denominated
in currencies other than the U.S. Dollar, and receive interest, dividends and
sale proceeds in currencies other than the U.S. Dollar, may enter into foreign
currency exchange transactions to convert to and from different foreign
currencies and to convert foreign currencies to and from the U.S. Dollar. The
Fund either enters into these transactions on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or uses forward
contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement, and is traded at a net
price without commission. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of the Fund's portfolio
securities or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.
A Fund may enter into foreign currency hedging transactions in an attempt to
protect against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain. In addition,
when the Sub-Advisor believes that the currency of a specific country may
deteriorate against another currency, it may enter into a forward contract to
sell the less attractive currency and buy the more attractive one. The amount in
question could be less than or equal to the value of the Fund's securities
denominated in the less attractive currency. The Fund may also enter into a
forward contract to sell a currency which is linked to a currency or currencies
in which some or all of the Fund's portfolio securities are or could be
denominated, and to buy U.S. Dollars. These practices are referred to as "cross
hedging" and "proxy hedging."
Forward currency exchange contracts are agreements to exchange one currency for
another -- for example, to exchange a certain amount of U.S. Dollars for a
certain amount of Japanese Yen -- at a future date and specified price.
Typically, the other party to a currency exchange contract will be a commercial
bank or other financial institution. Because there is a risk of loss to the Fund
if the other party does not complete the transaction, the Fund's Sub-Advisor
will enter into foreign currency exchange contracts only with parties approved
by the Fund's Board of Trustees.
A Fund may maintain "short" positions in forward currency exchange transactions,
which would involve the Fund's agreeing to exchange currency that it currently
does not own for another currency -- for example, to exchange an amount of
Japanese Yen that it does not own for a certain amount of U.S. Dollars -- at a
future date and specified price in anticipation of a decline in the value of the
currency sold short relative to the currency that the Fund has contracted to
receive in the exchange.
While such actions are intended to protect the Fund from adverse currency
movements, there is a risk that currency movements involved will not be properly
anticipated. Use of this currency hedging technique may also be limited by
management's need to protect the status of the Fund as a regulated investment
company under the Code. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.
FOREIGN INVESTMENTS. All of the Funds except the U.S. Government Fund, the U.S.
Government Money Fund, the California Money Fund and the Municipal Funds may
invest in securities of foreign issuers. There are certain
-30-
<PAGE> 135
risks involved in investing in foreign securities, including those resulting
from (i) fluctuations in currency exchange rates, (ii) devaluation of
currencies, (iii) future political or economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, (iv) reduced availability of public information concerning
issuers, and (v) the fact that foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to domestic
companies. Moreover, securities of many foreign companies may be less liquid and
the prices more volatile than those of securities of comparable domestic
companies. Although the Funds' Sub-Advisors do not intend to expose the Funds to
such risks, with respect to certain foreign countries, there is the possibility
of expropriation, nationalization, confiscatory taxation and limitations on the
use or removal of funds or other assets of the Funds, including the withholding
of dividends. A Fund may use forward foreign currency contracts to hedge the
value of the Fund's portfolio against potential adverse movements in foreign
currency markets.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Funds hold various foreign currencies
from time to time, the value of the net assets of the Funds as measured in U.S.
Dollars will be affected favorably or unfavorably by changes in exchange rates.
Generally, the Funds' currency exchange transactions will be conducted on a spot
(i.e., cash) basis at the spot rate prevailing in the currency exchange market.
The cost of the Funds' currency exchange transactions will generally be the
difference between the bid and offer spot rate of the currency being purchased
or sold. In order to protect against uncertainty in the level of future foreign
currency exchange rates, the Funds are authorized to enter into certain foreign
currency exchange transactions. Investors should be aware that exchange rate
movements can be significant and can endure for long periods of time. The
Sub-Advisors of the International Growth and Short Term Global Government Funds
attempt to manage exchange rate risk through active currency management.
Extensive research of the economic, political and social factors that influence
global markets is conducted by the Sub-Advisors. Particular attention is given
to country-specific analysis, reviewing the strength or weakness of a country's
overall economy, the government policies influencing business conditions and the
outlook for the country's currency.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange ("NYSE"). Accordingly, the Funds'
foreign investments may be less liquid and their prices may be more volatile
than comparable investments in securities of United States companies. Moreover,
the settlement periods for foreign securities, which are often longer than those
for securities of United States issuers, may affect portfolio liquidity. In
buying and selling securities on foreign exchanges, the Fund normally pays fixed
commissions that are generally higher than the negotiated commissions charged in
the United States. In addition, there is generally less governmental supervision
and regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.
FUTURES AND OPTIONS ON FUTURES. When deemed advisable by its Sub-Advisor,
certain Funds may enter into financial futures and related options that are
traded on a U.S. exchange or board of trade. If entered into, these transactions
will be made for the purpose of hedging against the effects of changes in the
value of portfolio securities due to anticipated changes in interest rates and
market conditions, when the transactions are economically appropriate to the
reduction of risks inherent in the management of the Funds, and for the other
purposes described in the section "Strategic Transactions." A Fund may not enter
into futures and options contracts for which aggregate initial margin deposits
and premiums paid for unexpired options entered into for purposes other than
"bona fide hedging" as defined in regulations adopted by the Commodity Futures
Trading Commission exceed 5% of the fair market value of the Fund's assets, such
market value to be determined after taking into account unrealized profits and
unrealized losses on futures contracts into which it has entered. With respect
to each long position in a futures contract or option thereon, the underlying
commodity value of such contract will always be covered by cash and cash
equivalents set aside plus accrued profits held at the futures commission
merchant.
A financial futures contract provides for the future sale by one party and the
purchase by the other party of a specified amount of a particular financial
instrument (debt security) at a specified price, date, time and place. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the difference between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written. An option on a financial or
index futures contract generally gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract at a specified
exercise price at any time prior to the expiration date of the option.
The purpose of entering into a futures contract by a Fund is to protect the Fund
from fluctuations in the value of its securities caused by anticipated changes
in interest rate or market conditions without necessarily buying or selling the
securities. The use of futures contracts and options on futures contracts as
hedging devices involves several
-31-
<PAGE> 136
risks. There can be no assurance that there will be a correlation between price
movements in the underlying securities, currencies or index, on the one hand,
and price movements in the securities which are the subject of the hedge, on the
other hand. Positions in futures contracts and options on futures contracts may
be closed out only on the exchange or board of trade on which they were entered
into, and there can be no assurance that an active market will exist for a
particular contract or option at any particular time. If a Fund has hedged
against the possibility of an increase in interest rates or bond prices
adversely affecting the value of securities held in its portfolio and rates or
prices decreased instead, a Fund will lose part or all of the benefit of the
increased value of securities that it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. These sales of
securities may, but will not necessarily, be at increased prices that reflect
the decline in interest rates or bond prices, as the case may be. In addition,
the Fund would pay commissions and other costs in connection with such
investments, which may increase the Fund's expenses and reduce its return. While
utilization of options, futures contracts and similar instruments may be
advantageous to the Fund, if the Fund's Sub-Advisor is not successful in
employing such instruments in managing the Fund's investments, the Fund's
performance will be worse than if the Fund did not make such investments. Losses
incurred in hedging transactions and the costs of these transactions will
adversely affect a Fund's performance.
The Money Funds will not invest in futures and options on futures. In addition,
because any income earned from transactions in futures contracts and options on
futures contracts will be taxable, it is anticipated that the California
Municipal, Florida Insured Municipal, California Insured Intermediate Municipal
and National Municipal Funds will invest in these instruments only in unusual
circumstances, such as when the Fund's Sub-Advisor anticipates an extreme change
in interest rates or market conditions.
GEOGRAPHICAL AND INDUSTRY CONCENTRATION. Potential investors in the California
Money, California Municipal, California Insured Intermediate Municipal and
Florida Insured Municipal Funds should consider the possibly greater risk
arising from the geographic concentration of their investments, as well as the
current and past financial condition of California and Florida municipal
issuers, respectively. Certain California and Florida constitutional amendments,
legislative measures, executive orders, administrative regulations, court
decisions and voter initiatives could result in certain adverse consequences
affecting California and Florida municipal obligations, respectively. See the
SAI for a more detailed description of these and other risks relating to the
California Money Fund's, California Municipal Fund's and California Insured
Intermediate Municipal Fund's investments in California municipal obligations
and the Florida Insured Municipal Fund's investments in Florida municipal
obligations.
The Global Money Fund will invest at least 25% of its assets in bank obligations
unless the Fund is in a temporary defensive position. As a result of this
concentration policy, which is a fundamental policy of the Fund, the Fund's
investments may be subject to greater risk than a fund that does not concentrate
in the banking industry. In particular, bank obligations may be subject to the
risks associated with interest rate volatility, changes in federal and state
laws and regulations governing banking and the inability of borrowers to pay
principal and interest when due. In addition, foreign banks present the risks of
investing in foreign securities generally and are not subject to reserve
requirements and other regulations comparable to those of U.S. banks.
GOVERNMENT STRIPPED MORTGAGE-BACKED SECURITIES. The Short Term High Quality
Bond, Short Term Global Government, U.S. Government and Corporate Income Funds
may invest in government stripped mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC"). These securities represent beneficial ownership interests
in either periodic principal distributions ("principal-only") or interest
distributions ("interest-only") on mortgage-backed certificates issued by GNMA,
FNMA or FHLMC, as the case may be. The certificates underlying the government
stripped mortgage-backed securities represent all or part of the beneficial
interest in pools of mortgage loans. The Funds will invest in interest-only
government stripped mortgage-backed securities in order to enhance yield or to
benefit from anticipated appreciation in value of the securities at times when
the appropriate Sub-Advisor believes that interest rates will remain stable or
increase. In periods of rising interest rates, the value of interest-only
government stripped mortgage-backed securities may be expected to increase
because of the diminished expectation that the underlying mortgages will be
prepaid. In this situation the expected increase in the value of interest-only
government stripped mortgage-backed securities may offset all or a portion of
any decline in value of the portfolio securities of the Funds. Investing in
government stripped mortgage-backed securities involves the risks normally
associated with investing in mortgage-backed securities issued by government or
government-related entities. See "Mortgage-Backed Securities" section. In
addition, the yields on interest-only and principal-only government stripped
mortgage-backed securities are extremely sensitive to the prepayment experience
on the mortgage loans underlying the certificates collateralizing
-32-
<PAGE> 137
the securities. If a decline in the level of prevailing interest rates results
in a rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on
interest-only government stripped mortgage-backed securities and increasing the
yield to maturity on principal-only government stripped mortgage-backed
securities. Conversely, if an increase in the level of prevailing interest rates
results in a rate of principal prepayments lower than anticipated, distributions
of principal will be deferred, thereby increasing the yield to maturity on
interest-only government stripped mortgage-backed securities and decreasing the
yield to maturity on principal-only government stripped mortgage-backed
securities. Sufficiently high prepayment rates could result in the Fund's not
fully recovering its initial investment in an interest-only government stripped
mortgage-backed security. Government stripped mortgage-backed securities are
currently traded in an over-the-counter market maintained by several large
investment banking firms. There can be no assurance that the Fund will be able
to effect a trade of a government stripped mortgage-backed security at a time
when it wishes to do so. The Funds will acquire government stripped
mortgage-backed securities only if a liquid secondary market for the securities
exists at the time of acquisition.
HOLDINGS IN OTHER INVESTMENT COMPANIES. When the Sub-Advisor of each Fund
believes that it would be beneficial to the Fund and appropriate under the
circumstances, the Sub-Advisor may invest up to 10% of the Fund's assets in
securities of mutual funds that are not affiliated with Sierra Advisors or any
Sub-Advisor. As a shareholder in any such mutual fund, the Fund will bear its
ratable share of the mutual fund's expenses, including management fees, and will
remain subject to the Fund's advisory and administration fees with respect to
the assets so invested.
ILLIQUID SECURITIES. Up to 15% of the assets of each Non-Money Fund, and up to
10% of the assets of each Money Fund, may be invested in securities that are not
readily marketable, including: (1) repurchase agreements with maturities greater
than seven calendar days; (2) time deposits maturing in more than seven calendar
days; (3) to the extent a liquid secondary market does not exist for the
instruments, futures contracts and options thereon; (4) certain over-the-counter
options, as described in the SAI; (5) except for the Short-Term Global
Government Fund, certain variable rate demand notes having a demand period of
more than seven days; and (6) securities the disposition of which is restricted
under federal securities laws (excluding Rule 144A Securities, described below).
The Funds will not include for purposes of the restrictions on illiquid
investments securities sold pursuant to Rule 144A under the Securities Act of
1933, as amended, so long as such securities meet liquidity guidelines
established by the Trust's Board of Trustees. Under Rule 144A, securities which
would otherwise be restricted may be sold by persons other than issuers or
dealers to qualified institutional buyers.
LEASE OBLIGATION BONDS. Lease obligation bonds are mortgages on a facility that
is secured by the facility and are paid by a lessee over a long term. The rental
stream to service the debt as well as the mortgage are held by a collateral
trustee on behalf of the public bondholders. The primary risk of such instrument
is the risk of default. Under the lease indenture, the failure to pay rent is an
event of default. The remedy to cure default is to rescind the lease and sell
the asset. If the lease obligation is not readily marketable or market
quotations are not readily available, such lease obligations will be subject to
a Fund's 15% limit on illiquid securities. The Money Funds will not invest in
Lease Obligation Bonds.
LENDING OF SECURITIES. All of the Funds except the U.S. Government, California
Municipal and Florida Insured Municipal Funds have the ability to lend portfolio
securities to brokers and other financial organizations. By lending its
securities, a Fund can increase its income by continuing to receive interest on
the loaned securities as well as by either investing the cash collateral in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government Securities are used as collateral. These loans, if
and when made, may not exceed 20% of a Fund's total assets. Loans of portfolio
securities by a Fund will be collateralized by cash, letters of credit or U.S.
Government Securities that are maintained at all times in an amount at least
equal to the current market value of the loaned securities. Any gain or loss in
the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Fund involved. Each Fund's Sub-Advisor
will monitor on an ongoing basis the credit worthiness of the institutions to
which the Fund lends securities.
LOWER-RATED SECURITIES. The Growth and Emerging Growth Funds may each invest up
to 35%, and the Short Term Global Government Fund may invest up to 10%, of the
total assets of the Fund, respectively, in debt securities rated lower than BBB
by S&P or Baa by Moody's, or of equivalent quality as determined by that Fund's
Sub-Advisor. Non-investment-grade debt securities are securities rated BB or
lower and are commonly referred to as "junk bonds."
Securities rated below investment-grade, as well as unrated securities, usually
entail greater risk (including the possibility of default or bankruptcy of the
issuers), and generally involve greater price volatility and risk of principal
and income, and may be less liquid, than securities in higher rated categories.
Both price volatility and illiquidity
-33-
<PAGE> 138
may make it difficult for the Fund to value certain of these securities at
certain times and these securities may be difficult to sell under certain market
conditions. Prices for non-investment-grade debt securities may be affected by
legislative and regulatory developments. For further information, see
"Investment Objectives and Policies of the Funds - Strategies Available to Short
Term Global Government Fund, Growth Fund and Emerging Growth Fund" in the SAI.
Non-investment-grade debt securities are often considered to be speculative and
involve greater risk of default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities may fluctuate more than
higher-rated securities and may decline significantly in periods of general
economic difficulty, which may follow periods of rising interest rates.
The Growth Fund has no pre-established minimum quality standards and may invest
in debt securities of any quality, including non-investment-grade debt
securities that may offer higher yields because of the greater risks involved in
such investments.
MORTGAGE-BACKED SECURITIES. All of the Funds may invest in mortgage-backed U.S.
Government Securities which represent an interest in a pool of mortgage loans.
Each of the Money Funds may invest in such securities pursuant to its authority
to make money market investments. The primary government issuers or guarantors
of mortgage-backed securities are GNMA, FNMA and FHLMC. Mortgage-backed
securities provide a monthly payment consisting of interest and principal
payments. Additional payments may be made out of unscheduled repayments of
principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-related securities may tend to increase due
to refinancing of mortgages as interest rates decline. Prompt payment of
principal and interest on GNMA mortgage pass-through certificates is backed by
the full faith and credit of the United States. FNMA guaranteed mortgage
pass-through certificates and FHLMC participation certificates are solely the
obligations of those entities but are supported by the discretionary authority
of the U.S. Government to purchase the agencies' obligations.
Collateralized Mortgage Obligations are a type of bond secured by an underlying
pool of mortgages or mortgage pass-through certificates that are structured to
direct payments on underlying collateral to different series or classes of the
obligations. In addition, the U.S. Government Fund may invest in commercial
Mortgage-Backed Securities, which are similar to the above Mortgage-Backed
Securities, except they are issued by non-governmental entities and are created
by pooling together commercial and multifamily mortgage loans into trusts that
are structured into different classes or series based upon the prioritization of
cash flows. Commercial Mortgage-Backed Securities include Collateralized
Mortgage Obligations and real estate mortgage investment conduits ("REMICs").
While commercial Mortgage-Backed Securities are generally structured with one or
more types of credit enhancement, they typically lack a guarantee by an entity
having the credit status of a governmental agency or instrumentality.
To the extent that a Fund purchases mortgage-related or mortgage-backed
securities at a premium, mortgage foreclosures and prepayments of principal
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of the
Fund may be affected by reinvestment of prepayments at higher or lower rates
than the original investment. In addition, like other debt securities, the value
of mortgage-related securities, including government and government-related
mortgage pools, will generally fluctuate in response to market interest rates.
MUNICIPAL LEASES. The California Insured Intermediate Municipal and National
Municipal Funds may acquire participations in lease obligations or installment
purchase contract obligations (hereinafter collectively called "lease
obligations") of municipal authorities or entities. Although lease obligations
do not constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation is ordinarily backed
by the municipality's covenant to budget for, appropriate, and make the payments
due under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. In addition to the
"non-appropriation" risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional bonds. In the case of a "non-appropriation" lease, the Fund's
ability to recover under the lease in the event of non-appropriation or default
will be limited solely to the repossession of the leased property in the event
foreclosure might prove difficult.
The Fund will not invest more than 5% of its total investment assets in lease
obligations that contain "non-appropriation" clauses where (1) the nature of the
leased equipment or property is such that its ownership or use is essential to a
governmental function of the municipality, (2) the lease payments will commence
amortization of principal at an early date resulting in an average life of seven
years or less for the lease obligation, (3) appropriate
-34-
<PAGE> 139
covenants will be obtained from the municipal obligor prohibiting the
substitution or purchase of similar equipment if lease payments are not
appropriate, (4) the lease obligor has maintained good market acceptability in
the past, (5) the investment is of a size that will be attractive to
institutional investors, and (6) the underlying leased equipment has elements of
probability and/or use that enhance its marketability in the event foreclosure
on the underlying equipment were ever required. The Fund will not invest in
lease obligations that contain "non-appropriation" clauses that do not meet
these criteria. The Fund has not imposed any percentage limitations with respect
to its investment in lease obligations not subject to the "non-appropriation"
risk.
To reduce investment risk, the Municipal Funds may not invest more than 25% of
their respective total assets in Municipal Securities the interest on which is
paid from revenues of similar-type projects. Except for the limitations on
borrowing, the investment guidelines set forth in this paragraph may be changed
at any time without shareholder consent by vote of the Board of Trustees of the
Trust. A complete list of investment restrictions that identifies additional
restrictions that cannot be changed without the approval of a majority of an
affected Fund's outstanding shares is contained in the SAI.
MUNICIPAL SECURITIES AND AMT-SUBJECT BONDS. "Municipal Securities" are debt
obligations issued by states, territories and possessions of the United States,
the District of Columbia and their respective authorities, agencies,
instrumentalities and political subdivisions. "California Municipal Securities"
are Municipal Securities issued by the State of California and its political
subdivisions, as well as certain other governmental issuers such as the
Commonwealth of Puerto Rico. "Florida Municipal Securities" are Municipal
Securities issued by the State of Florida and its political subdivisions.
"AMT-Subject Bonds" are Municipal Securities issued to finance certain "private
activities," such as bonds used to finance airports, housing projects, student
loan programs and water and sewer projects. Interest on AMT-Subject Bonds is a
specific tax preference item for purposes of the federal individual and
corporate alternative minimum taxes. In the past, AMT-Subject Bonds have
provided, and may continue to provide, somewhat higher yields than comparable
Municipal Securities, the interest on which is not a specific tax preference
item for purposes of the federal individual and corporate alternative minimum
taxes. See "Dividends, Capital Gains and Taxes" for a discussion of the tax
consequences of investing in AMT-Subject Bonds.
NEW ISSUERS. All of the Funds except the Money Funds may invest up to 5% of its
assets in the securities of issuers which have been in continuous operation for
less than three years.
NON-DIVERSIFIED STATUS. Each of the California Money, Short Term Global
Government, California Municipal, Florida Insured Municipal and California
Insured Intermediate Municipal Funds is classified as a "non-diversified"
investment company under the 1940 Act, which means that the Fund is not limited
by the 1940 Act in the proportion of its assets that may be invested in the
obligations of a single issuer. Each of these Funds must, however, meet certain
diversification standards to qualify as a regulated investment company under the
Code. See the section "Taxes" in the SAI. Each of these Funds may assume large
positions in the obligations of a small number of issuers which may subject the
Fund to greater credit and other risks than a more broadly diversified
portfolio.
OPTIONS ON SECURITIES.
OPTION PURCHASE. All of the Funds except the Municipal Funds and the Money Funds
may purchase put and call options on portfolio securities in which it may invest
that are traded on a U.S. or foreign securities exchange or in the
over-the-counter market. A Fund may utilize up to 10% of its assets to purchase
put options on portfolio securities and may do so at or about the same time that
it purchases the underlying security or at a later time. By buying a put, a Fund
limits its risk of loss from a decline in the market value of the security until
the put expires. Any appreciation in the value of the underlying security,
however, will be partially offset by the amount of the premium paid for the put
option and any related transaction costs. A Fund may also utilize up to 10% of
its assets to purchase call options on securities in which it is authorized to
invest. Call options may be purchased by a Fund in order to acquire the
underlying securities for the Fund at a price that avoids any additional cost
that would result from a substantial increase in the market value of a security.
A Fund may also purchase call options to increase its return to investors at a
time when the call is expected to increase in value due to anticipated
appreciation of the underlying security. Prior to their expirations, put and
call options may be sold in closing sale transactions (sales by the Fund, prior
to the exercise of options that it has purchased, of options of the same
series), and profit or loss from the sale will depend on whether the amount
received is more or less than the premium paid for the option plus the related
transaction costs.
-35-
<PAGE> 140
COVERED OPTION WRITING. Certain Funds may write put and call options on
securities for hedging purposes and the other purposes described in the section
"Strategic Transactions." A Fund realizes fees (referred to as "premiums") for
granting the rights evidenced by the options. A put option embodies the right of
its purchaser to compel the writer of the option to purchase from the option
holder an underlying security at a specified price at any time during the option
period. In contrast, a call option embodies the right of its purchaser to compel
the writer of the option to sell to the option holder an underlying security at
a specified price at any time during the option period.
Upon the exercise of a put option written by a Fund, the Fund may suffer a loss
equal to the difference between the price at which the Fund is required to
purchase the underlying security and its market value at the time of the option
exercise, less the premium received for writing the option. Upon the exercise of
a call option written by the Fund, the Fund may suffer a loss equal to the
excess of the security's market value at the time of the option exercise over
the Fund's acquisition cost of the security, less the premium received for
writing the option.
Certain Funds may write covered options on portfolio securities to enhance
current return. Accordingly, whenever a Fund writes a call option, it will
continue to own or have the present right to acquire the underlying security
without the payment of additional consideration for as long as it remains
obligated as the writer of the option. To support its obligation to purchase the
underlying security if a put option is exercised, a Fund will either (1) deposit
with the Trust's custodian in a segregated account cash, U.S. Government
Securities or other short-term, high-grade debt obligations having a value at
least equal to the exercise price of the underlying securities or (2) continue
to own an equivalent number of puts on the same "series" (that is, puts on the
same underlying security having the same exercise prices and expiration dates as
those written by the Fund), or an equivalent number of puts on the same "class"
(that is, puts on the same underlying security) with exercise prices greater
than those that it has written (or, if the exercise prices of the puts it holds
are less than the exercise prices of those it has written, it will deposit the
difference with the custodian in a segregated account).
The principal reason for writing covered call and put options on a securities
portfolio is to attempt to realize, through the receipt of premiums, a greater
return than would be realized on the securities alone. In return for a premium,
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the call writer retains the risk of a decline in the price of the underlying
security. Similarly, the principal reason for writing covered put options is to
realize income in the form of premiums. The writer of the covered put option
accepts the risk of a decline in the price of the underlying security. The size
of the premiums that the Funds may receive may be adversely affected as new or
existing institutions, including other investment companies, engage in or
increase their option-writing activities.
A Fund may engage in closing purchase transactions to realize a profit, to
prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, a Fund would purchase,
prior to the holder's exercise of an option that the Fund has written, an option
of the same series as that on which the Fund desires to terminate its
obligation. The obligation of the Fund under an option that it has written would
be terminated by a closing purchase transaction, but the Fund would not be
deemed to own an option as the result of the transaction. There can be no
assurance that the Fund will be able to effect closing purchase transactions at
a time when it wishes to do so. The ability of the Fund to engage in closing
transactions with respect to options depends on the existence of a liquid
secondary market. While the Fund will generally purchase or write options only
if there appears to be a liquid secondary market for the options purchased or
sold, for some options no such secondary market may exist or the market may
cease to exist. To facilitate closing purchase transactions, however, the Fund
will ordinarily write options only if a secondary market for the options exists
on a U.S. securities exchange or in the over-the-counter market.
Option writing for the Funds may be limited by position and exercise limits
established by U.S. securities exchanges and the NASD and by requirements of the
Code for qualification as a regulated investment company. In addition to writing
covered put and call options to generate current income, the Funds may enter
into options transactions as hedges to reduce investment risk, generally by
making an investment expected to move in the opposite direction of a portfolio
position. A hedge is designed to offset a loss on a portfolio position with a
gain on the hedge position; at the same time, however, a properly correlated
hedge will result in a gain on the portfolio position's being offset by a loss
on the hedge position. The Funds bear the risk that the prices of the securities
being hedged will not move in the same amount as the hedge. A Fund will engage
in hedging transactions only when deemed advisable by its Sub-Advisor.
Successful use by the Fund of options will depend on its Sub-Advisor's ability
to correctly predict
-36-
<PAGE> 141
movements in the direction of the stock underlying the option used as a hedge.
Losses incurred in hedging transactions and the costs of these transactions will
adversely affect the Fund's performance.
OPTIONS ON FOREIGN CURRENCIES. All of the Funds except the U.S. Government Fund,
the Municipal Funds and the Money Funds may purchase and write put and call
options on foreign currencies for the purpose of hedging against declines in
U.S. Dollar value on foreign currency-denominated portfolio securities and
against increases in the U.S. Dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency constitutes only a partial hedge, up to the amount of the
premium received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates, although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. There is no specific percentage limitation on
the Fund's investments in options on foreign currencies. See the SAI for further
discussion of the use, risks and costs of options on foreign currencies.
OPTIONS ON FOREIGN STOCK INDEXES. The International Growth, Growth, Growth and
Income, Emerging Growth, Short Term High Quality Bond, Short Term Global
Government and California Insured Intermediate Municipal Funds may, subject to
applicable securities regulations, purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges for the
purposes of hedging its portfolio. A stock index fluctuates with changes in the
market values of the stocks included in the index. Examples of foreign stock
indexes are the Canadian Market Portfolio Index (Montreal Stock Exchange), The
Financial Times - Stock Exchange 100 (London Stock Exchange) and the Toronto
Stock Exchange Composite 300 (Toronto Stock Exchange).
Options on stock indexes are generally similar to options on stock except for
different delivery requirements. Instead of giving the right to take or make
delivery of stock at a specified price, an option on a stock index gives the
holder the right to receive a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and the exercise price of the option expressed in U.S.
Dollars or a foreign currency, as the case may be, times a specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. The writer may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or the option may expire unexercised.
The effectiveness of purchasing or writing stock index options as a hedging
technique will depend upon the extent to which price movements in the portion of
the securities portfolio of the Fund correlate with price movements of the stock
index selected. Because the value of an index option depends upon movements in
the level of the index rather than the price of a particular stock, whether the
Fund will realize a gain or loss from the purchase or writing of options on an
index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use of options on stock indexes by the Fund will be subject to its
Sub-Advisor's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.
Options on securities indexes entail risks in addition to the risks of options
on securities. Because exchange trading of options on securities indexes is
relatively new, the absence of a liquid secondary market to close out an option
position is more likely to occur, although the Fund generally will only purchase
or write such an option if the Sub-Advisor believes the option can be closed
out. Because options on securities indexes require settlement in cash, the Fund
may be forced to liquidate portfolio securities to meet settlement obligations.
The Fund will engage in stock index options transactions only when determined by
its Sub-Advisor to be consistent with its efforts to control risk. There can be
no assurance that such judgment will be accurate or that the use of these
portfolio strategies will be successful.
When the Fund writes an option on a stock index, it will establish a segregated
account with the Trust's custodian or with a foreign sub-custodian in which the
Fund will deposit cash or cash equivalents or a combination of both in an amount
equal to the market value of the option, and will maintain the account while the
option is open.
OVER THE COUNTER OPTIONS. Each of the Funds except the U.S. Government, U.S.
Government Money, California Money and Municipal Funds may write or purchase
options in privately negotiated domestic or foreign
-37-
<PAGE> 142
transactions ("OTC Options"), as well as exchange-traded or "listed" options on
foreign currencies. Each of the Funds except the Municipal and Money Funds may
write or purchase OTC Options on securities. OTC Options can be closed out only
by agreement with the other party to the transaction, and thus any OTC Options
purchased by a Fund will be considered an illiquid security. In addition,
certain OTC Options on foreign currencies are traded through financial
institutions acting as market-makers in such options and the underlying
currencies.
OTC Options entail risks in addition to the risks of exchange-traded options.
Exchange-traded options are in effect guaranteed by the Options Clearing
Corporation while a Fund relies on the party from whom it purchases an OTC
Option to perform if the Fund exercises the option. With OTC Options, if the
transacting dealer fails to make or take delivery of the securities or amount of
foreign currency underlying an option it has written, in accordance with the
terms of that option, the Fund will lose the premium paid for the option as well
as any anticipated benefit of the transaction. Furthermore, OTC Options are less
liquid than exchange-traded options.
REPURCHASE AGREEMENTS. All of the Funds may invest in repurchase agreements,
which are agreements to purchase underlying debt obligations from financial
institutions, such as banks and broker-dealers, subject to the seller's
agreement to repurchase the obligations at an established time and price. The
collateral for such repurchase agreements will be held by the Fund's custodian
or a duly appointed sub-custodian. A Fund will enter into repurchase agreements
only with banks and broker-dealers that have been determined to be creditworthy
by the Fund's Board of Trustees under criteria established with the assistance
of the Advisor. The seller under a repurchase agreement would be required to
maintain the value of the obligations subject to the repurchase agreement at not
less than the repurchase price. Default by the seller would, however, expose the
Fund to possible loss because of adverse market action or delay in connection
with the disposition of the underlying obligations. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the obligations, the
Fund may be delayed or limited in its ability to sell the collateral.
Investments by the California Money Fund in repurchase agreements, if any, are
limited by the restrictions of that Fund's investment in taxable instruments.
REVERSE REPURCHASE AGREEMENTS. Each of the Funds except the Money Funds may
engage in reverse repurchase agreements. Reverse repurchase agreements are the
same as repurchase agreements except that, in this instance, the Funds would
assume the role of seller/borrower in the transaction. The Funds will maintain
segregated accounts with the Trust's custodian consisting of U.S. Government
Securities, cash or money market instruments that at all times are in an amount
equal to their obligations under reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the repurchase price of the securities and, if
the proceeds from the reverse purchase agreement are invested in securities,
that the market value of the securities bought may decline below the repurchase
price of the securities sold. Each Fund's Sub-Advisor, acting under the
supervision of the Board of Trustees, reviews, on an ongoing basis the
creditworthiness of the partners with which it enters into reverse repurchase
agreements. Under the Investment Company Act, reverse repurchase agreements may
be considered borrowings by the seller. For each of the Funds except the U.S.
Government, Short Term High Quality Bond and Corporate Income Funds, whenever
borrowings by a Fund, including reverse repurchase agreements, exceed 5% of the
value of a Fund's total assets, the Fund will not purchase any securities. The
U.S. Government, Short Term High Quality Bond and Corporate Income Funds are
prohibited from borrowing money or entering reverse repurchase agreements or
dollar roll transactions in the aggregate in excess of 33 1/3 percent of the
Fund's total assets (after giving effect to such borrowings).
STAND-BY COMMITMENTS. The California Money Fund and the Municipal Funds may
acquire "stand-by commitments" with respect to Municipal Securities held in
their portfolios. Under a stand-by commitment, a dealer agrees to purchase, at a
Fund's option, specified Municipal Securities at a specified price. A Fund may
pay for stand-by commitments either separately in cash or by paying a higher
price for the securities acquired with the commitment, thus increasing the cost
of the securities and reducing the yield otherwise available from them. Each
Fund intends to enter into stand-by commitments only with brokers, dealers and
banks that, in the opinion of its Sub-Advisor, present minimal credit risks. In
evaluating the creditworthiness of the issuer of a stand-by commitment, the
Sub-Advisors will periodically review relevant financial information concerning
the issuer's assets, liabilities and contingent claims. The Funds will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
STRATEGIC TRANSACTIONS. Subject to the investment limitations and restrictions
for each of the Funds as stated elsewhere in the prospectus and SAI, each of the
Funds, except the Money Funds, may, but is not required to, utilize various
other investment strategies as described below to hedge various market risks, to
manage the effective maturity or duration of fixed-income securities, or to seek
potentially higher returns. Utilizing these investment strategies, the Fund may
purchase and sell, to the extent not otherwise limited or restricted for such
Fund,
-38-
<PAGE> 143
exchange-listed and over-the-counter put and call options on securities, equity
and fixed-income indices and other financial instruments, purchase and sell
financial futures contracts and options thereon, enter into various interest
rate transactions such as swaps, caps, floors or collars, and enter into various
currency transactions such as currency forward contracts, currency futures
contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Some Strategic Transactions may
also be used to seek potentially higher returns, although no more than 5% of the
Fund's assets will be used as the initial margin or purchase price of options
for Strategic Transactions entered into for purposes other than "bona fide
hedging" positions as defined in the regulations adopted by the Commodity
Futures Trading Commission. Any or all of these investment techniques may be
used at any time, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The use of Strategic Transactions
involves special considerations and risks, for example (1) the ability of the
Fund to utilize these Strategic Transactions successfully will depend on the
Sub-Advisor's ability to predict, which cannot be assured, pertinent market
movements; and (2) there might be imperfect correlation, or even no correlation,
between price movements of Strategic Transactions and price movements of the
related portfolio positions. Strategic Transactions can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements or of unfavorable currency fluctuations in the related portfolio or
currency positions, but can also reduce opportunity for gain by offsetting the
positive effect of favorable price movements in positions. The Fund will comply
with applicable regulatory requirements when utilizing Strategic Transactions.
Strategic Transactions involving financial futures and options thereon will be
purchased, sold or entered into only for bona fide hedging, risk management or
portfolio management purposes. For more information see discussion in other
sections of "Securities and Investment Practices" and the SAI.
U.S. GOVERNMENT SECURITIES. All of the Funds may invest in U.S. Government
Securities, which include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes and bonds) and obligations directly issued or guaranteed
by U.S. Government agencies or instrumentalities. Some obligations issued or
guaranteed by agencies or instrumentalities of the U.S. Government are backed by
the full faith and credit of the U.S. Government (such as GNMA Bonds), others
are backed only by the right of the issuer to borrow from the U.S. Treasury
(such as securities of Federal Home Loan Banks) and still others are backed only
by the credit of the instrumentality (such as FNMA and FHLMC Bonds).
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. In order to secure
yields or prices deemed advantageous at the time, all of the Funds except the
Money Funds may purchase or sell securities on a when-issued or a
delayed-delivery basis. The Funds will enter into a when-issued transaction for
the purpose of acquiring portfolio securities and not for the purpose of
leverage. In such transactions delivery of the securities occurs beyond the
normal settlement periods, but no payment or delivery is made by, and no
interest accrues to, the Funds prior to the actual delivery or payment by the
other party to the transaction. Due to fluctuations in the value of securities
purchased on a when-issued or a delayed-delivery basis, the yields obtained on
such securities may be higher or lower than the yields available in the market
on the dates when the investments are actually delivered to the buyers.
Similarly, the sale of securities for delayed-delivery can involve the risk that
the prices available in the market when delivery is made may actually be higher
than those obtained in the transaction itself. The Funds will establish a
segregated account with Boston Safe consisting of cash, U.S. Government
Securities or other high grade debt obligations in an amount equal to the amount
of its when-issued and delayed-delivery commitments.
WHEN-ISSUED MUNICIPAL SECURITIES AND FORWARD COMMITMENTS. The California Money
Fund and the Municipal Funds may purchase Municipal Securities offered on a
"when-issued" basis and may purchase or sell Municipal Securities on a "forward
commitment" basis. When such transactions are negotiated, the price, which is
generally expressed in yield terms, is fixed at the time the commitment is made,
but delivery and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated. During the period
between a commitment and settlement, no payment is made for the Municipal
Securities purchased by the purchaser and, thus, no interest accrues to the
purchaser from the transaction.
The use of when-issued transactions and forward commitments enables the Funds to
hedge against anticipated changes in interest rates and prices. For instance, in
periods of rising interest rates and falling bond prices, a Fund
-39-
<PAGE> 144
might sell Municipal Securities that it owned on a forward commitment basis to
limit its exposure to falling prices. In periods of falling interest rates and
rising bond prices, a Fund might sell a Municipal Security and purchase the same
or a similar security on a when-issued or forward commitment basis, thereby
obtaining the benefit of currently higher cash yields. However, if the relevant
Fund's Sub-Advisor were to forecast incorrectly the direction of interest rate
movements, the Fund might be required to complete such when-issued or forward
transactions at prices inferior to then-current market values.
When-issued Municipal Securities and forward commitments may be sold prior to
the settlement date, but a Fund enters into when-issued and forward commitments
only with the intention of actually receiving or delivering the Municipal
Securities, as the case may be. If a Fund, however, chooses to dispose of the
right to acquire a when-issued security prior to its acquisition or dispose of
its right to deliver or receive against a forward commitment, it may incur a
gain or loss. When-issued Municipal Securities may include bonds purchased on a
"when, as and if issued" basis, under which the issuance of the securities
depends on the occurrence of a subsequent event, such as approval of a proposed
financing by appropriate municipal authorities. Any significant commitment of a
Fund's assets to the purchase of securities on a "when, as and if issued" basis
may increase the volatility of the Fund's NAV. No when-issued or forward
commitments will be made by a Fund if, as a result, more than 20% of the value
of the Fund's total assets would be committed to such transactions.
PERFORMANCE INFORMATION
YIELD
THE MONEY FUNDS. From time to time, advertisements or shareholder reports
concerning the Money Funds may describe YIELD and EFFECTIVE YIELD. The YIELD of
a Fund refers to the income generated by an investment in the Fund over a 7-day
period identified in the advertisement. This income is then "annualized." That
is, the amount of income generated by the investment 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 similarly but, when annualized,
the income earned by an investment in a Fund is assumed to be reinvested.
EFFECTIVE YIELD will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
THE BOND FUNDS. From time to time, the Bond Funds (including the Municipal
Funds) may advertise the 30-day YIELD. The 30-day yield of a Bond Fund refers to
the income generated by an investment in such Fund over the 30-day period
identified in the advertisement, and is computed by dividing the net investment
income per share earned by the Fund during the period by the maximum Public
Offering Price per share on the last day of the 30-day period. This income is
"annualized" by assuming that the amount of income is generated each month over
a one-year period and is compounded semiannually. The annualized income is then
shown as a percentage of the maximum Public Offering Price. In addition, the
Bond Funds may advertise a similar 30-day YIELD computed in the same manner
except that the NAV per share is used in place of the Public Offering Price per
share.
THE MUNICIPAL FUNDS. The Municipal Funds and the California Money Fund may also
quote TAX EQUIVALENT YIELD. TAX EQUIVALENT YIELD shows the taxable yields an
investor would have to earn before taxes to equal the Fund's tax-free yields. A
tax-equivalent yield is calculated by dividing a Fund's tax-exempt yield by the
result of one minus the sum of a stated federal and applicable state tax rate,
based upon the highest marginal tax rate and adjusted for the federal deduction
of state taxes paid. To the extent that a Fund's yield for a particular investor
is not taxable by cities and counties, the tax equivalent yields experienced by
the investor will be higher than the tax equivalent yields quoted by the Fund.
If only a portion of a Fund's income is tax-exempt, only that portion is
adjusted in the calculation.
TOTAL RETURN
From time to time, a Fund may advertise its average annual total return over
various periods of time. Such total return figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in shares of the Fund.
Figures will be given for recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis).
ADDITIONAL PERFORMANCE QUOTATIONS. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Similarly, a Fund
may provide yield quotations in investor communications based on the Fund's NAV
(rather than its Public Offering Price) per share on the last day of the period
covered by the yield computation. Because these
-40-
<PAGE> 145
additional quotations will not reflect the maximum sales charge payable, such
performance quotations will be higher than the performance quotations that
include the maximum sales charge.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT A PREDICTION OF
FUTURE PERFORMANCE.
PERFORMANCE COMPARISONS
In reports or other communications to shareholders or in advertising material, a
Fund may compare the performance of its Class A and Class S Shares with that of
other mutual funds as listed in the rankings prepared by Lipper Analytical
Services, Inc., CDA Technologies, Inc. or similar independent services that
monitor the performance of mutual funds or with other appropriate indexes of
investment securities. In addition, certain indexes may be used to illustrate
historic performance of select asset classes. These may include, among others,
the Dimensional Fund Advisor's Small Cap Index, the Lehman Brothers GNMA Index,
the S&P 100 Index, the Lehman Brothers Index of Baa-rated Corporate Bonds, the
T-Bill Index, the Bank Rate Monitor, Donoghue's Money Fund Averages and the
"Stocks, Bonds and Inflation Index" published annually by Ibbotson Associates.
The performance information may also include evaluations of the Funds published
by nationally recognized ranking services and by financial publications that are
nationally recognized, such as Business Week, Forbes, Fortune, Institutional
Investor, Money and The Wall Street Journal. The International Growth, Short
Term Global Government and Growth Funds may compare their performance to other
investments or relevant indexes consisting of Salomon Brothers Short Term Global
Bond Index, J.P. Morgan Global Government Traded Index, Morgan Stanley Capital
International EAFE Index, the Standard & Poor's 500 Index, the Lipper
International Fund Index and The Financial Times World Stock Index. If a Fund
compares its performance to other funds or to relevant indexes, the Fund's
performance will be stated in the same terms in which such comparative data and
indexes are stated, which is normally total return rather than yield. For these
purposes the performance of the Fund, as well as the performance of such
investment companies or indexes, may not reflect sales charges, which, if
reflected, would reduce performance results.
In addition, the Municipal Funds and the California Money Fund may attempt to
illustrate in advertising or sales literature the benefits of tax-free
investing. For example, Table 1 on the following page shows California investors
the approximate yield that a taxable investment must earn at various sample
income brackets to produce after-tax yields equivalent to those of tax-exempt
investments, such as the California Municipal, California Insured Intermediate
Municipal and California Money Funds, yielding from 2.00% to 7.00%. Table 2 on
the following page shows taxpayers how to translate federal tax savings from
investments, such as the National Municipal Fund, into an equivalent yield from
a taxable investment. The yields, tax rates and income brackets following are
for illustration purposes only and are not intended to represent current or
future yields for the Funds, current tax rates or income brackets. The yields,
tax rates and income brackets following may be higher or lower than the yields,
tax rates and income brackets shown. Calculations are computed in accordance
with standard SEC calculations of 30-day yield. The California marginal tax
rates presented assume payment of the highest California tax rate for the
particular federal marginal tax rate quoted. The income brackets and tax rates
presented are only samples since the Internal Revenue Service ("IRS") adjusts
the brackets annually for inflation, and tax rates are subject to change by
legislation. Investors should consult their tax adviser with specific reference
to their own tax situation.
Performance information is computed separately for each Fund's Class A and Class
S Shares. Because Class S Shares bear the expense of the higher distribution and
service fees, it is expected that performance for a Fund's Class S Shares will
be lower than that for a Fund's Class A Shares.
-41-
<PAGE> 146
TAX EQUIVALENT YIELDS
TABLE 1
<TABLE>
<CAPTION>
Combined
Federal
and
Federal California California Tax-Exempt Yield
Sample 1995 Federal Marginal Marginal Marginal ----------------------------------------
Taxable Income Brackets Tax Rate+ Tax Rate* Tax Rate** 2.00% 2.50% 3.00% 3.50% 4.00%
---------------------------------------- --------- --------- ---------- ----------------------------------------
Single Return Joint Return Taxable Yield
------------------ ------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$23,350 $0-$39,000 15% 6.00% 20.10% 2.50% 3.13% 3.75% 4.38% 5.01%
$23,350-$56,550 $39,000-$94,250 28% 9.30% 34.70% 3.06% 3.83% 4.59% 5.36% 6.13%
$56,550-$117,950 $94,250-$143,600 31% 9.30% 37.42% 3.20% 3.99% 4.79% 5.59% 6.39%
$117,950-$256,500 $143,600-$256,500 36% 9.30% 41.95% 3.44% 4.31% 5.17% 6.03% 6.89%
$256,500 and up $256,500 and up 39.6% 9.30% 45.22% 3.65% 4.56% 5.48% 6.39% 7.30%
</TABLE>
<TABLE>
<CAPTION>
Combined
Federal
and
Federal California California Tax-Exempt Yield
Sample 1995 Federal Marginal Marginal Marginal ---------------------------------
Taxable Income Brackets Tax Rate+ Tax Rate* Tax Rate** 4.50% 5.00% 5.50% 6.00%
---------------------------------------- --------- --------- ---------- ---------------------------------
Single Return Joint Return Taxable Yield
------------------ ------------------ ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$23,350 $0-$39,000 15% 6.00% 20.10% 5.63% 6.26% 6.88% 7.51%
$23,350-$56,550 $39,000-$94,250 28% 9.30% 34.70% 6.89% 7.66% 8.42% 9.19%
$56,550-$117,950 $94,250-$143,600 31% 9.30% 37.42% 7.19% 7.99% 8.79% 9.59%
$117,950-$256,500 $143,600-$256,500 36% 9.30% 41.95% 7.75% 8.61% 9.47% 10.34%
$256,500 and up $256,500 and up 39.6% 9.30% 45.22% 8.21% 9.13% 10.04% 10.95%
<CAPTION>
6.50% 7.00%
<S><C> <C>
8.14% 8.76%
9.95% 10.72%
10.39% 11.19%
11.20% 12.06%
11.87% 12.78%
</TABLE>
TABLE 2
<TABLE>
<CAPTION>
Tax-Exempt Yield
Sample 1995 Federal Federal Marginal ---------------------------------------------------
Taxable Income Brackets Tax Rate+ 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
---------------------------------------- ---------------- ---------------------------------------------------
Single Return Joint Return Taxable Yield
------------------ ------------------ ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$23,350 $0-$39,000 15% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$22,350-$56,550 $39,000-$94,250 28% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
$117,950-$256,500 $94,250-$143,600 31% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
$117,950-$256,500 $143,600-$256,500 36% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
$256,500 and up $256,500 and up 39.6% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59%
</TABLE>
- ------------------------------------
* California taxable income may differ due to differences in exemptions,
itemized deductions and other items.
** Rates do not include the phase-out of personal exemptions or itemized
deductions. Rates include the federal deduction of state taxes paid.
+ Rates do not include the phase-out of personal exemptions or itemized
deductions.
OBTAINING PERFORMANCE INFORMATION
Each Fund's strategies, performance, and holdings are detailed twice a year in
fund reports, which are sent to all shareholders. The SAI describes the methods
used to determine a Fund's performance. Shareholders may call 800-222-5852 for
performance information. Shareholders may make inquiries regarding a Fund,
including current total return figures, to any Authorized Dealer, or by calling
Shareholder Services at 800-222-5852.
-42-
<PAGE> 147
YOUR ACCOUNT
- --------------------------------------------------------------------------------
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT ACCOUNT
Individual accounts are owned by one person. Two types of joint accounts (having
two or more owners) can be opened:
(1) in a "joint tenancy" account, the surviving owner(s) automatically
receive(s) the shares of any owner(s) who die(s); and
(2) in a "tenants in common" account, the heir(s) of any deceased owner
receive(s) such owner's shares, rather than the surviving owners of the joint
account.
- --------------------------------------------------------------------------------
RETIREMENT
Retirement plans protect investment income and capital gains from current taxes.
Contributions to these accounts may be tax deductible. Retirement accounts
require special applications and typically have lower minimums.
- - INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") allow persons of legal age and under
70 1/2 years old with earned income to protect up to $2,000 per tax year from
certain tax effects. If your spouse has earned income of less than $250 per
year, you can protect an additional $250 per year in your spouse's name.
- - ROLLOVER IRAS permit persons to retain special tax advantages for certain
transfers from employer-sponsored retirement plans (often occurring when a
person changes employers).
- - SIMPLIFIED EMPLOYEE PENSION PLANS ("SEP-IRAS") provide small business owners
or those with self-employed income (and their eligible employees) with many of
the same advantages as a Keogh, but with fewer administrative requirements.
- --------------------------------------------------------------------------------
GIFTS OR TRANSFERS TO A MINOR CHILD ("UGMA," "UTMA")
These gifts or transfers provide a way to give money to a child and obtain tax
benefits. A parent or grandparent can give up to $10,000 a year to each child
without paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the Uniform
Transfers to Minors Act (UTMA).
- --------------------------------------------------------------------------------
TRUST
Trusts can be used for many purposes, including charitable contributions and
providing a regular income for a child until a certain age. The trust must be
established before an account can be opened.
- --------------------------------------------------------------------------------
CORPORATION OR OTHER ORGANIZATION
Corporations, associations, partnerships, institutions, or other groups may
invest for many purposes.
- --------------------------------------------------------------------------------
-43-
<PAGE> 148
HOW TO INVEST IN A SAM PORTFOLIO ACCOUNT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NEW ADDITIONAL
METHOD INVESTMENTS INVESTMENTS
------------------------------------------------------------------------
MINIMUM $10,000 MINIMUM $2,000
($5,000 IRA/401(K)/KEOGH) ($1,000 IRA/401(K)/KEOGH)
- ------------------------------------------------------------------------------------------------------------
IN PERSON: Visit the Representative Visit the Representative
To Open a SAM Account of an Authorized Dealer of an Authorized Dealer
Through an Authorized Dealer
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BY TELEPHONE: A SAM Account cannot Call Shareholder Services
be opened by telephone. at 1-800-222-5852,
Monday through Friday,
6:00 a.m. to 6:00 p.m.,
Pacific Time
9:00 a.m. to 9:00 p.m.,
Eastern Time
and 6:00 a.m. to 3:00 p.m.,
Pacific Time/
9:00 a.m. to 6:00 p.m.,
Eastern Time, on Saturdays.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BY MAIL: A SAM Account cannot Make your check payable to
be opened by mail. "Sierra Trust Funds," and send to:
Sierra Trust Funds
c/o First Data Investor Services
Group
P.O. Box 5118
Westborough, MA 01581-5118
Indicate your Fund account number
and class of shares purchased on
your check.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BY WIRE: A SAM Account cannot Instruct your bank to wire Federal
be opened by wire. Funds exactly as follows:
Boston Safe Deposit Trust
Boston, MA
ABA# 011-001234
For Credit to:
Sierra Trust Funds
Account # 132012
(Fund Name and Class of Shares)
(Customer's Name)
(Customer's Social Security Number)
</TABLE>
- --------------------------------------------------------------------------------
-44-
<PAGE> 149
INVESTMENT IN FUNDS THROUGH A SAM ACCOUNT. In addition to the considerable
diversification among individual securities you receive by investing in a
particular Fund, you can further reduce risk by spreading your assets among
Class A or Class S Shares of several different Funds that each have different
risk and return characteristics. SAM is an active investment management service
offered by Sierra Investment Services Corporation ("Sierra Services"), the SAM
investment advisor, that allocates your SAM Account investments across a
combination of either Class A or Class S Shares of the Funds selected to meet
long-term investment objectives as well as, in certain circumstances, current
income objectives.
Sierra Services has developed investment strategies for SAM Accounts to meet the
diverse financial needs of different investors. You can open a SAM Account by
meeting with one of the investment professionals of an Authorized Dealer who
will review your situation and help you identify your long-term investment
objectives. After using SAM criteria to determine your long-term objectives, you
can choose one of several investment strategies. Based on your chosen strategy,
your initial investment will be allocated among either Class A or Class S Shares
of a number of the Funds. Depending on market conditions, Sierra Services from
time to time (normally quarterly) reallocates the combination of Funds or the
amounts invested in the respective Class A or Class S Shares of each to
implement your SAM investment strategy. In addition, your SAM Account will be
periodically rebalanced to maintain your SAM strategy's current asset allocation
mix, if and when the Funds' performance unbalances the strategy's mix. You will
pay Sierra Services a fee for the SAM service that is in addition to and
separate from the fees and expenses you will pay directly or indirectly as an
investor in the Funds. See "Summary of Sierra Trust Funds Expenses" and
"Exchange Privileges and Restrictions."
From time to time, one or more of the Funds used for investment by the SAM
Accounts may experience relatively large investments or redemptions due to SAM
Account allocations or rebalancings recommended by Sierra Services. These
transactions will affect the Funds, since Funds that experience redemptions as a
result of reallocations or rebalancings may have to sell portfolio securities
and Funds that receive additional cash will have to invest it. While it is
impossible to predict the overall impact of these transactions over time, there
could be adverse effects on portfolio management to the extent that Funds may be
required to sell securities or invest cash at times when they would not
otherwise do so. These transactions could also have tax consequences if sales of
securities resulted in gains and could also increase transaction costs. The
Advisor, representing the interests of the Funds, is committed to minimizing the
impact of SAM Account transactions on the Funds; Sierra Services, representing
the interest of the SAM Accounts, is also committed to minimizing such impact on
the Funds to the extent it is consistent with pursuing the investment objective
of the SAM Accounts. The Advisor and Sierra Services will nevertheless face
conflicts in fulfilling their respective responsibilities because they are
affiliates and employ some of the same professionals. In addition, Sierra
Services is the Fund's distributor and is compensated on the sale of shares and
may be compensated for distribution services on the sale of certain Class B and
Class S Shares. See "Initial Sales Charge Alternative: Class A Shares" and
"Exchange Privileges and Restrictions." The Advisor will monitor the impact of
SAM Account transactions on the Funds.
TO PURCHASE SHARES. Purchase, sale and exchange orders received by Shareholder
Services prior to the close of trading on any day that the New York Stock
Exchange ("NYSE") is open (a "Business Day") are effected at that day's NAV for
the Class of the Fund, plus any applicable sales charge (the "Public Offering
Price"). Purchase, sale and exchange orders received after the close of the NYSE
are priced as of the time the NAV is next determined on the next Business Day.
Authorized Dealers are responsible for forwarding orders received on a Business
Day to Shareholder Services by the close of trading on the NYSE the same day and
failure to do so will result in an investor being unable to obtain that day's
NAV. The NYSE is open Monday through Friday, although it is currently scheduled
to be closed on New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when any of these holidays falls on a
Saturday or Sunday, respectively.
Purchases of each Class of the Fund shares are effected at the Fund's Public
Offering Price next determined after a purchase order has been received in
proper form. A purchase order will be deemed to be in proper form when all of
the steps required, including submission of an application form, have been
completed. In the case of an investment by wire, however, the order will be
deemed to be in proper form after the telephone order and the federal funds wire
have been received. The failure of a shareholder who purchases by wire to submit
an application form in a timely fashion may cause delays in processing
subsequent redemption requests. If a telephone order is received or if
-45-
<PAGE> 150
payment by wire is received after the close of the NYSE, 4:00 p.m. Eastern
Time/1:00 p.m., Pacific Time, the shares will not be credited until the next
Business Day. However, Shareholder Services will be open from 6:00 a.m. to 6:00
p.m., Pacific Time/9:00 a.m. to 9:00 p.m., Eastern Time, Monday through Friday,
except when the NYSE is closed and 6:00 a.m. to 3:00 p.m., Pacific Time/9:00
a.m. to 6:00 p.m., Eastern Time, on Saturdays.
TIMING OF DIVIDENDS. Shares of the Funds are entitled to dividends and
distributions declared beginning the day after a purchase has been credited to
an investor's account and ending on the day a redemption order is effected.
DIVIDEND REINVESTMENT PLAN. A Dividend Reinvestment Plan will be established
automatically for each SAM Account, except for SAM Accounts invested in the SAM
Income Strategy (the "Income Strategy"), one of the six SAM investment
strategies. The Income Strategy was developed by Sierra Services to provide for
the periodic payment of income to investors and is designed to pay monthly
dividends by check. With the exception of the Income Strategy, under this
Dividend Reinvestment Plan, all income dividends and capital gain distributions
for Class A or Class S Shares of a Fund will be automatically reinvested in
additional Class A or Class S Shares, respectively, of the Fund that paid the
dividend at the NAV determined on the dividend payment date.
CLASS A AND S SHARES: ALTERNATIVE PURCHASE ARRANGEMENTS. The alternative
purchase arrangements offered by the Trust enable you to choose the method of
purchasing Fund shares that is most beneficial given the amount of your
purchase, the length of time you expect to hold the shares and other
circumstances. You should consider whether, during the anticipated life of your
investment in the Trust, the accumulated continuing distribution and service
fees and CDSCs on Class S Shares would be less than the initial sales charge and
accumulated distribution fee on Class A Shares purchased at the same time, and
to what extent such differential would be offset by the anticipated higher
return of Class A Shares.
As an illustration, if you qualify for significantly reduced sales charges, you
might elect to purchase Class A Shares, which carry an initial sales load,
because no similar reductions in CDSC are available for the Class S Shares.
Also, Class A Shares are subject to a lower distribution fee and, accordingly,
such shares are expected to pay correspondingly higher dividends on a per share
basis. However, because initial sales charges are deducted at the time of
purchase of Class A Shares, the amount of your funds actually invested would be
reduced by the amount of the sales charge and you would initially own fewer
shares. For this reason, you might determine that it would be more advantageous
to purchase Class S Shares, so that all of your funds will be invested
initially, although you would be subject to a CDSC for a six-year period and
higher ongoing distribution and service fees. In addition, if you expect to
maintain your investment for an extended period of time (and even if you do not
qualify for reduced initial sales charges), you might consider purchasing Class
A Shares because the accumulated continuing distribution charges on Class S
Shares may still exceed the initial sales charge and distribution charges
applicable to Class A Shares during the same period.
LARGE PURCHASES OF CLASS S SHARES. When choosing between classes, investors
should carefully consider the ongoing annual expenses along with the initial or
contingent deferred sales charges. The relative impact of the initial sales
charges, contingent deferred sales charges and ongoing annual expenses will
depend on the length of time a share is held. In almost all cases, investors
planning to purchase $250,000 or more of Fund shares will pay lower aggregate
charges and expenses by purchasing Class A Shares.
INITIAL SALES CHARGE ALTERNATIVE: CLASS A SHARES. Class A Shares of the Sierra
Trust Funds are sold at the Public Offering Price. Investors purchasing Class A
Shares of the Non-Money Funds incur a sales charge at purchase as described in
the following tables. Purchases of $1 million or more and certain other
purchases are not subject to the sales charge at the time of purchase, but may
be subject to a 1.0% CDSC on redemptions within one year of purchase or a 0.5%
CDSC on redemptions during the second year after purchase (the "Class A CDSC"),
including redemptions of Money Fund Class A Shares acquired through exchange for
such Non-Money Fund Class A Shares. No sales charge at time of purchase and no
CDSC will be assessed on purchases of Class A Shares of a Money Fund, on the
reinvestment of dividends or distributions on Class A Shares or on purchases of
Class A Shares under the 180-day reinvestment privilege described in a following
section. Class A Shares purchased through a qualified 401(k) or 403(b) plan may,
in certain circumstances, be subject to a CDSC of 1.0% if the shares are
redeemed within two years of their initial purchase. See "APPLICATION OF CLASS A
SHARES CDSCS" subsection in this section. For other waivers of Class A Shares
sales charges, see the section "WAIVERS OF CLASS A INITIAL SALES
-46-
<PAGE> 151
CHARGES." The following tables illustrate the sales charges applicable at
purchase to Class A Shares at various investment levels.
FOR CLASS A SHARES OF NON-MONEY FUNDS OTHER THAN SHORT TERM GLOBAL GOVERNMENT
FUND, SHORT TERM HIGH QUALITY BOND FUND AND THE EQUITY FUNDS
<TABLE>
<CAPTION>
DEALERS'
REALLOWANCE AS
AS A % OF OFFERING AS A % OF A % OF
AMOUNT OF TRANSACTION PRICE PER SHARE NET ASSET VALUE OFFERING PRICE
- -------------------------------------- -------------------- ----------------- -----------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
$50,000 but less than $100,000 4.00% 4.17% 3.50%
$100,000 but less than $250,000 3.50% 3.63% 3.00%
$250,000 but less than $500,000 3.00% 3.09% 2.50%
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
$1,000,000 and over 0% 0% 0%+
</TABLE>
FOR CLASS A SHARES OF SHORT TERM GLOBAL GOVERNMENT FUND AND
SHORT TERM HIGH QUALITY BOND FUND
<TABLE>
<CAPTION>
DEALERS'
REALLOWANCE AS
AS A % OF OFFERING AS A % OF A % OF
AMOUNT OF TRANSACTION PRICE PER SHARE NET ASSET VALUE OFFERING PRICE
- -------------------------------------- -------------------- ----------------- -----------------
<S> <C> <C> <C>
Less than $50,000 3.50% 3.63% 3.00%
$50,000 but less than $100,000 3.00% 3.09% 2.50%
$100,000 but less than $250,000 2.50% 2.56% 2.00%
$250,000 but less than $500,000 2.25% 2.30% 2.00%
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
$1,000,000 and over 0% 0% 0%+
</TABLE>
FOR CLASS A SHARES OF THE EQUITY FUNDS
<TABLE>
<CAPTION>
DEALERS'
REALLOWANCE AS
AS A % OF OFFERING AS A % OF A % OF
AMOUNT OF TRANSACTION PRICE PER SHARE NET ASSET VALUE OFFERING PRICE
- -------------------------------------- -------------------- ----------------- -----------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.75% 4.99% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.00%
$250,000 but less than $500,000 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
$1,000,000 and over 0% 0% 0%+
</TABLE>
+Investors do not pay a sales charge at time of purchase on purchases of $1
million or more; however, except as waived by the dealer of record as stated on
the preceding page, Sierra Services may pay the investment dealers of record on
purchases of Class A Shares of $1 million or more a fee of up to 1.00% of the
net asset value of such purchases.
Sierra Services, the distributor of the shares of the Funds, will pay the
appropriate dealers' reallowance to Authorized Dealers. The dealers' reallowance
may be changed from time to time. Upon notice, Sierra Services may reallow up to
the full applicable sales charge to certain Authorized Dealers. Authorized
Dealers may receive different compensation for selling one class of a Fund
rather than another class of the Fund.
-47-
<PAGE> 152
REDUCED SALES CHARGES AT PURCHASE
As described below, the sales charge on purchases of Class A Shares of the Funds
may be reduced through: (1) a Right of Accumulation; (2) Quantity Discounts; (3)
a Letter of Intent; and (4) Reinvestment Privileges. Reduced sales charges may
be modified or terminated at any time as to new purchases and/or letters of
intent and are subject to confirmation of an investor's holdings. For more
information about reduced sales charges, contact your representative or call
800-222-5852.
RIGHT OF ACCUMULATION. Under the Right of Accumulation, the current value of an
investor's existing Class A Shares in the Non-Money Fund(s), Class B and Class S
Shares in all the funds of the Trust, Class A Common Shares of Sierra Prime
Income Fund ("SPIF") and Class A and Class B Shares of the SAM Portfolios may be
combined with the amount of the investor's current purchase of Non-Money Fund
Class A Shares in determining the sales charge applicable to such Class A
Shares. In order to receive the cumulative quantity reduction, the investor or
the securities dealer must call previous purchases of such Class A Common Shares
of SPIF, Class A, Class B and Class S Shares of the Trust and Class A and Class
B of the SAM Portfolios to the attention of Sierra Shareholder Services at the
time of the current purchase.
QUANTITY DISCOUNTS. As shown in the tables previously and under the "Right of
Accumulation" section, larger purchases of the Non-Money Fund Class A Shares of
the Funds combined with Class B Shares and Class S Shares of the Funds, Class A
Common Shares of SPIF and Class A and Class B Shares of the SAM Portfolios
reduce the sales charge paid on the Non-Money Fund Class A Shares. The Funds
will combine purchases of the Non-Money Fund Class A Shares with Class B and
Class S Shares of the Funds, Class A Common Shares of SPIF and Class A and Class
B Shares of the SAM Portfolios made on the same day by the investor, spouse, and
any minor children when calculating the Non-Money Fund Class A Shares sales
charge. In order to receive the cumulative quantity reduction, the investor or
the securities dealer must call related purchases of such Class A Common Shares
of SPIF, Class A, Class B and Class S Shares of the Trust and Class A and Class
B Shares of the SAM Portfolios to the attention of Sierra Shareholder Services
at the time of the current purchase.
LETTER OF INTENT. An investor may qualify for a reduced sales charge on
Non-Money Fund Class A Shares immediately by signing a "Letter of Intent"
stating the investor's intention to invest during the following 13 months a
specified amount in the Non-Money Fund Class A Shares, Class A Common Shares of
SPIF and/or Class A and Class B Shares of the SAM Portfolios, which, if made at
one time, would qualify for a reduced sales charge. Any redemptions or
repurchases of Class A Shares or Class A Common Shares made during the 13-month
period will be subtracted from the amount of purchases of Class A Shares or
Class A Common Shares in determining whether the terms of the Letter of Intent
have been met. During the term of a Letter of Intent, Sierra Shareholder
Services will hold Non-Money Fund Class A Shares representing 5.00% of the
amount purchased in escrow for payment of a higher sales load if the full amount
specified in the Letter of Intent is not purchased within the 13-month period.
The escrowed shares will be released when the full amount specified has been
purchased. The investor is not bound to purchase the full amount specified, but
if the full amount specified is not purchased within the 13-month period, the
investor will be required to pay an amount equal to the difference in the dollar
amount of sales charge actually paid and the amount of sales charge the investor
would have had to pay on the investor's aggregate purchases of Non-Money Fund
Class A Shares if the total of such purchases had been made at a single time.
REINVESTMENT PRIVILEGE. Upon redemption of Class A Shares, a shareholder may
reinvest any or all of the redemption proceeds in Class A Shares of a Fund
without any sales charge provided the reinvestment is within 180 days of the
redemption from the Fund. To receive the privilege, the shareholder must notify
the Authorized Dealer or Shareholder Services concerning the reinvestment.
WAIVERS OF CLASS A INITIAL SALES CHARGES. No initial sales charge will be
assessed with respect to Class A Shares on: (1) purchases by (a) employees or
retired employees of Great Western Financial Corporation ("GWFC") or any of its
affiliates and members of their immediate families (spouses and minor children)
and IRAs, Keogh Plans or employee benefit plans for those employees and retired
employees; (b) directors, trustees, officers or advisory board members, or
persons retired from such positions, of any investment company for which GWFC or
an affiliate serves as investment advisor; (c) registered representatives or
full-time employees of Authorized Dealers or full-time employees of banks
affiliated with such dealers; (2) purchases by retirement plans created pursuant
to Section 457 of the Code; (3) purchases that are paid for with the proceeds
from the redemption
-48-
<PAGE> 153
of shares of a non-money market mutual fund not affiliated with the Trust or
Sierra Services, where the purchase occurs within 15 Business Days of the prior
redemption and is evidenced by a confirmation of the redemption transaction or a
broker-to-broker transfer request (Shareholder Services must be notified at the
time of purchase that the purchase being made qualifies for a purchase at NAV);
(4) purchases by employees of any of the Funds' Sub-Advisors; and (5) purchases
by accounts as to which an Authorized Dealer or a bank affiliated with an
Authorized Dealer charges an account management fee, provided that the
Authorized Dealer or bank has an agreement with the Distributors. (investors may
be charged an additional services transaction fee by the Authorized Dealer or
bank).
Additional groups of investors that are not subject to an initial sales charge
on purchases of Class A Shares through an Authorized Dealer include either (a)
investors purchasing Class A Shares of a Fund through an employee benefit trust
created pursuant to a 401(k) Plan that has invested in the aggregate more than
$1 million in the Funds, or (b) investors purchasing Class A Shares of a Fund
through a 403(b) Plan that has more than $1 million in the Funds. Investors
through 401(k) and 403(b) Plans may be subject to various account fees and
purchase and redemption procedures designated by the employer who has
established the 401(k) Plan or 403(b) Plan. Such investors should consult their
employer and/or account agreements for information relating to their accounts.
The foregoing waivers may be changed at any time.
APPLICATION OF CLASS A SHARES CDSC. The Class A CDSC of 1.0% or 0.5% may be
imposed on certain redemptions within one or two years of purchase,
respectively, with respect to Class A Shares (i) purchased at NAV without a
sales charge at time of purchase due to purchases of $1 million or more, or (ii)
acquired, including Class A Shares of a Money Fund acquired, through an exchange
for Class A Shares of a Non-Money Fund purchased at NAV without a sales charge
at time of purchase due to purchases of $1 million or more. The CDSCs for Class
A Shares are calculated on the lower of the shares' cost or current net asset
value, and in determining whether the CDSC is payable, the Sierra Trust Funds
will first redeem shares not subject to any CDSC.
With respect to certain investors who purchase Class A Shares through an
Authorized Dealer and who receive a waiver of the entire initial sales charge on
Class A Shares because the Class A Shares were purchased through a plan
qualified under Section 401(k) of the Code ("401(k) Plan") or through a plan
qualified under Section 403(b) of the Code ("403(b) Plan") meeting certain
criteria, as described in "Your Account - Waivers of Class A Initial Sales
Charges," or who hold Class A Shares of a Money Fund that were acquired through
an exchange for Non-Money Fund Class A Shares that were purchased at NAV through
one of such plans, a CDSC of 1% may be imposed on the amount that was invested
through the plan in such Class A Shares and that is redeemed (i) if, within the
first two years after the plan's initial investment in the Funds, the named
fiduciary of the plan withdraws the plan from investing in the Funds in a manner
that causes all shares held by the plan's participants to be redeemed; or (ii)
by a plan participant in a 403(b) Plan within two years of the plan
participant's purchase of such Class A Shares. This CDSC will be waived on
redemptions in connection with certain involuntary distributions, including
distributions arising out of the death or disability of a shareholder (including
one who owns the shares as joint tenant). See "How to Buy and Redeem Shares" in
the Statement of Additional Information ("SAI").
WAIVERS OF THE CLASS A SHARES CDSC. The Class A CDSC is waived for redemptions
of Class A Shares (i) that are part of exchanges for Class A Shares of other
Funds; (ii) for distributions to pay benefits to participants from a retirement
plan qualified under Section 401(a) or 401(k) of the Code, including
distributions due to the death or disability of the participant (including one
who owns the shares as a joint tenant); (iii) for distributions from a 403(b)
Plan or an IRA due to death, disability, or attainment of age 70 1/2, including
certain involuntary distributions; (iv) for tax-free returns of excess
contributions to an IRA; (v) for distributions by other employee benefit plans
to pay benefits; (vi) in connection with certain automatic withdrawals and (vii)
by a 401(k) Plan participant so long as the shares were purchased through the
401(k) Plan and the 401(k) Plan continues in effect with investments in Class A
Shares of the Fund. See "HOW TO BUY AND REDEEM SHARES" in the Statement of
Additional Information.
DEFERRED SALES CHARGE ALTERNATIVE: CLASS S SHARES. If you choose the deferred
sales charge alternative, you will purchase Class S Shares of the SAM Account
Funds at their NAV per share without the imposition of a sales charge at the
time of purchase. (Class S Shares of certain Funds are not available for
purchase directly.)
-49-
<PAGE> 154
Class S Shares that are redeemed within six years of purchase, however, will be
subject to a CDSC as described on the following page. CDSC payments and
distribution fees on Class S Shares may be used to fund commissions payable to
Authorized Dealers.
No charge will be imposed with respect to shares having a value equal to any net
increase in the value of shares purchased during the preceding six years and
shares acquired by reinvestment of net investment income and capital gain
distributions. The amount of the charge is determined as a percentage of the
lesser of (1) the NAV of the Class S Shares at the time of purchase or (2) the
NAV of the Class S Shares at the time of redemption. No charge will be imposed
with respect to shares acquired by reinvestment of net investment income and
capital gain distributions. The percentage used to calculate the CDSC will
depend on the number of years since you invested the dollar amount being
redeemed, according to the following table:
<TABLE>
<CAPTION>
Year of Contingent
Redemption Deferred Sales
After Purchase Charge
------------------------------------------ --------------
<S> <C>
First..................................... 5%
Second.................................... 4%
Third..................................... 3%
Fourth.................................... 3%
Fifth..................................... 2%
Sixth..................................... 1%
Seventh and following..................... 0
</TABLE>
All purchases are considered made on the last day of the month of purchase. To
determine the CDSC payable on a redemption of Class S Shares, a Fund will first
redeem Class S Shares not subject to a CDSC. Thereafter, to determine the
applicability and rate of any CDSC, it will be assumed that shares representing
the reinvestment of dividends and capital gain distributions are redeemed first
and shares held for the longest period of time are redeemed next. Using this
method, your sales charge, if any, will be at the lowest possible CDSC rate.
If the investor's SAM Account is closed, the investor is not required to redeem
his or her Class S Shares, but may continue to hold Class S Shares and may
exchange Class S Shares of one Fund for Class S Shares of any other Fund without
paying a sales charge at the time of the exchange.
The Trust will adopt procedures to convert Class S Shares, without payment of
any sales charges, into Class A Shares, which have lower distribution fees,
after the passage of a number of years after purchase. Such conversion may occur
in approximately eight years.
WAIVERS OF THE CLASS S CDSCS. No CDSC charges will be assessed on redemptions of
Class S Shares in the case of the death of the shareholder, redemptions in
connection with certain involuntary distributions, including distributions
arising out of the death or disability of a shareholder, from IRAs. The
foregoing waivers may be changed at any time.
HOW TO SELL SHARES
You can arrange to take money out of your Fund account on any Business Day by
selling (redeeming) some or all of your shares. Your shares will be sold at the
NAV next determined after your order is received and accepted. Certain Class A
Shares may be subject to a CDSC as described in the "Application of Class A
Shares CDSCs" section.
Redemption proceeds are normally wired or mailed on the next Business Day, but
in no event later than seven days after receipt of a redemption request by
Shareholder Services, until such time as regulations may require the Funds to
redeem proceeds within five days. However, if a shareholder is redeeming shares
recently purchased with a check, the redemption proceeds will not be paid to the
shareholder until the check has cleared. The check may take up to 15 days or
more to clear for deposit of the shareholder's funds into the Fund's account,
and the shareholder may not receive the redemption proceeds until after such
time period. The failure of a shareholder who
-50-
<PAGE> 155
purchased shares by wire to submit an application form in a timely fashion may
cause delays in processing redemption requests.
If you wish to keep your Class A or Class S Shares account open, leave at least
$250 worth of shares in your account.
- - The table below highlights the ways in which you can redeem shares in your
Fund account.
WAYS TO SELL SHARES OF YOUR SIERRA TRUST FUNDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Account Type Special Requirements
<S> <C> <C>
BY PHONE All account types, except - You may exchange to the same class of
retirement other funds of the Trust if both
800-222-5852 accounts are registered with the same
name(s), address, and taxpayer ID
number. You may withdraw also redeem
amounts by telephone. Checks will be
mailed to the address of record
exactly as account is registered.
- --------------------------------------------------------------------------------------------------------------
BY MAIL Individual, Joint Accounts, Sole - The letter of instruction must be
Proprietorships, UGMA, UTMA* signed by all persons required to sign
for transactions, exactly as their
names appear on the account.* Checks
will be mailed to the address of
record.
- Signature guarantee is required on
amounts of more than $50,000.
- --------------------------------------------------------------------------------------------------------------
BY WIRE All account types except - You must sign up for the wire feature
retirement before using it. To verify that it is
in place, call 800-222-5852.
- Your wire redemption request must be
received by Sierra Trust Funds before
8:00 a.m., Pacific Time/11:00 a.m.,
Eastern Time, for money to be wired on
the next Business Day. A $5.00 fee may
be charged for each wire transfer.
Minimum amount is $1,000.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Corporations, trusts and retirement plans may require additional paperwork
before shares may be redeemed. Please call 800-222-5852 to verify you have the
correct paperwork and to avoid delays.
-51-
<PAGE> 156
- - BY TELEPHONE
TO SET UP THE TELEPHONE WIRE REDEMPTION PROCEDURE, indicate your acceptance of
this procedure on the application form and designate a bank and bank account
number to receive the proceeds of withdrawals. To use this procedure after an
account has been opened or to change instructions already given, designate a
bank and bank account number to receive redemption proceeds and send a written
notice to Shareholder Services with a signature guarantee (for more information
regarding signature guarantees, see the following). For joint accounts, all
owners must sign and have their signatures guaranteed.
- - THROUGH SHAREHOLDER SERVICES OR AUTHORIZED DEALERS
You may also sell your shares to the Fund through your Dealer and in that way be
certain, providing the order is timely, of receiving the NAV established at the
end of the day on which your Authorized Dealer is given the redemption order.
The Fund makes no charge for this transaction but the dealer may charge you a
service fee.
CERTAIN WRITTEN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. To protect you and
the Trust from fraud, a written request must include a signature guarantee if
any of the following situations apply:
- - You wish to redeem more than $50,000 worth of shares,
- - The redemption check is not being mailed to the address on your Fund account
(record address), or
- - The check is not being made out to the Fund account owner.
You should be able to obtain a signature guarantee from a bank which is a member
of the Federal Deposit Insurance Corporation, a trust company, broker-dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee. For joint accounts, all owners must sign and have
their signatures guaranteed.
EXCHANGE PRIVILEGES AND RESTRICTIONS
The exchange privilege is available only in those states where the offer and
sale of shares of a given Fund may legally be made. Upon 60 days' prior written
notice to shareholders, the Trust in its sole discretion may terminate or modify
the exchange privileges and restrictions and/or the Trust may begin imposing a
charge of up to $5.00 for each exchange.
CLASS A SHARES. You may exchange at NAV shares of any class of Funds, where
applicable sales charges have been paid, for any Fund within the same class of
shares. Shareholders exercising the exchange privilege with any of the Funds of
the Sierra Trust Funds should review the prospectus of each Fund carefully prior
to making an exchange. Exchanges of shares are sales and may result in a gain or
loss for federal or state income tax purposes.
Class A Shares of a Non-Money Fund may be exchanged for Class A Shares of any of
the other Funds of the Trust, including the Money Funds, or SPIF and (the
foregoing funds together, the "Eligible Funds") without a sales charge at
purchase. If shares of the money Funds so acquired are subsequently exchanged
again for Class A Shares of a Non-Money Fund or SPIF, no sales charge at
purchase will be assessed. The availability of the exchange privilege with
respect to shares of SPIF is subject to the availability of shares of SPIF for
exchange purposes as stated in the prospectus and statement of additional
information ("SAI") of SPIF. Also, although shares of SPIF may be exchanged for
shares of the Funds, such exchanges of SPIF shares for shares of the Funds are
permitted approximately once every calendar quarter so long as SPIF makes a
repurchase offer for its shares in such quarter and so long as the SPIF
repurchase offer is sufficiently large to include the SPIF shares tendered for
exchange. See the prospectus and SAI of SPIF for additional information
regarding the exchange privilege applicable to SPIF shares and the availability
of such exchange privilege. Please call 800-222-5852 if you would like to obtain
a prospectus for SPIF.
Class A Shares of a Money fund may be exchanged for Class A Shares of the other
Money Funds without a sales charge at purchase. When Class A Shares of the Money
Funds are exchanged for Class A Shares of a Non-Money Fund or SPIF, the initial
sales charge applicable to such non-Money Fund or SPIF will be assessed unless
the Class A Shares of the Money Funds given in exchange were acquired through a
previous exchange or series of exchanges for shares of a Non-Money Fund or SPIF.
-52-
<PAGE> 157
Certain Class A Shares may be subject to a CDSC for redemptions within one or
two years of purchase as described in the "APPLICATION OF CLASS A SHARES CDSC"
section. The CDSC applicable to Class A Shares will not be assessed on a
redemption that is part of an exchange for Class A Shares of another Fund,
except that if the shares acquired in the exchange or a series of exchanges were
then redeemed within the CDSC period applicable to the shares redeemed initially
for the exchange or series of exchanges, the CDSC would be assessed.
CLASS S SHARES. For purposes of investments in a SAM Account and where a
shareholder continues to hold Class S Shares after closing the SAM Account,
Class S Shares of a SAM Account Fund may be exchanged for Class S Shares of
other Funds of the Trust, including the Money Funds, without having to pay any
CDSC at the time of the exchange. If you exchange into Class S Shares of another
Fund and subsequently redeem such shares, the period of time during which you
held your investment in Class S Shares of the previous Fund will be included in
the period during which that investment is deemed to be invested in the Trust
for purposes of calculating the CDSC. If the initial Class S Shares purchased by
the investor were not subject to the Class S CDSC, then no Class S CDSC will be
imposed on any subsequent exchanges or redemptions involving those shares. In
the event of redemptions of Class S Shares after exchanges, the amount you
initially invested in Class S Shares will be subject to the six-year CDSC
schedule applicable to all Class S Shares.
Class B Shares that are subject to the longer six-year CDSC schedule and higher
CDSC rate applicable to the Class B Shares of the Funds other than the Short
Term High Quality and Short Term Global Government Funds, may be exchanged for
Class S Shares of a SAM Account Fund if the investor has a SAM Account prior to
making the exchange or opens a SAM Account prior to making the exchange and
invests at least the minimum for such SAM Account, through any combination of
such an exchange and initial purchase of Class S Shares. No CDSC is required to
be paid at the time of such an exchange. Once Class B Shares are exchanged into
Class S Shares, the Class S Shares may not be exchanged back into Class B
Shares, even if the SAM Account is later closed. In the event you redeem an
amount originally invested in Class B Shares that was later exchanged into Class
S Shares, the period of time during which you held your investment in Class B
Shares of the previous Fund will be included in the period during which that
investment is deemed to be invested in the Trust for purposes of calculating the
CDSC. The amount initially invested (the "Investment Amount") in the Class B
Shares that are exchanged will continue to be subject to the CDSC schedule and
rate applicable to the Class B Shares of the Fund in which the Investment Amount
was initially invested.
NO EXCHANGE PRIVILEGES TO SAM PORTFOLIOS. Initially, shares of the Funds may not
be exchanged for shares of the SAM Portfolios. In the future, such an exchange
privilege may be offered. However, Class A Shares and Class B Shares of the SAM
Portfolios may be exchanged at NAV for Class A Shares and Class B Shares,
respectively, of the Funds. More information regarding the exchange privilege
for the SAM Portfolios is provided in the SAM Portfolios' Prospectus. PLEASE
CALL 800-222-5852 IF YOU WOULD LIKE TO OBTAIN A PROSPECTUS FOR THE SAM
PORTFOLIOS.
KEY ASPECTS OF TELEPHONE TRANSACTIONS. During periods of significant economic or
market changes, telephone transactions may be difficult to implement. Neither
the Trust nor its Transfer Agent will be responsible for any loss, liability,
cost or expense for acting upon wire instructions or upon telephone instructions
that it reasonably believes are genuine. The Trust and its Transfer Agent will
each employ procedures to confirm that telephone instructions are genuine. Such
procedures may include recording telephone calls. You should verify the accuracy
of telephone transactions immediately upon receipt of your confirmation
statement. If an investor is unable to contact Shareholder Services by
telephone, an investor may deliver the transaction request to Shareholder
Services at P.O. Box 5118, Westborough, Massachusetts 01581-5118. Upon 30 days'
prior written notice to shareholders, the telephone transaction privileges may
be modified or terminated.
DIVIDENDS, CAPITAL GAINS AND TAXES
As a Fund shareholder, you are entitled to your share of the Fund's net income
and gains on its investments. The Fund passes these earnings along to its
investors as DISTRIBUTIONS. Each Fund intends to avoid liability for federal
income tax and federal excise tax by making sufficient distributions to
investors.
-53-
<PAGE> 158
The amount of dividends of net investment income (i.e., all income other than
long- and short-term capital gains) and distributions of net realized long- and
short-term capital gains payable to shareholders will be determined separately
for each Fund. Dividends from the net investment income of the Money Funds will
be declared daily and paid monthly. Dividends from the net investment income of
the Bond Funds will be declared daily and paid monthly. Dividends from the net
investment income of the Growth and Income Fund will be declared and paid
quarterly. Dividends from the net investment income of the Growth Fund will be
declared and paid semi-annually. Dividends from the net investment income of the
Emerging Growth and International Growth Funds will be declared and paid
annually. Distributions of any net long-term capital gains earned by a Fund will
be made annually. Distributions of any net short-term capital gains earned by a
Fund will be distributed no less frequently than annually at the discretion of
the Board of Trustees.
DISTRIBUTION OPTIONS. When you open an account, specify on your Application Form
how you want to receive your distributions. The election may be made or changed
by writing to Shareholder Services or by calling 800-222-5852. For SAM Accounts,
each Fund offers two options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions will be
automatically reinvested in additional shares of the same Fund, unless you
instruct the Fund on the application form or later in writing or by telephone to
pay all distributions in cash. Distributions from a class of one Fund may be
reinvested in the same class of the same Fund or a different Fund. If the Fund
in which the reinvestment is made has an initial sales charge or CDSC, you will
not pay the initial sales charge or CDSC on the reinvested amount.
2. CASH OPTION. You will be sent a check for each dividend and capital gain
distribution.
FOR RETIREMENT ACCOUNTS, ALL DISTRIBUTIONS ARE AUTOMATICALLY REINVESTED. When
you are over 59 1/2 years old, you can receive distributions in cash without tax
penalties for early withdrawal.
EX-DIVIDEND. When a Fund goes EX-DIVIDEND (deducts a distribution from the
Fund's share price), the reinvestment price is the Fund's NAV at the close of
business that day. The mailing of distribution checks will begin within seven
days thereafter. If you buy shares shortly before an ex-dividend date ("buying a
dividend"), you will pay the full price for the shares and then receive a
portion of the price back as a taxable distribution.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of a Fund or its
shareholders. Accordingly, shareholders are urged to consult their tax advisors
regarding specific questions as to federal, state and local income taxes.
Each Fund intends to qualify separately each year as a "regulated investment
company" as defined under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). The requirements for qualification may cause a Fund to
restrict the extent of its short-term trading or its transactions in options or
futures contracts.
As with any investment, you should consider how you will be taxed on your
investment in the Fund. If your account is not a tax-deferred retirement
account, you should be aware of the following tax implications:
TAXES ON DISTRIBUTIONS. Distributions generally are subject to federal income
tax, and may also be subject to state or local taxes. If you live outside the
United States, your distributions could also be taxed by the country in which
you reside. Generally, your distributions are taxable when they are paid.
However, dividends declared in October, November or December of any year and
payable to shareholders of record on a date in that month are deemed to have
been paid by the Fund and received by the shareholders on the last day of
December if paid by the Fund at any time during the following January. Each
shareholder will receive after the close of the calendar year an annual
statement and such other written notices as are appropriate as to the federal
income tax status of the shareholder's distributions received from the Fund for
such calendar year.
For federal income tax purposes, distributions of investment company taxable
income (net investment income plus the excess of net short-term capital gain
over net long-term capital loss) are taxed to shareholders as ordinary
-54-
<PAGE> 159
income, whether received in cash or in additional shares. Distributions of net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) are taxed to shareholders as long-term capital gain regardless of
how long you have held your shares.
TAXES ON TRANSACTIONS. Any gain or loss recognized on a redemption, transfer, or
exchange of shares of the Fund by a shareholder who is not a dealer in
securities generally will be treated as long-term capital gain or loss if the
shares have been held for more than twelve months, and otherwise generally will
be treated as a short-term capital gain or loss. Any loss recognized by a
shareholder upon the disposition of shares of the Fund held for six months or
less, however, will be disallowed to the extent of any "exempt-interest
dividends" received by the shareholder with respect to such shares. Furthermore,
if shares on which a net capital gains distribution has been received are
subsequently disposed of and such shares have been held for six months or less,
any loss recognized will be treated as a long-term capital loss to the extent of
the net capital gains distribution.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually to shareholders within 60 days of the close of
the calendar year. These statements set forth the dollar amount of dividends and
NAV excluded or exempt from federal income taxes or Florida intangible personal
property taxes and the dollar amount, if any, subject to such taxes. Whenever
you sell shares of the Fund, the Trust will send you a confirmation statement
showing how many shares you sold and at what price. You also will receive a
consolidated transaction statement every January. However, it is up to you or
your tax preparer to determine whether this sale resulted in a capital gain and,
if so, the amount of tax to be paid. You should retain your regular account
statements; the information they contain will be essential in calculating the
amount of your capital gains.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE MUNICIPAL FUNDS AND THE
CALIFORNIA MONEY FUND. Dividends paid by any of the Municipal Funds or the
California Money Fund that are derived from interest earned on qualifying
tax-exempt obligations will be "exempt-interest" dividends, which shareholders
may exclude from their gross incomes for federal income tax purposes, if at the
close of each quarter of that Fund's taxable year, at least 50 percent of the
Fund's total assets consist of obligations the interest on which is excludable
from gross income for federal income tax purposes. To the extent that any of
these Funds invests in AMT-Subject Bonds, any exempt-interest dividends derived
from interest on such AMT-Subject Bonds are a specific preference item for
purposes of the federal individual and corporate alternative minimum taxes. In
any event, all exempt-interest dividends will be a component of adjusted current
earnings for purposes of computing the federal corporate alternative minimum tax
and the federal corporate environmental tax.
Current federal income tax laws limit the types and volume of bonds qualifying
for the federal income tax exemption of interest, which may have an effect on
the ability of the Municipal Funds to purchase sufficient amounts of tax-exempt
securities to satisfy the requirements for the payment of "exempt-interest"
dividends.
Interest on indebtedness incurred or continued by shareholders to purchase or
carry shares of the Municipal Funds and the California Money Fund is not
deductible for federal income tax purposes. The Municipal Funds and the
California Money Fund may not be an appropriate investment for persons
(including corporations and other business entities) who are not currently
subject to federal income tax (such as certain qualified retirement accounts) or
who are substantial users (or who are related to substantial users) of
facilities financed by "private activity bonds" or certain industrial
development bonds. "Substantial user" is defined generally as including a
"non-exempt person" who regularly uses in a trade or business a part of a
facility financed from the proceeds of such bonds. Entities or persons who are
"substantial users" (or persons related to "substantial users") should consult
their tax advisors before purchasing shares of the Municipal Funds or the
California Money Fund.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE FLORIDA INSURED MUNICIPAL
FUND. Florida does not impose an income tax on individuals. Accordingly,
dividends or distributions by the Florida Insured Municipal Fund to an
individual who is a Florida resident are not subject to state income tax in
Florida. However, Florida imposes an intangible personal property tax on shares
of the Fund owned by a Florida resident on January 1 of each year unless such
shares qualify for an exemption from the tax.
The Fund has received a Technical Assistance Advisement from the State of
Florida, Department of Revenue, to the effect that Fund shares owned by a
Florida resident will be exempt from the intangible personal property tax so
long as the Fund's portfolio includes only assets, such as notes, bonds, and
other obligations issued by the State of
-55-
<PAGE> 160
Florida or its municipalities, counties, and other taxing districts, the United
States Government, and its agencies, Puerto Rico, Guam, and the U.S. Virgin
Islands, which are exempt from that tax.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE CALIFORNIA MONEY FUND,
CALIFORNIA MUNICIPAL FUND AND CALIFORNIA INSURED INTERMEDIATE MUNICIPAL
FUND. If, at the close of each quarter of its taxable year, at least 50% of the
value of the total assets of each of the California Money Fund, California
Municipal Fund and California Insured Intermediate Municipal Fund (the
"California Funds") consist of obligations the interest on which would be exempt
from California personal income tax if the obligations were held by an
individual ("California Tax Exempt Obligations"), and if each of the California
Funds continues to qualify as a regulated investment company for federal income
tax purposes, then each respective California Fund will be qualified to pay
dividends, subject to certain limitations, to its shareholders that are exempt
from California State personal income tax, but not from California State
franchise tax or California State corporate income tax ("California exempt-
interest dividends"). However, the total amount of California exempt-interest
dividends paid by each of the California Funds to each of the California Fund's
non-corporate shareholders with respect to any taxable year cannot exceed the
amount of interest received by such California Fund during such year on
California Tax Exempt Obligations less any expenses and expenditures (including
any dividends paid to corporate shareholders) deemed to have been paid from such
interest. If the aggregate dividends exceed the amount that may be treated as
California exempt-interest dividends, only that percentage of each dividend
distribution equal to the ratio of aggregate California exempt-interest
dividends to aggregate dividends will be treated as a California exempt-interest
dividend. Dividend distributions that do not qualify for treatment as California
exempt-interest dividends will be taxable to shareholders at ordinary income tax
rates for California personal income tax purposes.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT A COMPLETE DESCRIPTION OF
THE FEDERAL, STATE OR LOCAL TAX CONSEQUENCES OF INVESTING IN THE FUNDS. YOU
SHOULD CONSULT YOUR TAX ADVISOR BEFORE INVESTING IN THE FUNDS.
SHAREHOLDER AND ACCOUNT POLICIES
TRANSACTION DETAILS
THE NAV of each class of the Fund is the value of a single share of the
respective class. The NAV is calculated separately for each class of the Funds
and is calculated by adding up the value of the Fund's investments, cash and
other assets, subtracting its liabilities (including the liabilities
attributable exclusively to that class), and then dividing the result by the
number of shares of that class outstanding.
Although the legal rights of Class A and Class S Shares will be identical, the
different expenses borne by each class will result in different NAVs and
dividends. The NAV of Class S Shares will generally be lower than the NAV of
Class A Shares as a result of the larger distribution fees charged to Class S
Shares. It is expected, however, that the NAV per share of these classes will
tend to converge immediately after the recording of dividends, which will differ
by approximately the amount of the distribution expense accrual differential
between the classes.
Portfolio securities and other assets are valued primarily on the basis of
market quotations or, if quotations are not readily available, by a method that
the Board of Trustees believes accurately reflects fair value. Foreign
securities are valued on the basis of quotations from the primary market in
which they are traded, and are translated from the local currency into U.S.
Dollars using current exchange rates.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF CLASS A OR CLASS S
SHARES for a period of time. Each Fund also reserves the right to reject any
specific purchase order, including certain purchases by exchange. Purchase
orders may be refused if, in the opinion of Shareholder Services, they are of a
size that would disrupt management of a Fund.
SHAREHOLDER SERVICES MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its services.
-56-
<PAGE> 161
THE FUNDS IN DETAIL
ORGANIZATION
THE TRUST IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced business
persons who meet throughout the year to oversee the Trust's activities, review
contractual arrangements with companies that provide services to the Funds, and
review performance. The majority of trustees are not affiliated with Sierra
Services, Sierra Advisors or Sierra Administration other than as trustees of the
Trust. The Trust was organized on February 22, 1989 under the laws of the
Commonwealth of Massachusetts as a "Massachusetts business trust."
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. As a Massachusetts
business trust, the Funds are not required to hold annual shareholder meetings.
On occasion, however, special meetings may be called to elect or remove
trustees, change fundamental policies, approve a management contract, or for
other purposes. Trustees may be removed by shareholders at a special meeting
called upon the request of shareholders among at least 10% of the outstanding
shares of the Trust. Shareholders not attending these meetings are encouraged to
vote by proxy. Sierra Administration will mail proxy materials in advance,
including a voting card and information about the proposals to be voted on. When
matters are submitted for shareholder vote, shareholders of each Fund and class
will have one vote for each full share owned and proportionate, fractional votes
for fractional shares held and will have exclusive voting rights with respect to
matters pertaining solely to such Fund or class, respectively, such as the
distribution plan for a class.
SIERRA ADVISORS, ITS AFFILIATES AND SERVICE PROVIDERS
ADVISOR
Sierra Advisors, located at 9301 Corbin Avenue, Northridge, California 91324, is
the investment advisor of the Funds. Responsibilities of Sierra Advisors include
formulating the Funds' investment policies (subject to the terms of this
Prospectus), analyzing economic trends and directing and evaluating the
investment services provided by the Sub-Advisors and monitoring each Fund's
investment performance. In connection with these activities, Sierra Advisors may
initiate action to change a Sub-Advisor if it deems such action to be in the
best interests of a Fund and its shareholders.
Sierra Advisors became a registered investment advisor in 1988. Sierra Advisors
is an indirectly wholly-owned subsidiary of GWFC. GWFC is a publicly owned
financial services company listed on the New York, London and Pacific stock
exchanges. As of June 30, 1996, Sierra Advisors and its affiliates had total
assets under management of more than $ million.
SUB-ADVISORS
The following organizations, under the supervision of Sierra Advisors, act as
Sub-Advisors to the Funds:
ALLIANCE is located at 1345 Avenue of the Americas, New York, New York 10105.
Alliance is a Delaware limited partnership registered as an investment adviser
under the Investment Advisers Act of 1940, as amended. Alliance Capital
Management Corporation, an indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States, is the general partner of Alliance.
As of June 30, 1996, total assets under management were over $168 billion.
BLACKROCK is located at 345 Park Avenue, 30th floor, New York, New York 10154.
BlackRock is a corporation organized under the laws of the State of Delaware in
February, 1995. BlackRock is an indirectly, wholly-owned subsidiary of PNC Bank
Corp., a bank holding company organized under the laws of the Commonwealth of
Pennsylvania in 1983 and located at 5th Avenue and Wood Street, Pittsburgh,
Pennsylvania 15222. BlackRock and its predecessor have provided investment
advice to a wide variety of institutional and investment company-related clients
since 1988. As of June 30, 1996, BlackRock had aggregate assets under management
or supervision of more than $41 billion.
-57-
<PAGE> 162
JANUS is located at 100 Fillmore Street, Denver, Colorado 80206. Janus is an
indirectly majority owned subsidiary of Kansas City Southern Industries, Inc.,
("KCSI"). KCSI is a publicly traded holding company whose primary subsidiaries
are engaged in transportation, information processing and financial services.
Janus has been providing investment advice to mutual funds or other large
institutional clients since 1970. As of June 30, 1996 Janus had over $38 billion
in assets under investment management.
J.P. MORGAN is located at 522 Fifth Avenue, New York, New York 10036. J.P.
Morgan and Morgan Guaranty Trust Company of New York are wholly owned
subsidiaries of J.P. Morgan & Co. Incorporated, a publicly traded company. J.P.
Morgan provides investment services to employee benefit plans of corporations,
labor unions and state and local governments and the accounts of other
institutional investors. As of June 30, 1996 J.P. Morgan and its affiliates had
investment management authority with respect to approximately $190 billion of
assets.
SCUDDER is located at Two International Place, Boston, Massachusetts 02110.
Scudder is a privately held corporation owned and operated by active firm
employees, concentrating primarily on investment management. Scudder provides
investment management services for institutions, individuals and mutual funds.
As of September 30, 1996 Scudder's assets under management were in excess of
$ billion.
TCW MANAGEMENT is located at 865 South Figueroa, Suite 1800, Los Angeles,
California 90017. TCW Management is a wholly owned subsidiary of The TCW Group,
Inc., a privately held company. TCW Management and its affiliates, including
Trust Company of the West, provide a variety of trust, investment management and
investment advisory services for institutional investors, including investment
companies, and other investment counsel clients. As of June 30, 1996, TCW
Management and its affiliated advisers had just over $ billion under
management or committed to management.
VAN KAMPEN is located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
Van Kampen is a wholly-owned subsidiary of Van Kampen American Capital, Inc.,
which is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is
controlled, through the ownership of a substantial majority of its common stock,
by The Clayton & Dubilier Private Equity Fund IV Limited Partnership ("C&D
L.P."), a Connecticut limited partnership. C&D L.P. is managed by Clayton,
Dubilier & Rice, Inc., a New York based private investment firm. The General
Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited Partnership
("C&D Assoc. L.P."). The general partners of C&D Assoc. L.P. are Joseph L. Rice,
III, B. Charles Ames, Alberto Cribiore, Donald J. Gogel and Hubbard C. Howe. Van
Kampen provides investment advice to a wide variety of individual, institutional
and investment company clients and, together with its affiliates, had aggregate
assets under management or supervision, as of September 30, 1996 of more than
$ billion.
On June 24, 1996, VK/AC Holding, Inc. announced it had entered into an Agreement
and Plan of Merger among Morgan Stanley Group Inc., MSAM Holdings II, Inc. and
MSAM Acquisition Inc., pursuant to which MSAM Acquisition Inc. will be merged
with and into VK/AC Holding, Inc. and VK/AC Holding, Inc. will be the surviving
corporation. The proposed transaction may be deemed to cause an assignment,
within the meaning of the Investment Company Act of 1940 and the Investment
Advisers Act of 1940, of the investment sub-advisory agreement between Van
Kampen and the Fund. Accordingly, the completion of the transaction is
contingent upon, among other things and subject to certain de minimis
exceptions, the approval of both the Board of Trustees of the Fund and the
shareholders of the Fund of a new investment advisory agreement between the Fund
and Adviser. Management of the Fund also currently anticipates recommending to
the Fund's Board of Trustees that a special meeting of shareholders be called to
obtain such approval and that the record date for such shareholder meeting be a
date in early September. Management of the Fund also anticipates that investment
sub-advisory fees under the new investment advisory agreement to be voted on at
such meeting will be in the same amount as those paid under the current
sub-advisory agreement between the Fund and the Adviser.
MSAM Acquisition Inc. is a wholly owned subsidiary of MSAM Holdings II, Inc.
which, in turn, is a wholly owned subsidiary of Morgan Stanley Group Inc.
Subject to a number of conditions being met, it is currently anticipated that a
closing will occur on or about November 29, 1996. Thereafter, VK/AC Holding,
Inc. and its affiliated entities shall be part of Morgan Stanley Group Inc.
WARBURG is located at 466 Lexington Avenue, New York, New York 10017-3147.
Warburg is a professional investment counselling firm which provides investment
services to investment endowment funds, foundations and
-58-
<PAGE> 163
other institutions and individuals. As of June 30, 1996, Warburg managed
approximately $16.0 billion of assets, including approximately $8.6 billion of
investment company assets. Incorporated in 1970, Warburg is a wholly-owned
subsidiary of Warburg, Pincus Counsellors G.P. ("Counsellors G.P."), a New York
general partnership. E.M. Warburg, Pincus & Co., Inc. ("EMW") controls Warburg
through its ownership of a class of voting preferred stock of Warburg. Lionel I.
Pincus may be deemed a controlling person of EMW. Counsellors G.P. has no
business other than being a holding company of Warburg and its subsidiaries.
ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN
Sierra Administration provides shareholder service and other administrative
services. Sierra Administration is under common control with the Advisor and
Sierra Services. Sierra Administration is located at 9301 Corbin Avenue,
Northridge, California 91324. Pursuant to an Administration Agreement, Sierra
Administration is responsible for all administrative functions with respect to
the Trust, although it delegates certain of its responsibilities to sub-
administrators. Sierra Administration is entitled to a monthly fee at an annual
rate of 0.35% of each Non-Money Fund's average daily net assets and at an annual
rate of 0.30% each Money Fund's average daily net assets. First Data Investor
Services Group, Inc. ("First Data"), a subsidiary of First Data Corp., serves as
sub-administrator and Transfer Agent of the Trust. First Data is located at One
Exchange Place, 53 State Street, Boston, Massachusetts 02109-2873. Sierra
Administration pays First Data for its services as sub-administrator and
Transfer Agent. Sierra Administration also pays Boston Safe Deposit and Trust
Co. ("Boston Safe"), One Boston Place, Boston, MA 02108, for its services as
custodian of the Trust. The Trust pays certain of the Transfer Agent's and
sub-administrator's out-of-pocket expenses and pays Boston Safe certain
custodial transaction charges.
DISTRIBUTORS
Sierra Services is the distributor of the Class A, Class B and Class S Shares of
the Funds. Sierra Services is located at 9301 Corbin Avenue, Northridge,
California 91324. Sierra Services, an indirectly wholly-owned subsidiary of
GWFC, was established in 1992 and is a registered broker-dealer with the NASD
and a registered investment advisor.
Each of the Funds has three distribution plans, pursuant to Rule 12b-1 under the
1940 Act, applicable to each class of Shares of the Trust (each, a "Rule 12b-1
Plan"). Each Fund intends to operate the Rule 12b-1 Plans in accordance with its
terms and the NASD Rules concerning sales charges. Under the applicable Rule
12b-1 Plans, Sierra Services is paid an annual fee as compensation in connection
with the offering and sale of Class A and Class S Shares of the Funds. The
annual fees to be paid to Sierra Services under Rule 12b-1 Plans are calculated
with respect to Class A Shares at an annual rate of up to .25% of the average
daily net assets of the Class A Shares of the Fund and with respect to Class S
Shares at an annual rate of up to .75% of the average daily net assets of the
Class S Shares of the Fund. These fees may be used to cover the expenses of
Sierra Services primarily intended to result in the sale of Class A and Class S
Share of the Funds, including payments to Sierra Services' representatives or
others for selling shares. Sierra Services may retain any amount of its fee that
is not so expended. Class S Share are also subject to a service fee at an annual
rate of .25% of the average daily net assets of the Class S Shares of the Fund.
In addition to providing for the expenses discussed above, each Rule 12b-1 Plan
also recognizes that Sierra Advisors may use its investment advisory fees or
other resources to pay expenses associated with activities primarily intended to
result in the promotion and distribution of the Fund's shares. Sierra Services
may, from time to time, pay to other dealers, in connection with retail sales or
the distribution of shares of a Fund, material compensation in the form of
merchandise or trips. Salespersons and any other person entitled to receive any
compensation for selling or servicing Fund shares may receive different
compensation with respect to one particular class of shares over another in the
Fund.
PORTFOLIO TRANSACTIONS AND TURNOVER. All orders for the purchase or sale of
securities on behalf of each Fund are placed by the Fund's Sub-Advisor with
broker-dealers that it selects. Each Fund may, at the discretion of its
Sub-Advisor, utilize Authorized Dealers or brokers affiliated with the Advisor
or Sub-Advisor in connection with a purchase or sale of securities in accordance
with rules adopted or exemptive orders issued by the SEC when the
-59-
<PAGE> 164
Fund's Sub-Advisor believes that such broker's charge for the transaction does
not exceed usual and customary levels.
Each Fund's turnover rate varies from year to year, depending on market
conditions and investment strategies. High turnover rates increase transaction
costs, and may increase taxable capital gains. The Growth and Short Term Global
Government Funds may experience an annual portfolio turnover rate over 100% as a
result of its investment strategies. Also, the Short Term High Quality Bond
Fund's annual portfolio turnover rate is expected to be as high as 200%. The
Funds will not consider portfolio turnover rate a limiting factor in making
investment decisions consistent with their investment objectives and policies.
BREAKDOWN OF FUND EXPENSES
Like any mutual fund, each Fund pays expenses related to its daily operations.
Expenses paid out of a Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts. Each Fund pays a MANAGEMENT FEE to Sierra Advisors for
managing its investments and business affairs. Sierra Advisors pays fees to
sub-contractors, including the Sub-Advisors, who provide assistance with these
services. Each Fund also pays OTHER EXPENSES, which are explained on the
following pages. Sierra Advisors and/or Sierra Administration may, from time to
time, agree to reimburse the Funds for management fees and other expenses above
a specified limit. Sierra Advisors and Sierra Administration retain the ability
to be repaid by a Fund if expenses fall below the specified limit prior to the
end of the fiscal year.
MANAGEMENT FEE
The management fee is calculated and paid to Sierra Advisors every month. The
management fee for each Fund is based upon a percentage of the average net
assets of such Fund. Absent fee waivers, the total management fee for each Fund
as provided in the investment advisory agreement of the Fund is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Amount of
Assets After 50; After 75; After 100; After 125; After 150; After 200; After 300; After 400;
($ Mil.) First 50 next 25 next 25 next 25 next 25 next 50 next 100 next 100 next 100
-----------------------------------------------------------------------------------------------------------------------
Each Money Fund* .50% .50% .50% .50% .50% .50% .50% .50% .50%
-----------------------------------------------------------------------------------------------------------------------
Short Term High Quality
Bond Fund .50% .50% .50% .50% .50% .50% .45% .45% .45%
-----------------------------------------------------------------------------------------------------------------------
Short Term Global
Government Fund .65% .65% .65% .65% .65% .65% .65% .65% .65%
-----------------------------------------------------------------------------------------------------------------------
U.S. Government Fund* .60% .60% .60% .60% .60% .60% .60% .60% .60%
-----------------------------------------------------------------------------------------------------------------------
Corporate Income Fund .65% .65% .65% .65% .65% .65% .65% .65% .65%
-----------------------------------------------------------------------------------------------------------------------
California Municipal
Fund* .65% .65% .65% .65% .65% .65% .65% .65% .65%
-----------------------------------------------------------------------------------------------------------------------
Florida Insured Municipal
Fund* .60% .60% .60% .60% .60% .60% .60% .60% .60%
-----------------------------------------------------------------------------------------------------------------------
California Insured
Intermediate Municipal
Fund* .65% .65% .65% .65% .65% .65% .65% .65% .65%
-----------------------------------------------------------------------------------------------------------------------
National Municipal Fund* .60% .60% .60% .60% .60% .60% .60% .60% .60%
-----------------------------------------------------------------------------------------------------------------------
Growth and Income Fund .80% .80% .80% .75% .75% .75% .70% .70% .65%
-----------------------------------------------------------------------------------------------------------------------
Growth Fund .95% .95% .95% .90% .90% .90% .875% .875% .875%
-----------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund .90% .90% .90% .85% .85% .85% .85% .85% .85%
-----------------------------------------------------------------------------------------------------------------------
International Growth Fund .95% .85% .85% .85% .65% .65% .65% .65% .65%
-----------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------
-----------------------
Amount of
Assets Over
($ Mil.) 500
-----------------------
Each Money Fund* .40%
-----------------------
Short Term High Quality
Bond Fund .40%
-----------------------
Short Term Global
Government Fund .55%
-----------------------
U.S. Government Fund* .50%
-----------------------
Corporate Income Fund .50%
-----------------------
California Municipal
Fund* .50%
-----------------------
Florida Insured Municipal
Fund* .45%
-----------------------
California Insured
Intermediate Municipal
Fund* .50%
-----------------------
National Municipal Fund* .45%
-----------------------
Growth and Income Fund .575%
-----------------------
Growth Fund .875%
-----------------------
Emerging Growth Fund .75%
-----------------------
International Growth Fund .65%
-----------------------
-----------------------
</TABLE>
* For these Funds, the Advisor has contractually agreed to limit the annual
management fees that are payable under the investment advisory agreements with
the Funds to the percentages as set forth in footnote 6 to the Summary of
Sierra Trust Funds Expenses table.
-60-
<PAGE> 165
The Advisor retains only the net amount of the foregoing management fees after
the advisory fees paid to the Sub-Advisors described below, are deducted. Out of
the total management fee received by the Advisor for each Fund, the Advisor
would pay to the Sub-Advisor, absent fee waivers by the Sub-Advisor, a monthly
fee at an annual rate of the following percentages of the average net assets of
each Fund:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Amount of
Assets After 50; After 75; After 100; After 125; After 150; After 200; After 300; After 400;
($ Mil.) First 50 next 25 next 25 next 25 next 25 next 50 next 100 next 100 next 100
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Each Money
Fund .15% .15% .15% .15% .15% .15% .15% .15% .15%
-------------------------------------------------------------------------------------------------------------------------
Short Term
High Quality
Bond Fund .15% .15% .15% .15% .15% .15% .10% .10% .10%
-------------------------------------------------------------------------------------------------------------------------
Short Term
Global
Government
Fund(1) .28% .28% .28% .28% .28% .28% .10% .10% .10%
-------------------------------------------------------------------------------------------------------------------------
U.S.
Government
Fund (2) (2) (2) (2) (2) (2) (2) (2) (2)
-------------------------------------------------------------------------------------------------------------------------
Corporate
Income Fund .30% .30% .30% .30% .30% .30% .30% .30% .30%
-------------------------------------------------------------------------------------------------------------------------
California
Municipal
Fund(3) .20% .20% .20% .20% .20% .15% .15% .15% .15%
-------------------------------------------------------------------------------------------------------------------------
Florida
Insured
Municipal
Fund .20% .20% .125% .125% .125% .125% .125% .125% .125%
-------------------------------------------------------------------------------------------------------------------------
California
Insured
Intermediate
Municipal
Fund .20% .20% .125% .125% .125% .125% .125% .125% .125%
-------------------------------------------------------------------------------------------------------------------------
National
Municipal
Fund(3) .20% .20% .20% .20% .20% .15% .15% .15% .15%
-------------------------------------------------------------------------------------------------------------------------
Growth and
Income Fund .45% .45% .45% .40% .40% .40% .35% .35% .30%
-------------------------------------------------------------------------------------------------------------------------
Growth Fund .55% .55% .55% .50% .50% .50% .50% .50% .50%
-------------------------------------------------------------------------------------------------------------------------
Emerging
Growth Fund .55% .55% .55% .50% .50% .50% .50% .50% .50%
-------------------------------------------------------------------------------------------------------------------------
International
Growth Fund .50% .50% .50% .50% .50% .50% .50% .50% .50%
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
---------------------------
---------------------------
Amount of
Assets Over
($ Mil.) 500
---------------------------
<S> <C>
Each Money
Fund .15%
---------------------------
Short Term
High Quality
Bond Fund .10%
---------------------------
Short Term
Global
Government
Fund(1) .10%
---------------------------
U.S.
Government
Fund (2)
---------------------------
Corporate
Income Fund .25%
---------------------------
California
Municipal
Fund(3) .15%
---------------------------
Florida
Insured
Municipal
Fund .125%
---------------------------
California
Insured
Intermediate
Municipal
Fund .125%
---------------------------
National
Municipal
Fund(3) .15%
---------------------------
Growth and
Income Fund .30%
---------------------------
Growth Fund .50%
---------------------------
Emerging
Growth Fund .50%
---------------------------
International
Growth Fund .50%
---------------------------
---------------------------
</TABLE>
(1) Sierra Advisors pay the Sub-Advisor of the Short Term Global Government Fund
a minimum annual fee of $137,500.
(2) BlackRock is paid fees monthly at the following annual rate under the
sub-advisory agreement for the Fund:
(i) .185% of the Fund's average daily
net assets if the combined average daily net assets of the Fund and The
Sierra Variable Trust's U.S. Government Fund (together, the "Government
Funds' Combined Assets") are equal to or less than $650,000,000; (ii) .15%
of the Fund's average daily net assets if the Government Funds' Combined
Assets are more than $650,000,000 but less than $1,000,000,000; or (iii)
.10% of the Fund's average daily net assets if the Government Funds'
Combined Assets are more than $1,000,000,000.
(3) Pursuant to the investment sub-advisory agreements with respect to each of
the California Municipal and National Municipal Funds, when the combined
average daily net assets of the California Municipal and National Municipal
Funds (the "Combined Assets") exceed $750 million, the Sub-Advisor will be
paid a fee with respect to each Fund in proportion to each Fund's average
net assets at the following annual rate: .15% of the Combined Assets up to
$1 billion; plus .125% of the Combined Assets over $1 billion.
-61-
<PAGE> 166
Advisory fees paid by the International Growth, Growth and Income, Growth and
Emerging Growth Funds are higher than those paid by most other investment
companies; however, the Board of Trustees believes that the fees are competitive
with advisory fees paid by investment companies with similar investment
objectives and policies.
OTHER EXPENSES
While the management fee is a significant component of each Fund's annual
operating costs, each Fund has other expenses as well. In addition to the
management fee and other fees described previously, each Fund pays other
expenses, such as legal, audit, transfer agency and custodian out-of-pocket
fees; proxy solicitation costs; and the compensation of trustees who are not
affiliated with Sierra Advisors. Most Fund expenses are allocated
proportionately among all of the outstanding shares of the Fund. However, the
Rule 12b-1 Plans' fees and service fees for the Class S Shares are class
expenses that are charged proportionately only to the outstanding shares of that
class.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Trust's
official sales literature in connection with the offering of the Trust's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Trust. This Prospectus does not
constitute an offer in any state in which, or to any person to whom, such offer
may not lawfully be made.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-62-
<PAGE> 167
SIERRA TRUST FUNDS
P.O. BOX 5118
WESTBOROUGH, MASSACHUSETTS 01581-5118
STATEMENT OF ADDITIONAL INFORMATION
October 31, 1996
+ Global Money Fund* + Florida Insured Municipal Fund
+ U.S. Government Money Fund* + National Municipal Fund
+ California Money Fund + Growth and Income Fund*
+ Short Term High Quality + Emerging Growth Fund*
Bond Fund*
+ U.S. Government Fund* + International Growth Fund*
+ Corporate Income Fund* + Short Term Global Government Fund*
+ California Municipal Fund + Growth Fund*
+ California Insured + Target Maturity 2002 Fund
Intermediate Municipal Fund
This Statement of Additional Information supplements the information
contained in the current Prospectuses of Sierra Trust Funds (the "Company")
which are dated October 31, 1996, and should be read in conjunction with the
appropriate Prospectus. Two Prospectuses dated October 31, 1996 describe the
first fifteen investment series funds of the Company that are listed above (the
"Non-Target Maturity Funds"). One relates to the Class A, Class B and Class I
Shares of the Non-Target Maturity Funds and the other relates to the Class A
and Class S Shares of the Non-Target Maturity Funds. An additional Prospectus
dated October 31, 1996 describes the last investment series fund of the Company
that is listed above, the Target Maturity 2002 Fund (the "Target Maturity
Fund"), and relates to the Class A Shares of the Target Maturity Fund.
The Company's Prospectuses may be obtained without charge by writing
to the Company at P.O. Box 5118, Westborough, Massachusetts 01581-5118 or by
calling the Company at 800-222-5852. This Statement of Additional Information
provides information applicable to the Class A, Class B, Class I and Class S
Shares of the Non-Target Maturity Funds and the Class A Shares of the Target
Maturity Fund. This Statement of Additional Information, although not in
itself a prospectus, is incorporated by reference into the Prospectuses in its
entirety.
* Only ten Funds are currently offering and selling Class I Shares,
which are sold exclusively to Sierra Asset Management Portfolios ("SAM
Portfolios"), an open-end management investment company.
<PAGE> 168
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION AND HISTORY . . . . . . . . .. . . . . . . . . . 4
MANAGEMENT OF THE COMPANY . . . . . . . . . . . .. . . . . . . . . . 5
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS .. . . . . . . . . . 23
PORTFOLIO TURNOVER . . . . . . . . . . . . . . .. . . . . . . . . . 78
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . .. . . . . . . . . . 79
HOW TO BUY AND REDEEM SHARES . . . . . . . . . .. . . . . . . . . . 81
NET ASSET VALUE . . . . . . . . . . . . . . . . .. . . . . . . . . . 84
HOW TO EXCHANGE SHARES . . . . . . . . . . . . .. . . . . . . . . . 86
DETERMINATION OF PERFORMANCE . . . . . . . . . .. . . . . . . . . . 87
TAXES . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . 95
DISTRIBUTOR . . . . . . . . . . . . . . . . . . .. . . . . . . . . 102
APPENDIX . . . . . . . . . . . . . . . . . . . .. . . . . . . . . A-1
</TABLE>
-2-
<PAGE> 169
GENERAL INFORMATION AND HISTORY
Effective on October 14, 1992, the name of the Company was changed
from GW Sierra Trust Funds to Sierra Trust Funds and the names of the
investment funds of the Company in existence at the time were changed as
follows:
<TABLE>
<CAPTION>
Former Name Current Name
----------- ------------
<S> <C> <C>
1. GW U.S. Government Money U.S. Government Money Fund
Market Fund
2. GW California Municipal California Money Fund
Money Market Fund
3. GW Global Income Money Global Money Fund
Market Fund
4. GW Short Term Global Short Term Global Government
Government Fund Fund
5. GW U.S. Government U.S. Government Fund
Securities Fund
6. GW Corporate Income Fund Corporate Income Fund
7. GW California Municipal California Municipal Fund
Income Fund
8. GW National Municipal National Municipal Fund
Income Fund
9. GW Growth and Income Fund Growth and Income Fund
10. GW Strategic International International Growth Fund
Fund
11. GW Equity Opportunity Fund Emerging Growth Fund
</TABLE>
Effective on October 9, 1992, the name of the Adviser of the Company
was changed from Great Western Financial Advisors Corporation ("GW Advisors")
to Sierra Investment Advisors Corporation ("Sierra Advisors") and the name of
the Administrator of the Company was changed from Great Western Financial Fund
Administration Corporation to Sierra Fund Administration Corporation ("Sierra
Administration"). Also, effective as of August 5, 1992, Great Western
Financial Securities Corporation ("GW Securities"), the former distributor of
the Company, transferred to Sierra Investment Services Corporation ("Sierra
Services") all of its business, assets and liabilities as principal underwriter
of
-3-
<PAGE> 170
the Company and Sierra Services became the principal underwriter of the Funds.
MANAGEMENT OF THE COMPANY
TRUSTEES AND OFFICERS OF THE COMPANY
The names of the Trustees and executive officers of the Company,
together with information as to their principal business occupations, are set
forth below. The executive officers of the Company are employees of
organizations that provide services to the separate investment funds (the
"Funds") offered by the Company. Each Trustee who is an "interested person" of
the Company, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), is indicated by an asterisk.
TRUSTEES:
*F. BRIAN CERINI (1/23/51)
President
Sierra Capital Management Corporation
9301 Corbin Avenue
Northridge, California 91324
Since October 1990, he has served as President and CEO of Sierra
Capital Management Corporation ("SCMC"). Formed Great Western Financial
Securities Corporation ("GW Securities") in 1985 as President and also serves
as Chairman of the Trust. Prior to joining GW Securities, he served as First
Vice President, Financial Services for Bateman Eichler, Hill Richards, Inc., a
regional brokerage firm where he directed the firm's off exchange product
responsibilities and marketing. Previously, he worked for Pacific Southwest
Airlines for seven years as Assistant to the President. He holds a BA degree
in Economics from the University of Southern California and an MBA from the USC
Graduate School of Business.
ARTHUR H. BERNSTEIN, ESQ. (6/8/25)
President
Bancorp Capital Group, Inc.
11661 San Vicente Blvd., #405
Los Angeles, California 90049
President of Bancorp Capital Group, Inc. and President of Bancorp
Venture Capital, Inc. since 1988. He has been a Trustee of Sierra Trust Funds
since 1989. Previously served on the Board of Directors of Great Western
Leasing Corporation, a subsidiary of Great Western Financial Corporation
("GWFC"), until the subsidiary was sold in 1987. Director of Ryder System,
Inc.; Chairman of the Board of Trustees of the California Family Studies Center
and Phillips Graduate Institute since 1984. He was educated at Cornell
University and is a graduate of Cornell Law School.
-4-
<PAGE> 171
DAVID E. ANDERSON (11/17/26)
Retired, Former President & CEO
GTE California, Inc.
17960 Seabreeze Drive
Pacific Palisades, California 90272
Retired in 1988 from GTE California, Inc. after 40 years of service.
Held the position of President and CEO from 1979 to 1988. Director of
Barclay's Bank of California until 1988. Currently involved in the following
charitable organizations as a director on the following boards: Board Chairman,
Children's Bureau Foundation; Board member, Upward Bound House of Santa Monica;
Past Campaign Chairman of United Way; Past Chairman, Los Angeles Area Chamber
of Commerce. Holds BSEE degree from Iowa State.
EDMOND R. DAVIS, ESQ. (9/4/28)
Partner Brobeck, Phleger & Harrison
550 South Hope Street, 21st Floor
Los Angeles, California 90071-2604
Joined the firm as a Partner in 1987 and is responsible for estate
planning, and trusts and estate matters in the Los Angeles office. Prior to
joining the firm, had a similar position for 20 years with the law firm of
Overton, Lyman & Prince in Los Angeles. His expertise has been recognized in
Who's Who in California, The Best Lawyers of America, and Who's Who in American
Law. Member of the Board of Directors of the following non-profit, charitable
organizations: Fifield Manors, Children's Bureau of Los Angeles, Children's
Bureau Foundation, and Braille Institute of America, Inc. Educated at
Pepperdine University and is an Order of the Coif graduate of Hastings College
of the Law.
JOHN W. ENGLISH (3/27/33)
Retired, former Vice President & Chief Investment Officer
Ford Foundation
50 H New England Ave.
P.O. Box 640
Summit, New Jersey 07902-0640
Retired Vice President and Chief Investment Officer, the Ford
Foundation (a non-profit charitable organization). Chairman of the Board and
Director, The China Fund, Inc. (a closed-end mutual fund). Director, Paribas
Trust for Institutions (an open-end mutual fund). Trustee, Retail Property
Trust (a company providing management services for a shopping center).
-5-
<PAGE> 172
ALFRED E. OSBORNE, JR. PH.D. (12/7/44)
Professor
The Harold Price Center for Entrepreneurial Studies at UCLA
110 Westwood Plaza, Suite C305
Los Angeles, California 90095-1481
University professor, researcher and administrator at UCLA since 1972.
Director, Times Mirror Company, ReadiCare, Inc., United States Filter
Corporation, Nordstrom, Inc., Seda Specialty Packing Corporation and Greyhound
Lines, Inc. Independent general partner, Technology Funding Venture Partners
V. Governor of the National Association of Securities Dealers, Inc.
OFFICERS:
F. BRIAN CERINI, CHAIRMAN AND PRESIDENT
Acts as a Trustee of the Company as well as President. Information
regarding Mr. Cerini's background is listed above under "Management of the
Company -- Trustees."
KEITH PIPES, EXECUTIVE VICE PRESIDENT, TREASURER AND SECRETARY
As Senior Vice President, Chief Financial Officer and Secretary of
SCMC, he is responsible for its general accounting, financial planning,
compliance administration, systems development and advisory operations. Joined
Great Western Bank in 1983 as Manager of Strategic Planning for the Bank and
later served as product manager for the Bank's savings products before joining
GW Securities in 1986. Prior to joining the firm, served as Senior Planning
Analyst in the Mergers and Acquisitions Department of Mattel Corporation.
Holds a B.A. degree in Economics as well as an MBA in Finance from UCLA.
MICHAEL D. GOTH, SENIOR VICE PRESIDENT
Since January 1991, serves as Chief Operating Officer and Portfolio
Manager of Sierra Investment Advisors Corporation ("Sierra Advisors"). Prior
to joining Sierra Advisors, Mr. Goth worked for 2-1/2 years as a senior manager
of Transfer Agent operations at First Data Investor Services Group, Inc.
("First Data", formerly, The Shareholder Services Group, Inc.) and The Boston
Company. In addition, Mr. Goth has 10 years' experience as executive vice
president of the GIT mutual fund group, responsible for most aspects of that
fund group, including investments. Other experience includes 4 years as a
corporate banking officer at Citibank and 1-1/2 years in investment banking
with Drexel Firestone. He holds B.S. and M.S. degrees from Rensselaer
Polytechnic Institute and an MBA in Finance from Harvard Business School.
-6-
<PAGE> 173
STEPHEN C. SCOTT, SENIOR VICE PRESIDENT
In August 1988 joined the Company to form Sierra Advisors and
currently serves as the President and Chief Investment Officer of Sierra
Advisors. Prior to joining Sierra Advisors, served as President and Chairman
of SDS Investment Advisors, a firm he founded in which he developed asset
allocation technology. Previously, President and Chairman of Smathers and Co.,
an investment advisory firm. For nine years, served as the Senior Pension
Investment Consultant for the Group Pension Investment Division of Equitable
Life Insurance responsible for their major corporate clients. Has served as a
member on Board of Directors of several corporations and private organizations.
For 17 years, has served as a Trustee on the Long Beach State University
Foundation and currently chairs the Investment Committee. He holds a B.A.
degree in Economics and Finance from Long Beach State University, and continued
with an MBA in Finance.
RICHARD W. GRANT, ASSISTANT SECRETARY
Has been a Partner in the firm of Morgan, Lewis & Bockius LLP since
1989. He received his A.B. in 1968 from Brown University and his J.D. in 1971
from the Boston University School of Law.
RICHARD H. ROSE, ASSISTANT TREASURER
Currently acts as Senior Vice President of First Data, a subsidiary of
First Data Corp. (prior to May 6, 1994, a subsidiary of The Boston Company
Advisors, Inc. ("Boston Advisors")). He joined Boston Advisors in 1988 as Vice
President and Fund Manager in the Fund Accounting Department. Prior to 1988,
he acted as Senior Audit Manager for Peat Marwick Main (KPMG Peat Marwick) &
Co. He holds a Master's degree in Accounting from Northeastern University, and
a B.A. in Economics from Dartmouth.
CRAIG M. MILLER, ASSISTANT TREASURER
Joined SCMC in July 1993. Currently acts as Vice President and
Controller of SCMC. Prior thereto, acted as Audit Manager for Coopers &
Lybrand L.L.P. He holds a Master's degree in Taxation from Bentley College,
where he also received his B.S. in Accountancy.
Each of the Trustees and officers of the Company is also a trustee or
officer of The Sierra Variable Trust ("SVT"). Furthermore, with the exception
of Mr. Rose, each of the Trustees and officers of the Company is also a trustee
or officer of Sierra Prime Income Fund ("SPIF") and Sierra Asset Management
Portfolios ("SAMP"). Each of SVT, SPIF and SAMP is an investment company
advised by Sierra Advisors or Sierra Services.
-7-
<PAGE> 174
The address of each trustee and officer of the Company affiliated with
Sierra Advisors or Sierra Services is 9301 Corbin Avenue, Suite 333,
Northridge, California 91324.
REMUNERATION. No director, officer or employee of Sierra Advisors,
the investment sub-advisors of the Funds (the "Sub-Advisors") or First Data,
the Sub-Administrator of the Funds, or any affiliate of Sierra Advisors, the
Sub-Advisors or First Data will receive any compensation from the Company for
serving as an officer or Trustee of the Company. The Company pays each
Trustee, who is not a director, officer or employee of Sierra Advisors, the
Sub-Advisors, First Data or any of their affiliates, a fee of $7,500 per annum
plus $1,500 per Board meeting attended and $1,000 per Audit and Nominating
Committee meeting attended, and reimburses them for travel and out-of-pocket
expenses. The Chairman of the Audit Committee receives a fee of $1,500 per
Audit Committee meeting.
The aggregate remuneration paid to Trustees by the Company for
attendance at Board and committee meetings for the fiscal year ended June 30,
1996 was $92,252 (including reimbursement for travel and out-of-pocket
expenses). As of June 30, 1996, the Trustees and officers of the Company
owned, in the aggregate, less than 1% of the outstanding shares of any of the
Funds. In addition, as of October__, 1996, to the knowledge of the Company the
following shareholders owned 5% or more of the outstanding shares of any of the
Funds:
GROWTH AND INCOME FUND - CLASS A:
EMERGING GROWTH FUND - CLASS A:
U.S. GOVERNMENT MONEY FUND - CLASS B:
U.S. GOVERNMENT MONEY FUND - CLASS S:
CALIFORNIA MONEY FUND - CLASS B:
CALIFORNIA MONEY FUND - CLASS S:
GLOBAL MONEY FUND - CLASS B:
-8-
<PAGE> 175
SHORT TERM GLOBAL GOVERNMENT FUND - CLASS B:
CALIFORNIA MUNICIPAL FUND - CLASS S:
NATIONAL MUNICIPAL FUND - CLASS S:
SHORT TERM GLOBAL GOVERNMENT - CLASS S:
FLORIDA INSURED MUNICIPAL - CLASS S:
CALIFORNIA INSURED INTERMEDIATE - CLASS S:
-9-
<PAGE> 176
The following Compensation Table shows aggregate compensation paid to
each of the Fund's Trustees by the Fund and the Fund Complex, respectively in
the year ended June 30, 1996.
COMPENSATION TABLE
<TABLE>
<CAPTION>
============================================================================================
(1) (2) (3) (4)
NAME OF AGGREGATE PENSION OR ESTIMATED TOTAL
PERSON, COMPENSATION RETIREMENT COMPENSATION FROM
POSITION FROM REGISTRANT BENEFITS ACCRUED REGISTRANT AND FUND
FOR THE FISCAL AS PART OF FUND COMPLEX PAID TO
YEAR ENDED EXPENSES TRUSTEES FOR THE
JUNE 30, 1996 FISCAL YEAR ENDED
JUNE 30, 1996
============================================================================================
<S> <C> <C> <C>
*F. Brian Cerini $0 $0 $0
Chairman of the Board,
President and Trustee
Arthur H. Bernstein, Esq. __,000 0 _______ for service
Trustee on 4 boards
David E. Anderson __,500** 0 _______ for service
Trustee on 4 boards**
Edmond R. Davis, Esq. __,000 0 _______ for service
Trustee on 4 boards
John W. English __,000 0 ______ for Trustsee
Trustee service on 4 boards
Alfred E. Osborne, Jr. *** *** ***
Trustee
=============================================================================================
</TABLE>
* A Trustee who is an "interested person" as defined in the Investment
Company Act.
** Mr. Anderson was paid $1,500 for the Audit Committee Meeting held by
the Company and SVT.
*** Mr. Osborne was not a trustee during the fiscal year ended June 30,
1996.
-10-
<PAGE> 177
INVESTMENT ADVISOR AND SUB-ADVISORS
ADMINISTRATOR AND SUB-ADMINISTRATOR
CUSTODIAN AND TRANSFER AGENT
Sierra Advisors serves as Investment Advisor to each of the Funds and
each Sub-Advisor serves as Investment Sub-Advisor to one or more Funds pursuant
to separate written agreements. Sierra Administration serves as Administrator
to each of the Funds and First Data serves as Sub-Administrator and Transfer
Agent to each of the Funds pursuant to separate written agreements. Certain of
the services provided by, and the fees paid to, Sierra Advisors, the
Sub-Advisors, Sierra Administration and First Data are described in the
Prospectuses. Sierra Advisors, the Sub-Advisors, Sierra Administration and
First Data each compensates its respective Directors and pays the salaries of
its respective officers and employees employed by such companies respectively
and by the Company and maintains office facilities for the Company. Boston
Advisors served as Sub-Administrator to each of the Funds until May 6, 1994
when First Data (formerly, The Shareholders Services Group) became a subsidiary
of First Data Corp. and was assigned the Sub-Administration Agreement between
Boston Advisors and the Company.
SUB-ADVISOR OF CALIFORNIA MUNICIPAL, CALIFORNIA INSURED INTERMEDIATE
MUNICIPAL, FLORIDA INSURED MUNICIPAL AND NATIONAL MUNICIPAL FUNDS. Van Kampen
American Capital Management, Inc. ("VKAC Management")is a wholly-owned
subsidiary of VK/AC Holding, Inc. which is indirectly controlled by C&D Assoc.
L.P. VK/AC Holding, Inc. is controlled, through the ownership of a substantial
majority of its common stock, by The Clayton & Dubilier Private Equity Fund IV
Limited Partnership ("C&D L.P."), a Connecticut limited Partnership. C&D L.P.
is managed by Clayton, Dubilier & Rice, Inc., a New York based private
investment firm. The General Partner of C&D L.P. is C&D Assoc. L.P. The
general partners of C&D Assoc. L.P. currently are Joseph L. Rice, III, B.
Charles Ames, William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J.
Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson. In addition, certain
officers, directors and employees of VK/AC own, in the aggregate, not more than
7% of the common stock of VK/AC Holding, Inc. and have the right to acquire,
upon the exercise of options, approximately an additional 11% of the common
stock of VK/AC Holding, Inc.
On June 24, 1996, VK/AC Holding, Inc. announced it had entered into an
Agreement and Plan of Merger among Morgan Stanley Group Inc., MSAM Holdings II,
Inc. and MSAM Acquisition Inc., pursuant to which MSAM Acquisition Inc. will be
merged with and into VK/AC Holding, Inc. and VK/AC Holding, Inc. will be the
surviving corporation. MSAM Acquisition Inc. is a wholly owned subsidiary of
MSAM Holdings II, Inc. which, in turn, is a wholly
-11-
<PAGE> 178
owned subsidiary of Morgan Stanley Group Inc. Subject to a number of conditions
being met, it is currently anticipated that a closing will occur on or about
November 29, 1996. Thereafter, VK/AC Holding, Inc. and its affiliated entities
shall be part of Morgan Stanley Group Inc.
SUB-ADVISOR OF U.S. GOVERNMENT FUND. In December, 1994, Van Kampen
Management was replaced as the Sub-Advisor to the U.S. Government Fund by
BlackRock Financial Management L.P. ("BlackRock"). BlackRock is located at 345
Park Avenue, 30th Floor, New York, New York 10154. Prior to February 28, 1995,
BlackRock was a Delaware limited partnership, whose general partner was BFM
Management Partners L.P. ("BFM Management"), a Delaware limited partnership.
At that time, the general partner of BFM Management was BFM Management Corp.
("BFM Corp."), a Delaware corporation whose stock was owned by Messrs. Laurence
D. Fink and Ralph L. Schlosstein in equal 50% portions.
On February 28, 1995, BlackRock was acquired and reorganized as a
Delaware corporation by PNC Asset Management Group, Inc., a wholly-owned
subsidiary of PNC Bank, N.A. PNC Bank, N.A. is a wholly-owned subsidiary of a
holding company that operates the asset management businesses of PNC Bank Corp.
("PNC"). The holding company is a wholly-owned subsidiary of PNC, which is a
publicly-owned multibank holding company incorporated under the laws of the
Commonwealth of Pennsylvania in 1983 and registered under the Bank Holding
Company Act of 1956, as amended.
SUB-ADVISOR OF GROWTH AND INCOME AND EMERGING GROWTH FUNDS. Capital
Guardian Trust Company ("Capital Trust"), located at 333 South Hope Street, Los
Angeles, California 90071, was Sub-Advisor to the Growth and Income and
Emerging Growth Funds at their inception. Capital Trust was replaced as the
Sub-Advisor to the Growth and Income and Emerging Growth Funds by J.P. Morgan
Investment Management Inc. ("J.P. Morgan") and Janus Capital Corporation
("Janus"), respectively, in September, 1993. J.P. Morgan provides investment
services to employee benefit plans of corporations, labor unions and state and
local governments and the accounts of other institutional investors. Janus has
been providing investment advice to mutual funds or other large institutional
clients since 1970.
SUB-ADVISOR OF INTERNATIONAL GROWTH FUND. J.P. Morgan, located at 522
Fifth Avenue, New York, New York 10036, was Sub-Advisor to the International
Growth Fund since its inception. J.P. Morgan was replaced as the Sub-Advisor
to the International Growth Fund by Warburg, Pincus Counsellors, Inc.
("Warburg") on April 8, 1996. The sub-advisor agreement with Warburg was
approved at a Special Meeting of the Shareholders of the Company on July 31,
1996. Warburg, located at 466 Lexington Avenue, New York, New York 10017, is a
professional investment counselling
-12-
<PAGE> 179
firm which provides investment services to investment endowment funds,
foundations and other institutions and individuals.
CUSTODIAN. The assets of the Company are held under bank
custodianship in accordance with the 1940 Act. Boston Safe Deposit and Trust
Company ("Boston Safe") serves as Custodian for the Funds. Under its custodial
agreement with the Company, Boston Safe is authorized to appoint one or more
U.S. banking institutions as sub-custodians of assets owned by any of the
Funds. In addition, the Company may employ foreign sub-custodians that are
approved by the Board of Trustees to hold foreign assets.
MANAGEMENT FEES. For the fiscal year ended June 30, 1996, the Company
paid Sierra Advisors management fees (net of waivers) totalling $_______,
$________, $_______, $_________, $_________, $_________, $_______, $_________,
$_________, $_______, $_______, $_________, $_________, $_________, $_________
and $______ with respect to the Global Money, U.S. Government Money, California
Money, Corporate Income, U.S. Government, Short Term Global Government, Short
Term High Quality Bond, National Municipal, California Municipal, Florida
Insured Municipal, California Insured Intermediate Municipal, Growth and
Income, Emerging Growth, Growth, International Growth and Target Maturity
Funds, respectively. Sierra Advisors voluntarily waived management fees in the
amounts of $_______, $_______, $_______, $_______, $_______, $_________,
$_________, $_________, $_______, $_______, $_________ and $_____ with respect
to the Global Money, U.S. Government Money, California Money, Short Term High
Quality Bond, Short Term Global Government, U.S. Government, Corporate Income,
California Municipal, Florida Insured Municipal, California Insured
Intermediate Municipal, National Municipal and Target Maturity Funds,
respectively. In addition, Sierra Advisors reimbursed expenses in the amounts
of $______, $_______, and $______ with respect to the Florida Insured
Municipal, California Insured Intermediate Municipal and Target Maturity Funds,
respectively. For the fiscal year ended June 30, 1996, Sierra Advisors paid to
the Sub- Advisors fees totalling $_______, $______, $______, $_________,
$_______, $_______, $______, $_______, $_______, $______, $_______, $_______,
$_______, $_______, $_______ and $_____ with respect to the Global Money, U.S.
Government Money, California Money, Corporate Income, U.S. Government, Short
Term Global Government, Short Term High Quality Bond, National Municipal,
California Municipal, Florida Insured Municipal, California Insured
Intermediate Municipal, Growth and Income, Emerging Growth, Growth,
International Growth and Target Maturity Funds, respectively.
For the fiscal year ended June 30, 1995, the Company paid Sierra
Advisors management fees (net of waivers) totalling $342,696, $153,991,
$215,043, $2,663,842, $2,864,170, $1,070,631, $270,744, $1,666,333, $2,419,708,
$200,364, $319,780, $1,323,807,
-13-
<PAGE> 180
$1,400,644, $1,365,171, $1,097,217 and $ 1,207 with respect to the Global
Money, U.S. Government Money, California Money, Corporate Income, U.S.
Government, Short Term Global Government, Short Term High Quality Bond,
National Municipal, California Municipal, Florida Insured Municipal, California
Insured Intermediate Municipal, Growth and Income, Emerging Growth, Growth,
International Growth and Target Maturity Funds, respectively. Sierra Advisors
voluntarily waived management fees in the amounts of $342,696, $112,718,
$108,224, $228,615, $633,137, $1,537,203, $1,503,986, $1,403,390, $200,364,
$319,780, $1,038,174 and $1,207 with respect to the Global Money, U.S.
Government Money, California Money, Short Term High Quality Bond, Short Term
Global Government, U.S. Government, Corporate Income, California Municipal,
Florida Insured Municipal, California Insured Intermediate Municipal, National
Municipal and Target Maturity Funds, respectively. In addition, Sierra
Advisors reimbursed expenses in the amounts of $80,852 $52,835, and $16,281
with respect to the Florida Insured Municipal, California Insured Intermediate
Municipal and Target Maturity Funds, respectively. For the fiscal year ended
June 30, 1995, Sierra Advisors paid to the Sub-Advisors fees totalling
$128,511, $57,747, $80,641, $1,229,465, $814,920, $456,016, $81,222, $467,306,
$667,343, $72,860, $116,283, $721,411, $844,497, $780,651, $646,343 and $7,055
with respect to the Global Money, U.S. Government Money, California Money,
Corporate Income, U.S. Government, Short Term Global Government, Short Term
High Quality Bond, National Municipal, California Municipal, Florida Insured
Municipal, California Insured Intermediate Municipal, Growth and Income,
Emerging Growth, Growth, International Growth and Target Maturity Funds,
respectively.
For the fiscal year ended June 30, 1994, the Company paid Sierra
Advisors management fees (net of waivers) totalling $230,642, $154,684,
$328,304, $3,101,919, $4,569,577, $1,733,847, $40,977, $2,367,387, $3,537,012,
$166,746, $28,234, $767,652, $1,030,394, $736,329 and $736,499 with respect to
the Global Money, U.S. Government Money, California Money, Corporate Income,
U.S. Government, Short Term Global Government, Short Term High Quality Bond,
National Municipal, California Municipal, Florida Insured Municipal, California
Insured Intermediate Municipal, Growth and Income, Emerging Growth, Growth and
International Growth Funds, respectively. Sierra Advisors voluntarily waived
management fees in the amounts of $226,174, $68,236, $128,527, $40,977,
$913,493, $1,366,199, $101,434, $2,022,380, $166,745, $28,234, $1,140,151 and
$35,522 with respect to the Global Money, U.S. Government Money, California
Money, Short Term High Quality Bond, Short Term Global Government, U.S.
Government, Corporate Income, California Municipal, Florida Insured Municipal,
California Insured Intermediate Municipal, National Municipal and Growth and
Income Funds, respectively. In addition, Sierra Advisors reimbursed expenses
in the amounts of $57,521, $37,899 and $150,302 with respect to the Short Term
High Quality Bond,
-14-
<PAGE> 181
California Insured Intermediate Municipal and Florida Insured Municipal Funds,
respectively. For the fiscal year ended June 30, 1994, Sierra Advisors paid to
the Sub-Advisors fees totalling $69,594, $46,405, $98,491, $1,431,834,
$1,132,483, $591,180, $12,293, $549,097, $775,763, $55,583, $8,688, $414,252,
$608,165, $424,572 and $416,141 with respect to the Global Money, U.S.
Government Money, California Money, Corporate Income, U.S. Government, Short
Term Global Government, Short Term High Quality Bond, National Municipal,
California Municipal, Florida Insured Municipal, California Insured
Intermediate Municipal, Growth and Income, Emerging Growth, Growth and
International Growth Funds, respectively. The Target Maturity Fund had not
commenced operations as of June 30, 1994.
ADMINISTRATION FEES. For the fiscal year ended June 30, 1996, the
Company paid the Administrator administration fees (net of waivers) totalling
$__________, $_______, $_______, $___________, $_________, $_______, $_______,
$_________, $_________, $_______, $_______, $_______, $_______, $_______,
$_______ and $_____ with respect to the Global Money, U.S. Government Money,
California Money, Corporate Income, U.S. Government, Short Term Global
Government, Short Term High Quality Bond, National Municipal, California
Municipal, Florida Insured Municipal, California Insured Intermediate
Municipal, Growth and Income, Emerging Growth, Growth, International Growth and
Target Maturity Funds, respectively. The Administrator voluntarily waived
administration fees totalling $_______, $______, $______, $______, $_______,
$_______, $_______, $_______, $_______, $_______, $_______ and $_____ with
respect to the Global Money, U.S. Government Money, California Money, Short
Term High Quality Bond, Short Term Global Government, U.S. Government,
Corporate Income, California Municipal, Florida Insured Municipal, California
Insured Intermediate Municipal, National Municipal, and Target Maturity Funds,
respectively. For the period from July 1, 1995 to June 30, 1996, the
Administrator paid to First Data a single fee (that does not include
out-of-pocket expenses and certain transaction charges and net of waivers of
fees) for sub-administration and custody services provided to each Fund
totalling $_______, $______, $______, $_______, $_______, $_______, $_______,
$_______, $_______, $______, $______, $_______, $_______, $_______, $_______
and $___ with respect to the Global Money, U.S. Government Money, California
Money, Corporate Income, U.S. Government, Short Term Global Government, Short
Term High Quality Bond, National Municipal, California Municipal, Florida
Insured Municipal, California Insured Intermediate Municipal, Growth and
Income, Emerging Growth, Growth, International Growth and Target Maturity
Funds, respectively. During the same period, First Data did not voluntarily
waive any of its fees with respect to the Global Money, U.S. Government Money,
California Money, Corporate Income, U.S. Government, Short Term Global
Government, Short Term High Quality Bond, National Municipal, California
Municipal, Florida
-15-
<PAGE> 182
Insured Municipal, California Insured Intermediate Municipal, Growth and
Income, Emerging Growth, Growth, International Growth and Target Maturity
Funds, respectively.
For the fiscal year ended June 30, 1995, the Company paid the
Administrator administration fees (net of waivers) totalling $257,022,
$115,493, $161,282, $1,434,376, $1,822,654, $576,494, $189,519, $1,060,394,
$1,539,815, $127,505, $203,496, $594,453, $556,148, $511,456, $454,735 and
$1,690 with respect to the Global Money, U.S. Government Money, California
Money, Corporate Income, U.S. Government, Short Term Global Government, Short
Term High Quality Bond, National Municipal, California Municipal, Florida
Insured Municipal, California Insured Intermediate Municipal, Growth and
Income, Emerging Growth, Growth, International Growth and Target Maturity
Funds, respectively. The Administrator voluntarily waived administration fees
totalling $203,124, $43,310, $50,408, $117,460, $343,700, $405,720, $558,930,
$511,663, $127,505, $203,496, $391,004 and $1,690 with respect to the Global
Money, U.S. Government Money, California Money, Short Term High Quality Bond,
Short Term Global Government, U.S. Government, Corporate Income, California
Municipal, Florida Insured Municipal, California Insured Intermediate
Municipal, National Municipal, and Target Maturity Funds, respectively. For
the period from July 1, 1994 to June 30, 1995, the Administrator paid to First
Data a single fee (that does not include out-of-pocket expenses and certain
transaction charges and net of waivers of fees) for sub-administration and
custody services provided to each Fund totalling $157,724, $71,171, $84,360,
$617,943, $749,131, $360,039, $152,405, $303,537, $436,521, $37,321, $54,451,
$334,542, $380,867, $312,093, $263,659 and $692 with respect to the Global
Money, U.S. Government Money, California Money, Corporate Income, U.S.
Government, Short Term Global Government, Short Term High Quality Bond,
National Municipal, California Municipal, Florida Insured Municipal, California
Insured Intermediate Municipal, Growth and Income, Emerging Growth, Growth,
International Growth and Target Maturity Funds, respectively. During the same
period, First Data did not voluntarily waive any of its fees with respect to
the Global Money, U.S. Government Money, California Money, Corporate Income,
U.S. Government, Short Term Global Government, Short Term High Quality Bond,
National Municipal, California Municipal, Florida Insured Municipal, California
Insured Intermediate Municipal, Growth and Income, Emerging Growth, Growth,
International Growth and Target Maturity Funds, respectively.
For the fiscal year ended June 30, 1994, the Company paid the
Administrator administration fees (net of waivers) totalling $191,352,
$127,591, $270,798, $1,971,460, $3,356,687, $953,441, $33,792, $1,627,230,
$2,298,756, $113,797, $17,915, $416,042, $496,971, $321,367 and $377,611 with
respect to the Global Money, U.S. Government Money, California Money, Corporate
Income, U.S. Government, Short Term Global Government, Short Term High
-16-
<PAGE> 183
Quality Bond, National Municipal, California Municipal, Florida Insured
Municipal, California Insured Intermediate Municipal, Growth and Income,
Emerging Growth, Growth and International Growth Funds, respectively. The
Administrator voluntarily waived administration fees totalling $191,352,
$75,907, $144,560, $33,792, $638,164, $977,074, $226,542, $1,351,879, $113,797,
$17,915, $800,617 and $60,630 with respect to the Global Money, U.S. Government
Money, California Money, Short Term High Quality Bond, Short Term Global
Government, U.S. Government, Corporate Income, California Municipal, Florida
Insured Municipal, California Insured Intermediate Municipal, National
Municipal and Growth and Income Funds, respectively. For the period from July
1, 1993 to May 6, 1994, the Administrator paid to Boston Advisors a single fee
(that does not include out-of-pocket expenses and certain transaction charges
and net of waivers of fees) for sub-administration and custody services
provided to each Fund totalling $31,704, $21,123, $44,868, $322,473, $553,968,
$156,608, $5,369, $267,985, $377,425, $18,234, $2,867, $68,806, $81,233,
$51,229, and $61,314 with respect to the Global Money, U.S. Government Money,
California Money, Corporate Income, U.S. Government, Short Term Global
Government, Short Term High Quality Bond, National Municipal, California
Municipal, Florida Insured Municipal, California Insured Intermediate
Municipal, Growth and Income, Emerging Growth, Growth and International Growth
Funds, respectively. During the same period, Boston Advisors did not
voluntarily waive any of its fees with respect to the Global Money, U.S.
Government Money, California Money, Corporate Income, U.S. Government, Short
Term Global Government, Short Term High Quality Bond, National Municipal,
California Municipal, Florida Insured Municipal, California Insured
Intermediate Municipal, Growth and Income, Emerging Growth, Growth and
International Growth Funds, respectively. For the period from May 7, 1994 to
June 30, 1994, the Administrator paid to First Data a single fee (that does not
include out-of-pocket expenses and certain transaction charges and net of
waivers of fees) for sub-administration and custody services provided to each
Fund totalling $5,625, $3,748, $7,961, $57,213, $98,285, $27,785, $952,
$47,546, $66,463, $3,235, $509, $12,208, $14,412, $9,089 and $10,876 with
respect to the Global Money, U.S. Government Money, California Money, Corporate
Income, U.S. Government, Short Term Global Government, Short Term High Quality
Bond, National Municipal, California Municipal, Florida Insured Municipal,
California Insured Intermediate Municipal, Growth and Income, Emerging Growth,
Growth and International Growth Funds, respectively. During the same period,
First Data did not voluntarily waive any of its fees with respect to the Global
Money, U.S. Government Money, California Money, Corporate Income, U.S.
Government, Short Term Global Government, Short Term High Quality Bond,
National Municipal, California Municipal, Florida Insured Municipal, California
Insured Intermediate Municipal, Growth and Income, Emerging Growth, Growth and
International
-17-
<PAGE> 184
Growth Funds, respectively. The Target Maturity Fund had not commenced
operations as of June 30, 1994.
Sierra Advisors has agreed that, if in any fiscal year the aggregate
expenses of a Fund (including investment advisory and administration fees, but
excluding interest, taxes, brokerage commissions and, if permitted by the
relevant state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Fund, Sierra
Advisors will reimburse the Fund for that excess expense to the extent required
by state law in the same proportion as its respective fees bear to the combined
fee for investment advisory services. An expense reimbursement, if any, will
be estimated, reconciled and paid on a monthly basis. As of the date of this
Statement of Additional Information, the most restrictive annual expense
limitation applicable to any Fund is 2.5% of the Fund's first $30 million of
average net assets, 2.0% of the next $70 million of average net assets and 1.5%
of the average net assets in excess of $100 million. The Company may seek
waivers of such expense limitations from time to time for certain Funds. In
addition, in the event that Sierra Advisors, the Sub-Advisors, Sierra
Administration, First Data or Sierra Services decreases the amount of, or
ceases to waive a portion of, their fees, the Company has agreed to provide
notice to Texas investors at least thirty days prior to any material increase
in the "Total Fund Operating Expenses" shown in the fee table of the applicable
Prospectus.
COUNSEL AND AUDITOR
O'Melveny & Myers serves as counsel to the Company and provides legal
services to GWFC and a number of its subsidiaries, including Sierra Advisors,
Sierra Administration and Sierra Services. Morgan, Lewis & Bockius LLP also
provides legal services to the Company.
Price Waterhouse LLP, independent accountants, located at 160 Federal
Street, Boston, Massachusetts 02110, serves as auditor of the Company.
ORGANIZATION OF THE COMPANY
The Company is organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to a Master Trust Agreement
dated February 22, 1989, as amended from time to time (the "Trust Agreement").
In the interest of economy and convenience, certificates representing shares in
the Company are not physically issued. Boston Safe, the Company's Custodian,
and First Data, the Company's Transfer Agent, maintain a record of each
shareholder's ownership of Company shares. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Trustees can
-18-
<PAGE> 185
elect all Trustees. Shares are transferable but have no preemptive, conversion
or subscription rights. Shareholders generally vote by Fund or Class, except
with respect to the election of Trustees and the selection of independent
accountants.
Under normal circumstances, there will be no meetings of shareholders
for the purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders, at
which time the Trustees then in office promptly will call a shareholders'
meeting for the election of Trustees. Under the 1940 Act, shareholders of
record of no less than two-thirds of the outstanding shares of the Company may
remove a Trustee through a declaration in writing or by vote cast in person or
by proxy at a meeting called for that purpose. Under the Trust Agreement, the
Trustees are required to call a meeting of shareholders for the purpose of
voting upon the question of removal of any such Trustee when requested in
writing to do so by the shareholders of record of not less than 10% of the
Company's outstanding shares.
Massachusetts law provides that shareholders, under certain
circumstances, could be held personally liable for the obligations of the
Company. However, the Trust Agreement disclaims shareholder liability for acts
or obligations of the Company and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Company or a Trustee. The Trust Agreement provides for indemnification
from the Company's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Company. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Company would be unable to meet its
obligations, a possibility that the Company's management believes is remote.
Upon payment of any liability incurred by the Company, the shareholder paying
the liability will be entitled to reimbursement from the general assets of the
Company. The Trustees intend to conduct the operations of the Company in such
a way so as to avoid, to the extent possible, ultimate liability of the
shareholders for liabilities of the Company.
CERTAIN MATTERS RELATING TO J.P. MORGAN INVESTMENT MANAGEMENT INC. AND ITS
AFFILIATES
J.P. Morgan Investment Management Inc. ("J.P. Management"), the
Sub-Advisor to the Global Money Fund and Growth and Income Fund, and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") are both wholly owned
subsidiaries of J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Through its
Finance and Advisory Division, Morgan Guaranty has relationships as a bank of
deposit, as a lender, as a financial advisor and in other capacities, with a
significant number of United States
-19-
<PAGE> 186
corporations. Such corporate customers of Morgan Guaranty obtain short-term
funds to finance the operation of their business generally through two sources:
(i) short-term bank borrowings from commercial banks such as Morgan Guaranty;
and (ii) the issuance of commercial paper of the type in which certain of the
Funds may invest. Normally the decision of a corporation as to which medium of
short-term financing to utilize will be influenced primarily by interest rate
differentials between the available sources of short-term funds. When interest
rate differentials between short-term bank borrowings and the commercial paper
market narrow, the Corporate Finance Division of Morgan Guaranty may be
competing with the commercial paper market to provide short-term funds to
corporate borrowers.
J.P. Morgan Securities Inc. ("J.P. Securities"), a wholly owned
subsidiary of J.P. Morgan, is a broker-dealer registered with the Securities
and Exchange Commission ("SEC") and a member of the National Association of
Securities Dealers, Inc. ("NASD"). J.P. Securities is active as a dealer in
the securities of United States Government and an underwriter of and dealer in
securities of the United States Government agencies and money market
securities. To a limited extent, J.P. Securities also underwrites and deals in
commercial paper, corporate debt and equity securities. J.P. Morgan Securities
Limited ("J.P. Limited"), also a wholly owned subsidiary of J.P. Morgan,
underwrites, distributes and trades international securities, including
Eurobonds, commercial paper and foreign government bonds. To the extent that
the Global Money Fund or the Growth and Income Fund are permitted to invest in
such securities, the foregoing activities of J.P. Securities and J.P. Limited
may affect the manner in which J.P. Management makes investments for such Funds
and may affect such Funds' portfolios or the markets for the securities in
which such portfolios are invested. Such effects would be primarily on: (1)
the price of securities already held in the Global Money Fund or the Growth and
Income Fund or securities considered for purchase, which are the same as or
similar to issues underwritten or traded by J.P. Securities, J.P. Limited, J.P.
Morgan or Morgan Guaranty ("Morgan Affiliates"), and (2) the supply of issues
available for purchase by the Global Money Fund or the Growth and Income Fund.
Particularly, where the positions of Morgan Affiliates constitute a large
percentage of a given issue, the price at which that issue is traded may
influence the price of securities of that issue or of similar securities in the
Global Money Fund or the Growth and Income Fund or securities being considered
for purchase. Also, since the Global Money Fund and the Growth and Income Fund
will not purchase directly from Morgan Affiliates, if the positions of Morgan
Affiliates in given issues is large, it may limit the selection of available
securities in that particular maturity, yield or price range.
-20-
<PAGE> 187
In addition, the Global Money Fund and the Growth and Income Fund will
not purchase securities during the existence of any underwriting or selling
group of which a Morgan Affiliate is a member except to the extent permitted by
law. Portfolio securities may not be purchased from or sold to J.P. Management
or any affiliated person (as defined in the 1940 Act) of J.P. Management except
as may be permitted by law.
J.P. Morgan issues commercial paper and long-term debt securities, and
Morgan Guaranty and some of its affiliates issue certificates of deposit and
create bankers' acceptances. The Global Money Fund and the Growth and Income
Fund will not invest in the commercial paper or other debt securities of J.P.
Morgan or in certificates of deposit or bankers' acceptances of Morgan
Guaranty or such affiliates. However, the activities of J.P. Morgan and Morgan
Guaranty and any of such affiliates in the market for such instruments might
affect the portfolios of such Funds or the market for such instruments.
The limitations discussed in the preceding three paragraphs, in the
opinion of J.P. Management, will not significantly affect the ability of the
Global Money Fund and the Growth and Income Fund to pursue their respective
investment objectives. However, in the future in other circumstances, such
Funds may be at a disadvantage because of such limitations in comparison to
other funds with similar investment objectives which are not subject to such
limitations. The management of Sierra Advisors believes that the effects of
such limitations are more than offset by the experience and expertise J.P.
Management provides to such Funds.
In acting for its fiduciary accounts, including such Funds, J.P.
Management will not discuss its investment decisions or positions with the
personnel of any Morgan Affiliates. J.P. Management will not execute any
transactions for such Funds with Morgan Affiliates and will execute such
transactions only with unaffiliated dealers.
The commercial banking divisions of Morgan Guaranty or its affiliates
may have deposit, loan and other commercial banking relationships with issuers
of securities purchased by the Global Money Fund and the Growth and Income
Fund, including outstanding loans to such issuers that may be repaid in whole
or in part with the proceeds of securities purchased by such Funds in primary
public offerings. Such Funds will not purchase, except as may be permitted by
applicable law, securities in any primary public offering when the prospectus
discloses that the proceeds will be used to repay in whole or in part the loans
to such issuers. J.P. Management will not cause such Funds to make investments
for the direct purpose of benefitting other commercial interests of Morgan
Affiliates at the expense of such Funds. J.P. Management has advised such
Funds that, in making investment decisions, J.P. Management will not obtain or
use material inside information in
-21-
<PAGE> 188
the possession of any other division or department of J.P. Management or from
Morgan Affiliates. J.P. Management has also advised such Funds that its
investment personnel do not disclose any material inside information in their
possession regarding such Funds to any other division or department of J.P.
Management or Morgan Affiliates.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The Prospectuses discuss the investment objective or objectives of
each of the Funds and the policies to be employed to achieve such objectives.
This section contains supplemental information concerning the types of
securities and other instruments in which the Funds may invest, the investment
policies and portfolio strategies that the Funds may utilize and certain risks
attendant to such investments, policies and strategies.
STRATEGIES AVAILABLE TO ALL FUNDS EXCEPT THE TARGET MATURITY FUND
-----------------------------------------------------------------
RATINGS AS INVESTMENT CRITERIA. In general, the ratings of Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P")
represent the opinions of these agencies as to the quality of securities which
they rate. It should be emphasized, however, that such ratings are relative
and subjective and are not absolute standards of quality. These ratings will
be used by the Funds as initial criteria for the selection of portfolio
securities, but the Funds will also rely upon the independent advice of their
respective Sub-Advisors to evaluate potential investments. The Appendix to
this Statement of Additional Information contains further information
concerning the ratings of Moody's and S&P and their significance. See the
Prospectuses with respect to the Global Money, U.S. Government Money and
California Money Funds (the "Money Funds") in the section entitled "The Funds'
Investments, Risk Considerations and Performance - Investment Principles -
Quality Requirements", for additional information concerning certain rating
criteria.
To the extent that the rating given by Moody's or S&P for securities
may change as a result of changes in such organizations or their rating
systems, each Fund will attempt to use comparable ratings as standards for its
investments in accordance with the investment policies contained in the
Prospectuses and in this Statement of Additional Information.
U.S. GOVERNMENT SECURITIES. U.S. Government securities include debt
obligations of varying maturities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities. U.S. Government securities include
direct obligations of the U.S. Treasury, and securities issued or guaranteed by
the Federal Housing Administration, Farmers Home Administration, Export-Import
Bank of the United States, Small Business Administration,
-22-
<PAGE> 189
Government National Mortgage Association ("GNMA"), General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation ("FHLMC"),
Federal Intermediate Credit Banks, Resolution Trust Corporation, Federal Land
Banks, Federal National Mortgage Association ("FNMA"), Maritime Administration,
Tennessee Valley Authority, District of Columbia Armory Board and Student Loan
Marketing Association. Direct obligations of the U.S. Treasury include a
variety of securities that differ in their interest rates, maturities and dates
of issuance. Because the U.S. Government is not obligated by law to provide
support to an instrumentality it sponsors, a Fund will invest in obligations
issued by such an instrumentality only if the Fund's Sub-Advisor determines
that the credit risk with respect to the instrumentality does not make its
securities unsuitable for investment by the Fund.
ILLIQUID INVESTMENTS. Up to 15% of the assets of each Non-Money Fund,
and up to 10% of the assets of each Money Fund, may be invested in securities
that are not readily marketable, including: (1) repurchase agreements with
maturities greater than seven calendar days; (2) time deposits maturing in more
than seven calendar days; (3) to the extent a liquid secondary market does not
exist for the instruments, futures contracts and options thereon; (4) certain
over-the-counter options, as described in the SAI; (5) except for the
Short-Term Global Government Fund, certain variable rate demand notes having a
demand period of more than seven days; and (6) certain Rule 144A securities as
defined below. These securities generally cannot be sold or disposed of in the
ordinary course of business within seven days at approximately the value at
which the Fund has valued the investments. These factors may have an adverse
effect on the Fund's ability to dispose of the particular securities at fair
market value and may limit the fund's ability to obtain accurate market
quotations for purposes of valuing the securities and calculating the net asset
value of shares of the Fund. The Funds may also purchase securities that are
not registered under the Securities Act of 1933, as amended (the "Act"), but
that can be sold to qualified institutional buyers in accordance with Rule 144A
under that Act ("Rule 144A securities"). Rule 144A securities generally must
be sold to other qualified institutional buyers. If a particular investment in
Rule 144A securities is not determined to be liquid, that investment will be
included within the 15% or 10% limitation, as applicable, on investment in
illiquid securities.
COMBINED TRANSACTIONS. As permitted by each Fund's investment polices
and restrictions, the Funds may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple foreign
currency transactions (including forward foreign currency exchange contracts)
and any combination of futures, options and foreign currency transactions (each
separately, a "component" transaction), instead of a single transaction, as
part of a single hedging strategy when, in the
-23-
<PAGE> 190
opinion of the Sub-Advisor, it is in the best interest of the Fund to do so. A
combined transaction, while part of a single hedging strategy, may contain
elements of risk that are present in each of its component transactions.
BANK OBLIGATIONS. Domestic commercial banks organized under federal
law are supervised and examined by the Comptroller of the Currency and are
required to be members of the Federal Reserve System and to be insured by the
Federal Deposit Insurance Corporation (the "FDIC"). Domestic banks organized
under state law are supervised and examined by state banking authorities but
are members of the Federal Reserve System only if they elect to join. Most
state banks are insured by the FDIC (although such insurance may not be of
material benefit to a Fund, depending upon the principal amount of certificates
of deposit ("CDs") of each state bank held by a Fund) and are subject to
federal examination and to a substantial body of federal law and regulation.
As a result of federal and state laws and regulations, domestic branches of
domestic banks are, among other things, generally required to maintain specific
levels of reserves, and are subject to other supervision and regulation
designed to promote financial soundness.
Obligations of foreign branches of U.S. banks and of foreign branches
of foreign banks, such as CDs and time deposits ("TDs"), may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and governmental regulation.
Obligations of foreign branches of U.S. banks and foreign banks are subject to
the risks associated with investing in foreign securities generally. Foreign
branches of U.S. banks and foreign branches of foreign banks are not
necessarily subject to the same or similar regulatory requirements that apply
to U.S. banks, such as mandatory reserve requirements, loan limitations, and
accounting, auditing and financial recordkeeping requirements. In addition,
less information may be publicly available about a foreign branch of a U.S.
bank or about a foreign bank than about a U.S. bank.
Obligations of U.S. branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation as well as governmental action in the country in which the foreign
bank has its head office. A U.S branch of a foreign bank may or may not be
subject to reserve requirements imposed by the Federal Reserve System or by the
state in which the branch is located if the branch is licensed in that state.
In addition, branches licensed by the Comptroller of the Currency and branches
licensed by certain states ("State Branches") may or may not be required to (1)
pledge to the regulator by depositing assets with a designated bank within the
state an amount of its assets equal to 5% of its total liabilities, or (2)
maintain assets within the state in an amount
-24-
<PAGE> 191
equal to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state. The deposits of State Branches may not necessarily be insured by the
FDIC. In addition, there may be less publicly available information about a
U.S. branch of a foreign bank than about a U.S. bank.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign banks and foreign branches of U.S. banks, the Funds'
respective Sub-Advisors will carefully evaluate such investments on a
case-by-case basis.
A Fund may purchase a CD, TD or bankers' acceptances issued by a bank,
savings and loan association or other banking institution with less than $1
billion in assets (a "Small Issuer Bank Obligation") only so long as the issuer
is a member of the FDIC or supervised by the Office of Thrift Supervision (the
"OTS") and so long as the principal amount of the Small Issuer Bank Obligation
is fully insured by the FDIC and is no more than $100,000. Each of these Funds
will at any one time hold only one Small Issuer Bank Obligation from any one
issuer.
Savings and loan associations whose CDs, TDs and bankers' acceptances
may be purchased by the Funds are supervised by the OTS and insured by the
Savings Association Insurance Fund, which is administered by the FDIC and is
backed by the full faith and credit of the United States Government. As a
result, such savings and loan associations are subject to regulation and
examination.
MORTGAGE-BACKED SECURITIES. The mortgage-backed securities in which
the Funds may invest may be classified as governmental or government-related,
depending on the issuer or guarantor. Governmental mortgage-backed securities
are backed by the full faith and credit of the United States. GNMA, the
principal U.S. guarantor of such securities, is a wholly-owned U.S. Government
corporation within the Department of Housing and Urban Development.
Government-related mortgage-backed securities which are not backed by the full
faith and credit of the United States include those issued by FNMA and FHLMC.
FNMA is a government-sponsored corporation owned entirely by private
stockholders, which is subject to general regulation by the Secretary of
Housing and Urban Development. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA. FHLMC is a
corporate instrumentality of the United States, the stock of which is owned by
the Federal Home Loan Banks. Participation certificates representing interests
in mortgages from FHLMC's national portfolio are guaranteed as to the timely
payment of interest and ultimate collection of principal by FHLMC.
-25-
<PAGE> 192
Governmental or government-related entities may create mortgage loan
pools offering pass-through investments in addition to those described above.
The mortgages underlying these securities may be alternative mortgage
instruments, that is, mortgage instruments in which principal or interest
payments may vary or terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and
offered to investors, the Funds will, consistent with their respective
investment objectives and policies, consider making investments in such new
types of securities.
The average maturity of pass-through pools of mortgage-backed
securities varies with the maturities of the underlying mortgage instruments.
In addition, a pool's stated maturity may be shortened by unscheduled payments
on the underlying mortgages. Factors affecting mortgage prepayments include
the level of interest rates, general economic and social conditions, the
location of the mortgaged property and the age of the mortgage. Because
prepayment rates of individual mortgage pools vary widely, it is not possible
to accurately predict the average life of a particular pool. Common industry
practice, for example, is to assume that prepayments will result in a 7- to
9-year average life for pools of fixed-rate 30-year mortgages. Pools of
mortgages with other maturities of different characteristics will have varying
average life assumptions.
REPURCHASE AGREEMENTS. The Funds may invest in repurchase agreements
without limitation, except that the California Municipal Fund may invest no
more than 20%, in the aggregate, of its assets in repurchase agreements and
certain other securities or instruments, but this 20% limit does not apply to
investments for temporary defensive purposes.
STRATEGIES AVAILABLE TO ALL FUNDS EXCEPT THE MONEY FUNDS AND THE
TARGET MATURITY FUND
- -------------------------------------------------------------------------------
REVERSE REPURCHASE AGREEMENTS. Under the 1940 Act, reverse repurchase
agreements may be considered borrowings by the seller; accordingly each of the
Funds will limit its aggregate investments in reverse repurchase agreements and
other borrowings to no more than 30% of its total assets, except that each of
the U.S. Government, Corporate Income and Short Term High Quality Bond Funds
will limit its aggregate investments in reverse repurchase agreements, dollar
roll transactions and other borrowings to no more than 33-1/3% of its total
assets. A Fund will not engage in reverse repurchase transactions for the
purpose of leverage.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS. A
segregated account in the name of the Fund consisting of cash or liquid debt
securities equal to the amount of when-issued or delayed-delivery commitments
will be established at Boston Safe,
-26-
<PAGE> 193
the Company's custodian. For the purpose of determining the adequacy of the
securities in the accounts, the deposited securities will be valued at market
or fair value. If the market or fair value of the securities declines,
additional cash or securities will be placed in the account daily so that the
value of the account will equal the amount of such commitments by the Fund. On
the settlement date, the Fund will meet its obligations from then-available
cash flow, the sale of securities held in the segregated account, the sale of
other securities or, although it would not normally expect to do so, from the
sale of securities purchased on a when-issued or delayed-delivery basis
themselves (which may have a greater or lesser value than the Fund's payment
obligations).
STRATEGIC TRANSACTIONS. Consistent with its investment polices and
restrictions described in the Prospectus and elsewhere in this Statement of
Additional Information, a Fund may, but is not required to, utilize various
investment strategies as described below to hedge various market or currency
risks, to manage the effective maturity or duration of fixed-income securities,
or to seek potentially higher returns. Utilizing these investment strategies
and as permitted by each Fund's investment polices and restrictions, the Fund
may purchase and sell exchange-listed and over-the-counter put and call options
on securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions will be used to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities, or to seek potentially high
returns. No more than 5% of a Fund's assets will be used as the initial margin
or purchase price for Strategic Transactions in the aggregate entered into for
purposes other than "bona fide hedging" positions as defined in the regulations
adopted by the Commodity Futures Trading Commission ("CFTC"). Moreover, no
Fund currently intends to enter into Strategic Transactions, excluding
Strategic Transactions that are "covered" or entered into for bona fide hedging
purposes, that are in the aggregate principal amount in excess of 15% of the
Fund's net assets. Any or all of
-27-
<PAGE> 194
these investment techniques may be used at any time, as use of any Strategic
Transaction is a function of numerous variables including market conditions.
The ability of the Fund to utilize these Strategic Transactions successfully
will depend on the Sub-Advisor's ability to predict pertinent market movements
which cannot be assured. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes.
Strategic Transactions have associated risks including possible
default by the other party to the transaction, illiquidity and, to the extent
the Sub-Adviser's view as to certain market movements is incorrect, losses
greater than if they had not been used. For more information about the Funds'
use of put and call options, currency transactions and options and futures
transactions and the risks associated with such transactions, see the sections
relating to such strategies in this Statement of Additional Information and the
Appendix to the applicable Prospectus. Losses resulting from the use of
Strategic Transactions may reduce net asset value, and possibly income, and
such losses can be greater than if the Strategic Transactions had not been
utilized.
Strategic Transactions expose a Fund to an obligation to another
party. No Fund will enter into any such transactions unless it owns either (1)
an offsetting ("covered") position in securities or other options or futures
contracts or (2) cash, receivables and U.S. Government securities and other
liquid, high grade debt, with a value sufficient at all times to cover its
potential obligations to the extent not covered as provided in (1) above. Each
Fund will comply with SEC guidelines regarding cover for hedging transactions
and will, if the guidelines so require, set aside cash, U.S. Government
securities or other liquid, high-grade debt securities in a segregated account
with Boston Safe or with a designated sub-custodian in the prescribed amount.
The use of Strategic Transactions is subject to applicable regulations
of the SEC, the several options and futures exchanges upon which they are
traded, the CFTC and may become subject to regulation by various state
regulatory authorities. Each Fund will comply with the applicable regulatory
requirements when utilizing Strategic Transactions. In addition, a Fund's
ability to use Strategic Transactions may be limited by tax considerations.
See "Taxes."
SPECIAL RISKS OF STRATEGIC TRANSACTIONS. The use of Strategic
Transactions involves special considerations and risks, as described below.
Additional risks pertaining to particular Strategic Transactions are described
in other sections to this Statement of Additional Information. Successful use
of most
-28-
<PAGE> 195
Strategic Transactions depends upon the Sub-Advisor's ability to predict
movements of the overall securities and interest rate markets, which requires
different skills than predicting changes in the prices of individual
securities. There can be no assurance that any particular strategy adopted
will succeed. There may be imperfect correlation, or even no correlation,
between price movements of Strategic Transactions and price movements of the
related portfolio or currency positions. Such a lack of correlation might
occur due to factors unrelated to the value of the related portfolio or
currency positions, such as speculative or other pressures on the markets in
which Strategic Transactions are traded. Strategic Transactions, if
successful, can reduce risk of loss or enhance income, by wholly or partially
offsetting the negative effect of, or accurately predicting, unfavorable price
movements or currency fluctuations in the related portfolio or currency
position. However, Strategic Transactions can also reduce the opportunity for
gain by offsetting the positive effect of favorable price movements in the
positions. In addition, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Strategic Transactions involving obligations to third parties
(i.e., Strategic Transactions other than purchased options). These
requirements might impair the Fund's ability to sell a portfolio security or
currency position or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security or
currency position at a disadvantageous time.
SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions
into which a Fund may enter, consistent with the Fund's investment policies and
restrictions, are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. A Fund would enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. A Fund will use these transactions as hedges and not speculative
investments and will not sell interest rate caps or floors where it does not
own securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by a Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative
value differential among them and an index swap is an agreement to swap cash
flows on a notional amount based on changes in the values of the reference
indices. The purchase of a cap entitles the purchaser to receive
-29-
<PAGE> 196
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that
a specified index falls below a predetermined interest rate or amount. A
collar is a combination of a cap and a floor that preserves a certain return
within a predetermined range of interest rates or value.
A Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Fund receiving or paying, as the
case may be, only the net amount of the two payments. Inasmuch as these swaps,
caps, floors and collars are entered into for good faith hedging purposes,
Sierra Advisors and the Company believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to the Fund's borrowing restrictions. If there is a default by
the counterpart, a Fund may have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms
acting both as principles and as agents utilizing standardized swap
documentation. As a result, the swap market has become relatively liquid.
Caps, floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than swaps.
STRATEGIES AVAILABLE TO U.S. GOVERNMENT FUND, CALIFORNIA MUNICIPAL FUND,
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND, FLORIDA INSURED MUNICIPAL FUND,
NATIONAL MUNICIPAL FUND, CORPORATE INCOME FUND, SHORT TERM GLOBAL GOVERNMENT
FUND, SHORT TERM HIGH QUALITY BOND FUND, GROWTH FUND, EMERGING GROWTH FUND,
GROWTH AND INCOME FUND AND INTERNATIONAL GROWTH FUND
FUTURES ACTIVITIES. The Funds may enter into futures contracts and
options on futures contracts that are traded on a U.S. exchange or board of
trade. These investments may be made by the Fund involved for the purpose of
hedging against changes in the value of its portfolio securities due to
anticipated changes in interest rates and market conditions, and for otherwise
permitted Strategic Transactions. In the case of the California Municipal
Fund, the California Insured Intermediate Fund and the Florida Insured
Municipal Fund, such investments will be made only in unusual circumstances,
such as when that Fund's Sub-Advisor anticipates an extreme change in interest
rates or market conditions. The ability of a Fund to trade in futures
contracts and options on futures contracts may be materially limited by the
requirement of the Internal Revenue
-30-
<PAGE> 197
Code of 1986, as amended, (the "Internal Revenue Code"), applicable to a
regulated investment company. See "Taxes" below.
FUTURES CONTRACTS. An interest rate futures contract provides for the
future sale by one party and the purchase by the other party of a certain
amount of a specific financial instrument (debt security) at a specified price,
date, time and place. A bond index futures contract is an agreement pursuant
to which two parties agree to take or make delivery of an amount of cash equal
to the difference between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written. No physical delivery of the underlying securities in the
index is made.
The purpose of entering into a futures contract by a Fund is to
protect the Fund from fluctuations in the value of its securities caused by
anticipated changes in interest rates or market conditions without necessarily
buying or selling the securities. For example, if the California Municipal
Fund, the California Insured Intermediate Fund or the Florida Insured Municipal
Fund owns long-term bonds and tax-exempt rates are expected to increase, the
Fund might enter into futures contracts to sell a municipal bond index. This
transaction would have much the same effect as the Fund's selling some of the
long-term bonds in its portfolio. If tax-exempt rates increase as anticipated,
the value of certain long-term municipal securities in the portfolio would
decline, but the value of the Fund's futures contracts would increase at
approximately the same rate, thereby keeping the net asset value of the Fund
from declining as much as it otherwise would have. Of course, since the value
of portfolio securities will far exceed the value of the futures contracts
entered into by a Fund, an increase in the value of the futures contract would
only mitigate -- but not totally offset -- the decline in the value of the
portfolio.
No consideration is paid or received by a Fund upon entering into a
futures contract. Initially, a Fund would be required to deposit with the
broker an amount of cash or cash equivalents equal to approximately 1% to 10%
of the contract amount (this amount is subject to change by the board of trade
on which the contract is traded and members of such board of trade may charge a
higher amount). This amount is known as "initial margin" and is in its nature
the equivalent of a performance bond or good faith deposit on the contract,
which is returned to a Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker, will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to the expiration of a
futures contract, a Fund may elect to close the position by
-31-
<PAGE> 198
taking an opposite position, which will operate to terminate the Fund's
existing position in the contract.
There are several risks in connection with the use of futures
contracts as a hedging device. Successful use of futures contracts by a Fund
is subject to the ability of the Fund's Sub-Advisor to correctly predict
movements in the direction of interest rates or changes in market conditions.
These predictions involve skills and techniques that may be different from
those involved in the management of the portfolio being hedged. In addition,
there can be no assurance that there will be a correlation between movements in
the price of the underlying index or securities and movements in the price of
the securities which are the subject of the hedge. A decision of whether, when
and how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected trends in interest rates.
Although the Funds intend to enter into futures contracts only if
there is an active market for such contracts, there is no assurance that an
active market will exist for the contracts at any particular time. Most U.S.
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. It is possible that futures contract prices would
move to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses. In such event, and in
the event of adverse price movements, a Fund would be required to make daily
cash payments of variation margin. In such circumstances, an increase in the
value of the portion of the portfolio being hedged, if any, may partially or
completely offset losses on the futures contract. However, as described above,
there is no guarantee that the price of the securities being hedged will, in
fact, correlate with the price movements in a futures contract and thus provide
an offset to losses on the futures contract.
To ensure that transactions constitute bona fide hedges in instances
involving the purchase or sale of a futures contract, the Funds will be
required to either (i) segregate sufficient cash or high-grade liquid assets to
cover the outstanding position or (ii) cover the futures contract by either
owning the instruments underlying the futures contract or by holding a
portfolio of securities with characteristics substantially similar to the
underlying index or stock index comprising the futures contract or by holding a
separate option permitting it to purchase or sell the same futures contract.
Because of the imperfect correlation between the movements in the price of
-32-
<PAGE> 199
underlying indexes or stock indexes of various futures contracts and the
movement of the price of securities in the Funds' portfolios, the Funds will
periodically make adjustments to its index futures contracts positions to
appropriately reflect the relationship between the underlying portfolio and the
indexes. The Fund will not maintain short positions in index or stock index
futures contracts, options written on index or stock index futures contracts
and options written on indexes or stock indexes, if in the aggregate, the value
of these positions exceeds the current market value of its securities portfolio
plus or minus the unrealized gain or loss on those positions, adjusted for the
historical volatility relationship between the portfolio and the index
contracts.
OPTIONS ON FUTURES CONTRACTS. An option on a futures contract, as
contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in the futures
contract at a specified exercise price at any time prior to the expiration date
of the option. Upon exercise of an option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case
of a put, the exercise price of the option on the futures contract. The
potential loss related to the purchase of an option on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because
the price of the option to the purchaser is fixed at the point of sale, there
are no daily cash payments to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of the Fund holding the options.
The Funds may purchase and write put and call options on futures
contracts that are traded on a U.S. exchange or board of trade as a hedge
against changes in the value of its portfolio securities, and may enter into
closing transactions with respect to such options to terminate existing
positions. There is no guarantee that such closing transactions can be
effected.
There are several risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be subject to
the existence of a liquid market. In addition, the purchase of put or call
options will be based upon predictions as to anticipated interest rate and
market trends by the Funds' Sub-Advisors, which could prove to be inaccurate.
Even if the expectations of the Sub-Advisors are correct, there may be an
imperfect correlation between the change in the value of the options and the
portfolio securities hedged.
-33-
<PAGE> 200
STRATEGIES AVAILABLE TO U.S. GOVERNMENT FUND, CORPORATE INCOME FUND, SHORT TERM
HIGH QUALITY BOND FUND, GROWTH AND INCOME FUND, EMERGING GROWTH FUND, SHORT
TERM GLOBAL GOVERNMENT FUND, GROWTH FUND AND INTERNATIONAL GROWTH FUND
OPTIONS ON SECURITIES. The Funds may write covered put options and
covered call options on securities, purchase put and call options on securities
and enter into closing transactions. The Funds may not write put options with
respect to more than 50% of their total assets.
Options written by a Fund will normally have expiration dates between
one and nine months from the date written. The exercise price of the options
may be below, equal to or above the market values of the underlying securities
at the times the options are written. In the case of call options, these
exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. A Fund may write (1) in-the-money call
options when its Sub-Advisor expects that the price of the underlying security
will remain flat or decline moderately during the option period, (2)
at-the-money call options when its Sub-Advisor expects that the price of the
underlying security will remain flat or advance moderately during the option
period and (3) out-of-the-money call options when its Sub-Advisor expects that
the premiums received from writing the call option plus the appreciation in the
market price of the underlying security up to the exercise price will be
greater than the appreciation in the price of the underlying security alone.
In any of the preceding situations, if the market price of the underlying
security declines and the security is sold at this lower price, the amount of
any realized loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options (the reverse of
call options as to the relation of exercise price to market price) may be
utilized in the same market environments as such call options described above.
So long as the obligation of the Fund as the writer of an option
continues, the Fund may be assigned an exercise notice by the broker-dealer
through which the option was sold, requiring the Fund to deliver, in the case
of a call, or take delivery of, in the case of a put, the underlying security
against payment of the exercise price. This obligation terminates when the
option expires or the Fund effects a closing purchase transaction. The Fund
can no longer effect a closing purchase transaction with respect to an option
once it has been assigned an exercise notice. To secure its obligation to
deliver the underlying security when it writes a call option, or to pay for the
underlying security when it writes a put option, the Fund will be required to
deposit in escrow the underlying security or other assets in accordance with
the rules of the Options Clearing
-34-
<PAGE> 201
Corporation (the "Clearing Corporation") and of the securities exchange on
which the option is written.
An option may be closed out only when there exists a secondary market
for an option of the same series on a recognized securities exchange or in the
over-the-counter market. In light of this fact and current trading conditions,
the Fund expects to purchase or write call or put options issued by the
Clearing Corporation, except that options on U.S. Government securities may be
purchased or written in the over-the-counter market. Over-the-counter options
can be closed out only by agreement with the primary dealer in the transaction.
National securities exchanges on which options are traded are: The Chicago
Board Options Exchange (CBOE), The Board of Trade of the City of Chicago (CBT),
American Stock Exchange (AMEX), Philadelphia Stock Exchange (PHLX), Pacific
Stock Exchange (PSE) and the New York Stock Exchange (NYSE). Any
over-the-counter option written by a Fund will be with a qualified dealer
pursuant to an agreement under which the Fund may repurchase the option at a
formula price at which the Fund would have the absolute right to repurchase an
over-the-counter option it has sold. Such options will be considered illiquid
in an amount equal to the formula price, less the amount by which the option is
"in-the-money." In the event of the insolvency of the primary dealer, the Fund
may not be able to liquidate its position in over-the-counter options, and the
ability of the Fund to enter into closing purchase transactions on options
written by the Fund may result in a material loss to the Fund.
The Fund may realize a profit or loss upon entering into closing
transactions. In cases where the Fund has written an option, it will realize a
profit if the cost of the closing purchase transaction is less than the premium
received upon writing the original option, and will incur a loss if the cost of
the closing purchase transaction exceeds the premium received upon writing the
original option. Similarly, when the Fund has purchased an option and engages
in a closing sale transaction, the Fund will realize a profit or loss to the
extent that the amount received in the closing sale transaction is more or less
than the premium the Fund initially paid for the original option plus the
related transaction costs.
To facilitate closing transactions, the Fund will generally purchase
or write only those options for which its Sub-Advisor believes there is an
active secondary market although there is no assurance that sufficient trading
interest to create a liquid secondary market on a securities exchange will
exist for any particular option or at any particular time, and for some options
no such secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen events, have at
times rendered
-35-
<PAGE> 202
certain of the facilities of the Clearing Corporation and the securities
exchanges inadequate and resulted in the institution of special procedures,
such as trading rotations, restrictions on certain types of orders or trading
halts or suspensions in one or more options. There can be no assurance that
similar events, or events that may otherwise interfere with the timely
execution of customers' orders, will not recur. In such events, it might not
be possible to effect closing transactions in particular options. If as a
covered call option writer the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise.
Securities exchanges have established limitations governing the
maximum number of calls and puts of each class which may be held or written, or
exercised within certain time periods, by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers). It is possible that the particular
Fund and other clients of Sierra Advisors and its Sub-Advisors and certain of
their affiliates may be considered to be such a group. A securities exchange
may order the liquidation of positions found to be in violation of these limits
and it may impose certain other sanctions.
In the case of options written by a Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or
debt securities, the time required to convert or exchange and obtain physical
delivery of the underlying security with respect to which the Fund has written
options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, the Fund may purchase
or temporarily borrow the underlying securities for purposes of physical
delivery. By so doing, the Fund will not bear any market risk, since the Fund
will have the absolute right to receive from the issuer of the underlying
security an equal number of shares to replace the borrowed stock. The Fund may
however, incur additional transaction costs or interest expenses in connection
with any such purchase or borrowing.
Additional risks exist with respect to mortgage-backed U.S. Government
securities for which the Fund may write covered call options. If a Fund writes
covered call options on a mortgage-backed security, the security that it holds
as cover may, because of scheduled amortization of unscheduled prepayments,
cease to be sufficient cover. The Fund will compensate by purchasing an
appropriate additional amount of mortgage-backed securities.
-36-
<PAGE> 203
STRATEGIES AVAILABLE TO SHORT TERM GLOBAL GOVERNMENT FUND, GROWTH AND INCOME
FUND, EMERGING GROWTH FUND, INTERNATIONAL GROWTH FUND, SHORT TERM HIGH QUALITY
BOND FUND, CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND AND GROWTH FUND
OPTIONS ON SECURITIES INDEXES. In addition to options on securities,
the Funds may also purchase and sell call and put options on securities
indexes. Such options give the holder the right to receive a cash settlement
during the term of the option based upon the difference between the exercise
price and the value of the index.
Options on securities indexes entail risks in addition to the risks of
options on securities. Because exchange trading of options on securities
indexes is relatively new, the absence of a liquid secondary market to close
out an option position is more likely to occur, although the Fund generally
will purchase or write such an option only if its Sub-Advisor believes the
option can be closed out.
Use of options on securities indexes also entails the risk that
trading in such options may be interrupted if trading in certain securities
included in the index is interrupted. The Fund will not purchase such options
unless its Sub-Advisor believes the market is sufficiently developed for the
risk of trading in such options to be no greater than the risk of trading in
options on securities.
Price movements in the Fund's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
securities indexes cannot serve as a complete hedge. Because options on
securities indexes require settlement in cash, the Fund may be forced to
liquidate portfolio securities to meet settlement obligations.
STRATEGIES AVAILABLE TO CORPORATE INCOME FUND, EMERGING GROWTH FUND, SHORT TERM
GLOBAL GOVERNMENT FUND, SHORT TERM HIGH QUALITY BOND FUND, GROWTH AND INCOME
FUND, GROWTH FUND AND INTERNATIONAL GROWTH FUND
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS. The Funds may
invest in the securities of foreign and domestic issuers in the form of American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs"). These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a U.S. bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), and are receipts issued in
Europe typically by non-U.S. banking and trust companies that evidence ownership
of either foreign or U.S. securities. Generally, ADRs, in
-37-
<PAGE> 204
registered form, are designed for use in U.S. securities markets and EDRs
and CDRs, in bearer form, are designed for use in European securities markets.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Funds may engage in
currency exchange transactions to protect against uncertainty in the level of
future exchange rates. The Funds' dealings in forward currency exchange
contracts will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of forward
foreign currency with respect to specific receivables or payables of the Fund
generally arising in connection with the purchase or sale of its portfolio
securities. Position hedging is the sale of forward foreign currency with
respect to portfolio security positions denominated or quoted in such foreign
currency. A Fund may not position hedge with respect to a particular currency
to an extent greater than the aggregate market value (at the time of making
such sale) of the securities held in its portfolio denominated or quoted in or
currently convertible into that particular currency.
If a Fund enters into a position hedging transaction, the Trust's
custodian or sub-custodian will, except in circumstances where segregated
accounts are not required by the 1940 Act and the rules adopted thereunder,
place cash, U.S. Government Securities or high grade debt obligations in a
segregated account for the Fund in an amount at least equal to the value of the
Fund's total assets committed to the consummation of the forward contract. For
each forward foreign currency exchange contract that is used to hedge a
securities position denominated in a foreign currency, but for which the
hedging position no longer provides, in the opinion of the Sub-Advisor or the
Advisor, sufficient protection to consider the contract to be a hedge, the Fund
maintains with its custodian a segregated account of cash, U.S. Government
Securities or high grade debt obligations in an amount at least equal to the
portion of the contract that is no longer sufficiently covered by such hedge.
If the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that the value
of the account will equal the amount of the Fund's unhedged exposure (in the
case of securities denominated in a foreign currency) or commitment with
respect to the contract. Hedging transactions may be made from any foreign
currency into U.S. dollars or into other appropriate currencies.
At or before the maturity of a forward contract, a Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the
same maturity date, the amount of the currency that it is obligated to deliver.
If the Fund retains the portfolio security and engages
-38-
<PAGE> 205
in an offsetting transaction, the Fund, at the time of execution of the
offsetting transaction, will incur a gain or a loss to the extent that movement
has occurred in forward contract prices. Should forward prices decline during
the period between the Fund's entering into a forward contract for the sale of
currency and the date it enters into an offsetting contract for the purchase of
the currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund will suffer a loss to
the extent the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
The cost to a Fund of engaging in currency transactions with factors
such as, the currency involved, the length of the contract period and the
prevailing market conditions. Because transactions in currency exchange are
usually conducted on a principal basis, no fees or commissions are involved.
The use of forward currency contracts does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of exchange
that can be achieved in the future. In addition, forward currency contracts
may limit the risk of loss due to a decline in the value of the hedged currency
increase.
If a devaluation of a currency is generally anticipated, a Fund may
not be able to contract to sell the currency at a price above the devaluation
level it anticipates.
The Funds, in addition, may combine forward currency exchange
contracts with investments in securities denominated in other currencies in an
attempt to create a combined investment position, the overall performance of
which will be similar to that of a security denominated in a Fund's underlying
currency. For instance, a Fund could purchase a U.S. dollar-denominated
security and at the same time enter into a forward currency exchange contract
to exchange U.S. dollars for its underlying currency at a future date. By
matching the amount of U.S. dollars to be exchanged with the anticipated value
of the U.S. dollar-denominated security, the Fund may be able to "lock in" the
foreign currency value of the security and adopt a synthetic investment
position whereby the Fund's overall investment return from the combined
position is similar to the return from purchasing a foreign
currency-denominated instrument.
There is a risk in adopting a synthetic investment position. It is
impossible to forecast with absolute precision what the market value of a
particular security will be at any given time. If the value of a security
denominated in the U.S. dollar or other foreign currency is not exactly matched
with a Fund's obligation under a forward currency exchange contract on the date
of maturity, the Fund may be exposed to some risk of loss from fluctuations in
that currency. Although each Fund's Sub-Advisor
-39-
<PAGE> 206
will attempt to hold such mismatching to a minimum, there can be no assurance
that the Fund's Sub-Advisor will be able to do so.
Although the foreign currency market is not believed to be necessarily
more volatile than the market in other commodities, there is less protection
against defaults in the forward trading to currencies than there is in trading
such currencies on an exchange because such forward contracts are not
guaranteed by an exchange or clearing house. The Commodity Futures Trading
Commission has indicated that it may assert jurisdiction over forward contracts
in foreign currencies and attempt to prohibit certain entities from engaging in
such transactions. In the event that such prohibition included the Fund, it
would cease trading such contracts. Cessation of trading might adversely
affect the performance of a Fund.
STRATEGIES AVAILABLE TO SHORT TERM GLOBAL GOVERNMENT FUND, GROWTH FUND,
INTERNATIONAL GROWTH FUND, CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND AND
SHORT TERM HIGH QUALITY BOND FUND
- -----------------------------------------------------------------------------
OPTIONS ON FOREIGN CURRENCIES. The Funds may purchase and write put
and call options on foreign currencies for the purpose of hedging against
declines in the U.S. Dollar value of foreign currency-denominated portfolio
securities and against increases in the U.S. Dollar cost of such securities to
be acquired. Such hedging includes cross hedging and proxy hedging where the
options to buy or sell currencies involve other currencies besides the U.S.
Dollar. As one example, a decline in the U.S. dollar value of a foreign
currency in which securities are denominated will reduce the U.S. dollar value
of the securities, even if their value in the foreign currency remains
constant. To protect against diminutions in the value of securities held by a
Fund in a particular foreign currency, the Fund may purchase put options on the
foreign currency. If the value of the currency does decline, the Fund will
have the right to sell the currency for a fixed amount in U.S. dollars and
will thereby offset, in whole or in part, the adverse effect on its portfolio
that otherwise would have resulted. When an increase in the U.S. dollar value
of a currency in which securities to be acquired are denominated is projected,
thereby increasing the cost of the securities, the Fund conversely may purchase
call options on the currency. The purchase of such options could offset, at
least partially, the effects of the adverse movements in exchange rates. As in
the case of other types of options, however, the benefit to the Fund deriving
from purchases of foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, if currency exchange rates
do not move in the direction, or to the extent anticipated, the Fund could
sustain losses on transactions in foreign currency options that would require
it to forego a portion or all of the benefits of advantageous changes in the
rates.
-40-
<PAGE> 207
The Funds may also write covered call options on foreign currencies
for the types of hedging purposes described above. As one example, when a Fund
anticipates a decline in the U.S. dollar value of foreign currency-denominated
securities due to adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a covered call option on the relevant currency.
If the expected decline occurs, the option will most likely not be exercised,
and the diminution in value of portfolio securities will be offset by the
amount of the premium received. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a
partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and
the Fund would be required to purchase or sell the underlying currency at a
loss that may not be offset-by the amount of the premium. Through the writing
of options on foreign currencies, the Fund may also be required to forego all
or a portion of the benefits that might otherwise have been obtained from
favorable movements in exchange rates.
A call option written on a foreign currency by a Fund is "covered" if
the Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire the foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by Boston Safe, or by a designated sub-custodian) upon conversion or
exchange of other foreign currency held by the Fund. A call option also is
covered if the Fund has a call on the same foreign currency and in the same
principal amount as the call written when the exercise price of the call held
(1) is equal to or less than the exercise price of the call written or (2) is
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, U.S. Government Securities and other high-grade
liquid debt securities in a segregated account with Boston Safe or with a
designated sub-custodian.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on those
exchanges. As a result, many of the projections provided to traders on
organized exchanges will be available with respect to those transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation (the "OCC"), thereby reducing the risk of counterpart default.
Further, a liquid secondary market in options traded on a national securities
exchange may exist, potentially permitting the Fund to liquidate open positions
at a profit prior to their exercise or expiration, or to limit losses in the
event of adverse market movements.
-41-
<PAGE> 208
The purchase and sale of exchange-traded foreign currency options are
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exercise and settlement of exchange-traded
foreign currency options must be made exclusively through the OCC, which has
established banking relationships in applicable foreign countries for this
purpose. As a result, the OCC may, if it determines that foreign governmental
restrictions or taxes would prevent the orderly settlement of foreign currency
option exercises, or would result in undue burdens on the OCC or its clearing
member, impose special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of dollar
settlement prices or prohibitions on exercise.
SPECIAL CONSIDERATIONS RELATING TO INTERNATIONAL GROWTH FUND AND GROWTH FUND
- ----------------------------------------------------------------------------
SECURITIES IN DEVELOPING COUNTRIES. Although most of the investments
of the International Growth Fund, Emerging Growth Fund and Growth Fund are made
in securities of companies in (or governments of) developed countries, up to
30% of the total assets of the International Growth Fund, up to 5% of the total
assets of the Emerging Growth Fund and up to 5% of the total assets of the
Growth Fund may be invested in securities of companies in (or governments of)
developing or emerging countries (sometimes referred to as "emerging markets")
as well. A developing or emerging country is generally considered by the
international financial community, in the opinion of Sierra Advisors or the
Sub- Advisor of the International Growth Fund or Growth Fund, to be a country
that is in the initial stages of its industrialization cycle. Investing in the
equity and fixed-income markets of developing or emerging in countries involves
exposure to economic structures that are generally less diverse and mature, and
to political systems that can be expected to have less stability than those of
developed countries. Historical experience indicates that the markets of
developing or emerging countries have been more volatile than the markets of
the more mature economies of developed countries; however, such markets often
have provided higher rates of return to investors.
Price movements in the Fund's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
securities indexes cannot serve as a complete hedge. Because options on
securities indexes require settlement in cash, the Fund may be forced to
liquidate portfolio securities to meet settlement obligations.
-42-
<PAGE> 209
STRATEGY AVAILABLE TO CORPORATE INCOME FUND, NATIONAL MUNICIPAL FUND, SHORT
TERM GLOBAL GOVERNMENT FUND, GROWTH FUND, GROWTH AND INCOME FUND, EMERGING
GROWTH FUND, INTERNATIONAL GROWTH FUND, GLOBAL MONEY FUND, U.S. GOVERNMENT
MONEY FUND, CALIFORNIA MONEY FUND, CALIFORNIA INSURED INTERMEDIATE MUNICIPAL
FUND AND SHORT TERM HIGH QUALITY BOND FUND
- ----------------------------------------------------------------------------
LENDING OF PORTFOLIO SECURITIES. Each of the Funds will adhere to the
following conditions whenever its portfolio securities are loaned: (1) the Fund
must receive at least 100% cash collateral or equivalent securities from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities rises above the level of the collateral; (3) the Fund
must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities and any increase in market value; (5)
the Fund may pay only reasonable custodian fees in connection with the loan;
and (6) voting rights on the loaned securities may pass to the borrower,
provided that if a material event adversely affecting the investment occurs,
the Company's Board of Trustees must terminate the loan and regain the right to
vote the securities. From time to time, the Funds may pay a part of the
interest earned from the investment of the collateral received for securities
loaned to the borrower and/or a third party that is unaffiliated with the
Company and that is acting as a "finder". The Funds will not lend more than
20% of their respective total assets.
STRATEGIES AVAILABLE TO CALIFORNIA MONEY FUND, CALIFORNIA MUNICIPAL FUND,
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND, FLORIDA INSURED MUNICIPAL FUND
AND NATIONAL MUNICIPAL FUND
- ------------------------------------------------------------------------------
MUNICIPAL SECURITIES. Municipal Securities are securities, the
interest on which qualifies for exclusion from gross income for federal income
tax purposes in the opinion of bond counsel to the issuer. The three principal
classifications of Municipal Securities are Municipal Bonds, Municipal
Commercial Paper and Municipal Notes.
Municipal Bonds, which generally have a maturity of more than one year
when issued, have two principal classifications: General Obligation Bonds and
Revenue Bonds. An AMT-Subject Bond is a particular kind of Revenue Bond. The
classifications of Municipal Bonds and AMT-Subject Bonds are discussed below.
1. GENERAL OBLIGATION BONDS. The proceeds of these obligations
are used to finance a wide range of public projects, including
construction or improvement of schools, highways and roads,
and water and sewer systems. General Obligation Bonds are
secured by the
-43-
<PAGE> 210
issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest.
2. REVENUE BONDS. Revenue Bonds are issued to finance a wide
variety of capital projects, including; electric, gas, water
and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals.
The principal security for a Revenue Bond is generally the net
revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special
excise or other specific revenue source. Although the
principal security behind these bonds may vary, many provide
additional security in the form of a debt service reserve fund
which may be used to make principal and interest payments on
the issuer's obligations. Some authorities provide further
security in the form of a state's ability (without obligation)
to make up deficiencies in the debt service reserve fund.
3. AMT-SUBJECT BONDS. AMT-Subject Bonds are considered Municipal
Bonds if the interest paid on them is excluded from gross
income for federal income tax purposes and if they are issued
by or on behalf of public authorities to raise money to
finance, for example, privately operated manufacturing or
housing facilities, publicly operated airport, dock, wharf, or
mass-commuting facilities. The payment of the principal and
interest on these bonds is dependent solely on the ability of
the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property so financed as
security for such payment.
California has a variety of Special Tax District debt obligations,
such as Act 1911 and 1915 Special Assessment Bonds, Mello-Roos Bonds and Tax
Allocation bonds, which are defined as property-backed general obligation
substitutes (because the assessments for improvement do not require voter
approval). The proceeds from the issuance of these essential purpose Special
Tax District Bonds are generally used to develop raw land. As a result, these
issues tend not to carry a credit rating.
Issues of MUNICIPAL COMMERCIAL PAPER typically represent short-term,
unsecured, negotiable promissory notes. These obligations are issued by
agencies of state and local governments to finance seasonal working capital
needs of municipalities or to provide interim construction financing, and are
paid from general revenues of municipalities or are refinanced with long-term
debt. In most cases, Municipal Commercial Paper is backed by letters of
credit, lending agreements, note repurchase agreements or other
-44-
<PAGE> 211
credit facility agreements offered by banks or other institutions.
MUNICIPAL NOTES generally are used to provide for short-term capital
needs and generally have maturities of one year or less. Municipal Notes
include:
1. TAX ANTICIPATION NOTES. Tax Anticipation Notes are issued to
finance working capital needs of municipalities. Generally,
they are issued in anticipation of various seasonal tax
revenues, such as income, sales, use and business taxes and
are payable from these specific future taxes.
2. REVENUE ANTICIPATION NOTES. 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.
3. BOND ANTICIPATION NOTES. Bond Anticipation Notes are issued
to provide interim financing until long-term financing can be
arranged. In most cases, the long-term bonds provide the
money for the repayment of the notes.
4. CONSTRUCTION LOAN NOTES. Construction Loan Notes are sold to
provide construction financing. Permanent financing, the
proceeds of which are applied to the payment of Construction
Loan Notes, is sometimes provided by a commitment by GNMA to
purchase the loan, accompanied by a commitment by the Federal
Housing Administration to insure mortgage advances thereunder.
In other instances, permanent financing is provided by
commitments of banks to purchase the loan. A Municipal Fund
will only purchase Construction Loan Notes that are subject to
GNMA or bank purchase commitments.
From time to time, proposals to restrict or eliminate the federal
income tax exemption for interest on Municipal Securities have been introduced
before Congress. Similar proposals may be introduced in the future. In
addition, the Internal Revenue Code, as amended, currently provides that small
issue private activity bonds will not be tax-exempt if the bonds are issued
after December 31, 1986 and the proceeds are used to finance projects other
than manufacturing facilities. Interest on certain small issue private
activity bonds used to finance manufacturing facilities will not be tax-exempt
if such bonds are issued after December 31, 1989. If these deadlines are not
extended, or, if a proposal to restrict or eliminate the federal tax exemption
for interest on Municipal Securities were enacted, the availability of
Municipal Securities for investment by the Municipal Funds would be adversely
affected. In such event, the
-45-
<PAGE> 212
Municipal Funds would reevaluate their respective investment objectives and
policies and submit possible changes in the structure of the Funds for the
consideration of shareholders.
FLOATING RATE AND VARIABLE RATE OBLIGATIONS. The Municipal Funds may
purchase floating rate and variable rate obligations, including participation
interests therein. Variable rate obligations provide for a specified periodic
adjustment in the interest rate, while floating rate obligations have an
interest rate that changes whenever there is a change in the external interest
rate. The Funds may purchase floating rate and variable rate obligations that
carry a demand feature which would permit the Funds to tender them back to the
issuer or remarketing agent at par value prior to maturity. Frequently,
floating rate and variable rate obligations are secured by letters of credit or
other credit support arrangements provided by banks.
PARTICIPATION INTERESTS. The Municipal Funds may invest in
participation interests purchased from banks in floating rate or variable rate
municipal securities (such as AMT-Subject Bonds) owned by banks. A
participation interest gives the purchaser an undivided interest in the
municipal security in the proportion that the relevant Fund's participation
interest bears to the total principal amount of the municipal security and
provides a demand repurchase feature. Each participation is backed by an
irrevocable letter of credit or guarantee of a bank that meets the prescribed
quality standards of the Fund. A Fund has the right to sell the instrument
back to the issuing bank or draw on the letter of credit on demand for all or
any part of the Fund's participation interest in the municipal security, plus
accrued interest. Banks will retain or receive a service fee, letter of credit
fee and a fee for issuing repurchase commitments in an amount equal to the
excess of the interest paid on the municipal securities over the negotiated
yield at which the instruments were purchased by the Fund. Participation
interests in the form to be purchased by the Fund are new instruments, and no
ruling of the Internal Revenue Service has been secured relating to their
tax-exempt status. The Funds intend to purchase participation interests based
upon opinions of counsel to the issuer to the effect that income from them is
tax-exempt to the Fund.
STAND-BY COMMITMENTS. The Municipal Funds may acquire stand-by
commitments with respect to municipal securities held in their respective
portfolios. Under a stand-by commitment, a broker-dealer, dealer or bank would
agree to purchase, at the relevant Funds' option, a specified municipal
security at a specified price. Thus, a stand-by commitment may be viewed as
the equivalent of a "put" option acquired by a Fund with respect to a
particular municipal security held in the Fund's portfolio.
The amount payable to a Fund upon its exercise of a stand-by
commitment normally would be (1) the acquisition cost of the
-46-
<PAGE> 213
municipal security (excluding any accrued interest that the Fund paid on the
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Fund owned the security, plus,
(2) all interest accrued on the security since the last interest payment date
during the period the security was owned by the Fund. Absent unusual
circumstances, the Fund would value the underlying municipal security at
amortized cost. As a result, the amount payable by the broker-dealer, dealer
or bank during the time a stand-by commitment is exercisable would be
substantially the same as the value of the underlying municipal security.
A Fund's right to exercise a stand-by commitment would be
unconditional and unqualified. Although a Fund could not transfer a stand-by
commitment, it could sell the underlying municipal security to a third party at
any time. It is expected that stand-by commitments generally will be available
to the Funds without the payment of any direct or indirect consideration. The
Funds may, however, pay for stand-by commitments if such action is deemed
necessary. In any event, the total amount paid for outstanding stand-by
commitments held in a Fund's portfolio would not exceed 1/2 of 1% of the value
of a Fund's total assets calculated immediately after each stand-by commitment
is acquired.
The Funds intend to enter into stand-by commitments only with
broker-dealers, dealers or banks that their Sub-Advisor believes present
minimum credit risks. A Fund's ability to exercise a stand-by commitment will
depend on the ability of the issuing institution to pay for the underlying
securities at the time the stand-by commitment is exercised. The credit of
each institution issuing a stand-by commitment to a Fund will be evaluated on
an ongoing basis by its Sub-Advisor in accordance with procedures established
by the Board of Trustees.
A Fund intends to acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its right thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect
the valuation of the underlying municipal security. Each stand-by commitment
will be valued at zero in determining net asset value. Should a Fund pay
directly or indirectly for a stand-by commitment, its costs will be reflected
in realized gain or loss when the commitment is exercised or expires. The
maturity of a municipal security purchased by a Fund will not be considered
shortened by any stand-by commitment to which the obligation is subject. Thus,
stand-by commitments will not affect the dollar-weighted average maturity of a
Fund's portfolio.
-47-
<PAGE> 214
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL SECURITIES
- ------------------------------------------------------------------
The ability of issuers to pay interest on, and repay principal of, California
municipal securities ("California Municipal Securities") may be affected by (1)
amendments to the California Constitution and related statutes that limit the
taxing and spending authority of California government entities, (2) voter
initiatives, (3) a wide variety of California laws and regulations, including
laws related to the operation of health care institutions and laws related to
secured interests in real property and (4) the general financial condition of
the State of California. The following information constitutes only a brief
summary, and is not intended as a complete description. The information has
been drawn, in some cases by excerpt, from official statements relating to
securities offerings of the State of California available as of the date of
this Statement of Additional Information. While the information has not been
independently verified by the California Money Fund, the California Municipal
Fund, or the California Insured Intermediate Municipal Tax Exempt Fund (the
"California Fund"), the California Fund has no reason to believe that such
information is not correct in all material respects.
AMENDMENTS TO THE CALIFORNIA CONSTITUTION AND RELATED STATUTES. Certain of the
California Municipal Securities may be obligations of issuers who rely in whole
or in part on ad valorem real property taxes as a source of revenue. On June
6, 1978, California voters approved an amendment to the California Constitution
known as Proposition 13, which added Article XIIIA to the California
Constitution. The effect of Article XIIIA is to limit ad valorem taxes on real
property, and to restrict the ability of taxing entities to increase real
property tax revenues. On November 7, 1978, California voters approved
Proposition 8, and on June 3, 1986, California voters approved Proposition 46,
both of which amended Article XIIIA.
Section 1 of Article XIIIA limits the maximum ad valorem tax on real property
to 1% of full cash value (as defined in Section 2), to be collected by the
counties and apportioned according to law; provided that the 1% limitation does
not apply to ad valorem taxes or special assessments to pay the interest and
redemption charges on (i) any indebtedness approved by the voters prior to July
1, 1978, or (ii) any bonded indebtedness for the acquisition or improvement of
real property approved on or after July 1, 1978, by two-thirds of the votes
cast by the voters voting on the proposition. Section 2 of Article XIIIA
defines "full cash value" to mean "the County Assessor's valuation of real
property as shown on the 1975/76 tax bill under 'full cash value' or,
-48-
<PAGE> 215
newly constructed, or a change in ownership has occurred after the 1975
assessment." The "full cash value" may be adjusted annually to reflect inflation
at a rate not to exceed 2% per year, or reduction in the consumer price index or
comparable local data, or reduced in the event of declining property value
caused by damage, destruction or other factors. The California State Board of
Equalization has adopted regulations, binding on county assessors, interpreting
the meanings of "change in ownership" and "new construction" for purposes of
determining full cash value of property under Article XIIIA.
Legislation enacted by the California Legislature to implement Article XIIIA
(Statutes of 1978, Chapter 292, as amended) provides that notwithstanding any
other law, local agencies may not levy any ad valorem property tax except to
pay debt service on indebtedness approved by the voters prior to July 1, 1978,
and that each county will levy the maximum tax permitted by Article XIIIA of
$4.00 per $100 assessed valuation (based on the former practice of using 25%,
instead of 100%, of full cash value as the assessed value for tax purposes).
The legislation further provided that, for the 1978/79 fiscal year only, the
tax levied by each county was to be apportioned among all taxing agencies
within the county in proportion to their average share of taxes levied in
certain previous years. The apportionment of property taxes in fiscal years
after 1978/79 has been revised pursuant to Statutes of 1979, Chapter 282, which
provides relief funds from State moneys beginning in fiscal year 1979/80 and is
designed to provide a permanent system for sharing State taxes and budget funds
with local agencies. Under Chapter 282, cities and counties receive more of
the remaining property tax revenues collected under Proposition 13 instead of
direct State aid. School districts receive a correspondingly reduced amount of
property taxes, but receive compensation directly from the State and are given
additional relief. Chapter 282 does not affect the derivation of the base levy
($4.00 per $100 of assessed valuation) and the bonded debt tax rate.
On November 6, 1979, an initiative known as "Proposition 4" or the "Gann
Initiative" was approved by the California voters, which added Article XIIIB to
the California Constitution. Under Article XIIIB, State and local governmental
entities have an annual "appropriations limit" and are not allowed to spend
certain moneys called "appropriations subject to limitation" in an amount
higher than the "appropriations limit." Article XIIIB does not affect the
appropriation of moneys which are excluded from the definition of
"appropriations subject to limitation," including debt service on indebtedness
existing or authorized as of January 1, 1979, or bonded indebtedness
subsequently approved by the voters. In general terms, the "appropriations
limit" is required to be based on certain 1978/79 expenditures, and is to be
adjusted annually to reflect changes in consumer prices, population and certain
services provided by these entities.
-49-
<PAGE> 216
Article XIIIB also provides that if these entities' revenues in any year exceed
the amounts permitted to be spent, the excess is to be returned by revising the
tax rates or fee schedules over the subsequent two years.
Article XIIIB, like XIIIA, may require further interpretation by both the
Legislature and the courts to determine its applicability to specific
situations involving the State and local taxing authorities. Depending upon
the interpretation, Article XIIIB may limit significantly a governmental
entity's ability to budget sufficient funds to meet debt service on bonds and
other obligations.
VOTER INITIATIVES. On November 8, 1988, voters of the State approved
Proposition 98, a combined initiative constitutional amendment and statute
called the "Classroom Instructional Improvement and Accountability Act."
Proposition 98 changed State funding of public education below the university
level and the operation of the State Appropriations Limit, primarily by
guaranteeing K-14 schools a minimum share of General Fund revenues. Under
Proposition 98 (as modified by Proposition 111, which was enacted on June 5,
1990), K-14 schools are guaranteed the greater of (a) in general, a fixed
percent of General Fund revenues ("Test 1"), (b) the amount appropriated to
K-14 schools in the prior year, adjusted for changes in the cost of living
(measured as in Article XIII B by reference to State per capita personal
income) and enrollment ("Test 2"), or (c) a third test, which would replace
"Test 2" in any year when the percentage growth in per capita General Fund
revenues from the prior year plus one half of one percent is less than the
percentage growth in State per capita personal income ("Test 3"). Under "Test
3," schools would receive the amount appropriated in the prior year adjusted
for changes in enrollment and per capita General Fund revenues, plus an
additional small adjustment factor. If "Test 3" is used in any year, the
difference between "Test 3" and "Test 2" would become a "credit" to schools
which would be the basis of payments in future years when per capita General
Fund revenue growth exceeds per capita personal income growth. Legislation
adopted prior to the end of the 1988-89 Fiscal Year, implementing Proposition
98, determined the K- 14 schools' funding guarantee under Test 1 to be 40.3
percent of the General Fund Tax revenues, based on 1986-87 appropriations.
However, that percent would be adjusted to account for redirection of local
property taxes, since such a subsequent redirection directly affects the share
of General Fund revenues to schools.
Proposition 98 permits the Legislature by two-thirds vote of both houses, with
the Governor's concurrence, to suspend the K-14 schools' minimum funding
formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIII B limit
to K-14 schools.
-50-
<PAGE> 217
During the recent recession, General Fund revenues for several years were less
than originally projected, so that the original Proposition 98 appropriations
turned out to be higher than the minimum percentage provided in the law. The
Legislature responded to these developments by designating the "extra"
Proposition 98 payments in one year as a "loan" from future years' Proposition
98 entitlements, and also intended that the "extra" payments would not be
included in the Proposition 98 "base" for calculating future years'
entitlements. By implementing these actions, per-pupil funding from
Proposition 98 sources stayed almost constant at approximately $4,220 from
Fiscal Year 1991-92 to Fiscal Year 1993-94.
In 1992, a lawsuit was filed, called California Teachers' Association v. Gould,
which challenged the validity of these off-budget loans. As part of the
negotiations leading to the 1995-96 Budget Act, an oral agreement was reached
to settle this case. It is expected that a formal settlement reflecting these
conditions will be entered into in the near future.
The oral agreement provides that both the State and K-14 schools share in the
repayment of prior years' emergency loans to schools. Of the total $1.76
billion in loans, the State will repay $935 million by forgiveness of the
amount owed, while schools will repay $825 million. The State share of the
repayment will be reflected as expenditures above the current Proposition 98
base calculation. The schools' share of the repayment will count as
appropriations that count toward satisfying the Proposition 98 guarantee, or
from "below" the current base. Repayments are spread over the eight-year
period of 1994-95 through 2001-02 to mitigate any adverse fiscal impact. Once
a court settlement is reached, and the Director of Finance certifies that such
a settlement has occurred, approximately $377 million in appropriations from
the 1995-96 Fiscal Year to schools will be disbursed in August 1996.
On November 4, 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution or
ordinance adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as taxes levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction, (iii) restricts the use
of revenues from a special tax to the purposes or for the service for which the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes on
real property by local governmental entities except as permitted by Article
XIIIA, (v) prohibits the imposition of transaction taxes and sales taxes on the
sale of real property by local governments, (vi) requires
-51-
<PAGE> 218
that any tax imposed by a local government on or after August 1, 1985 be
ratified by a majority vote of the electorate within two years of the adoption
of the initiative or be terminated by November 15, 1988, (vii) requires that,
in the event a local government fails to comply with the provisions of this
measure, a reduction in the amount of property tax revenue allocated to such
local government occurs in an amount equal to the revenues received by such
entity attributable to the tax levied in violation of the initiative, and
(viii) permits these provisions to be amended exclusively by the voters of the
State of California.
In September 1988, the California Court of Appeal in City of Westminster v.
County of Orange 204 Cal. App. 3d 623, 215 Cal. Rptr. 511 (Cal. Ct. App.
1988), held that Proposition 62 is unconstitutional to the extent that it
requires a general tax by a general law city, enacted on or after August 1,
1985 and prior to the effective date of Proposition 62, to be subject to
approval by a majority of voters. The Court held that the California
Constitution prohibits the imposition of a requirement that local tax measures
be submitted to the electorate by either referendum or initiative. It is not
possible to predict the impact of this decision on charter cities, on special
taxes, or on new taxes imposed after the effective date of Proposition 62.
On November 8, 1988, California voters approved Proposition 87. Proposition 87
amended Article XVI, Section 16, of the California Constitution by authorizing
the California Legislature to prohibit redevelopment agencies from receiving
any of the property tax revenue raised by increased property tax rates levied
to repay bonded indebtedness of local governments which is approved by voters
on or after January 1, 1989. It is not possible to predict whether the
California Legislature will enact such a prohibition nor is it possible to
predict the impact of Proposition 87 on redevelopment agencies and their
ability to make payments on outstanding debt obligations.
OTHER RELEVANT CALIFORNIA LAWS. A wide variety of California laws and
regulations may affect, directly or indirectly, the payment of interest on, or
the repayment of the principal of, California Municipal Securities in which the
California Fund may invest. The impact of such laws and regulations on
particular California Municipal Securities may vary depending upon numerous
factors including, among others, the particular type of Municipal Security
involved, the public purpose funded by the Municipal Security and the nature
and extent of insurance or other security for payment of principal and interest
on the Municipal Security. For example, California Municipal Securities which
are payable only from the revenues derived from a particular facility may be
adversely affected by California laws or regulations which make it more
difficult for the particular facility to generate revenues sufficient to pay
such interest and principal,
-52-
<PAGE> 219
including, among others, laws and regulations which limit the amount of fees,
rates or other charges which may be imposed for use of the facility or which
increase competition among facilities of that type or which limit or otherwise
have the effect of reducing the use of such facilities generally, thereby
reducing the revenues generated by the particular facility. California
Municipal Securities, the payment of interest and principal on which is insured
in whole or in part by a California governmentally created fund, may be
adversely affected by California laws or regulations which restrict the
aggregate insurance proceeds available for payment of principal and interest in
the event of a default on such Municipal Securities.
Certain California Municipal Securities in which the California Fund may invest
may be obligations that are payable solely from the revenues of health care
institutions. Certain provisions under California law may adversely affect
such revenues and, consequently, payment on those California Municipal
Securities.
The Federally sponsored Medicaid program for health care services to eligible
welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal program has provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such hospital
met applicable requirements for participation. California law now provides
that the State of California shall selectively contract with hospitals to
provide acute inpatient services to Medi-Cal patients. Medi-Cal contracts
currently apply only to acute inpatient services. Generally, such selective
contracting is made on a flat per diem payment basis for all services to
Medi-Cal beneficiaries, and generally such payment has not increased in
relation to inflation, costs or other factors. Other reductions or limitations
may be imposed in payment for services rendered to Medi-Cal beneficiaries in
the future.
Under this approach, in most geographical areas of California, only those
hospitals which enter into a Medi-Cal contract with the State of California
will be paid for non- emergency acute inpatient services rendered to Medi-Cal
beneficiaries. The State may also terminate these contracts without notice
under certain circumstances and is obligated to make contractual payments only
to the extent the California legislature appropriates adequate funding
therefor.
In February 1987, the Governor of the State of California announced that
payments to Medi-Cal providers for certain services (not including hospital
acute inpatient services) would be decreased by ten percent through June 1987.
However, a federal district court issued a preliminary injunction preventing
application of any cuts until a trial on the merits can be held. If the
injunction is deemed to have been granted improperly, the
-53-
<PAGE> 220
State of California would be entitled to recapture the payment differential for
the intended reduction period. It is not possible to predict at this time
whether any decreases will ultimately be implemented.
California enacted legislation in 1982 that authorizes private health plans and
insurers to contract directly with hospitals for services to beneficiaries on
negotiated terms. Some insurers have introduced plans known as "preferred
provider organizations" ("PPOs"), which offer financial incentives for
subscribers who use only the hospitals which contract with the plan. Under an
exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payors limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO or PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO.
It is expected that failure to execute and maintain such PPO and HMO contracts
would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain or increase the patient base, but may result in
reduced payment and lower net income to the contracting hospitals.
These Debt Obligations may also be insured by the State of California pursuant
to an insurance program implemented by the Office of Statewide Health Planning
and Development for health facility construction loans. If a default occurs on
insured Debt Obligations, the State Treasurer will issue debentures payable out
of a reserve fund established under the insurance program or will pay principal
and interest on an unaccelerated basis from unappropriated State funds. At the
request of the Office of Statewide Health Planning and Development, Arthur D.
Little, Inc. prepared a study in December, 1983, to evaluate the adequacy of
the reserve fund established under the insurance program and based on certain
formulations and assumptions found the reserve fund substantially underfunded.
In September of 1986, Arthur D. Little, Inc. prepared an update of the study
and concluded that an additional 10% reserve be established for "multi-level"
facilities. For the balance of the reserve fund, the update recommended
maintaining the current reserve calculation method. In March of 1990, Arthur
D. Little, Inc. prepared a further review of the study and recommended that
separate reserves continue to be established for "multi-level" facilities at a
reserve level consistent with those that would be required by an insurance
company.
Certain California Municipal Securities in which the California Fund may invest
may be obligations which are secured in whole or in part by a mortgage or deed
of trust on real property.
-54-
<PAGE> 221
California has five principal statutory provisions which limit the remedies of
a creditor secured by a mortgage or deed of trust, two of which limit the
creditor's right to obtain a deficiency judgment. One of the limitations is
based on the method of foreclosure and the other on the type of debt secured.
Under the former, a deficiency judgment is barred when the foreclosure is
accomplished by means of a nonjudicial trustee's sale. Under the latter, a
deficiency judgment is barred when the foreclosed mortgage or deed of trust
secures certain purchase money obligations. Another California statute,
commonly known as the "one form of action" rule, requires the creditors secured
by real property to exhaust their real property security by foreclosure before
bringing a personal action against the debtor. The fourth statutory provision
limits any deficiency judgment obtained by a creditor secured by real property
following a judicial sale of such property to the excess of the outstanding
debt over the fair value of the property at the time of the sale, thus
preventing the creditor from obtaining a large deficiency judgment against the
debtor as the result of low bids at a judicial sale. The fifth statutory
provision gives the debtor the right to redeem the real property from any
judicial foreclosure sale as to which a deficiency judgment may be ordered
against the debtor.
Upon the default of a mortgage or deed of trust with respect to California real
property, the creditor's nonjudicial foreclosure rights under the power of sale
contained in the mortgage or deed of trust are subject to the constraints
imposed by California law upon transfers of title to real property by private
power of sale. During the three-month period beginning with the filing of a
formal notice of default, the debtor is entitled to reinstate the mortgage by
making any overdue payments. Under standard loan servicing procedures, the
filing of the formal notice of default does not occur unless at least three
full monthly payments have become due and remain unpaid. The power of sale is
exercised by posting and publishing a notice of sale for at least 20 days after
expiration of the three-month reinstatement period. Therefore, the effective
minimum period for foreclosing on a home mortgage could be in excess of seven
months after the initial default. Such time delays in collections could
disrupt the flow of revenues available to an issuer for the payment of debt
service on the outstanding obligations if such defaults occur with respect to a
substantial number of mortgages or deeds of trust securing an issuer's
obligations.
In addition, a court could find that there is sufficient involvement of the
issuer in the nonjudicial sale of property securing a mortgage for such private
sale to constitute "state action," and could hold that the
private-right-of-sale proceedings violate the due process requirements of the
Federal or State Constitutions, consequently preventing an issuer from using
the nonjudicial foreclosure remedy described above.
-55-
<PAGE> 222
Certain California Municipal Securities in which the California Fund may invest
may be obligations which finance the acquisition of single family home
mortgages for low and moderate income mortgagors. These obligations may be
payable solely from revenues derived from the home mortgages, and are subject
to the California statutory limitations described above applicable to
obligations secured by real property. Under California anti-deficiency
legislation, there is no personal recourse against a mortgagor of a single
family residence purchased with the loan secured by the mortgage, regardless of
whether the creditor chooses judicial or nonjudicial foreclosure.
Under California law, mortgage loans secured by single family owner-occupied
dwellings may be prepaid at any time. Prepayment charges on such mortgage
loans may be imposed only with respect to voluntary prepayments made during the
first five years during the term of the mortgage loan, and cannot in any event
exceed six months' advance interest on the amount prepaid in excess of 20% of
the original amount of the mortgage loan. This limitation could affect the
flow of revenues available to an issuer for debt service on the outstanding
debt obligations which financed such home mortgages.
Because of the diverse nature of such laws and regulations and the
impossibility of either predicting in which specific California Municipal
Securities the California Fund will invest from time to time or predicting the
nature or extent of future changes in existing laws or regulations or the
future enactment or adoption of additional laws or regulations, it is not
presently possible to determine the impact of such laws and regulations on the
Municipal Securities in which the California Fund may invest and, therefore, on
the units of the California Fund.
THE GENERAL FINANCIAL CONDITION OF THE STATE OF CALIFORNIA. The 1989-90 Fiscal
Year ended with revenues below estimates, so that the State's budget reserve
(the Special Fund for Economic Uncertainties or "SFEU") was fully depleted by
June 30, 1990. A recession began in mid-1990, which severely affected State
General Fund revenues, and increased expenditures above initial budget
appropriations due to greater health and welfare costs. The State's budget
problems in recent years have also been caused by a structural imbalance in
that the largest General Fund Programs -- K-14 education, health, welfare and
corrections -- were increasing faster than the revenue base, driven by the
State's rapid population growth. These pressures are expected to continue as
population trends maintain strong demand for health and welfare services, as
the school age population continues to grow, and as the State's corrections
program responds to a "Three Strikes" law enacted in 1994, which requires
mandatory life prison terms for certain third-time felony offenders.
-56-
<PAGE> 223
As a result of these factors and others, from the late 1980's until 1992-93,
the State had a period of budget imbalance. During this period, expenditures
exceeded revenues in four out of six years, and the State accumulated and
sustained a budget deficit in the SFEU approaching $2.8 billion at its peak at
June 30, 1993. Starting in the 1990-91 Fiscal Year and for each fiscal year
thereafter, each budget required multibillion dollar actions to bring projected
revenues and expenditures into balance. The Legislature and Governor agreed on
the following principal steps to produce Budget Acts in the years 1991-92 to
1993-94, including:
o significant cuts in health and welfare program expenditures;
o transfers of program responsibilities and funding from the
State to local governments (referred to as "realignment"), coupled with some
reduction in mandates on local government;
o transfer of about $3.6 billion in local property tax revenues
from cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing State funding for schools under Proposition
98;
o reduction in growth of support for higher education programs,
coupled with increases in student fees;
o revenue increases (particularly in the 1991-92 Fiscal Year
budget), most of which were of a short duration;
o increased reliance on aid from the federal government to
offset the costs of incarcerating, educating and providing health and welfare
services to illegal immigrants; and
o various one-time adjustments and accounting changes.
Despite these budget actions, as noted, the effects of the recession led to
large, unanticipated deficits in the budget reserve, the SFEU, as compared to
projected positive balances. By the 1993-94 Fiscal Year, the accumulated
deficit was so large that it was impractical to budget to retire it in one
year, so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95.
Another consequence of the accumulated budget deficits, together-with other
factors such as disbursement of funds to local school districts "borrowed" from
future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
-57-
<PAGE> 224
obligations. When the Legislature and the Governor failed to adopt a budget for
the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the state to
carry out its normal annual cash flow borrowing to replenish its cash reserves,
the State Controller issued registered warrants to pay a variety of obligations
representing prior years' or continuing appropriations, and mandates from court
orders. Available funds were used to make constitutionally-mandated payments,
such as debt service on bonds and warrants. Between July 1 and September 4,
1992 the State Controller issued a total of approximately $3.8 billion of
registered warrants. After that date, all remaining outstanding registered
warrants (about $2.9 billion) were called for redemption from proceeds of the
issuance of 1992 Interim Notes after the budget was adopted.
In late spring of 1992, the State Controller issued revenue anticipation
warrants maturing in the following fiscal year in order to pay the State's
continuing obligations. The State was forced to rely increasingly on external
debt markets to meet its cash needs, as a succession of notes and warrants were
issued in the period from June 1992 to July 1994, often needed to pay
previously maturing notes or warrants. These borrowings were used also in part
to spread out the repayment of the accumulated budget deficit over the end of a
fiscal year, as noted earlier.
The Governor's Budget Proposal for the 1994-95 Fiscal Year, as updated in May
and June 1994, recognized that the accumulated deficit could not be repaid in
one year, and proposed a two-year solution designed to eliminate the
accumulated budget deficit, estimated at about $1.8 billion at June 30, 1994,
by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projected
General Fund revenues and transfers of $41.9 billion, $2.1 billion more than
actual revenues received in 1993-94, and expenditures of $40.9 billion, an
increase of $1.6 billion from the prior year. As a result of the improving
economy, the Department of Finance's final estimates for the fiscal year showed
revenues and transfers of $42.7 billion and expenditures of $42.0 billion,
reducing he accumulated budget deficit to about $600 million.
The principal features of the 1994-95 Budget Act were the following:
1. Receipt of additional federal aid of about $760 million for
costs of refugee assistance and costs of incarceration and medical care for
illegal immigrants. Only about $33 million of this amount was received, with
about another $98 million scheduled to be received in the 1995-96 Fiscal Year.
-58-
<PAGE> 225
2. Reductions of approximately $1.1 billion in health and welfare
costs. Certain of these actions were blocked by legal challenges.
3. A General Fund increase of approximately $38 million in
support for the University of California and $65 million for California State
University, accompanied by student fee increases for both the University of
California and California State University.
4. Proposition 98 funding for K-14 schools was increased by $526
million from 1993-94 Fiscal Year levels, representing an increase for
enrollment growth and inflation. Consistent with previous budget agreements,
Proposition 98 funding provided approximately $4,217 per student for K-12
schools, equal to the level in the prior three years.
5. Additional miscellaneous cuts ($500 million), fund transfers
($255 million), adjustment to prior years' legislation concerning property tax
shifts for local governments ($300 million).
The 1994-95 Budget Act contained no tax increases. Under legislation enacted
for the 1993-94 Budget Act, the renters' tax credit was suspended for two years
(1993 and 1994). A ballot proposition to permanently restore the renters' tax
credit after this year failed at the June 1994 election. The Legislature
enacted a further one-year suspension of the renters' tax credit, for 1995,
saving about $390 million in the 1995-96 Fiscal Year.
The State's cash flow management plan for the 1994-95 Fiscal Year included the
issuance of $4.0 billion of Revenue Anticipation Warrants, Series C and D (the
"RAWs") on July 26, 1994, to mature on April 25, 1996, as part of a two-year
plan to retire the accumulated State budget deficit. To assure payment of the
RAWs, the Legislature enacted a backup mechanism which could result in
automatic expenditure cuts if projected revenues did not meet certain targets
(Section 12467 of the California Government Code, enacted by Chapter 135,
Statutes of 1994, the "Budget Adjustment Law").
The third and last step in the Budget Adjustment Law process occurred on
October 16, 1995, when the State Controller issued a report (the "October
Trigger Report") reviewing the estimated cash condition of the General Fund for
the 1995-96 Fiscal Year. The State Controller estimated that the General Fund
would have at least $1.4 billion of internal cash resources on June 30, 1996
(i. e., external borrowing would not be needed on June 30, 1996). As a result
of this funding, certain provisions of the Budget Adjustment Law, which could
have ultimately led to automatic, across-the-board cuts in the General Fund
budget, will not have to be implemented. Likewise, an earlier report issued on
-59-
<PAGE> 226
November 15, 1994, avoided implementation of any automatic budget cuts in the
1994-95 fiscal year.)
The discussion below of the 1995-96 Fiscal Year budget is based on estimates
and projections of revenues and expenditures for the current fiscal year and
must not be construed as statements of fact. These estimates and projections
are based upon various assumptions which may be affected by numerous factors,
including future economic conditions in the State and the nation, and there can
be no assurance that the estimates will be achieved.
Periodic reports on revenues and expenditures during the fiscal year are issued
by the Administration, the State Controller's Office and the Legislative
Analyst's Office. The Department of Finance issues a monthly Bulletin which
reports the most recent revenue receipts, comparing them to Budget projections,
and reports on other current developments affecting the Budget. The
Administration also formally updates its budget projections twice during each
fiscal year, generally in January and May.
With strengthening revenues and reduced caseload growth based on an improving
economy, the State entered the 1995-96 Fiscal Year budget negotiations with the
smallest nominal "budget gap" to be closed in many years. Nonetheless, serious
policy differences between the Governor and Legislature prevented timely
enactment of the budget. The 1995-96 Budget Act was signed by the Governor on
August 3, 1995, 34 days after the start of the fiscal year. The Budget Act
projected General Fund revenues and transfers of $44.1 billion, a 3.5 percent
increase from the prior year. Expenditures were budgeted at $43.4 billion, a 4
percent increase. The Department of Finance projected that, after repaying the
last of the carry over budget deficit, there would be a positive balance of $28
million in the budget reserve, the Special Fund for Economic Uncertainties, at
June 30,1996. The Budget Act also projected Special Fund revenues of $12.7
billion and appropriated Special Fund expenditures of $13.0 billion.
The Governor's Budget for the 1996-97 Fiscal Year, released on January 10, 1996
(the "Governor's Budget"), updated the current year projections, so that
revenues and transfers are estimated to be $45.0 billion, and expenditures to
be $44.2 billion. The Special Fund for Economic Uncertainties is projected to
have a positive balance of about $50 million at June 30, 1996, and on that date
available internal borrowable resources (available cash, after payment of
obligations due) will be about $2.2 billion. The Administration projects it
will issue up to $2.0 billion of revenue anticipation notes in April, 1996, to
mature June 30, 1996, to assist in cash flow management for the final two
months of the year, after repayment of the $4.0 billion RAW issue on April 25,
1996.
-60-
<PAGE> 227
The following are the principal features of the 1995-96 Budget Act:
1. Proposition 98 funding for schools and community colleges was
originally budgeted to increase by about $ 1.0 billion (General Fund) and $ 1.2
billion total above revised 1994-95 levels. Because of higher than projected
revenues in 1994-95, an additional $543 million ($91 per K-12 ADA) was
appropriated to the 1994-95 Proposition 98 entitlement. A large part of this
is a block grant of about $54 per pupil for any one-time purpose. For the
first time in several years, a full 2.7 percent cost of living allowance was
funded. The budget compromise anticipates a settlement of the CTA v. Gould
litigation discussed above under "Voter Initiatives". The Governor's Budget
indicates that, with revenues even higher than projected, Proposition 98
apportionments will exceed the amounts originally budgeted, reaching a level of
$4,500 per ADA.
2. Cuts in health and welfare costs totaling about $0.9 billion.
Some of these cuts (totaling about $500 million) require federal legislative or
administrative approval, which were still pending as of February, 1996.
3. A 3.5 percent increase in funding for the University of
California ($90 million General Fund) and the California State University
system ($24 million General Fund), with no increases in student fees.
4. The Budget, as updated by the 1996-97 Governor's Budget dated
January 10, 1996, assumed receipt of $494 million in new federal aid for
incarceration and health care costs of illegal immigrants, above commitments
already made by the federal government.
5. General Fund support for the Department of Corrections is
increased by about 8 percent over the prior year, reflecting estimates of
increased prison population, but funding is less than proposed in the 1995
Governor's Budget.
On January 10, 1996, the Governor released his proposed budget for the next
fiscal year (the "Governor's Budget"). The Governor requested total General
Fund appropriations of about $45.2 billion, based on projected revenues and
transfers of about $45.6 billion, which would leave a budget reserve in the
Special Fund for Economic Uncertainties at June 30, 1997 of about $400 million.
The Governor renewed a proposal, which had been rejected by the Legislature in
1995, for a 15 percent phased cut in individual and corporate tax rates over
three years (the budget proposal assumes this will be enacted, reducing
revenues in 1996-97 by about $600 million). There was also a proposal to
restructure trial court funding in a way which would result in a $300 million
decrease in General Fund revenues. The Governor
-61-
<PAGE> 228
requested legislation to make permanent a moratorium on cost of living
increases for welfare payments, and suspension of a renters tax credit, which
otherwise would go back into effect in the 1996-97 Fiscal Year. He further
proposed additional cuts in certain health and welfare programs, and assumed
that cuts previously approved by the Legislature will receive federal approval.
The Governor's Budget proposes increases in funding for K-12 schools under
Proposition 98, for State higher education systems (with a second year of no
student fee increases), and for corrections. The Governor's Budget projects
external cash flow borrowing of up to $3.2 billion, mature by June 30, 1997.
ADDITIONAL CONSIDERATIONS. With respect to Municipal Securities issued by the
State of California and its political subdivisions, as well as certain other
governmental issuers such as the Commonwealth of Puerto Rico, the Trust cannot
predict what legislation, if any, may be proposed in the California State
Legislature as regards the California State personal income tax status of
interest on such obligations, or which proposals, if any, might be enacted.
Such proposals, if enacted, might materially adversely affect the availability
of California Municipal Securities for investment by the California Fund and
the value of the Fund's investments. In such event, the Trustees would
reevaluate the investment objective and policies of the California Fund and
consider changes in its investments structure or possible dissolution.
SPECIAL CONSIDERATIONS RELATING TO FLORIDA MUNICIPAL SECURITIES
- ---------------------------------------------------------------
The following information constitutes only a brief summary, and does
not purport to be a complete description. The information in this section is
updated periodically. While the Fund has not independently verified such
information, it has no reason to believe that such information is not correct
in all material respects. The source of the 1994-95, 1995-96 and 1996-97
figures set forth below is the Revenue and Economic Analysis Unit of the
Executive Office of the Governor of the State of Florida. Such figures are
preliminary and subject to change without notice.
POPULATION. In 1980, Florida was ranked seventh among the fifty states with a
population of 9.7 million people. The State has grown dramatically since then
and as of April 1, 1994 ranks fourth with an estimated population of 14.1
million. Since the beginning of the eighties, Florida has surpassed Ohio,
Illinois, and Pennsylvania in total population. Florida's attraction, as both
a growth and retirement state, has kept net migration at an average of 235,600
new residents per year, from 1985 through 1994.
-62-
<PAGE> 229
INCOME. Over the years, Florida's personal income has grown at a strong pace
and has generally outperformed both the U.S. as a whole and the southeast in
particular. The reasons for this are twofold: first, as mentioned above,
Florida's population has expanded at a very strong pace; and second, the
State's economy since the early seventies has diversified in such a way as to
provide a broader economic base. As a result, Florida's per capita personal
income has tracked closely with the national average. Furthermore, the State's
per capita personal income has historically tracked above the southeast. From
1985 through 1994, Florida's per capita income rose an average 5.0% per year,
while national per capita income increased an average 4.9%.
The structure of Florida's income differs from that of the nation and
the southeast. Because Florida has a proportionally greater retirement age
population, property income (dividends, interest, and rent) and transfer
payments (social security and pension benefits, among other sources of income)
are a relatively more import source of income. For example, Florida's
employment income in 1995 represented 60.6% of total personal income, while the
nation's share of total personal income in the form of wages and salaries and
other labor benefits was 70.8%. Florida's income is dependent upon transfer
payments controlled by the federal government.
EMPLOYMENT. Since 1985, the State's population has increased an estimated
26.1%. In the same period of time, Florida's total non-farm employment has
grown by approximately 2.85%. The average rate of unemployment for Florida
since 1986 is 6.2% while the national average is 6.2%. Though the State has
grown by an average of 286,000 people per year, the strength of the economy has
created an environment that has more than absorbed new residents seeking
employment. The job creation rate for the State of Florida is almost twice the
rate for the nation as a whole, since 1985.
CONSTRUCTION. Florida's dependency on the highly cyclical construction and
construction-related manufacturing sectors has declined. For example, total
contract construction employment as a share of total non-farm employment reached
a peak of over 10% in 1973. In 1980, the share was roughly 7.5%, and in 1995,
the share had edged downward to nearly 5%. This trend is expected to continue
as Florida's economy continues to diversify. Florida, nevertheless, has a
dynamic construction industry, with single and multi-family housing starts
accounting for approximately 8.5% of total U.S. housing starts in 1995, while
the State's population is 5.4% of the nation's population. Since 1985, total
housing starts have averaged 115,500 per year. The increase in interest rates
in 1995 has limited the growth of construction in the state.
A driving force behind Florida's construction industry is of course
its rapid growth in population. While annual growth in the State's population
is projected to slow somewhat, it is still
-63-
<PAGE> 230
expected to grow close to 230,000 new residents per year throughout the 1990's.
TOURISM. Tourism is one of Florida's most important industries. Approximately
40.7 million people visited the State in 1994, as reported by the Florida
Department of Commerce. As discussed below, tourism in Florida has declined
due to negative publicity regarding crime.
OUTLOOK. The current Florida Economic Consensus Estimating Conference forecast
shows that the Florida economy is expected to decelerate along with the nation,
but will continue to outperform the U.S. as a whole as a result of relatively
rapid population growth. Single and multi-family housing starts are projected
to reach a combined level of nearly 113,200 in 1995-96 and 108,900 in 1996-97.
Multi-family starts have been slow to recover, but they are showing some strong
growth lately and should maintain a level of 37,400 in 1995-96 and almost
32,100 in 1996-97. Single family starts are expected to be slightly over
80,000 this year and 82,200 next year. Total construction expenditures are
forecasted to increase 2.4% this year and increase 1.7% next year.
Real personal income in Florida is estimated to increase 4.7% in
1995-96 and increase 3.8% in 1996-97 while real personal income per capita is
projected to grow at 2.9% in 1995-96 and 1.9% in 1996-97.
Florida tourism still appears to be suffering from the effects of
negative publicity regarding crime against tourists in the state. Also,
factors such as "product maturity" of a Florida vacation package, higher
prices, and more aggressive marketing by competing vacation destinations, could
be contributory causes of the tourism slowdown.
Tourist arrivals are expected to decrease by 4.7% this fiscal year and
rebound by 4.5% next year. Air tourists are expected to decrease by 1.6% this
year and increase by 2.6% next year, while auto tourists are expected to fall
by 8.0% in 1995-96 but increase 6.8% in 1996-97. By the end of this fiscal
year, 39.4 million domestic and international tourists are expected to have
visited the State. In 1996-97, tourist arrivals should approximate 41.2
million.
REVENUES AND EXPENDITURES. Financial operations of the State of
Florida covering all receipts and expenditures are maintained through the use
of four fund types - the General Revenue Fund, Trust Funds, the Working Capital
Fund and beginning in fiscal year 1994-95, the Budget Stabilization Fund. The
General Revenue Fund receives the majority of State tax revenues. The Trust
Funds consist of monies received by the State which under law or trust
agreement are segregated for a purpose authorized by law. Revenues in the
General Revenue Fund which are in excess of the amount needed to meet
appropriations may be transferred to the Working Capital Fund. The Florida
-64-
<PAGE> 231
Constitution and Statutes mandate that the State budget as a whole, and each
separate fund within the State budget, be kept in balance from currently
available revenues each State fiscal year.
Estimated fiscal year 1995-96 General Revenue plus Working Capital and
Budget Stabilization funds available total $15,311.3 million, a 3.3% increase
over 1994-95. With combined General Revenue, Working Capital Fund and Budget
Stabilization Fund appropriations at $14,808.6 million, unencumbered reserves
at the end of 1995-96 are estimated at $502.7 million.
Estimated fiscal year 1996-97 General Revenue plus Working Capital and
Budget stabilization funds available total $16,094.7 million, a 5.1% increase
over 1995-96.
In fiscal year 1994-95, the State derived approximately 66% of its
total direct revenues to these funds from State taxes and fees. Federal funds
and other special revenues accounted for the remaining revenues. Major sources
of tax revenues to the General Revenue Fund are the sales and use tax,
corporate income tax, intangible personal property tax, and beverage tax, which
amounted to 67%, 7%, 4% and 4%, respectively, of total General Revenue Funds
available.
State expenditures are categorized for budget and appropriation
purposes by type of fund and spending unit, which are further subdivided by
line item. In fiscal year 1994-95, appropriations from the General Revenue
Fund for education, health and welfare, and public safety amounted to 49%, 32%
and 11%, respectively, of total General Revenue Funds available.
SALES AND USE TAX. The greatest single source of tax receipts in
Florida is the sales and use tax. The sales tax is 6% of the sales price of
tangible personal property sold at retail in the State. The use tax is 6% of
the cost price of tangible personal property when the same is not sold but is
used, or stored for use, in the State. The use tax also applies to the use in
the State of tangible personal property purchased outside Florida which would
have been subject to the sales tax if purchased from a Florida dealer.
Slightly less than 10% of the sales tax is designated for local governments and
is distributed to the respective counties in which collected for use by such
counties and municipalities therein. In addition to this distribution, local
governments may (by referendum) assess a .5% or 1% discretionary sales surtax
within their county. Proceeds from this local option sales tax are earmarked
for funding local infrastructure programs and acquiring land for public
recreation or conservation or protection of natural resources. In addition,
non-consolidated counties with a population in excess of 800,000 may levy a
local option sales tax to fund indigent health care. The tax rate cannot
exceed .5% and the combined levy of this indigent health care surtax and the
aforementioned infrastructure surtax cannot exceed 1%. Furthermore, charter
counties which adopted a charter prior to June 1, 1976, and each county with a
consolidated county/municipal government, may (by referendum)
-65-
<PAGE> 232
assess up to a 1% discretionary sales surtax within their county. Proceeds
from this tax are earmarked for the development, construction, maintenance and
operation of a fixed guideway rapid transit system or may be remitted to an
expressway or transportation authority for use on county roads and bridges, for
a bus system, or to service bonds financing roads and bridges. The two taxes,
sales and use, stand as complements to each other, and taken together provide a
uniform tax upon either the sale at retail or the use of all tangible personal
property irrespective of where it may have been purchased. This tax also
includes a levy on the following: (i) rentals on tangible personal property
and transient lodging and non-residential real property; (ii) admissions to
places of amusements, most sports and recreation events; (iii) utilities (at a
7% rate), except those used in homes; and (iv) restaurant meals. Exemptions
include: groceries; medicines; hospital rooms and meals; fuels used to produce
electricity; purchases by religious, charitable and educational nonprofit
institutions; most professional, insurance and personal service transactions;
apartments used as permanent dwellings; the trade-in value of motor vehicles;
and residential utilities.
All receipts of the sales and use tax, with the exception of the tax
on gasoline and special fuels, are credited to either the General Revenue
Fund, the Solid Waste Management Trust Fund, or counties and cities. For the
State fiscal year which ended June 30, 1995, receipts from this source were
$10,672.0 million, an increase of 6.0% over fiscal year 1993-94.
MOTOR FUEL TAX. The second largest source of State tax receipts is
the tax on motor fuels. Preliminary data show collections from this source in
the State fiscal year ended June 30, 1995, were $1,924.6 million. However,
these revenues are almost entirely dedicated trust funds for specific purposes
and are not included in the State's General Revenue Fund.
State and local taxes on motor fuels (gasoline and special fuel)
include several distinct fuel taxes: (i) the State sales tax on motor fuels,
levied at 6% of the average retail price per gallon of fuel, not to fall below
6.9 cents per gallon; (ii) the State excise tax of four cents per gallon of
motor fuel, proceeds distributed to local governments; (iii) the State
Comprehensive Enhanced Transportation System (SCETS) tax, which is levied at a
rate in each county equal to two-thirds of the sum of the county's local option
motor fuel taxes; (iv) aviation fuel, which depending on the air carrier's
choice, can either be taxed at 6.9 cents per gallon or eight percent of the
retail price of fuel, not to be less than 4.4 cents per gallon and (v) local
option motor fuel taxes, which may range between one cent to twelve cents per
gallon.
ALCOHOLIC BEVERAGE TAX. Florida's alcoholic beverage tax is an excise
tax on beer, wine, and liquor. This tax is one of the State's major tax
sources, with revenues totalling $437.3 million in the State fiscal year ended
June 30, 1995, a decrease of
-66-
<PAGE> 233
$2.5 million from the previous year's total. The revenues collected from this
tax are deposited into the State's General Revenue Fund.
The 1990 Legislature established a surcharge on alcoholic beverages.
This charge is levied on alcoholic beverages sold for consumption on premises.
The surcharge is ten cents per ounce of liquor, ten cents per four ounces of
wine, and four cents per twelve ounces of beer. Most of these proceeds are
deposited into the General Revenue Fund. In fiscal 1994-95, $97.4 million was
collected.
CORPORATE INCOME TAX. Pursuant to an amendment to the State
Constitution, the State Legislature adopted, effective January 1, 1972, the
"Florida Income Tax Code" imposing a tax upon the net income of corporations,
organizations, associations and other artificial entities for the privilege of
conducting business, deriving income or existing within the State. This tax
does not apply to natural persons who engage in a trade or business or
profession under their own or any fictitious name, whether individually as
proprietorships or in partnerships with others, estates of decedents or
incompetents, or testamentary trusts.
The tax is imposed in an amount equal to 5.5% of the taxpayer's net
corporate income for the taxable year, less a $5,000 exemption. Net income is
defined as that share of a taxpayer's adjusted federal income for such year
which is apportioned to the State of Florida. Apportionment is by weighted
factors of sales (50%), property (25%) and payroll (25%). All business income
is apportioned and non-business income is allocated to a single jurisdiction,
usually the state of commercial domicile.
All receipts of the corporate income tax are credited to the General
Revenue Fund. For the fiscal year ended June 30, 1995, receipts from this
source were $1,063.5 million, an increase of 1.5% from fiscal year 1993-94.
DOCUMENTARY STAMP TAX. Deeds and other documents relating to realty
are taxed at 70 cents per $100 of consideration, while corporate shares, bonds,
certificates of indebtedness, promissory notes, wage assignments and retail
charge accounts are taxed at 35 cents per $100 of face value, or actual value
if issued without face value. Documentary stamp tax collections totalled
$695.3 million during fiscal year 1994-95, posting an 11.4% decrease from the
previous fiscal year.
GROSS RECEIPTS TAX. A 2.5% tax is levied on the gross receipts of
electric, natural gas and telecommunications services. In fiscal year 1994-95,
gross receipts utilities tax collections totalled $508.4 million an increase of
10.4% over the previous fiscal year. All gross receipts utility tax
collections are credited to the Public Education Capital Outlay and Debt
Services Fund.
-67-
<PAGE> 234
INTANGIBLE PERSONAL PROPERTY TAX. The intangible personal property
tax is levied on two distinct bases. First, stocks, bonds (including bonds
secured by liens on State realty), notes, governmental leaseholds, interests in
limited partnerships registered with the SEC, and other miscellaneous
intangible personal property not secured by liens on State realty are taxed
annually at a rate of 2 mills. Second, there is a non-recurring 2 mill tax on
mortgages and other obligations secured by liens on State realty. The
Department of Revenue uses part of the proceeds for administrative costs. Of
the tax proceeds remaining, 33.5% is distributed to the County Revenue Sharing
Trust Fund and 66.5% is distributed to the General Revenue Fund. In fiscal
year 1994-95, total intangible personal property tax collections were $818.0
million, a 2.1% decline over the previous fiscal year.
SEVERANCE TAXES. The severance tax includes the taxation of oil, gas
and sulfur production and a tax on the severance of primarily phosphate rock
and other solid minerals. Total collections from severance taxes totalled
$61.2 million during fiscal year 1994-95, up 1.1% from the prior year.
LOTTERY. The 1987 Legislature created the Department of the Lottery
to operate the State Lottery and set forth the allocation of the lottery
revenues. Of the revenues generated by the lottery, 50% is to be returned to
the public as prizes; at least 38% is to be deposited in the Educational
Enhancement Trust Fund (for public education); and no more than 12% can be
spent on the administrative cost of operating the lottery.
Fiscal year 1994-95 produced ticket sales of $2.19 billion of which
education received approximately $853.2 million.
MISCELLANEOUS. The State Constitution does not permit a state or
local personal income tax. An amendment to the State Constitution by the
electors of the State is required to impose a personal income tax in the State.
Property valuations for homestead property is subject to a growth cap.
Growth in the just (market) value of property qualifying for the homestead
exemption will be limited to 3% or the change in the Consumer Price Index,
whichever is less. If the property changes ownership or homestead status, it
is to be re-valued at full just value on the next tax roll. Although the
impact of the growth cap cannot be determined, it may have the effect of
causing local government units in the State to rely more on non-ad valorem
revenues to meet operating expenses and other requirements normally funded with
ad valorem tax revenues.
An amendment to the State Constitution was approved by statewide
ballot in the November 8, 1994 general election which is commonly referred to
as the "Limitation on State Revenues Amendment." This amendment provides that
State revenues collected for any fiscal year shall be limited to State revenues
allowed under the amendment for the prior fiscal year plus an
-68-
<PAGE> 235
adjustment for growth. Growth is defined as an amount equal to the average
annual rate of growth in State personal income over the most recent twenty
quarters times the State revenues allowed under the amendment for the prior
fiscal year. State revenues collected for any fiscal year in excess of this
limitation are required to be transferred to the budget stabilization fund
until the fund reaches the maximum balance specified in Section 19(g) of
Article III of the State Constitution, and thereafter is required to be
refunded to taxpayers as provided by general law. The limitation on State
revenues imposed by the amendment may be increased by the Legislature, by a
two-thirds vote of each house.
The term "State revenues," as used in the amendment, means taxes,
fees, licenses, and charges for services imposed by the Legislature on
individuals, businesses, or agencies outside State government. However, the
term "State revenues" does not include: (i) revenues that are necessary to meet
the requirements set forth in documents authorizing the issuance of bonds by
the State; (ii) revenues that are used to provide matching funds for the
federal Medicaid program with the exception of the revenues used to support the
Public Medical Assistance Trust Fund or its successor program and with the
exception of State matching funds used to fund elective expansions made after
July 1, 1994; (iii) proceeds from the State lottery returned as prizes; (iv)
receipts of the Florida Hurricane Catastrophe Fund; (v) balances carried
forward from prior fiscal years; (vi) taxes, licenses, fees and charges for
services imposed by local, regional, or school district governing bodies; or
(vii) revenue from taxes, licenses, fees and charges for services required to
be imposed by any amendment or revision to the State Constitution after July 1,
1994. The amendment took effect on January 1, 1995 and is applicable to State
fiscal year 1995-96.
It should be noted that many of the provisions of the amendment are
ambiguous, and likely will not be clarified until State courts have ruled on
their meanings. Further, it is unclear how the Legislature will implement the
language of the amendment and whether such implementing legislation itself will
be the subject of further court interpretation.
The Fund cannot predict the impact of the amendment on State finances.
To the extent local governments traditionally receive revenues from the State
which are subject to, and limited by, the amendment, the future distribution of
such State revenues may be adversely affected by the amendment.
Hurricanes continue to threaten Florida resulting in significant
property damages. The 1995 Hurricane season was especially active. The Fund
cannot predict the impact on state finances resulting from repeated hurricane
damage.
-69-
<PAGE> 236
SPECIAL CONSIDERATIONS RELATING TO SHORT TERM GLOBAL GOVERNMENT FUND, EMERGING
GROWTH FUND AND GROWTH FUND
- ------------------------------------------------------------------------------
LOWER-RATED SECURITIES. The Short Term Global Government Fund may
invest up to 10%, and the Growth and Emerging Growth Funds may invest up to 35%
of the net assets of the Fund, respectively, in non-investment grade securities
(rated Ba and lower by Moody's and BB and lower by Standard & Poor's) or
unrated securities. Such securities carry a high degree or risk (including the
possibility of default or bankruptcy of the issuer of such securities),
generally involve greater volatility of price and risk of principal and income,
and may be less liquid, than securities in the higher rating categories and are
considered speculative. See the Appendix to this Statement of Additional
Information for a more complete description of the ratings assigned by ratings
organizations and their respective characteristics.
The current economic downturn disrupted the high yield market and
impaired the ability of issuers to repay principal and interest. Also, an
increase in interest rates could further adversely affect the value of such
obligations held by the Fund. Prices and yields of high yield securities will
fluctuate over time and may affect the Fund's net asset value. In addition,
investments in high yield zero coupon or pay-in-kind bonds, rather than
income-bearing high yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of
the Trustees to accurately value high yield securities in the Fund's portfolio
and to dispose of those securities. Adverse publicity and investor perceptions
may decrease the value and liquidity of high yield securities. These
securities may also involve special registration responsibilities, liabilities
and costs.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of the Sub-Advisor of each of the Funds not to rely
exclusively on ratings issued by established credit rating agencies, but to
supplement such ratings with its own independent and ongoing review of credit
quality. The achievement of the Fund's investment objectives by investment in
such securities may be more dependent on its Sub-Advisor's credit analysis than
is the case for higher quality bonds. Should the rating of a portfolio
security be downgraded the Fund's Sub-Advisor will determine whether it is in
the best interest of the Fund to retain or dispose of the security.
-70-
<PAGE> 237
Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules
require savings and loan institutions to gradually reduce their holdings of
this type of security. Also, Congress from time to time has considered
legislation which would restrict or eliminate the corporate tax deduction for
interest payments on these securities and would regulate corporate
restructurings. Such legislation may significantly depress the prices of
outstanding securities of this type.
STRATEGY AVAILABLE TO U.S. GOVERNMENT FUND, CORPORATE INCOME FUND AND SHORT
TERM HIGH QUALITY BOND FUND.
- ---------------------------------------------------------------------------
DOLLAR ROLL TRANSACTIONS. In order to seek a high level of current
income, the Funds may enter into dollar rolls or "covered rolls" in which the
Fund sells securities for delivery in the current month and simultaneously
contracts to repurchase, typically in 30 or 60 days, substantially similar
(same type, coupon and maturity) securities on a specified future date. During
the roll period, the Fund forgoes principal and interest paid on such
securities. The Fund is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. A "covered roll" is a specific type of dollar roll for which
there is an offsetting cash position or cash equivalent securities position
that matures on or before the forward settlement date of the dollar roll
transaction. As used herein the term "dollar roll" refers to dollar rolls that
are not "covered rolls." At the end of the roll commitment period, the Fund
may or may not take delivery of the securities the Fund has contracted to
purchase.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 16 below have been
adopted by the Company with respect to the Funds as fundamental policies. A
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Company, as defined in the 1940 Act.
Majority is defined in the 1940 Act as the lesser of (a) 67% or more of the
shares present at a Company meeting, if the holders of more than 50% of the
outstanding shares of the Company are present or represented by proxy, or (b)
more than 50% of the outstanding shares. A fundamental policy affecting a
particular Fund may not be changed without the vote of a majority of the
outstanding shares of the affected Fund. Investment restrictions 17 through 25
may be changed by vote of a majority of the Company's Board of Trustees at any
time.
The investment policies adopted by the Company prohibit a Fund from:
1. Purchasing the securities of any issuer (other than U.S. Government
securities) if as a result more than 5% of the
-71-
<PAGE> 238
value of the Fund's total assets would be invested in the securities
of the issuer (the "5% Limitation"), except that up to 25% of the
value of the Fund's total assets may be invested without regard to the
5% Limitation; provided that this restriction shall not apply to the
California Money, California Municipal, California Insured
Intermediate Municipal, Florida Insured Municipal and Short Term
Global Government Funds.
2. Purchasing more than 10% of the securities of any class of any one
issuer; provided that this limitation shall not apply to investments
in U.S. Government securities; provided further that this restriction
shall not apply to the California Money, California Municipal,
California Insured Intermediate Municipal, Florida Insured Municipal,
Growth Fund and Short Term Global Government Funds; and provided
further that the Growth Fund may not own more than 10% of the
outstanding voting securities of a single issuer.
3. Purchasing securities on margin, except that the Fund may obtain any
short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or
payment of initial or variation margin in connection with futures
contracts or related options will not be deemed to be a purchase of
securities on margin.
4. Making short sales of securities or maintaining a short position;
provided that this restriction shall not apply to the International
Growth, Growth and Short Term Global Government Funds.
5. Borrowing money, except that (a) the Funds may (i) enter into reverse
repurchase agreements or (ii) borrow from banks for temporary or
emergency (not leveraging) purposes including the meeting of
redemption requests that might otherwise require the untimely
disposition of securities in an aggregate amount not exceeding 30% of
the value of the Fund's total assets (including the amount borrowed)
valued at market less liabilities (not including the amount borrowed)
at the time the borrowing is made, (b) the U.S. Government, California
Municipal, California Insured Intermediate Municipal, Florida Insured
Municipal, International Growth, National Municipal, Corporate Income,
Short Term High Quality Bond, Growth, Emerging Growth, Growth and
Income, and Short Term Global Government Funds may enter into futures
contracts, and (c) the U.S. Government, Corporate Income and Short
Term High Quality Bond Funds may engage in dollar roll transactions;
provided that whenever borrowings pursuant to (a) above (except that
with respect to the U.S. Government, Corporate Income and Short Term
High Quality Bond Funds, whenever borrowings pursuant to (a)(ii)
above) exceed 5% of the value of a Fund's total assets, the Fund will
not purchase any securities; and provided further that each of the
U.S.
-72-
<PAGE> 239
Government, Corporate Income and Short Term High Quality Bond Funds is
prohibited from borrowing money or entering into reverse repurchase
agreements or dollar roll transactions in the aggregate in excess of
33 1/3% of the Fund's total assets (after giving effect to any such
borrowing).
6. Pledging, hypothecating, mortgaging or otherwise encumbering more than
30% of the value of the Fund's total assets. For purposes of this
restriction, (a) the deposit of assets in escrow in connection with
the writing of covered put or call options and the purchase of
securities on a when-issued or delayed-delivery basis and (b)
collateral arrangements with respect to (i) the purchase and sale of
options on securities, options on indexes and options on foreign
currencies, and (ii) initial or variation margin for futures contracts
will not be deemed to be pledges of a Fund's assets.
7. Underwriting the securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933, as
amended, by virtue of disposing of portfolio securities.
8. Purchasing or selling real estate or interests in real estate, except
that the Fund may purchase and sell securities that are secured,
directly or indirectly, by real estate and may purchase securities
issued by companies that invest or deal in real estate.
9. Investing in commodities, except that the U.S. Government Fund,
California Municipal Fund, California Insured Intermediate Municipal,
Florida Insured Municipal Fund, International Growth Fund, National
Municipal Fund, Corporate Income Fund, Growth Fund, Emerging Growth
Fund, Growth and Income Fund, Short Term High Quality Bond Fund and
Short Term Global Government Fund may invest in futures contracts and
options on futures contracts. The entry into forward foreign currency
exchange contracts is not and shall not be deemed to involve investing
in commodities.
10. Investing in oil, gas or other mineral exploration or development
programs.
11. Making loans to others, except through the purchase of qualified debt
obligations, loans of portfolio securities (except in the case of the
U.S. Government Fund, California Municipal Fund, and Florida Insured
Municipal Fund) and the entry into repurchase agreements.
12. Investing in securities of other investment companies registered or
required to be registered under the 1940 Act, except as they may be
acquired as part of a consolidation, reorganization, acquisition of
assets or an offer of
-73-
<PAGE> 240
exchange or as otherwise permitted by law, including the 1940 Act.
13. Purchasing any securities that would cause more than 25% of the value
of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business
activities in the same industry, except in the case of the Global
Money Fund, which under normal market conditions shall have at least
25% of its total assets invested in bank obligations; provided that
this limitation shall not apply to the purchase of (a) U.S. Government
securities, (b) municipal securities issued by governments or
political subdivisions of governments or (c) with respect to the U.S.
Government Money Fund, California Money Fund and Short Term Global
Government Fund, U.S. dollar-denominated bank instruments such as
certificates of deposit, time deposits, bankers' acceptances and
letters of credit that have been issued by U.S. banks.
14. Purchasing, writing or selling puts, calls, straddles, spreads or
combinations thereof; provided that this restriction shall not apply
to the California Insured Intermediate Municipal Fund, Growth Fund,
Short Term Global Government Fund and Short Term High Quality Bond
Fund; and provided further that (a) the U.S. Government Fund,
Corporate Income Fund, Growth and Income Fund, Emerging Growth Fund
and International Growth Fund may purchase, write and sell covered put
and call options on securities, (b) U.S. Government Fund, California
Municipal Fund, Florida Insured Municipal Fund, National Municipal
Fund, Corporate Income Fund, Emerging Growth Fund, Growth and Income
Fund and International Growth Fund may purchase, write and sell
futures contracts and options on futures contracts, (c) the California
Municipal Fund, Florida Insured Municipal Fund, National Municipal
Fund and California Money Fund may acquire stand-by commitments, (d)
the Growth and Income Fund, Emerging Growth Fund and International
Growth Funds may purchase and write put and call options on stock
indexes, and (e) the International Growth Fund may purchase put and
call options and write covered call options on foreign currency
contracts.
15. With respect to the Growth Fund, investing more than 35% of the fund's
assets in non-investment grade debt securities.
16. With respect to the Short Term High Quality Bond Fund, having a
dollar-weighted average portfolio maturity in excess of five years.
17. With respect to the Growth Fund, investing more than 25% of the fund's
assets in foreign securities.
18. Purchasing securities that are not readily marketable if more than 10%
of the total assets of a Money Fund, or more than 15% of the net
assets of a Non-Money Fund, would be
-74-
<PAGE> 241
invested in such securities, including, but not limited to: (1)
repurchase agreements with maturities greater than seven calendar
days; (2) time deposits maturing in more than seven calendar days; (3)
to the extent a liquid secondary market does not exist for the
instruments, futures contracts and options thereon; (4) certain
over-the-counter options, as described in this SAI; (5) except for the
Short Term Global Government Fund, certain variable rate demand notes
having a demand period of more than seven days; and (6) certain Rule
144A restricted securities that are deemed to be illiquid.
19. Investing more than 10% of its total assets in time deposits maturing
in more than seven calendar days; provided that this restriction shall
not apply to the Growth Fund, and Short Term Global Government Fund
and Short Term High Quality Bond Fund.
20. Purchasing any security if as a result the Fund would then have more
than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for
less than three years; provided that in the case of industrial revenue
bonds purchased for the Municipal Funds, this restriction shall apply
to the entity supplying the revenues from which the issue is to be
paid.
21. Making investments for the purpose of exercising control or
management.
22. Purchasing or retaining securities of any company if, to the knowledge
of the Company, any of the Company's officers or Trustees or any
officer or director of Sierra Advisors or a Sub-Advisor individually
owns more than 1/2 of 1% of the outstanding securities of such company
and together they own beneficially more than 5% of the securities.
23. Investing in warrants, (other than warrants acquired by the Fund as
part of a unit or attached to securities at the time of purchase) if,
as a result, the investments (valued at the lower of cost or market)
would exceed 5% of the value of the Fund's net assets or if, as a
result, more than 2% of the Fund's net assets would be invested in
warrants not listed on a recognized United States or foreign stock
exchange, to the extent permitted by applicable state securities laws.
24. Purchasing or selling interests in real estate limited partnerships.
25. Investing in mineral leases.
26. Entering into Strategic Transactions otherwise prohibited by the
Fund's investment restrictions or in the aggregate in excess of 25% of
the Fund's net assets, for purposes other than bona fide hedging
positions or that are not "covered,"
-75-
<PAGE> 242
subject to such greater percentage limitations or may be imposed by
Sierra Advisors from time to time.
With respect to the first investment limitation set forth above, as a
result of recent amendments to a rule promulgated under the 1940 Act, the
entire investment portfolio of the Global Money Fund is subject to the 5%
limitation. However, the Global Money Fund will be able to invest more than 5%
of its total assets in the securities of a single issuer for a period of up to
three Business Days after the purchase thereof; provided that the Fund may not
hold more than one such investment at any time.
The dollar amount of short sales of securities by the Growth Fund or
International Growth Fund at any one time shall not exceed 25% of the net
assets of each Fund, respectively, and the value of securities of any one
issuer in which each Fund is short may not exceed the lesser of 2.0% of the net
assets of the Fund or 2.0% of the securities of any class of any issuer, and
short sales of securities by each Fund shall be subject to the other conditions
and exclusions of Rule 123.2(7) of the Texas state securities regulations.
For purposes of the investment restrictions described above, the
issuer of a municipal security is deemed to be the entity (public or private)
ultimately responsible for the payment of the principal of and interest on the
security. For purposes of investment restriction Number 13 above, AMT-Subject
Bonds and Revenue Bonds, the payment of principal and interest on which is the
ultimate responsibility of companies within the same industry, are grouped
together as an "industry." The Company may make commitments more restrictive
than the restrictions listed above with respect to a Fund so as to permit the
sale of shares of the Fund in certain states. Should the Company determine
that any such commitment is no longer in the best interests of the Fund and its
shareholders, the Company will revoke the commitment by terminating the sale of
shares of the Fund in the state involved. The percentage limitations contained
in the restrictions listed above apply at the time of purchase of securities.
PORTFOLIO TURNOVER
The Money Funds attempt to increase yields by trading to take
advantage of short-term market variations, which result in high portfolio
turnover. Because purchases and sales of money market instruments are usually
effected as principal transactions, this policy does not result in high
brokerage commissions to these Funds. The Growth and Income Fund, Emerging
Growth Fund, Growth Fund and International Growth Fund (together, the "Equity
Funds"), the U.S. Government, Corporate Income, Short Term High Quality Bond,
Short Term Global Government, California Municipal, Florida Insured Municipal,
California Insured Intermediate Municipal and National Municipal Funds (the
"Bond Funds") and the Target Maturity Fund do not intend to seek profits
through short-term trading. Nevertheless, the Funds will
-76-
<PAGE> 243
not consider portfolio turnover rate a limiting factor in making investment
decisions.
Under certain market conditions, the U.S. Government Fund, Corporate
Income Fund, Growth Fund, Emerging Growth Fund, Growth and Income Fund,
International Growth Fund, Short Term High Quality Bond Fund or Short Term
Global Government Fund may experience increased portfolio turnover as a result
of such Fund's options activities. It is anticipated that the portfolio
turnover rate for the Short Term High Quality Bond Fund will exceed 200%. It
is anticipated that the portfolio turnover rate for the Target Maturity Fund
will exceed 150%. For instance, the exercise of a substantial number of
options written by the Fund (due to appreciation of the underlying security in
the case of call options or depreciation of the underlying security in the case
of put options) could result in a turnover rate in excess of 100%. A portfolio
turnover rate of 100% would occur if all of the Fund's securities that are
included in the computation of turnover were replaced once during a period of
one year. The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the year by the monthly average
value of portfolio securities. Securities with remaining maturities of one
year or less at the date of acquisition are excluded from the calculation.
Certain other practices that may be employed by the Funds could result
in high portfolio turnover. For example, portfolio securities may be sold in
anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what a Fund's Sub-Advisor
believes to be a temporary disparity in the normal yield relationship between
the two securities. These yield disparities may occur for reasons not directly
related to the investment quality of particular issues or the general movement
of interest rates, such as changes in the overall demand for, or supply of,
various types of securities.
PORTFOLIO TRANSACTIONS
Most of the purchases and sales of securities for a Fund, whether
transacted on a securities exchange or over-the-counter, will be effected in
the primary trading market for the securities. Decisions to buy and sell
securities for a Fund are made by its Sub-Advisor, which also is responsible
for placing these transactions, subject to the overall review of the Company's
Trustees. Although investment decisions for each Fund are made independently
from those of the other accounts managed by its Sub-Advisor, investments of the
type the Fund may make may also be made by those other accounts. When a Fund
and one or more other accounts managed by its Sub-Advisor are prepared to
invest in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the
Sub-Advisor to be equitable to each. In
-77-
<PAGE> 244
some cases, this procedure may adversely affect the price paid or received by a
Fund or the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to participate
in volume transactions will be to the benefit of the Fund.
Transactions on U.S. exchanges involve the payment of negotiated
brokerage commissions. With respect to exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. There
is generally no stated commission in the case of securities traded in the
over-the-counter markets, but the prices of those securities include
undisclosed commissions or concessions, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
U.S. Government securities may be purchased directly from the U.S. Treasury or
from the issuing agency or instrumentality.
In selecting brokers or dealers to execute portfolio transactions on
behalf of a Fund, the Fund's Sub-Advisor seeks the best overall terms
available. In assessing the best overall terms available for any transaction,
each Sub-Advisor will consider the factors the Sub-Advisor deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer and
the reasonableness of the commission, if any, for the specific transaction and
on a continuing basis. In addition, each advisory agreement among the Company,
Sierra Advisors and a Sub-Advisor authorizes the Sub-Advisor, in selecting
brokers or dealers to execute a particular transaction and in evaluating the
best overall terms available, to consider the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934, as amended) provided to the Company, the other Funds and/or other
accounts over which the Sub-Advisor or its affiliates exercise investment
discretion. The fees under the advisory agreements between the Company and the
Sub-Advisors are not reduced by reason of their receiving such brokerage and
research services. The Company's Trustees will periodically review the
commissions paid by the Funds to determine if the commissions paid over
representative periods of time were reasonable in relation to the benefits
received by the Company.
Consistent with applicable provisions of the 1940 Act and the rules
and exemptions adopted by the Commission thereunder, the Company's Board of
Trustees has adopted procedures pursuant to Rule 17e-1 under the 1940 Act to
ensure that all portfolio transactions with affiliates will be fair and
reasonable. Under the procedures adopted, portfolio transactions for a Fund
may be executed through GW Securities or any other affiliated broker, including
J.P. Securities or J.P. Limited (which are affiliates of J.P. Management, the
Sub-Advisor of the Global Money, Growth and Income and International Growth
Funds) and Donaldson, Lufkin Jenrette Securities Corporation (which is an
affiliate of Alliance Capital Management L.P., the Sub-Advisor of the U.S.
-78-
<PAGE> 245
Government Money and California Money Funds) if, subject to other conditions in
the Rule 17e-1 procedures, in the judgment of the Fund's Sub-Advisor, the use
of GW Securities or an affiliated broker is likely to result in price and
execution at least as favorable as those of other qualified broker-dealers, and
if, in the transaction, GW Securities or such other affiliated broker charges
the Fund a rate consistent with those charged for comparable transactions in
comparable accounts of the broker's most favored unaffiliated clients.
Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may
be obtained elsewhere. Under rules adopted by the SEC, an affiliated broker
may not execute transactions for a Fund on the floor of any national securities
exchange, but may effect transactions by transmitting orders for execution,
providing for clearance and settlement, and arranging for the performance of
those functions by members of the exchange not associated with the affiliated
broker. GW Securities or an affiliated broker will be required to pay fees
charged by those persons performing the floor brokerage elements out of the
brokerage compensation it receives from the Fund. The Company has been advised
that on most transactions, the floor brokerage may constitute 20% or more of
the total commissions paid. For the fiscal year ended June 30, 1996, the
Company paid total brokerage commissions of $_________ of which none was paid
to affiliated broker-dealers. For the fiscal year ended June 30, 1995, the
Company paid total brokerage commissions of $2,039,000 of which none was paid
to affiliated broker-dealers. For the fiscal year ended June 30, 1994, the
Company paid total brokerage commissions of $1,760,756, of which none was paid
to affiliated broker-dealers. The Target Maturity Fund had not commenced
operations as of June 30, 1994.
The Company is required to identify any securities of its "regular
brokers or dealers" (as such term is defined in the 1940 Act) which the Company
has acquired during its most recent fiscal year. As of June 30, 1996, none of
the Funds held any securities of any "regular broker or dealer" of the Company.
HOW TO BUY AND REDEEM SHARES
Class A, Class B, Class I and Class S Shares of the Funds may be
purchased and redeemed in the manner described in the Prospectuses and in this
Statement of Additional Information. Class I Shares are currently offered and
sold only to SAM Portfolios.
COMPUTATION OF PUBLIC OFFERING PRICES
The Funds offer their shares to the public on a continuous basis. The
public offering price per Class A Share of the Funds is equal to the respective
net asset value per Class A Share next computed after receipt of a purchase
order, plus the applicable front-end sales charge, if any. The public offering
price per Class B Share, Class I Share or Class S Share of the Funds is equal
to the net asset value per such Class B Share, Class I
-79-
<PAGE> 246
Share or Class S Share next computed after receipt of a purchase order.
An illustration of the computation of the Public Offering Price per
Class A Share of the U.S. Government Fund, Corporate Income Fund, California
Municipal Fund, Florida Insured Municipal Fund, California Insured Intermediate
Municipal Fund, National Municipal Fund, Growth and Income Fund, Growth Fund,
Emerging Growth Fund, International Growth Fund, Short Term High Quality Bond
Fund, Short Term Global Government Fund and Target Maturity Fund is provided in
the table below. The computation is based on the value of each Fund's net
assets, the number of Class A Shares outstanding on June 30, 1996 and the
application of the maximum sales charge for the Funds, as set forth in the
table below.
<TABLE>
<CAPTION>
Florida
California Insured National
U.S. Corporate Municipal Municipal Municipal Growth and
Class A Shares Government(1) Income Fund(1) Fund(1) Fund(1) Fund(1) Income Fund(2)
-------------- ---------- ----------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Assets . . . . . . .
Outstanding Shares . . .
Net Asset Value
Per Share . . . . . . .
Sales Charge, as a
percentage of the
offering price . . . . .
Offering to Public . . .
</TABLE>
<TABLE>
<CAPTION>
California
Short Term Insured Target
Global Short Term Intermediate Maturity
Emerging International Government High Quality Municipal 2002
Growth Fund(2) Growth Fund(2) Growth Fund(2) Fund(3) Bond Fund(3) Fund(1) Fund(4)
-------------- -------------- -------------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Assets . . . . . . .
Outstanding Shares . . .
Net Asset Value
Per Share . . . . . . .
Sales Charge, as a
percentage of the
offering price . . . . .
Offering to Public . . .
</TABLE>
1. The maximum sales charge for the U.S. Government, Corporate
Income, California Municipal, Florida Insured Municipal,
National Municipal and California Insured Intermediate Municipal
Funds is 4.5%.
2. The maximum sales charge for the Growth and Income, Growth,
Emerging Growth and International Growth Funds is 5.75%.
3. The maximum sales charge for the Short Term Global Government
and Short Term High Quality Bond Funds is 3.5%.
4. The maximum sales charge for the Target Maturity Fund is 2.0%.
-80-
<PAGE> 247
In addition to the purchases on which the sales charge is waived as listed
in the prospectus, no sales charge will be assessed on a purchase by any other
investment company in connection with the combination of such company with the
Company by merger, acquisition of assets or otherwise.
REDEMPTIONS
The procedures for redemption of Class A, Class B and Class S Shares of each
Fund are summarized in the Prospectuses under "Your Account - How to Sell
Shares." The right of redemption of Class A, Class B and Class S Shares of a
Fund may be suspended or the date of payment postponed (1) for any periods
during which the New York Stock Exchange is closed (other than for customary
weekend and holiday closings), (2) when trading in the markets the Fund
normally utilizes is restricted, or an emergency, as defined by the rules and
regulations of the SEC, exists making disposal of the Fund's investments or
determination of its net assets value not reasonably practicable or (3) for
such other periods as the SEC by order may permit for protection of the Fund's
shareholders.
CERTAIN WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGES. Contingent
deferred sales charges (each, a "CDSC") imposed upon redemptions of Class A,
Class B and Class S Shares will be waived in certain instances.
The Class A CDSCs of 1.0% or 0.5% imposed on redemptions of Class A Shares
for which the entire sales charge at purchase was waived as described in
"Application of Class A Shares CDSC" in the prospectuses of the Funds will be
waived in certain instances as described in "Waivers of Class A Shares CDSC" in
the prospectuses. For purposes of the waivers described in such section of the
prospectuses, a person will be deemed "disabled" only if the person is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or be of long-continued and indefinite duration.
The CDSC applicable to the Class B Shares and the Class S Shares may be
waived as described in the sections of the prospectuses that describe waivers
of the sales charges for the various classes of the Funds. The CDSC applicable
to the Class B Shares is waived for withdrawals under the Systematic Withdrawal
Plan under certain circumstances as described in "Systematic Withdrawal Plan"
in the prospectuses.
DISTRIBUTIONS IN KIND. If the Board of Trustees determines that it would be
detrimental to the best interests of the remaining shareholders of a Fund to
make a redemption payment wholly in cash, the Company may pay, in accordance
with SEC rules, any portion of a redemption in excess of the lesser of $250,000
or 1% of the Fund's net assets by distribution in kind of portfolio securities
in lieu of cash. Securities issued in a distribution in kind will be readily
marketable, although
-81-
<PAGE> 248
shareholders receiving distributions in kind may incur brokerage commissions
when subsequently redeeming shares of those securities.
SYSTEMATIC WITHDRAWAL PLAN. As described in the Prospectuses, a Systematic
Withdrawal Plan may be established by a shareholder who owns either Class A or
Class B Shares of a Fund with a value exceeding $10,000 and who wishes to
receive specific amounts of cash periodically. Monthly, quarterly, semiannual
or annual withdrawals in a minimum amount of $100 may be made under the
Systematic Withdrawal Plan by redeeming as many shares of the Fund as may be
necessary to cover the stipulated withdrawal payment. The CDSC on Class B
Shares is waived for withdrawals under a Systematic Withdrawal Plan that meet
certain conditions as described in "Systematic Withdrawal Plan" in the
prospectuses. To the extent that withdrawals exceed dividends, distributions
and appreciation of a shareholder's investment in a Fund, there will be a
reduction in the value of the shareholder's investment in the relevant class of
the Fund and continued withdrawal payments may reduce the shareholder's
investment and ultimately exhaust it. Withdrawal payments should not be
considered as income from investment in a Fund. For additional information
regarding the Systematic Withdrawal Plan, write to the Company at P.O. Box
5118, Westborough, Massachusetts 01581-5118 or by calling the Company at
800-222-5852.
CHECK REDEMPTION PRIVILEGE. Checkwriting is available for the Class A
Shares of the Money Funds only. Checks to redeem shares of any of the Money
Funds are drawn on the Company's account at Boston Safe and shareholders will
be subject to the same rules and regulations that Boston Safe applies to
checking accounts and, will have the same rights and duties with respect to
stop payment orders, "stale" checks, and unauthorized endorsements as bank
checking account customers do under Massachusetts Uniform Commercial Code. All
notices with regard to those rights and duties must be given to Boston Safe.
NET ASSET VALUE
The Company will not calculate the net asset value of the Funds' Class A,
Class B, Class I and Class S Shares on certain holidays. On those days,
securities held by a Fund may nevertheless be actively traded, and the value of
the Fund's shares could be significantly affected.
A security that is primarily traded on a U.S. exchange (including securities
traded through the NASDAQ National Market System) is valued at the last sale
price on that exchange or, if there were no sales during the day, at the
current quoted bid price. Over-the-counter securities that are not traded
through the NASDAQ National Market System are valued on the basis of the bid
price at the close of business on each day. An option is generally valued at
the last sale price or, in the absence of a last sale price, the last offer
price. Investments in U.S. Government securities (other than short-term
securities) are
-82-
<PAGE> 249
valued at the average of the quoted bid and asked prices in the
over-the-counter market. Short term investments that mature in 60 days or less
are valued at amortized cost when the Board of Trustees determines that this
constitutes fair value; assets of the Money Funds are also valued at amortized
cost. The value of a futures contract equals the unrealized gain or loss on
the contract, which is determined by marking the contract to the current
settlement price for a like contract acquired on the day on which the futures
contract is being valued. A settlement price may not be used if the market
makes a limited move with respect to the security or index underlying the
futures contract. In such event, the futures contract will be valued at a fair
market value to be determined by or under the direction of the Board of
Trustees.
In carrying out the Board's valuation policies, First Data, as
Sub-Administrator, may consult with one or more independent pricing services
("Pricing Service") retained by the Company. Debt securities of U.S. issuers
(other than U.S. Government securities and short-term investments), including
Municipal Securities, are valued by First Data, as Sub-Administrator, after
consultation with the Pricing Service. When, in the judgment of the Pricing
Service, quoted bid prices for investments of the Municipal Funds are readily
available and are representative of the bid side of the market, these
investments are valued at the mean between the quoted bid prices and asked
prices. Investments of the Municipal Funds that are not regularly quoted are
carried at fair market value as determined by the Board of Trustees, which may
rely on the assistance of the Pricing Service. The procedures of the Pricing
Service are reviewed periodically by the officers of the Company under the
general supervision and responsibility of the Board of Trustees.
VALUATION OF THE MONEY FUNDS. The valuation of the portfolio securities of
the Money Funds is based upon their amortized costs, which does not take into
account unrealized capital gains or losses. Amortized cost valuation involves
initially valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact
of fluctuating interest rates on the market value of the instrument. While
this method provides certainty in valuation, it may result in periods during
which value, as determined by amortized cost, is higher or lower than the price
a Fund would receive if it sold the instrument.
The use by the Money Funds of the amortized cost method of valuing their
respective portfolio securities is permitted by a rule adopted by the SEC.
Under this rule, the Money Funds must maintain dollar-weighted average
portfolio maturities of 90 days or less, purchase only instruments having
remaining maturities of thirteen months or less and invest only in securities
determined by the Board of Trustees of the Company to present minimal credit
risks and meet certain rating criteria described in the Prospectus of the Money
Funds under "Quality Requirements." Pursuant to the rule, the Board of Trustees
also has established
-83-
<PAGE> 250
procedures designed to stabilize, to the extent reasonably possible, the Funds'
price per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures include review of the Funds' portfolio holdings by the Board of
Trustees, at such intervals as it may deem appropriate, to determine whether
the Funds' net asset values calculated by using available market quotations or
market equivalents deviates from $1.00 per share based on amortized cost.
The rule also provides that the extent of any deviation between the Funds'
net asset values based upon available market quotations or market equivalents
and the $1.00 per share net asset values based on amortized cost must be
examined by the Board of Trustees. In the event the Board of Trustees
determines that a deviation exists which may result in material dilution or
other unfair results to investors or existing shareholders, pursuant to the
rule the Board of Trustees must cause the Company to take such corrective
action as the Board deems necessary and appropriate including: selling
portfolio instruments prior to maturity to realize capital gains or losses or
to shorten average portfolio maturity; withholding dividends or paying
distributions from capital or capital gains; redeeming shares in kind; or
establishing a net asset value per share by using available market quotations.
HOW TO EXCHANGE SHARES
A shareholder may exchange at NAV shares of any class of Funds, where
applicable sales charges have been paid, for any Fund within the same class of
shares. Class A Shares of a Non-Money Fund may be exchanged for Class A Shares
of any of the other Funds of the Trust, including the Money Funds, or the
Sierra Prime Income Fund ("SPIF") and (the foregoing funds together, the
"Eligible Funds") without a sales charge at purchase. Class B Shares of a Fund
may be exchanged for Class B Shares of any other Fund (including the Money
Funds) without having to pay any CDSC at the time of the exchange. For
purposes of investments in a SAM Account and where a shareholder continues to
hold Class S Shares after closing the SAM Account, Class S Shares of a SAM
Account Fund may be exchanged for Class S Shares of other Funds of the Trust,
including the Money Funds, without having to pay any CDSC at the time of the
exchange. Class B Shares that are subject to the longer six-year CDSC schedule
and higher CDSC rate applicable to the Class B Shares of the Funds other than
the Short Term High Quality and Short Term Global Government Funds, may be
exchanged for Class S Shares of a SAM Account Fund if the investor has a SAM
Account prior to making the exchange or opens a SAM Account prior to making the
exchange and invests at least the minimum for such SAM Account, through any
combination of such an exchange and initial purchase of Class S Shares. See
the Prospectuses, "How to Exchange Shares" for information regarding the
application of sales charges to certain exchanges. An exchange of shares is
treated for federal income tax purposes as a redemption (sale) of shares given
in exchange by the shareholder, and an exchanging shareholder may, therefore,
-84-
<PAGE> 251
realize a taxable gain or loss in connection with the exchange. See "Taxes"
below. Upon 60 days prior written notice to shareholders, the exchange
privilege may be modified or terminated and the Company may impose a charge of
up to $5 for exchanges.
The exchange privilege enables a shareholder to acquire the same class of
shares in a Fund with different investment objectives or policies when the
shareholder believes that a shift between Funds is an appropriate investment
decision. This privilege is available to shareholders residing in any state in
which shares of the Fund being acquired may legally be sold.
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset value
and the proceeds are immediately invested, at a price as described above, in
the same class of shares of the Fund being acquired. The Company reserves the
right to reject any exchange request.
DETERMINATION OF PERFORMANCE
From time to time, the Company may quote the performance of a Fund's Class
A, Class B and Class S Shares in terms of yield, actual distributions, total
return or capital appreciation in reports or other communications to
shareholders or in advertising material. The yield for the Class A, Class B
and Class S Shares of the Money Funds is computed by: (1) determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account in each Fund having a balance of one share at the
beginning of a seven calendar day period for which yield is to be quoted, (2)
subtracting a hypothetical change reflecting deductions from shareholder
accounts, (3) dividing the net change by the value of the account at the
beginning of the period to obtain the base period return, and (4) annualizing
the results (i.e., multiplying the base period return by 365/7). The net
change in the value of the account reflects the value of additional shares
purchased with dividends declared on the original share and any such additional
shares, but does not include realized gains and losses or unrealized
appreciation or depreciation. In addition, the Money Funds may calculate a
compounded effective annualized yield by adding 1 to the base period return
(calculated as described above), raising the sum to a power equal to 365/7 and
subtracting 1.
The current yield for the Money Funds may be obtained by calling
800-869-2019 (for customers of Great Western, 800-447-6567). For the seven-day
period ended June 30, 1996, the yields for the outstanding shares of the Global
Money Fund, U.S. Government Money Fund and California Money Fund that are
treated as Class A Shares were _.__%,_.__% and_.__%, respectively, and the
effective yields of such shares of each such Fund for the same period were
_.__%, _.__% and _.__%, respectively. The California Money Fund may also
calculate its tax equivalent yield as described on the following page.
-85-
<PAGE> 252
The Bond Funds may quote a 30-day yield figure (the "SEC Yield") which is
calculated according to a formula prescribed by the SEC. The formula can be
expressed as follows:
6
YIELD = 2[(a-b + 1) - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by one of the Bond Funds at a
discount or premium, the formula generally calls for amortization of the
discount or premium; the amortization schedule will be adjusted monthly to
reflect changes in the market values of the debt obligations.
Based on the foregoing calculation, the SEC Yields for the outstanding
shares, that are treated as Class A Shares, of the U.S. Government Fund,
Corporate Income Fund, California Municipal Fund, Florida Insured Municipal
Fund, California Insured Intermediate Municipal Fund, Short Term Global
Government Fund, Short Term High Quality Bond Fund, National Municipal Fund and
Target Maturity Fund for the 30-day period ended June 30, 1996 were _.__%,
_.__%, _.__%, _.__%, _.__%, _.__%, _.__%, _.__% and _.__%, respectively.
In addition, the Fund may quote a 30-day yield based on actual distributions
during a 30-day period that is computed by dividing the net investment income
per share earned by the Fund during the period by the maximum Public Offering
Price per share on the last day of the 30-day period. This income is
"annualized" by assuming that the amount of income is generated each month over
a one-year period and is compounded semiannually. The annualized income is
then shown as a percentage of the maximum Public Offering Price. In addition,
the Bond Funds may advertise a similar 30-day yield computed in the same manner
except that the NAV per share is used in place of the Public Offering Price per
share. These 30-day average yields for the outstanding shares of the
California Municipal Fund, Florida Insured Municipal Fund, California Insured
Intermediate Municipal Fund and National Municipal Fund were _.__%, _.__%,
_.__% and _.__%, respectively.
The tax equivalent yield for the California Money Fund, California Municipal
Fund, California Insured Intermediate
-86-
<PAGE> 253
Municipal Fund, Florida Insured Municipal Fund, National Municipal Fund and
Target Maturity Fund is computed by dividing that portion of the Fund's yield
which is tax-exempt by one minus a stated federal and/or state income tax rate
and adding the product to that portion, if any, of the Fund's yield that is not
tax-exempt. The tax-equivalent yield for the outstanding shares of the
California Money Fund, that are treated as Class A Shares, for the 7-day period
ended June 30, 1996 was _.__%. The tax equivalent SEC 30-day yields for the
period ended June 30, 1996 for the outstanding shares of the California
Municipal Fund, Florida Insured Municipal Fund, California Insured Intermediate
Municipal Fund, National Municipal Fund and Target Maturity Fund were _.__%,
_.__%, _.__%, _.__% and _.__%, respectively. The tax equivalent yield based on
the 30-day average yield for the period ended June 30, 1996 for the outstanding
shares of the California Municipal Fund, Florida Insured Municipal Fund,
California Insured Intermediate Municipal Fund and the National Municipal Fund
were __.__%, _.__%, _.__% and _.__%, respectively. Tax-equivalent yields
assume the payment of federal income taxes at a rate of 39.6% and, if
applicable, California state income taxes at a rate of 11.0%.
Capital appreciation for Class A, Class B and Class S Shares of the Bond
Funds and the Equity Funds shows principal changes for the period shown, and
total return combines principal changes and dividend and interest income
reinvested for the periods shown. Principal changes are based on the
difference between the beginning and closing net asset values for the period.
Actual distributions include short-term capital gains derived from option
writing or other sources. The period selected for performance data will depend
upon the purpose of reporting the performance.
The total return of the Funds' Class A, Class B and Class S Shares may be
calculated on an "average annual total return" basis, and may also be
calculated on an "aggregate total return" basis, for various periods. Average
annual total return reflects the average annual percentage change in the value
of an investment in a Fund over the particular measuring period. Aggregate
total return reflects the cumulative percentage change in value over the
measuring period. Average annual total return figures provided for Class A,
Class B and Class S Shares of the Bond and Equity Funds will be computed
according to a formula prescribed by the SEC. The formula can be expressed as
follows:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return/aggregate total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 years (or other) periods or the
life of the Fund
-87-
<PAGE> 254
The formula for calculating aggregate total return can be expressed as
follows:
Aggregate Total Return = [ (ERV) - 1 ]
-----
P
The calculation of average annual total return and aggregate total return
assumes reinvestment of all income dividends and capital gain distributions on
the reinvestment dates during the period and includes all recurring fees
charged to all shareholder accounts. In addition, with respect to Class A
Shares, the maximum 4.5% sales charge is deducted from the initial $1,000
payment (variable "P" in the formula).
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period and reflects deduction of all nonrecurring charges
at the end of the measuring period covered by the computation. A Fund's net
investment income changes in response to fluctuations in interest rates and the
expenses of the Fund.
The Average annual rates of return (unless otherwise noted) for the Funds
for the one year and five year periods ended June 30, 1996 and for the period
from inception through June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Aggregate
Total
Since Return
Date from Date
of of
One Year Five Year Inception Inception
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
SHORT TERM HIGH QUALITY BOND FUND
CLASS A SHARES 11/1/93
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
U.S. GOVERNMENT FUND
CLASS A SHARES 7/25/89
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CORPORATE INCOME FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
</TABLE>
-88-
<PAGE> 255
<TABLE>
<CAPTION>
Aggregate
Total
Since Return
Date from Date
of of
One Year Five Year Inception Inception
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES 7/25/89
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CALIFORNIA INSURED INTERMEDIATE
MUNICIPAL FUND
CLASS A SHARES 4/4/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES 6/7/93
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
NATIONAL MUNICIPAL FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
GROWTH AND INCOME FUND
CLASS A SHARES 7/25/89
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
</TABLE>
-89-
<PAGE> 256
<TABLE>
<CAPTION>
Aggregate
Total
Since Return
Date of from Date of
One Year Five Year Inception Inception
-------- --------- --------- -----------
<S> <C> <C> <C> <C>
GROWTH FUND
CLASS A SHARES 4/5/93
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
INTERNATIONAL GROWTH FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
* Based on a maximum sales charge of 4.5%
SHORT TERM GLOBAL GOVERNMENT FUND
CLASS A SHARES 2/11/92
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
EMERGING GROWTH FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
TARGET MATURITY 2002 FUND
CLASS A SHARES 3/20/95
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
</TABLE>
The performance of a Fund's Class A, Class B and Class S Shares will
vary from time to time depending upon market conditions, the composition of the
Fund's portfolio and the Fund's operating expenses. Consequently, any given
performance quotation should not be considered representative of the Fund's
performance for any specified period in the future. In addition, because
performance will fluctuate, it may not provide a basis for comparing an
investment in a Fund with certain bank deposits or other
-90-
<PAGE> 257
investments that pay a fixed yield or return for a stated period of time.
Investors should recognize that, because the Funds other than the
Equity Funds will have a high component of fixed-income securities, in periods
of declining interest rates the yields of the Funds will tend to be somewhat
higher than prevailing market rates, and in periods of rising interest rates
yields will tend to be somewhat lower. In addition, when interest rates are
falling, the inflow of net new money to the Funds from the continuous sale of
shares will likely be invested in portfolio instruments producing lower yields
than the balance of the Fund's securities, thereby reducing the current yields
of the Funds. In periods of rising interest rates, the opposite can be
expected to occur. Comparative performance information may be used from time
to time in advertising the Company's Class A, Class B and Class S Shares,
including data from Lipper Analytical Services, Inc., the S&P 500 Composite
Stock Price Index, the Dow Jones Industrial Average and other industry
publications. The International Growth Fund may compare its performance to
other investments or relevant indexes consisting of Morgan Stanley Capital
International EAFE Index, the Standard & Poor's 500 Index, the Lipper
International Fund Index and The Financial Times World Stock Index. The Short
Term Global Government Fund may also compare its performance to other
investments or relevant indexes consisting of The Europe/Asia/Far East (EAFE)
Index, Morgan Stanley Capital International World Index, The J.P. Morgan Global
Traded Bond Index, the Lipper International Fund Index, The Solomon Brothers
World Government Bond Index and The Financial Times World Stock Index.
PERFORMANCE COMPARISONS
In reports or other communications to shareholders or in advertising
material, a Fund may make certain performance comparisons as described in the
prospectuses of the Funds. Another performance comparison one or more of the
Funds may use is the following comparison of the return on IRA accounts to the
return on conventional savings plans:
-91-
<PAGE> 258
IRAs CAN HELP YOU EARN MORE
* When you make withdrawals from your IRA account, you must pay taxes
on the earnings as well as on any tax-deductible contributions. Earnings on
conventional savings plans invested in various asset mediums are taxed
annually, but you are not taxed on withdrawals from such savings plans. If any
payment from your IRA account is taken before age 59-1/2, a 10% tax penalty may
be imposed.
The sole purpose of this chart is to illustrate your tax-deferred
earnings from an IRA savings account in comparison to earnings from a taxable
conventional savings plan over a period of 20 years, and the chart translates
federal tax savings from a tax-free investment into an equivalent yield from a
taxable investment. The chart assumes a 36% tax rate for all periods (before
the deduction of any fees, charges or expenses) at a fixed rate of 8%. The
chart assumes no withdrawals from the savings plans and reinvestment of all
dividends and/or income during the 20-year period shown.
This chart is for illustrative purposes only and does not represent
past, current or future yields of any of the funds of the Sierra Trust Funds,
nor does it illustrate the effect of fluctuations in principal value.
TAXES
The following discussion of federal income tax consequences is based
on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly alter the conclusions expressed herein, and
may have a
-92-
<PAGE> 259
retroactive effect with respect to the transactions contemplated herein.
Each Fund is treated as a separate entity for federal income tax
purposes and is not combined with the Company's other Funds. Each of the Funds
intends to continue qualifying as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. A Fund that is a RIC and distributes
to its shareholders at least 90% of its taxable net investment income
(including, for this purpose, its net realized short-term capital gains) and
90% of its tax-exempt interest income (reduced by certain expenses), will not
be liable for federal income taxes to the extent its taxable net investment
income and its net realized long-term and short-term capital gains, if any, are
distributed to its shareholders.
In order to qualify as a RIC under the Code, in addition to satisfying
the distribution requirement described above, each Fund must (a) derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities, or foreign currencies, and certain other
related income, including, generally, certain gains from options futures, and
forward contracts; (b) derive less than 30% of its gross income for each
taxable year from the sale or other disposition of any of the following
investments if such investments are held for less than three months: stock,
securities, options, futures or forward contracts (other than options futures,
or forward contracts on foreign currencies), or foreign currencies (or options,
futures, or forward contracts on foreign currencies) that are not directly
related to the company's business of investing in stock or securities; and (c)
diversify its holdings so that, at the end of each fiscal quarter of the Fund's
taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items, U.S. government securities, securities of
other RICs, and other securities, with such other securities limited, in
respect to any one issuer, to an amount that does not represent more than 10%
of the outstanding voting securities of such issuer or exceed 5% of the value
of the Fund's total assets and (ii) not more than 25% of the value of its
assets is invested in the securities (other than U.S. government securities and
securities of other RICs) of any one issuer or of two or more issuers which the
Fund controls and which are engaged in the same, similar, or related trades or
businesses.
Notwithstanding the distribution requirement described above, which
only requires a Fund to distribute at least 90% of its annual investment
company taxable income and tax-
-93-
<PAGE> 260
exempt interest income and does not require any minimum distribution of net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), a Fund will be subject to a nondeductible 4% federal excise tax
to the extent it fails to distribute by the end of any calendar year at least
98% of its ordinary income for that year and at least 98% of its capital gain
net income (the excess of short- and long-term capital gains over short- and
long-term capital losses) for the one-year period ending on October 31 of that
year, plus certain other amounts.
Because the California Money Fund, California Municipal Fund,
California Insured Intermediate Fund, Florida Insured Municipal Fund and
National Municipal Fund will distribute exempt-interest dividends, interest on
indebtedness incurred or continued by a shareholder to purchase or carry shares
of these funds will not be deductible for federal income tax purposes or, in
the case of the California and Florida Funds, for California and Florida income
tax purposes. Any loss on the sale or exchange of shares in these Funds held
for six months or less will be disallowed to the extent of any exempt-interest
dividend received by the shareholders with respect to such shares. In
addition, the Code may require a shareholder who receives exempt-interest
dividends to treat as taxable income a portion of certain otherwise non-taxable
social security and railroad retirement benefit payments. Municipal funds may
not be an appropriate investment for persons (including corporations and other
business entities) who are "substantial users" (or who are related to
substantial users) of facilities financed by "private activity bonds" or
"industrial development bonds." For these purposes, the term "substantial
user" is defined generally to include a "non-exempt person" who regularly uses
in a trade or business a part of a facility financed from the proceeds of such
bonds. Moreover, as noted in the Prospectuses, (1) some or all of these Funds'
dividends may be a specific preference item, or a component of an adjustment
item, for purposes of the federal individual and corporate alternative minimum
taxes and (2) the receipt of these Funds' dividends and distributions may
affect a corporate shareholder's federal environmental tax liability. In
addition, the receipt of dividends and distributions may affect a foreign
corporate shareholder's federal "branch profits" tax liability and a Subchapter
S corporate shareholder's federal "excess net passive income" tax liability.
Similar rules apply for California State personal income tax purposes.
Shareholders should consult their own tax advisers as to whether they are (1)
"substantial users" with respect to a facility or "related" to such users
within the meaning of the Code or (2) subject to federal alternative minimum
tax, the federal "environmental" tax, the federal "branch profits" tax, or
-94-
<PAGE> 261
the federal "excess net passive income" tax. Issuers of bonds purchased by the
Municipal Funds (or the beneficiary of such bonds) may have made certain
representations or covenants in connection with the issuance of such bonds to
satisfy certain requirements of the Code that must be satisfied subsequent to
the issuance of such bonds. Shareholders should be aware that exempt-interest
dividends may become subject to federal income taxation retroactively to the
date of issuance of the bonds to which such dividends are attributable if such
representations are determined to have been inaccurate or if the issuers (or
the beneficiary) of the bonds fail to comply with certain covenants made at
that time.
If a Fund fails to qualify as a regulated investment company for any
year, all of its income will be subject to tax at corporate rates, and its
distributions (including capital gains distributions) will be taxable as
ordinary income dividends to its shareholders, subject to the dividends
received deduction for corporate shareholders. Otherwise, distributions made
by the Bond Funds generally will not be eligible for the dividends received
deduction otherwise available to corporate tax payers.
As described above and in the Prospectuses, certain of the Funds may
invest in certain types of futures contracts and options. The Funds anticipate
that these investment activities will not prevent the Funds from qualifying as
regulated investment companies. As a general rule, these investment activities
may increase or decrease the amount of long-term and short-term capital gains
or losses realized by a Fund and, accordingly, will affect the amount of
capital gains distributed to a Fund's shareholders.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Short Term Global Government
Fund accrues interest or other receivables (or accrues expenses or other
liabilities) denominated in a foreign currency and the time the Short Term
Global Government Fund actually collects such receivables or pays such
liabilities, generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain options, futures and forward contracts, gains or
loss attributable to fluctuations in the value of the foreign currency between
the dates of acquisition and disposition also are treated as ordinary gain or
loss. These gains or losses, referred to under the Code as "Section 988" gains
or losses, may increase or decrease the amount of the Short Term Global
Government Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.
-95-
<PAGE> 262
Many futures contracts entered into by the Short Term Global
Government Fund or the Growth Fund, certain forward foreign currency contracts,
and all listed nonequity options written or purchased by the Short Term Global
Government Fund or Growth Fund will be governed by Section 1256 of the Code.
On the last trading day of the Short Term Global Government Fund's or Growth
Fund's fiscal year, all such outstanding Section 1256 positions will be marked
to market (i.e., treated as if such positions were closed out at their closing
price on such day), with any resulting gain or loss recognized as 60% long-term
and 40% short-term capital gain or loss. Under certain circumstances, entry
into a futures contract to sell a security may constitute a short sale for
federal income tax purposes, causing an adjustment in the holding period of the
underlying security or a substantially identical security in the Fund's
portfolio.
Positions of the Short Term Global Government Fund or Growth Fund
which consist of at least one position not governed by Section 1256 and at
least one position governed by Section 1256 which substantially diminishes the
Short Term Global Government Fund's or Growth Fund's risk of loss with respect
to such other position will be treated as a "mixed straddle." Generally, a
"straddle" is governed by Section 1092 of the Code, the operation of which may
cause deferral of losses, adjustments in holding periods of securities and
conversion of short-term capital losses into long-term capital losses.
Although mixed straddles are subject to the straddle rules of Section 1092 of
the Code, certain tax elections exist for them which may affect the operations
of these rules. Each of the Short Term Global Government Fund and Growth Fund
intends to monitor its transactions in options and futures and may make certain
tax elections in connection with those investments.
As a general rule, a Fund's gain or loss on a sale or exchange of an
investment will be a long-term capital gain or loss if the Fund has held the
investment for more than one year and will be a short-term capital gain or loss
if it has held the investment for one year or less. Furthermore, as a general
rule, a shareholder's gain or loss on a sale or redemption of Fund shares will
be a long-term capital gain or loss if the shareholder has held the Fund shares
for more than one year and will be a short-term capital gain or loss if the
shareholder has held the Fund shares for one year or less.
While only the Equity Funds expect to realize a significant amount of
net long-term capital gains, any such realized gains will be distributed as
described in the Prospectus. Such distributions ("capital gain dividends"), if
any, will be taxable to shareholders as long-term capital
-96-
<PAGE> 263
gains, regardless of how long a shareholder has held Fund shares, and will be
designated as capital gain dividends in a written notice mailed to the
shareholder after the close of the Fund's taxable year. Any loss on the sale
or exchange of shares in a Fund that have been held for six months or less will
be treated as a long-term capital loss to the extent of any capital gain
dividend received by the shareholder with respect to such shares.
FLORIDA TAXES
Taxation of Fund Shares. Florida does not impose an income tax on
individuals. Thus, dividends and distributions paid by the Florida Insured
Municipal Fund to individuals who are residents of Florida are not taxable by
Florida. Florida imposes an income tax on corporations and similar entities at
a rate of 5.5%. Distributions of investment income and capital gains by the
Florida Insured Municipal Fund will be subject to Florida corporate income tax.
Accordingly, investors in the Florida Insured Municipal Fund, including, in
particular, investors that may be subject to the Florida corporate income tax,
should consult their tax advisors with respect to the application of the
Florida corporate income tax to the receipt of Fund dividends and distributions
and to the investor's Florida tax situation in general.
Florida imposes a tax on intangible personal property owned by Florida
residents. Shares in the Florida Insured Municipal Fund constitute intangible
personal property for purposes of the Florida intangible personal property tax.
Thus, unless an exemption applies, shares in the Florida Insured Municipal Fund
will be subject to the Florida intangible personal property tax. Florida
provides an exemption for shares in an investment fund if the fund's portfolio
of assets consists solely of assets exempt from the Florida intangible personal
property tax. Assets exempt from Florida intangible personal property tax
include obligations issued by the State of Florida and its political
subdivisions, municipalities, and public authorities; obligations of the United
States Government or its agencies; and cash.
The Florida Insured Municipal Fund has received a ruling from the
Florida Department of Revenue that if, on the last business day of any calendar
year, the Insured Municipal Fund's assets consist solely of assets exempt from
the Florida intangible personal property tax, shares of the Florida Insured
Municipal Fund will be exempt from the Florida intangible personal property tax
in the following year. Based on the ruling, if the Insured Municipal Fund's
assets consist, on the last business day of the calendar
-97-
<PAGE> 264
year, solely of assets exempt from the Florida intangible personal property
tax, shares of the Florida Insured Municipal Fund owned by Florida residents
will be exempt from the Florida intangible personal property tax. If shares of
the Fund are subject to the Florida intangible personal property tax because
less than 100% of the Fund's assets on the last business day of the calendar
year consists of assets exempt from the Florida intangible personal property
tax, only the portion of the net asset value of a share of the Florida Insured
Municipal Fund that is attributable to obligations of the United States
Government will be exempt from taxation.
Taxation of the Florida Insured Municipal Fund. If the Fund does not
have a taxable nexus to Florida, such as through the location of the Florida
Fund's activities or those of its advisors within the state, under present
Florida law, the Fund is not subject to Florida corporate income taxation.
Additionally, if the Fund's assets do not have a taxable situs in Florida as of
January 1 of each calendar year, the Fund will not be subject to the Florida
intangible personal property tax. If the Fund has a taxable nexus to Florida
or the Fund's assets have a taxable situs in Florida, the Fund will be subject
to Florida taxation. The Florida Insured Municipal Fund intends to operate so
as not to be subject to Florida taxation.
SHAREHOLDER STATEMENTS
Each shareholder will receive after the close of the calendar year an
annual statement and such other written notices as are appropriate as to the
federal income and California State personal income tax status of the
shareholder's dividends and distributions received from the Fund for the prior
calendar year. These statements will also inform shareholders as to the amount
of exempt-interest dividends that is a specific preference item for purposes of
the federal individual and corporate alternative minimum taxes and as to the
exempt portion, if any, of the shareholder's shares of the Florida Insured
Municipal Fund for purposes of the Florida State intangible personal property
tax for the current tax year. Shareholders should consult their tax advisers
as to any other state and local taxes that may apply to these dividends and
distributions. The dollar amount of dividends excluded or exempt from federal
income taxation or California State personal income taxation and the dollar
amount of dividends subject to federal income taxation or California State
personal income taxation, if any, will vary for each shareholder depending upon
the size and duration of each shareholder's investment in a Fund. To the
extent that the California Money Fund, California Municipal Fund, California
Insured Intermediate
-98-
<PAGE> 265
Municipal Fund, Florida Insured Municipal Fund or National Municipal Fund earns
taxable net investment income, it intends to designate as taxable dividends the
same percentage of each day's dividend (or of each day's taxable net investment
income) as its taxable net investment income bears to its total net investment
income earned on that day. Therefore, the percentage of each day's dividend
designated as taxable, if any, may vary from day to day.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that the taxpayer identification number is correct and that the shareholder is
not subject to "backup withholding," then the shareholder may be subject to a
31% "backup withholding" tax with respect to (1) taxable dividends and
distributions and (2) the proceeds of any redemptions of Fund shares. An
individual's taxpayer identification number is his or her social security
number. The 31% "backup withholding" tax is not an additional tax and may be
credited against a taxpayer's regular federal income tax liability.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN TAX CONSIDERATIONS
GENERALLY AFFECTING A FUND AND ITS SHAREHOLDERS, AND IS NOT INTENDED AS A
SUBSTITUTE FOR CAREFUL TAX PLANNING. SHAREHOLDERS ARE URGED TO CONSULT THEIR
TAX ADVISERS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS, INCLUDING
THEIR STATE AND LOCAL TAX LIABILITIES.
DISTRIBUTOR
Sierra Services serves as the Company's distributor for the Class A,
Class B and Class S Shares on a best efforts basis pursuant to two separate
distribution agreements between the Company and Sierra Services. To compensate
Sierra Services for the distribution-related services it provides, and
broker-dealers authorized by Sierra Services, the Company has adopted three
plans of distribution (the "Plans") pursuant to Rule 12b-1 under the 1940 Act,
one with respect to each of the classes of shares, the Class A, Class B and
Class S Shares. Under the Plan for the Class A Shares, Sierra Services will be
entitled to receive a distribution fee, accrued daily and paid monthly,
calculated with respect to Class A Shares at the annual rate of up to .25% of
the average daily net assets of the Class A Shares of each Fund. Under the
Plans for the Class B Shares and Class S Shares, the Class B Shares and Class S
Shares will be charged, respectively, distribution fees at an annual rate of up
to .75% of the average daily net assets of such class of each Fund. Payments
under the Plans may be used
-99-
<PAGE> 266
to defray a portion of the costs incurred in rendering distribution services to
respective classes of the Funds, including costs such as costs of advertising
or sales literature or payment of commissions on the sale of shares of the
Funds. Class B Shares and Class S Shares are also subject to a service fee at
an annual rate of .25% of the average daily net assets of each Fund. This
service fee may be used for personal service and maintenance of shareholder
accounts.
The Plans are designed to enable Sierra Services, through its
authorized broker-dealers to compensate the representatives of such
broker-dealers and others for selling Company shares. Payments under the Plans
are not tied exclusively to the distribution expenses actually incurred by
Sierra Services or its authorized broker-dealers, and such payments may exceed
distribution expenses actually incurred by Sierra Services or its authorized
broker-dealers. Sierra Services anticipates, however, that for the foreseeable
future distribution expenses incurred will greatly exceed amounts paid under
the Plans. The Board of Trustees, including a majority of the Trustees who are
not interested persons of the Company and who have no direct or indirect
financial interest in the operation of the Plan ("Independent Trustees"), will
evaluate the appropriateness of the Plans and their payment terms on a
continuing basis and in doing so will consider all relevant factors, including
expenses borne by Sierra Services and its authorized broker-dealers in the
current year and in prior years and amounts received under the Plans.
Under their terms, the Plans remain in effect from year to year,
provided such continuance is approved annually by vote of the Board of
Trustees, including a majority of the Independent Trustees. Each of the Plans
may not be amended to increase materially the amount to be spent for the
services provided by Sierra Services without approval by the shareholders of
the class of shares of the Fund to which the Plan applies, and all material
amendments of the Plans also require Board approval. Each of the Plans may be
terminated at any time, without penalty, by vote of a majority of the
Independent Trustees, or, with respect to any class of shares of any of the
Funds, by a vote of a majority of the outstanding voting securities of the
class of shares of the Fund (as such vote is defined in the 1940 Act). If a
Plan is terminated (or not renewed) with respect to any class of any one or
more Funds, it may continue in effect with respect to the same class of any
Fund as to which it has not been terminated (or has been renewed). Pursuant to
the distribution agreements, Sierra Services will provide the Board of Trustees
periodic reports of any amounts expended
-100-
<PAGE> 267
under the Plans and purpose for which such expenditures were made.
For the fiscal years ended June 30, 1996, 1995 and 1994, Sierra
Services received distribution fees totalling (after waivers of fees)
$__________, $6,715,281, and $7,622,912, respectively, in the aggregate, from
the Funds under the Class A Plan. For the same periods, Sierra Services
received $_______, $58,212, and $172,906, respectively, representing contingent
deferred sales charges on redemptions of Class A Shares of the Funds. The
Target Maturity Fund had not commenced operations as of June 30, 1994. In
addition, for the fiscal years ended June 30, 1996, 1995 and 1994, Sierra
Services received $____________, $7,099,863 and $28,076,080, respectively,
representing compensation from front-end sales charges on Fund shares sold.
For each fiscal year ended June 30, 1996, 1995 and 1994, Sierra Services
voluntarily waived no distribution fees in the aggregate. During the fiscal
year ended June 30, 1996, Sierra Services incurred distribution expenses with
respect to the Funds totalling $_________.__ consisting of $_________.__ for
media advertising; $_______.__ for planning of marketing promotion; $_______.__
for preparation of sales literature; $_________.__ for printing of sales
literature; $_______.__ for distribution of sales literature; $ ______.__ for
distribution of shareholders' reports; $_______.__ for printing of
shareholders' reports; $_______.__ for salaries to the Sierra Services'
personnel; $_________.__ in commissions and additional compensation to the
Sierra Services' personnel; $______.__ for occupancy; $______.__ for telephone;
and $_______.__ in administration expenses.
Prior to December 20, 1995, Funds Distributor Inc. ("FDI") served as a
co-distributor of Class B and Class S shares of the Company. For the fiscal
year ended June 30, 1996, FDI received distribution fees from the Funds
totalling $_________, in the aggregate under the Class B Distribution Plan and
$_______.__, in the aggregate under the Class S Distribution Plan. For the
same period, FDI received $_______.__, representing CDSCs on redemptions of
Class B Shares of the Funds and $_______.__, representing CDSCs on redemptions
of Class S Shares of the Funds. For the fiscal year ended June 30, 1996, FDI
did not waive any distribution fees. FDI paid out all of the distribution
related fees it received for each of the Class B and Class S Shares to the
financier of the sales commissions paid on sale of Class B Shares and Class S
Shares, respectively.
-101-
<PAGE> 268
APPENDIX
DESCRIPTION OF BOND, NOTES AND COMMERCIAL PAPER RATINGS
DESCRIPTION OF S&P CORPORATE BOND RATINGS
AAA: Bonds rated AAA have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as for Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic
rating classification from Aa through B. The modifier 1 indicates that the
issue ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
A-1
<PAGE> 269
DESCRIPTION OF DUFF'S CORPORATE BOND RATINGS
Bonds rated AAA by Duff are judged by Duff to be of the highest
credit quality, with negligible risk factors being only slightly more than for
risk-free U.S. Treasury debt. Bonds rated AA by Duff are judged by Duff to be
of high credit quality with strong protection factors and risk that is modest
but that may vary slightly from time to time because of economic conditions.
Bonds rated A by Duff are judged by Duff to have average but adequate
protection factors. However, risk factors are more variable and greater in
periods of economic stress. Bonds rated BBB by Duff are judged by Duff as
having below average protection factors but still considered sufficient for
prudent investment, with considerable variability in risk during economic
cycles.
DESCRIPTION OF FITCH'S CORPORATE BOND RATINGS
Bonds rated AAA by Fitch are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events. Bonds rated AA by Fitch are considered to be
investment grade and of very high credit quality. The obligor's ability to pay
interest and repay principal is very strong, although not quite as strong as
bonds rated AAA. Bonds rated A by Fitch are considered to be investment grade
and of high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher
ratings. Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
DESCRIPTION OF S&P MUNICIPAL BOND RATINGS
AAA - Prime - These bonds have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
General Obligation Bonds - In a period of economic stress, the
issuers will suffer the smallest declines in income and will be least
susceptible to autonomous decline. Debt burden is moderate. A strong revenue
structure appears more than adequate to meet future expenditure requirements.
Quality of management appears superior.
A-2
<PAGE> 270
Revenue Bonds - Debt service coverage has been, and is expected to
remain, substantial. Stability of the pledged revenues is also exceptionally
strong due to the competitive position of the municipal enterprise or to the
nature of the revenues. Basic security provisions (including rate covenant,
earnings test for issuance of additional bonds, debt service reserve
requirements) are rigorous. There is evidence of superior management.
AA - High Grade - Bonds in this group have a very strong capacity to
pay interest and repay principal and differ from the highest rated debt only in
small degree.
A - Good Grade - Bonds in this category have a strong capacity to pay
interest and repay principal, although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
bonds in higher rated categories. Regarding municipal bonds, the rating
differs from the two higher ratings because:
General Obligation Bonds - There is some weakness, either in the
local economic base, in debt burden, in the balance between revenues and
expenditures or in quality of management. Under certain adverse circumstances,
any one such weakness might impair the ability of the issuer to meet debt
obligations at some future date.
Revenue Bonds - Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB - Medium Grade - Bonds in this group are regarded as having an
adequate capacity to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest
and repay principal for bonds in this category than for bonds in higher rated
categories.
General Obligation Bonds - Under certain adverse conditions, several
of the above factors could contribute to a lesser capacity for payment of debt
service. The difference between A and BBB ratings is that the latter shows
more than one fundamental weakness, or one very substantial fundamental
weakness, whereas the former shows only one deficiency among the factors
considered.
Revenue Bonds - Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the
A-3
<PAGE> 271
revenue flow possibly being subject to erosion over time. Basic security
provisions are no more than adequate. Management performance could be
stronger.
BB, B, CCC, CC and C - Bonds rated BB, B, CCC, CC and C are regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the least degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
D - Bonds rated D are in default, or the obligor has filed for
bankruptcy. The D rating is issued when interest or principal payments are not
made on the date due, even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such grace period.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major rating
categories, except in the AAA-Prime Grade category.
DESCRIPTION OF S&P MUNICIPAL NOTE RATINGS
Municipal notes with maturities of three years or less are usually
given note ratings (designated SP-1, -2 or -3) to distinguish more clearly the
credit quality of notes as compared to bonds. Notes rated SP-1 have a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given the designation of SP-1+.
Notes rated SP-2 have a satisfactory capacity to pay principal and interest,
with some vulnerability to adverse financial and economic changes over the term
of the notes.
DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may
A-4
<PAGE> 272
not be as large as in Aaa securities, or fluctuation of protective elements may
be of greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba: Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issuer
ranks in the lower end of its generic rating category.
DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG) and for variable rate
demand obligations are designated Variable Moody's Investment Grade (VMIG).
This distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG 1/VMIG 1 are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing, from superior liquidity support, or from established and
broad-based access to the market for
A-5
<PAGE> 273
refinancing, or both. Loans bearing the designation of MIG 2/VMIG 2 are of
high quality, with margins of protection ample, although not as large as the
preceding group. Loans bearing the designation MIG 3/VMIG 3 are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
Loans bearing the designation MIG 4/VMIG 4 are of adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payments is strong. Those issues determined to possess
extremely strong safety characteristics are denoted A-1+. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
DESCRIPTION OF DUFF'S COMMERCIAL PAPER RATINGS
Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors which are supported by good
fundamental protection factors. Risk factors are minor. Ratings of Duff-1 are
further refined by the gradations of "1+" and "1-". Issues rated Duff-1+ have
the highest certainty of timely payment, outstanding short term liquidity, and
safety just below risk-free U.S. Treasury short-term obligations. Issues
rated Duff-1- have high certainty of timely payment, strong liquidity factors
supported by good fundamental protection factors, and small risk factors.
Paper rated Duff-2 is regarded as having good certainty of timely payment, good
access to capital markets and sound liquidity factors and company fundamentals.
Risk factors are small.
A-6
<PAGE> 274
DESCRIPTION OF FITCH'S COMMERCIAL PAPER RATINGS
The rating F-1+ (Exceptionally Strong Credit Quality) is the highest
commercial rating assigned by Fitch and is assigned to issues regarded as
having the strongest degree of assurance for timely payment. Paper rated F-1
(Very Strong Credit Quality) is regarded as having an assurance of timely
payment only slightly less in degree than issues rated F-1+. The rating F-2
(Good Credit Quality) reflects an assurance of timely payment, but the margin
of safety is not as great as for issues assigned F-1+ or F-1 ratings.
A-7
<PAGE> 275
FINANCIAL STATEMENTS
--------------------
The following are the audited financial statements for the fiscal year ended
June 30, 1996, and the Report of Independent Accountants of Price Waterhouse
LLP dated August 15, 1996 relating to the financial statements and financial
highlights of each of the fund series constituting the Sierra Trust Funds.
For purposes of this filing of this Post-Effective Amendment No. 22, such
audited financial statements and report of independent accountants are
incorporated by reference to the Post-Effective Amendment No. 21 to the
Company's Registration Statement on Form N-1A (File No. 33-27 489) filed with
the SEC on September 1, 1996.
FS-1
<PAGE> 276
SIERRA TRUST FUNDS
PART C
Item 24. Financial Statements and Exhibits(**)
- -----------------------------------------------
(a) Financial Statements (included in Part A)
(i) Audited Financial Highlights for the Global Money
Fund, U.S. Government Money Fund, California Money
Fund, U.S. Government Fund, Corporate Income Fund,
California Municipal Fund, National Municipal Fund,
Short Term Global Government Fund, Short Term High
Quality Bond Fund, Growth and Income Fund, Emerging
Growth Fund, International Growth Fund, Growth Fund,
California Insured Intermediate Municipal Fund,
Florida Insured Municipal Fund and Target Maturity
2002 Fund for the fiscal year ended June 30, 1996.
Financial Statements (included in Part B)
(i) The following audited Financial Statements for the
Global Money Fund, U.S. Government Money Fund,
California Money Fund, U.S. Government Fund,
Corporate Income Fund, California Municipal Fund,
National Municipal Fund, Short Term Global Government
Fund, Short Term High Quality Bond Fund, Growth and
Income Fund, Emerging Growth Fund, International
Growth Fund, Growth Fund, California Insured
Intermediate Municipal Fund and Florida Insured
Municipal Fund for the fiscal year ended June 30,
1996 are included in Part B as sent to shareholders
and are incorporated by reference to Post-Effective
Amendment No. ___ filed with the Securities and
Exchange Commission (the "SEC") on [___________],
1996 in Part B filed herewith.
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Statements of Changes in Net Assets - Capital
Stock Activity
Financial Highlights
Portfolio of Investments
Notes to Financial Statements
Report of Independent Accountants
C - 1
<PAGE> 277
(b) Exhibits (See numbered footnotes at end of list of Exhibits)
--------
(1)(a) Master Trust Agreement of the Registrant (1)
(1)(b) Amendment No. 1 to Master Trust Agreement (2)
(1)(c) Amendment No. 2 to Master Trust Agreement (3)
(1)(d) Amendment No. 3 to Master Trust Agreement (3)
(1)(e) Amendment No. 4 to Master Trust Agreement (5)
(1)(f) Amendment No. 5 to Master Trust Agreement (10)
(1)(g) Amendment No. 6 to Master Trust Agreement (13)
(1)(h) Amendment No. 7 to Master Trust Agreement (13)
(1)(i) Amendment No. 8 to Master Trust Agreement (17)
(1)(j) Amendment No. 9 to Master Trust Agreement (17)
(1)(k) Amendment No. 10 to Master Trust Agreement (22)
(1)(l) Amendment No. 11 to Master Trust Agreement (*)
(2) By-Laws of the Registrant (1)
(3) Not Applicable
(4) Not Applicable
(5)(a) Investment Advisory Agreements relating to the Global Money
Fund, U.S. Government Money Fund, California Money Fund, U.S.
Government Fund and California Municipal Fund (Agreement of
Growth and Income Fund is replaced; see Item 24(b)(5)(l)) (4)
(5)(b) Investment Advisory Agreements relating to the Corporate
Income Fund and National Municipal Fund (Agreements of
Emerging Growth Fund and International Growth Fund are
replaced, see Items 24(b)(5)(l) and 24(b)(5)(y)) (7)
(5)(c) Investment Advisory Agreement relating to the Short Term
Global Government Fund (12)
(5)(d) Investment Sub-Advisory Agreements relating to the Global
Money Fund, U.S. Government Money Fund, California Money Fund
and California Municipal
C - 2
<PAGE> 278
Fund (Agreements of U.S. Government Fund and Growth and Income
Fund are replaced; see Items 24(b)(5)(cc) and 24(b)(5)(m) (4)
(5)(e) Investment Sub-Advisory Agreements relating to the Corporate
Income Fund and National Municipal Fund (Agreements of
Emerging Growth Fund and International Growth Fund are
replaced; see Items 24(b)(5)(m) and 24(b)(5)(z)) (7)
(5)(f) Investment Sub-Advisory Agreement relating to the California
Municipal Fund (9)
(5)(g) Investment Sub-Advisory Agreement relating to the Short Term
Global Government Fund (11)
(5)(h) Amended and Restated Investment Sub-Advisory Agreement
relating to the Growth Fund (22)
(5)(i) Investment Advisory Agreement relating to the Growth Fund (19)
(5)(j) Investment Advisory Agreement relating to the Florida Insured
Municipal Fund (19)
(5)(k) Investment Sub-Advisory Agreement relating to the Florida
Insured Municipal Fund (19)
(5)(l) Investment Advisory Agreements relating to the Growth and
Income Fund, Emerging Growth Fund and Short Term High Quality
Bond Fund (19)
(5)(m) Investment Sub-Advisory Agreements relating to the Growth and
Income Fund, Emerging Growth Fund and Short Term High Quality
Bond Fund (19)
(5)(n) Investment Advisory Agreement relating to California Insured
Intermediate Municipal Fund (19)
(5)(o) Investment Sub-Advisory Agreement relating to the California
Insured Intermediate Municipal Fund (22)
(5)(p) Amendment of Investment Advisory Agreement of the California
Insured Intermediate Municipal Fund (18)
(5)(q) Amendment of Investment Advisory Agreement of the California
Municipal Fund (18)
C - 3
<PAGE> 279
(5)(r) Amendment of Investment Advisory Agreement of the Global Money
Fund (18)
(5)(s) Amendment of Investment Advisory Agreement of the U.S.
Government Money Fund (18)
(5)(t) Amendment of Investment Advisory Agreement of the U.S.
Government Fund (18)
(5)(u) Amendment of Investment Advisory Agreement of the Florida
Insured Municipal Fund (18)
(5)(v) Amendment of Investment Advisory Agreement of the National
Municipal Fund (18)
(5)(w) Amendment of Investment Advisory Agreement of the Short Term
Global Government Fund (18)
(5)(x) Amendment of Investment Advisory Agreement of the California
Money Fund (18)
(5)(y) Investment Advisory Agreement of the International Growth Fund
(22)
(5)(z) Investment Sub-Advisory Agreement of the International Growth
Fund (22)
(5)(aa) Investment Advisory Agreement of the Target Maturity 2002 Fund
(22)
(5)(bb) Investment Sub-Advisory Agreement of the Target Maturity 2002
Fund (22)
(5)(cc) Investment Sub-Advisory Agreement of the U.S. Government Fund
(22)
(5)(dd) Investment Sub-Advisory Agreement of the U.S. Government Fund
(22)
(5)(ee) Investment Sub-Advisory Agreement of the U.S. Government Fund
(22)
(5)(ff) Investment Sub-Advisory Agreement of the Growth Fund (22)
(5)(gg) Investment Sub-Advisory Agreement of the California Municipal
Fund (22)
(5)(hh) Investment Sub-Advisory Agreement of the National Municipal
Fund (22)
C - 4
<PAGE> 280
(5)(ii) Investment Sub-Advisory Agreement of the International Growth
Fund (*)
(6)(a) Distribution Agreement (Class A Shares) relating to the Global
Money Fund, U.S. Government Money Fund, California Money Fund,
U.S. Government Fund, California Municipal Fund and Growth and
Income Fund (4)
(6)(b) Supplement to Distribution Agreement relating to the National
Municipal Fund, Corporate Income Fund, Emerging Growth Fund
and International Growth Fund (7)
(6)(c) Supplement to Distribution Agreement relating to the Short
Term Global Government Fund (12)
(6)(d) Amendment No. 1 to Distribution Agreement (10)
(6)(e) Supplement to Distribution Agreement relating to the Growth
Fund (15)
(6)(f) Supplement to Distribution Agreement relating to the Florida
Insured Municipal Fund (15)
(6)(g) Supplement to Distribution Agreement relating to the Short
Term High Quality Bond Fund (22)
(6)(h) Supplement to Distribution Agreement relating to the
California Insured Intermediate Municipal Fund (22)
(6)(i) Form of Class B and Class S Distribution Agreement relating to
all series funds of Registrant (18)
(6)(j) Supplement to Distribution Agreement relating to the Target
Maturity 2002 Fund (23)
(6)(k) Class B and Class S Distribution Agreement with Sierra
Investment Services Corporation relating to all series Funds
of Registrant (*)
(6)(l) Amended and Restated Class B and S Distribution Agreement with
Funds Distributor, Inc. relating to all series Funds of
Registrant (*)
(7) Not Applicable
(8)(a) Custody Agreement relating to the Global Money Fund, U.S.
Government Money Fund, California Money
C - 5
<PAGE> 281
Fund, U.S. Government Fund, California Municipal Fund and
Growth and Income Fund (6)
(8)(b) Supplement to Custody, Transfer Agency and Registrar, and
Sub-Administration Agreement relating to the Corporate Income
Fund, National Municipal Fund, Emerging Growth Fund and
International Growth Fund (9)
(8)(c) Supplement to Custody, Transfer Agency and Registrar, and
Sub-Administration Agreements relating to the Short Term
Global Government Fund (12)
(8)(d) Amendment No. 1 to Custody Agreement (9)
(8)(e) Sub-Custodian Agreement (22)
(8)(f) Supplement to Custody, Transfer Agency and Registrar, and
Sub-Administration Agreements relating to the Growth Fund (15)
(8)(g) Supplement to Custody, Transfer Agency and Registrar, and
Sub-Administration Agreements relating to the Florida Insured
Municipal Fund (15)
(8)(h) Supplement to Custody, Transfer Agency and Registrar, and
Sub-Administration Agreements relating to the Short Term High
Quality Bond Fund (22)
(8)(i) Supplement to Custody, Transfer Agency and Registrar, and
Sub-Administration Agreements relating to the California
Insured Intermediate Municipal Fund (22)
(8)(j) Supplement to Custody, Transfer Agency and Registrar, and
Sub-Administration Agreements relating to the Target Maturity
2002 Fund (23)
(8)(k) Revised Custodian, Transfer Agency and Registrar and
Sub-Administration Fees Agreement (22)
(9)(a) Transfer Agency and Registrar Agreement relating to the Global
Money Fund, U.S. Government Money Fund, California Money Fund,
U.S. Government Fund, California Municipal Fund and Growth and
Income Fund (9)
C - 6
<PAGE> 282
(9)(b) Administration Agreement relating to all series funds of the
Registrant(23)
(9)(c) Replaced by (9)(b)
(9)(d) Replaced by (9)(b)
(9)(e) Sub-Administration Agreement relating to the Global Money
fund, U.S. Government Money Fund, California Money Fund, U.S.
Government Fund, California Municipal Fund and Growth and
Income Fund (9)
(9)(f) Replaced by (9)(b)
(9)(g) Replaced by (9)(b)
(9)(h) Replaced by (9)(b)
(9)(i) Replaced by (9)(b)
(9)(j) Replaced by (9)(b)
(9)(k) Replaced by (9)(b)
(9)(l) Amendment to Transfer Agency and Registrar Agreement for GW
Short Term Global Government Fund (22)
(9)(m) Amendment to Transfer Agency and Registrar Agreement for GW
Sierra Trust Funds (22)
(10)(a) Consent and Opinions of Counsel relating to the GW Global
Income Money Market Fund, U.S. Government Money Fund,
California Money Fund, U.S. Government Fund, California
Municipal Fund and Growth and Income Fund (3)
(10)(b) Consent and Opinions of Counsel relating to the GW Sierra
Trust Funds, Corporate Income Fund, National Municipal Fund,
Emerging Growth Fund and International Growth Fund (6)
(10)(c) Consents and Opinions of Counsel relating to the registration
of shares pursuant to Rule 24e-2 (10)
(10)(d) Consents and Opinions of Counsel relating to the Short Term
Global Government Fund (11)
(11) Consent of Independent Accountants (**)
C - 7
<PAGE> 283
(12) Not Applicable
(13)(a) Purchase Agreement relating to the Global Money Fund, U.S.
Government Money Fund, California Money Fund, U.S. Government
Fund, California Municipal Fund and Growth and Income Fund (4)
(13)(b) Purchase Agreement relating to the Corporate Income Fund,
National Municipal Fund, Emerging Growth Fund and
International Growth Fund (6)
(13)(c) Purchase Agreement relating to the Short Term Global
Government Fund (12)
(14) Copies of Model Retirement Plans (3)
(15)(a) Amended Distribution Plan (Class A Shares) (23)
(15)(b) Replaced by (15)(a)
(15)(c) Amended and Restated Class B Distribution Plan(*) (Replaces
Form of Class B Distribution Plan(18))
(15)(d) Amended and Restated Class S Distribution Plan (*) (Replaces
Form of Class S Distribution Plan (18))
(16)(a) Certain Performance Data relating to the California Municipal
Fund (4)
(16)(b) Certain Performance Data relating to the California Money
Fund, U.S. Government Fund, California Municipal Fund and
Growth and Income Fund (5)
(16)(c) Certain Performance Data relating to the U.S. Government Fund,
California Municipal Fund and Growth and Income Fund (7)
(16)(d) Certain Performance Data relating to the U.S. Government Fund,
Corporate Income Fund, California Municipal Fund, National
Municipal Fund, Growth and Income Fund, Emerging Growth Fund
and International Growth Fund (8)
(16)(e) Certain Performance Data relating to the National Municipal
Fund, Corporate Income Fund, Emerging Growth Fund and
International Growth Fund (10)
(16)(f) Certain Performance Data relating to the Short Term Global
Government Fund (12)
C - 8
<PAGE> 284
(17) Rule 18f-3 Multiple Class Plan (22)
___________________________________
* Filed herewith
** To be filed by amendment
(1) Incorporated by reference to Registration Statement filed with the SEC
on March 10, 1989.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 filed with
the SEC on May 12, 1989.
(3) Incorporated by reference to Pre-Effective Amendment No. 3 filed with
the SEC on July 6, 1989.
(4) Incorporated by reference to Post-Effective Amendment No. 1 filed with
the SEC on January 30, 1990.
(5) Incorporated by reference to Post-Effective Amendment No. 2 filed with
the SEC on May 9, 1990.
(6) Incorporated by reference to Post-Effective Amendment No. 3 filed with
the SEC on July 9, 1990.
(7) Incorporated by reference to Post-Effective Amendment No. 4 filed with
the SEC on October 29, 1990.
(8) Incorporated by reference to Post-Effective Amendment No. 5 filed with
the SEC on December 28, 1990.
(9) Incorporated by reference to Post-Effective Amendment No. 6 filed with
the SEC on August 29, 1991.
(10) Incorporated by reference to Post-Effective Amendment No. 7 filed with
the SEC on October 28, 1991.
(11) Incorporated by reference to Post-Effective Amendment No. 8 filed with
the SEC on December 5, 1991.
(12) Incorporated by reference to Post-Effective Amendment No. 9 filed with
the SEC on August 31, 1992.
(13) Incorporated by reference to Post-Effective Amendment No. 10 filed
with the SEC on October 14, 1992.
(14) Incorporated by reference to Post-Effective Amendment No. 11 filed
with the SEC on January 22, 1993.
(15) Incorporated by reference to Post-Effective Amendment No. 12 filed
with the SEC on March 25, 1993.
C - 9
<PAGE> 285
(16) Incorporated by reference to Post-Effective Amendment No. 13 filed
with the SEC on August 27, 1993.
(17) Incorporated by reference to Post-Effective Amendment No. 16 filed
with the SEC on March 15, 1994.
(18) Incorporated by reference to Post-Effective Amendment No. 17 filed
with the SEC on September 1, 1994.
(19) Incorporated by reference to Post-Effective Amendment No. 18 filed
with the SEC on October 31, 1994.
(20) Incorporated by reference to Post-Effective Amendment No. 19 filed
with the SEC on December 21, 1994.
(21) Incorporated by reference to Post-Effective Amendment No. 20 filed
with the SEC on March 6, 1995.
(22) Incorporated by reference to Post-Effective Amendment No. 21 filed
with the SEC on September 1, 1995.
(23) Incorporated by reference to Post-Effective Amendment No. 22
filed with the SEC on October 30, 1995.
Item 25. Persons Controlled by or Under Common Control with
- -------- --------------------------------------------------
Registrant
----------
Not Applicable
Item 26. Number of Holders of Securities
- -------- -------------------------------
<TABLE>
<CAPTION>
Number of Record Holders
at August 27, 1996
------------------------
CLASS CLASS CLASS CLASS
"A" "B" "S" "I"
<S> <C> <C> <C> <C>
Shares of the Global Money Fund, without par value . . . . 28,550 40 7,171 5
Shares of the U.S. Government Money Fund, without par
value . . . . . . . . . . . . . . . . . . . . . . . . . . 2,763 10 37 2
Shares of the California Money Fund, without par value . . 2,473 3 3 2
Shares of the U.S. Government Fund, without par value . . . 30,174 1,512 7,119 5
Shares of the Corporate Income Fund, without par value . . 23,973 2,318 2,753 4
</TABLE>
C - 10
<PAGE> 286
<TABLE>
<S> <C> <C> <C> <C>
Shares of the California Municipal Fund, without par
value . . . . . . . . . . . . . . . . . . . . . . . . . . 9,146 706 4 2
Shares of the National Municipal Fund, without par
value . . . . . . . . . . . . . . . . . . . . . . . . . . 5,655 257 3 2
Shares of the Growth and Income Fund, without par
value . . . . . . . . . . . . . . . . . . . . . . . . . . 28,339 5,447 7,756 5
Shares of the Emerging Growth Fund, without par value . . 37,057 8,171 7,563 4
Shares of the International Growth Fund, without par
value . . . . . . . . . . . . . . . . . . . . . . . . . . 20,551 1,952 7,542 4
Shares of the Short Term Global Government Fund,
without par value . . . . . . . . . . . . . . . . . . . . 6,301 226 323 2
Shares of the Growth Fund, without par value . . . . . . 26,845 6,317 7,558 4
Shares of the Florida Insured Municipal Fund, without
par value . . . . . . . . . . . . . . . . . . . . . . . . 823 166 3 2
Shares of the Short Term High Quality Bond Fund,
without par Value . . . . . . . . . . . . . . . . . . . . 3,784 456 555 3
Shares of the California Insured Intermediate
Municipal Fund, without par value . . . . . . . . . . . . 1,358 595 3 2
Target Maturity 2002 Fund . . . . . . . . . . . . . . . . 351 N/A N/A N/A
</TABLE>
Item 27. Indemnification
- -------- ---------------
Under Section 6.4 of Registrant's Master Trust Agreement,
as amended, any past or present Trustee or officer of Registrant (including
persons who serve at Registrant's request as directors, officers or trustees of
another organization in which Registrant has any interest as a shareholder,
creditor or otherwise (hereinafter referred to as a "Covered Person"), is
indemnified to the fullest extent permitted by law against liability and all
expenses reasonably incurred by him in connection with any action, suit or
proceeding to which he may be a party or otherwise involved by reason of his
being or having been a Covered Person. This provision does not authorize
C - 11
<PAGE> 287
indemnification when it is determined, in the manner specified in the Master
Trust Agreement, that a Covered Person has not acted in good faith in the
reasonable belief that his actions were in or not opposed to the best interests
of Registrant. Moreover, this provision does not authorize indemnification
when it is determined, in the manner specified in the Master Trust Agreement,
that the Covered Person would otherwise be liable to Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties. Expenses may be paid by Registrant in
advance of the final disposition of any action, suit or proceeding upon receipt
of an undertaking by a Covered Person to repay those expenses to Registrant in
the event that it is ultimately determined that indemnification of the expenses
is not authorized under the Master Trust Agreement and the Covered Person
either provides security for such undertaking or insures Registrant against
losses from such advances or the disinterested Trustees or independent legal
counsel determines, in the manner specified in the Master Trust Agreement, that
there is reason to believe the Covered Person will be found to be entitled to
indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
Trustees, officers and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a Trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such Trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will by governed by the final adjudication of
such issue.
Item 28(a). Business and Other Connections of Investment Advisor
- ----------- ----------------------------------------------------
-- Sierra Investment Advisors Corporation, formerly Great Western
Financial Advisors Corporation
As of October 9, 1992, the name of Great Western Financial
Advisors Corporation was changed to Sierra Investment Advisors Corporation
("Sierra Advisors"). Sierra Advisors is an investment advisor registered under
the Investment Advisers Act of 1940, as amended, (the "Advisers Act").
C - 12
<PAGE> 288
The list required by this Item 28 of officers and directors of
Sierra Advisors, together with information as to any other business,
profession, vocation or employment of substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by Sierra Advisors pursuant to the
Advisers Act (SEC File No. 801-32921).
Item 28(b). Business and Other Connections of Investment Sub-Advisor
- ----------- --------------------------------------------------------
-- Alliance Capital Management L.P.
Alliance Capital Management L.P. ("Alliance Capital") is a
Delaware limited partnership. Alliance Capital Management Corporation, an
indirect wholly-owned subsidiary of The Equitable Life Assurance Society of the
United States, is the general partner of Alliance. Alliance Capital is an
investment advisor registered under the Advisers Act and renders investment
advice to a wide variety of individual, non-investment company institutional
clients and investment company clients.
The list required by this Item 28 of officers, directors and
partners of Alliance Capital, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by such officers, directors and partners during the past two years, is
incorporated by reference to Schedules A and D of Form ADV filed by Alliance
Capital pursuant to the Advisers Act (SEC File No. 801-32361).
Item 28(c). Business and Other Connections of Investment Sub-Advisor
- ----------- --------------------------------------------------------
-- Van Kampen American Capital Management, Inc.
Van Kampen American Capital Management Inc., ("Van Kampen") is
a wholly owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is
controlled, through the ownership of a substantial majority of its common
stock, by The Clayton & Dubilier Private Equity Fund IV Limited Partnership
("C&D L.P."), a Connecticut limited partnership. C&D L.P. is managed by
Clayton, Dubilier & Rice, Inc., a New York based private investment firm. The
General Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited
Partnership ("C&D Assoc. L.P.") The general partners of C&D Assoc. L.P. are
Joseph L. Rice, III, B. Charles Ames, Alberto Cribiore, Donald J. Gogel and
Hubbard C. Howe. Van Kampen is an investment advisor registered under the
Advisers Act and provides investment advice to a wide variety of individual,
institutional and investment company clients.
The list required by this Item 28 of officers and directors of
Van Kampen, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors
C - 13
<PAGE> 289
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by Van Kampen pursuant to the Advisers Act (SEC File No.
801-40808).
Item 28(d). Business and Other Connections of Investment Sub-Advisor
- ----------- --------------------------------------------------------
-- J.P. Morgan Investment Management Inc.
J.P. Morgan Investment Management Inc. ("J.P. Morgan") is a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated, a bank holding
company. J.P. Morgan is an investment advisor registered under the Advisers
Act and manages employee benefit funds of corporations, labor unions and state
and local governments and the accounts of other institutional investors.
The list required by this Item 28 of officers and directors of
J.P. Morgan, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules
A and D of Form ADV filed by J.P. Morgan pursuant to the Advisers Act (SEC File
No. 801-21011).
Item 28(e). Business and Other Connections of Investment Sub-Advisor
- ----------- --------------------------------------------------------
-- TCW Funds Management, Inc.
TCW Funds Management, Inc. ("TCW") is an investment advisor
registered under the Advisers Act, and acts as investment advisor for
registered investment companies and foreign investment companies. TCW, and its
affiliates, including Trust Company of the West, provide a variety of trust,
investment management and investment advisory services.
The list required by this Item 28 of officers and directors of
TCW, together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by TCW pursuant to the Advisers Act (SEC File No. 801-29075).
Item 28(f). Business and Other Connections of Investment Sub-Advisor
- ----------- --------------------------------------------------------
-- Scudder, Stevens & Clark, Inc.
Scudder, Stevens & Clark, Inc. ("Scudder") is an investment
advisor registered under the Advisers Act, and acts as investment advisor for
registered investment companies and foreign investment companies. Scudder, and
its affiliates, provide a variety of trust, investment management and
investment advisory services.
C - 14
<PAGE> 290
The list required by this Item 28 of officers and directors of
Scudder, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules
A and D of Form ADV, filed by Scudder pursuant to the Advisers Act (SEC File
No. 801-252).
Item 28(g). Business and Other Connections of Investment Sub-Advisor
- ----------- --------------------------------------------------------
-- Janus Capital Corporation
Janus Capital Corporation ("Janus") is an investment advisor
registered under the Advisers Act, and acts as investment advisor for
registered investment companies, foreign investment companies and for
individual, charitable, corporate and retirement accounts. Janus, and its
affiliates, provide a variety of trust, investment management and investment
advisory services.
The list required by this Item 28 of officers and directors of
Janus, together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV, filed by Janus pursuant to the Advisers Act (SEC File No. 801-13991).
Item 28(h). Business and Other Connections of Investment Sub-Advisor
- ----------- --------------------------------------------------------
-- BlackRock Financial Management, Inc.
BlackRock Financial Management, Inc. ("BlackRock") is an
investment advisor registered under the Advisers Act, and acts as investment
advisor for registered investment companies and foreign investment companies.
BlackRock, and its affiliates, provide a variety of trust, investment
management and investment advisory services.
The list required by this Item 28 of officers and directors of
BlackRock, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules
A and D of Form ADV, filed by BlackRock, pursuant to the Advisers Act (SEC File
No. 801-32183).
Item 28(i). Business and Other Connections of Investment Sub-Advisor
- ----------- --------------------------------------------------------
-- Warburg, Pincus Counsellors, Inc.
Warburg, Pincus Counsellors, Inc. ("Warburg") is an investment
advisor registered under the Advisers Act, and acts as investment advisor for
registered investment companies and foreign investment companies. Warburg
provides investment
C - 15
<PAGE> 291
services to investment endowment funds, foundations and other institutions and
individuals.
The list required by this Item 28 of officers and directors of
Warburg, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules A
and D of Form ADV, filed by Warburg, pursuant to the Advisers Act (SEC File No.
801-07321).
Item 29. Principal Underwriter -- Class A, Class B, Class S and Class I
- -------- ---------------------
Shares
Sierra Investment Services Corporation ("Sierra Services") is
the principal underwriter of the Class A, Class B and Class S Shares of the
Funds.
Sierra Services does not currently act as distributor,
depositor or investment advisor for any other investment company.
The information required by this Item 29 with respect to each
director and officer of Sierra Services is incorporated by reference to
Schedule A of Form BD filed by Sierra Services pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-45144).
Item 30. Location of Accounts and Records
- -------- --------------------------------
(1) Sierra Trust Funds
9301 Corbin Avenue
Northridge, California 91324
(master trust agreement and by-laws)
(2) Sierra Investment Advisors Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as investment
advisor)
(3) Great Western Financial Securities
Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as a dealer)
C - 16
<PAGE> 292
(4) Sierra Fund Administration Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as
administrator, shareholder servicing agent
and transfer agent)
(5) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
(with respect to their services as custodian)
(6) First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(with respect to their services as a
sub-administrator and transfer agent)
(7) Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
(with respect to their services as
investment sub-advisor)
(8) Van Kampen American Capital Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(with respect to their services as investment
sub-advisor)
(9) J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
(with respect to their services as
investment sub-advisor)
(10) TCW Funds Management, Inc.
865 South Figueroa, Suite 1800
Los Angeles, California 90017
(with respect to their services as
investment sub-advisor)
(11) Scudder, Stevens & Clark, Inc.
Two International Place
Boston, Massachusetts 02110
(with respect to their services as
investment sub-advisor)
C - 17
<PAGE> 293
(12) BlackRock Financial Management, Inc.
345 Park Avenue
New York, New York 10154
(with respect to their services as
investment sub-advisor)
(13) Sierra Investment Services Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as a
principal underwriter)
(14) Janus Capital Corporation
100 Fillmore Street, Suite 300
Denver, Colorado 80206
(with respect to their services as
investment sub-advisor)
(15) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, N.Y. 10017-3147
(with respect to their services as
investment sub-advisor)
(16) Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
(with respect to their services as
counsel to the Fund)
Item 31. Management Services
- -------- -------------------
Not applicable.
Item 32. Undertakings
- -------- ------------
(a) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a
trustee or trustees of Registrant when requested to do so by the holders of at
least 10% of Registrant's outstanding shares. Registrant undertakes further,
in connection with the meeting, to comply with the provisions of Section 16(c)
of the Investment Company Act of 1940, as amended, relating to communications
with the shareholders of certain common-law trusts.
(b) Registrant undertakes to furnish each person to whom
a prospectus is delivered with a copy of the Registrant's latest annual report
to shareholders, upon request and without charge.
C - 18
<PAGE> 294
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended ("1933
Act"), and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Post-Effective Amendment No. 23 to the Registrant's
Registration Statement File No. 33-27489 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Northridge and State of
California on the 30th day of August, 1996.
SIERRA TRUST FUNDS
By /s/ F. Brian Cerini
-------------------------
F. Brian Cerini
President
Pursuant to the requirements of the 1933 Act, as amended, this
Post-Effective Amendment No. 23 Registration Statement has been signed below by
the following persons in the capacities and on the date(s) indicated:
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
/s/ F. Brian Cerini Chairman of the Board, August 30, 1996
---------------------------- President and Trustee
F. Brian Cerini
(Principal Executive Officer)
/s/ Keith B. Pipes Executive Vice President, August 30, 1996
---------------------------- Treasurer and Secretary
Keith B. Pipes
(Principal Financial and
Accounting Officer)
/s/ Arthur H. Bernstein Trustee August 30, 1996
----------------------------
Arthur H. Bernstein, Esq.
/s/ David E. Anderson Trustee August 30, 1996
----------------------------
David E. Anderson
/s/ Edmond R. Davis Trustee August 30, 1996
----------------------------
Edmond R. Davis, Esq.
/s/ John W. English Trustee August 30, 1996
----------------------------
John W. English
/s/ Alfred E. Osborne Trustee August 30, 1996
---------------------------
Alfred E. Osborne, Jr. Ph.D.
</TABLE>
<PAGE> 295
EXHIBIT INDEX
(See footnotes at end of list of Exhibits)
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
(1)(a) Master Trust Agreement of the Registrant (1)
(1)(b) Amendment No. 1 to Master Trust Agreement (2)
(1)(c) Amendment No. 2 to Master Trust Agreement (3)
(1)(d) Amendment No. 3 to Master Trust Agreement (3)
(1)(e) Amendment No. 4 to Master Trust Agreement (5)
(1)(f) Amendment No. 5 to Master Trust Agreement (10)
(1)(g) Amendment No. 6 to Master Trust Agreement (13)
(1)(h) Amendment No. 7 to Master Trust Agreement (13)
(1)(i) Amendment No. 8 to Master Trust Agreement (17)
(1)(j) Amendment No. 9 to Master Trust Agreement (17)
(1)(k) Amendment No. 10 to Master Trust Agreement (22)
(1)(l) Amendment No. 11 to Master Trust Agreement (*)
(2) By-Laws of the Registrant (1)
(3) Not Applicable
(4) Not Applicable
(5)(a) Investment Advisory Agreements relating to the Global Money Fund, U.S. Government Money Fund, California
Money Fund, U.S. Government Fund and California Municipal Fund (Agreement of Growth and Income Fund is
replaced; see Item 24(b)(5)(l)) (4)
(5)(b) Investment Advisory Agreements relating to the Corporate Income Fund and National Municipal Fund (Agreements
of Emerging Growth Fund and International Growth Fund are replaced, see Items 24(b)(5)(l) and 24(b)(5)(y))
(7)
(5)(c) Investment Advisory Agreement relating to the Short Term Global Government Fund (12)
</TABLE>
-1-
<PAGE> 296
<TABLE>
<S> <C>
(5)(d) Investment Sub-Advisory Agreements relating to the Global Money Fund, U.S. Government Money Fund, California
Money Fund and California Municipal Fund (Agreements of U.S. Government Fund and Growth and Income Fund are
replaced; see Items 24(b)(5)(cc) and 24(b)(5)(m) (4)
(5)(e) Investment Sub-Advisory Agreements relating to the Corporate Income Fund and National Municipal Fund
(Agreements of Emerging Growth Fund and International Growth Fund are replaced; see Items 24(b)(5)(m) and
24(b)(5)(z)) (7)
(5)(f) Investment Sub-Advisory Agreement relating to the California Municipal Fund (9)
(5)(g) Investment Sub-Advisory Agreement relating to the Short Term Global Government Fund (11)
(5)(h) Amended and Restated Investment Sub-Advisory Agreement relating to the Growth Fund (22)
(5)(i) Investment Advisory Agreement relating to the Growth Fund (19)
(5)(j) Investment Advisory Agreement relating to the Florida Insured Municipal Fund (19)
(5)(k) Investment Sub-Advisory Agreement relating to the Florida Insured Municipal Fund (19)
(5)(l) Investment Advisory Agreements relating to the Growth and Income Fund, Emerging Growth Fund and Short Term
High Quality Bond Fund (19)
(5)(m) Investment Sub-Advisory Agreements relating to the Growth and Income Fund, Emerging Growth Fund and Short
Term High Quality Bond Fund (19)
(5)(n) Investment Advisory Agreement relating to California Insured Intermediate Municipal Fund (19)
(5)(o) Investment Sub-Advisory Agreement relating to the California Insured Intermediate Municipal Fund (22)
(5)(p) Amendment of Investment Advisory Agreement of the California Insured Intermediate Municipal Fund (18)
</TABLE>
-2-
<PAGE> 297
<TABLE>
<S> <C>
(5)(q) Amendment of Investment Advisory Agreement of the California Municipal Fund (18)
(5)(r) Amendment of Investment Advisory Agreement of the Global Money Fund (18)
(5)(s) Amendment of Investment Advisory Agreement of the U.S. Government Money Fund (18)
(5)(t) Amendment of Investment Advisory Agreement of the U.S. Government Fund (18)
(5)(u) Amendment of Investment Advisory Agreement of the Florida Insured Municipal Fund (18)
(5)(v) Amendment of Investment Advisory Agreement of the National Municipal Fund (18)
(5)(w) Amendment of Investment Advisory Agreement of the Short Term Global Government Fund (18)
(5)(x) Amendment of Investment Advisory Agreement of the California Money Fund (18)
(5)(y) Investment Advisory Agreement of the International Growth Fund (22)
(5)(z) Investment Sub-Advisory Agreement of the International Growth Fund (22)
(5)(aa) Investment Advisory Agreement of the Target Maturity 2002 Fund (22)
(5)(bb) Investment Sub-Advisory Agreement of the Target Maturity 2002 Fund (22)
(5)(cc) Investment Sub-Advisory Agreement of the U.S. Government Fund (22)
(5)(dd) Investment Sub-Advisory Agreement of the U.S. Government Fund (22)
(5)(ee) Investment Sub-Advisory Agreement of the U.S. Government Fund (22)
(5)(ff) Investment Sub-Advisory Agreement of the Growth Fund (22)
(5)(gg) Investment Sub-Advisory Agreement of the California Municipal Fund (22)
</TABLE>
-3-
<PAGE> 298
<TABLE>
<S> <C>
(5)(hh) Investment Sub-Advisory Agreement of the National Municipal Fund (22)
(6)(a) Distribution Agreement (Class A Shares) relating to the Global Money Fund, U.S. Government Money Fund,
California Money Fund, U.S. Government Fund, California Municipal Fund and Growth and Income Fund (4)
(6)(b) Supplement to Distribution Agreement relating to the National Municipal Fund, Corporate Income Fund, Emerging
Growth Fund and International Growth Fund (7)
(6)(c) Supplement to Distribution Agreement relating to the Short Term Global Government Fund (12)
(6)(d) Amendment No. 1 to Distribution Agreement (10)
(6)(e) Supplement to Distribution Agreement relating to the Growth Fund (15)
(6)(f) Supplement to Distribution Agreement relating to the Florida Insured Municipal Fund (15)
(6)(g) Supplement to Distribution Agreement relating to the Short Term High Quality Bond Fund (22)
(6)(h) Supplement to Distribution Agreement relating to the California Insured Intermediate Municipal Fund (22)
(6)(i) Form of Class B and Class S Distribution Agreement relating to all series funds of Registrant (18)
(6)(j) Supplement to Distribution Agreement relating to the Target Maturity 2002 Fund (23)
(6)(k) Class B and Class S Distribution Agreement with Sierra Investment Services Corporation relating to all series
Funds of Registrant (*)
(6)(l) Amended and Restated Class B and S Distribution Agreement with Funds Distributor, Inc. relating to all series
Funds of Registrant (*)
(7) Not Applicable
(8)(a) Custody Agreement relating to the Global Money Fund, U.S. Government Money Fund, California Money
</TABLE>
-4-
<PAGE> 299
<TABLE>
<S> <C>
Fund, U.S. Government Fund, California Municipal Fund and Growth and Income Fund (6)
(8)(b) Supplement to Custody, Transfer Agency and Registrar, and Sub-Administration Agreement relating to the
Corporate Income Fund, National Municipal Fund, Emerging Growth Fund and International Growth Fund (9)
(8)(c) Supplement to Custody, Transfer Agency and Registrar, and Sub-Administration Agreements relating to the Short
Term Global Government Fund (12)
(8)(d) Amendment No. 1 to Custody Agreement (9)
(8)(e) Sub-Custodian Agreement (22)
(8)(f) Supplement to Custody, Transfer Agency and Registrar, and Sub-Administration Agreements relating to the
Growth Fund (15)
(8)(g) Supplement to Custody, Transfer Agency and Registrar, and Sub-Administration Agreements relating to the
Florida Insured Municipal Fund (15)
(8)(h) Supplement to Custody, Transfer Agency and Registrar, and Sub-Administration Agreements relating to the Short
Term High Quality Bond Fund (22)
(8)(i) Supplement to Custody, Transfer Agency and Registrar, and Sub-Administration Agreements relating to the
California Insured Intermediate Municipal Fund (22)
(8)(j) Supplement to Custody, Transfer Agency and Registrar, and Sub-Administration Agreements relating to the
Target Maturity 2002 Fund (23)
(8)(k) Revised Custodian, Transfer Agency and Registrar and Sub-Administration Fees Agreement (22)
(9)(a) Transfer Agency and Registrar Agreement relating to the Global Money Fund, U.S. Government Money Fund,
California Money Fund, U.S. Government Fund, California Municipal Fund and Growth and Income Fund (9)
</TABLE>
-5-
<PAGE> 300
<TABLE>
<S> <C>
(9)(b) Administration Agreement relating to all series funds of the Registrant (23)
(9)(c) Replaced by (9)(b)
(9)(d) Replaced by (9)(b)
(9)(e) Sub-Administration Agreement relating to the Global Money fund, U.S. Government Money Fund, California Money
Fund, U.S. Government Fund, California Municipal Fund and Growth and Income Fund (9)
(9)(f) Replaced by (9)(b)
(9)(g) Replaced by (9)(b)
(9)(h) Replaced by (9)(b)
(9)(i) Replaced by (9)(b)
(9)(j) Replaced by (9)(b)
(9)(k) Replaced by (9)(b)
(9)(l) Amendment to Transfer Agency and Registrar Agreement for GW Short Term Global Government Fund (22)
(9)(m) Amendment to Transfer Agency and Registrar Agreement for GW Sierra Trust Funds (22)
(10)(a) Consent and Opinions of Counsel relating to the GW Global Income Money Market Fund, U.S. Government Money
Fund, California Money Fund, U.S. Government Fund, California Municipal Fund and Growth and Income Fund (3)
(10)(b) Consent and Opinions of Counsel relating to the GW Sierra Trust Funds, Corporate Income Fund, National
Municipal Fund, Emerging Growth Fund and International Growth Fund (23)
(10)(c) Consents and Opinions of Counsel relating to the registration of shares pursuant to Rule 24e-2 (10)
(10)(d) Consents and Opinions of Counsel relating to the Short Term Global Government Fund (11)
(11) Consent of Independent Accountants (**)
</TABLE>
-6-
<PAGE> 301
<TABLE>
<S> <C>
(12) Not Applicable
(13)(a) Purchase Agreement relating to the Global Money Fund, U.S. Government Money Fund, California Money Fund, U.S.
Government Fund, California Municipal Fund and Growth and Income Fund (4)
(13)(b) Purchase Agreement relating to the Corporate Income Fund, National Municipal Fund, Emerging Growth Fund and
International Growth Fund (6)
(13)(c) Purchase Agreement relating to the Short Term Global Government Fund (12)
(14) Copies of Model Retirement Plans (3)
(15)(a) Amended Distribution Plan (Class A Shares) (23)
(15)(b) Replaced by (15)(a)
(15)(c) Amended and Restated Class B Distribution Plan(*) (Replaces Form of Class B Distribution Plan(18))
(15)(d) Amended and Restated Class S Distribution Plan (*) (Replaces Form of Class S Distribution Plan (18))
(16)(a) Certain Performance Data relating to the California Municipal Fund (4)
(16)(b) Certain Performance Data relating to the California Money Fund, U.S. Government Fund, California Municipal
Fund and Growth and Income Fund (5)
(16)(c) Certain Performance Data relating to the U.S. Government Fund, California Municipal Fund and Growth and
Income Fund (7)
(16)(d) Certain Performance Data relating to the U.S. Government Fund, Corporate Income Fund, California Municipal
Fund, National Municipal Fund, Growth and Income Fund, Emerging Growth Fund and International Growth Fund (8)
(16)(e) Certain Performance Data relating to the National Municipal Fund, Corporate Income Fund, Emerging Growth Fund
and International Growth Fund (10)
(16)(f) Certain Performance Data relating to the Short Term Global Government Fund (12)
</TABLE>
-7-
<PAGE> 302
<TABLE>
<S> <C>
(17) Rule 18f-3 Multiple Class Plan (22)
</TABLE>
___________________________________
* Filed herewith
** To be filed by amendment
(1) Incorporated by reference to Registration Statement filed with the SEC
on March 10, 1989.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 filed with
the SEC on May 12, 1989.
(3) Incorporated by reference to Pre-Effective Amendment No. 3 filed with
the SEC on July 6, 1989.
(4) Incorporated by reference to Post-Effective Amendment No. 1 filed with
the SEC on January 30, 1990.
(5) Incorporated by reference to Post-Effective Amendment No. 2 filed with
the SEC on May 9, 1990.
(6) Incorporated by reference to Post-Effective Amendment No. 3 filed with
the SEC on July 9, 1990.
(7) Incorporated by reference to Post-Effective Amendment No. 4 filed with
the SEC on October 29, 1990.
(8) Incorporated by reference to Post-Effective Amendment No. 5 filed with
the SEC on December 28, 1990.
(9) Incorporated by reference to Post-Effective Amendment No. 6 filed with
the SEC on August 29, 1991.
(10) Incorporated by reference to Post-Effective Amendment No. 7 filed with
the SEC on October 28, 1991.
(11) Incorporated by reference to Post-Effective Amendment No. 8 filed with
the SEC on December 5, 1991.
(12) Incorporated by reference to Post-Effective Amendment No. 9 filed with
the SEC on August 31, 1992.
(13) Incorporated by reference to Post-Effective Amendment No. 10 filed
with the SEC on October 14, 1992.
(14) Incorporated by reference to Post-Effective Amendment No. 11 filed
with the SEC on January 22, 1993.
(15) Incorporated by reference to Post-Effective Amendment No. 12 filed
with the SEC on March 25, 1993.
(16) Incorporated by reference to Post-Effective Amendment No. 13 filed
with the SEC on August 27, 1993.
-8-
<PAGE> 303
(17) Incorporated by reference to Post-Effective Amendment No. 16 filed
with the SEC on March 15, 1994.
(18) Incorporated by reference to Post-Effective Amendment No. 17 filed
with the SEC on September 1, 1994.
(19) Incorporated by reference to Post-Effective Amendment No. 18 filed
with the SEC on October 31, 1994.
(20) Incorporated by reference to Post-Effective Amendment No. 19 filed
with the SEC on December 21, 1994.
(21) Incorporated by reference to Post-Effective Amendment No. 20 filed
with the SEC on March 6, 1995.
(22) Incorporated by reference to Post-Effective Amendment No. 21 filed
with the SEC on September 1, 1995.
(23) Incorporated by reference to Post-Effective Amendment No. 22 filed
with the SEC on October 30, 1995.
-9-
<PAGE> 1
Exhibit 1(l)
SIERRA TRUST FUNDS
AMENDMENT NO. 11 TO MASTER TRUST AGREEMENT
(Designation of Additional Class of Shares
and Change of Resident Agent)
Pursuant to Article VII, Section 7.3 of the Master Trust
Agreement dated February 22, 1989, as amended (the "Master Trust Agreement") of
the Sierra Trust Funds (the "Trust"), a copy of which is on file in the office
of the Secretary of the Commonwealth of Massachusetts and the Boston City
Clerk, the undersigned, being all the Trustees of the Trust and having been
duly authorized to execute this Amendment No. 11 by vote of the Trustees of the
Trust do hereby consent to and adopt the following amendments to the Master
Trust Agreement.
1. Pursuant to Article IV of the Master Trust Agreement, and
the Trust's Rule 18f-3 Multiple Class Plan, the Trustees of the Trust hereby
create and establish a fourth class of shares (in addition to the Class A
shares, Class B shares and Class S shares) as an indefinite number of the
unissued shares of each of the series of shares of the Trust, except the Target
Maturity 2002 Fund, (with such exception, each such series, a "Fund," referred
to in the Master Trust Agreement as a "Sub-Trust"), and the Trustees of the
Trust hereby designate and classify such fourth class of shares as the Class I
shares of each such Fund.
Each of the Class I shares of a Fund shall have the relative
rights and preferences of shares of each of the other classes of shares of such
Fund as set forth in the Master Trust Agreement; provided that the Class I
shares of a Fund may differ from each other class of shares of such Fund in
certain respects in accordance with the prospectuses, statements of additional
information, registration statement and Rule 18f-3 Multiple Class Plan of the
Fund.
2. Pursuant to Article VII, Section 7.4, of the Master Trust
Agreement, Prentice Hall Corporation System, Inc. hereby is appointed as the
Resident Agent of the Trust in the Commonwealth of Massachusetts and Sierra
Trust Funds c/o Prentice Hall Corporation System, Inc., 84 State Street,
Boston, Massachusetts
<PAGE> 2
02109 hereby is designated as the Trust's office in the Commonwealth of
Massachusetts.
- 2 -
<PAGE> 3
The foregoing Amendment shall become effective upon the filing
of an original executed copy of this instrument with the Secretary of the
Commonwealth of Massachusetts and the Boston City Clerk.
IN WITNESS WHEREOF, the undersigned have executed this
instrument as of the 19th day of July, 1996.
/s/ F. Brian Cerini /s/ Arthur H. Bernstein
- --------------------------- -----------------------------
F. Brian Cerini Arthur H. Bernstein, Esq.
/s/ David E. Anderson /s/Edmond R. Davis
- --------------------------- -----------------------------
David E. Anderson Edmond R. Davis, Esq.
/s/ John W. English /s/ Alfred E. Osborne, Jr.
- --------------------------- -----------------------------
John W. English Alfred E. Osborne, Jr. Ph.D.
- 4 -
<PAGE> 1
Exhibit 5(ii)
INVESTMENT SUB-ADVISORY AGREEMENT
April 8, 1996
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017
Dear Sirs:
Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, and Sierra
Investment Advisors Corporation ("Sierra Advisors"), a corporation organized
under the laws of the state of California, hereby agree with Warburg, Pincus
Counsellors, Inc. (the "Sub-Advisor"), a corporation organized under the laws
of the State of Delaware as follows:
1. Investment Description; Appointment
The Company desires to employ the capital of the Company's
International Growth Fund (the "Fund") by investing and reinvesting in
investments of the kind and in accordance with the limitations specified in its
Master Trust Agreement, as amended, and in its Prospectus and Statement of
Additional Information relating to the Fund as in effect and which may be
amended from time to time, and in such manner and to such extent as may from
time to time be approved by the Board of Trustees of the Company. Copies of
the Fund's Prospectus and Statement of Additional Information and the Company's
Master Trust Agreement, as amended, have been or will be submitted to the
Sub-Advisor. The Company agrees to provide copies of all amendments to the
Fund's Prospectus and Statement of Additional Information and the Company's
Master Trust Agreement to the Sub-Advisor on an on-going basis. The Company
desires to employ and hereby appoints the Sub-Advisor to act as investment sub-
adviser to the Fund. The Sub-Advisor accepts the appointment and agrees to
furnish the services described herein for the compensation set forth below.
2. Services as Investment Sub-Advisor
(a) Subject to the supervision of the Board of Trustees
of the Company and of Sierra Advisors, the Fund's investment adviser,
the Sub-Advisor will (a) act in conformity with the Company's Master
Trust Agreement, the Investment Company Act of 1940, as amended (the
"1940 Act"), the Investment Advisers Act of 1940 and the Internal
Revenue Code of 1986, as the same may from time to time be amended,
(b) make investment decisions for the Fund in accordance
<PAGE> 2
with the Fund's investment objective(s) and policies as stated in the
Fund's Prospectus and Statement of Additional Information as in effect
and, after notice to the Sub-Advisor, and which may be amended from
time to time, (c) place purchase and sale orders on behalf of the Fund
to effectuate the investment decisions made, (d) maintain books and
records with respect to the securities transactions of the Fund and
will furnish the Company's Board of Trustees such periodic, regular
and special reports as the Board may request; (e) treat confidentially
and as proprietary information of the Company, all records and other
information relative to the Company and prior, present or potential
shareholders (other than information publicly available, otherwise
legally in the hands of the Sub-Advisor or pertaining to mutual
clients); and (f) will not use such records and information for any
purpose other than performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing
by the Company, which approval shall not be unreasonably withheld and,
notwithstanding the foregoing, such records may not be withheld where
the Sub-Advisor may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by
the Company. In providing those services, the Sub-Advisor will
supervise the Fund's investments and conduct a continual program of
investment, evaluation and, if appropriate, sale and reinvestment of
the Fund's assets. In addition, the Sub-Advisor will furnish the Fund
or Sierra Advisors with whatever statistical information the Fund or
Sierra Advisors may reasonably request with respect to the instruments
that the Fund may hold or contemplate purchasing.
(b) The Company and Sierra Advisors each agrees, on an
ongoing basis, to notify the Sub-Advisor expressly in writing of each
change in the fundamental and nonfundamental investment policies of
the Fund.
(c) Sierra Advisors agrees to provide the Sub-Advisor
with such assistance as may be reasonably requested by the Sub-
Advisor in connection with its activities pertaining to the Fund under
this Agreement, including, without limitation, information concerning
the Fund, its funds available, or to become available, for investment
and generally as to the conditions of the Fund's affairs.
(d) In fulfilling its obligations hereunder, the
Sub-Advisor shall be entitled to rely on and act in accordance
<PAGE> 3
with, and Sierra Advisors agrees to hold the Sub-Advisor harmless for
any act or omission taken in good faith in reliance on, information
and instructions, which may be standing instructions, provided to the
Sub-Advisor by Sierra Advisors, the Company's administrator, or other
agent of Sierra Advisors designated by Sierra Advisors. Such
information and instructions shall be conveyed to the Sub-Advisor in a
timely manner so as to permit the Sub-Advisor to take such action as
may be required in an orderly fashion. Sierra Advisors agrees to
provide or cause to be provided to the Sub-Advisor on an ongoing
basis, such information as is reasonably requested by the Sub-Advisor
for performance by the Sub-Advisor of its obligations under this
Agreement, and the Sub-Advisor shall not be in breach of any term of
this Agreement or be deemed to have acted negligently if Sierra
Advisors fails to provide or cause to be provided such information and
the Sub-Advisor relies on the information most recently furnished to
the Sub-Advisor. Sierra Advisors will promptly provide the
Sub-Advisor with any procedures applicable to the Sub-Advisor adopted
from time to time by the Board of Trustees of the Company and agrees
to promptly provide the Sub-Advisor copies of all amendments thereto.
3. Brokerage
(a) In executing transactions for the Fund and selecting
brokers or dealers, the Sub-Advisor will use its best efforts to seek
the best overall terms available and shall execute or direct the
execution of all such transactions in a manner permitted by law and in
a manner that is in the best interest of the Fund and its
shareholders. In assessing the best overall terms available for any
Fund transaction, the Sub-Advisor will consider all factors it deems
relevant including, but not limited to, breadth of the market in the
security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of
any commission for the specific transaction and on a continuing basis.
Pursuant to its investment determinations for the Fund, in placing
orders with brokers and dealers, the Sub-Advisor will attempt to
obtain the best net price and the most favorable execution of its
orders. Consistent with this obligation, when the execution and price
offered by two or more brokers or dealers are comparable, the
Sub-Advisor may, in its discretion, purchase and sell portfolio
securities to and from brokers and dealers who provide the Company
with research advice and other services.
3
<PAGE> 4
(b) In selecting brokers or dealers to execute a
particular transaction, and in evaluating the best price and execution
available, the Sub-Advisor is authorized to consider the brokerage and
research services (within the meaning of Section 28(e) of the 1934
Act) provided to the Sub-Advisor or any affiliated person of the
Sub-Advisor. Subject to the requirements of Section 17(e) of the
Investment Company Act of 1940, as amended (the "1940 Act"), the
Sub-Advisor is specifically authorized to select an affiliated person
of the Sub-Advisor to execute brokerage, but in no event principal,
transactions for the Fund. On occasions when the Sub-Advisor deems
the purchase or sale of a security to be in the best interest of the
Fund as well as other clients, the Sub-Advisor, to the extent
permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities to be purchased or sold in
order to obtain the most favorable execution and/or lower brokerage
commissions, if any, and efficient execution. In such event,
allocation of securities so sold or purchased, as well as the expenses
incurred in the transaction, will be made by the Sub- Advisor in the
manner the Sub-Advisor considers to be the most equitable and
consistent with its fiduciary obligation over time to the Fund and to
such other clients. Furthermore, the Company and Sierra Advisors
recognize that the Sub-Advisor may give advice, and take action, with
respect to its other clients that may differ from the advice given, or
the time or nature of action taken, with respect to the Fund.
4. Information Provided to the Company
The Sub-Advisor will keep the Company and Sierra Advisors informed of
developments materially affecting the Fund, and will on its own initiative,
furnish the Company and Sierra Advisors on at least a quarterly basis with
whatever information the Sub-Advisor believes is appropriate for this purpose.
5. Standard of Care
The Sub-Advisor shall exercise its best judgment in rendering its
services under this agreement. Except as may otherwise be provided by federal
or state securities laws and in Section 11 hereof, the Sub-Advisor shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which this Agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and
4
<PAGE> 5
duties under this Agreement.
6. Compensation
In consideration of the services rendered pursuant to this Agreement,
Sierra Advisors will pay the Sub-Advisor on the first business day of each
month a fee for the previous month at the annual rate of 0.50% of the Fund's
average daily net assets. The Sub-Advisor shall have no right to obtain
compensation directly from the Fund or the Company for services provided
hereunder and agrees to look solely to Sierra Advisors for payment of fees due.
Upon any termination of this Agreement before the end of a month, the fee for
such month shall be prorated according to the proportion that the period prior
to such termination bears to the full monthly period and shall be payable upon
the date of termination of this Agreement. For the purposes of determining
fees payable to the Sub-Advisor, the value of the net assets of the Fund shall
be computed at the times and in the manner specified in the Prospectus or
Statement of Additional Information relating to the Fund as from time to time
in effect.
Notwithstanding the foregoing, in the event that any reduction in the
fees paid to Sierra Advisors under the Advisory Agreement shall be required as
a result of any statutory or regulatory limitation on investment company
expenses, there shall be a proportionate reduction in the fee payable to the
Sub-Advisor hereunder; PROVIDED THAT the Sub-Advisor will never be required to
pay more than the amount of fees it receives.
7. Expenses
The Sub-Advisor will bear all expenses in connection with the
performance of its services under this Agreement, which expenses shall not
include brokerage fees or commissions in connection with the effectuation of
securities transactions. The Company will bear certain other expenses to be
incurred in its operation, including but not limited to: organizational
expenses, taxes, interest, brokerage fees and commissions, if any; fees of
trustees of the Company who are not officers, directors or employees of the
Sub-Advisor, Sierra Advisors, the Fund's sub-administrator or any of their
affiliates; Securities and Exchange Commission fees and state Blue Sky
qualification fees; out-of-pocket expenses of custodians, transfer and
dividend disbursing agents and the Company's sub-administrator and transaction
charges of custodians; insurance premiums; outside auditing and legal expenses;
costs of maintenance of the Company's existence; costs attributable to investor
services, including without limitation, telephone and personnel expenses; costs
of preparing
5
<PAGE> 6
and printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the shareholders of the Fund and of the
officers or Board of Trustees of the Company; and any extraordinary expenses.
In addition, the Fund pays a distribution fee pursuant to the terms of a
Distribution Plan adopted under Rule 12b-1 of the Investment Company Act of
1940, as amended.
8. Services to Other Companies or Accounts
The Company understands that the Sub-Advisor now acts, will continue
to act and may act in the future as investment adviser to fiduciary and other
managed accounts and as investment adviser to one or more other investment
companies or series of investment companies, and the Company has no objection
to the Sub-Advisor so acting, provided that whenever the Fund and one or more
other accounts or investment companies advised by the Sub-Advisor have
available funds for investment, investments suitable and appropriate for each
will be allocated in accordance with procedures believed to be equitable over
time to each entity. Similarly, opportunities to sell securities will be
allocated in an equitable manner over time. The Company recognizes that in
some cases this procedure may limit the size of the position that may be
acquired or disposed of for the Fund. In addition, the Company understands
that the persons employed by the Sub-Advisor to assist in the performance of
the Sub-Advisor's duties hereunder will not devote their full time to such
service and nothing contained herein shall be deemed to limit or restrict the
right of the Sub-Advisor or any affiliate of the Sub-Advisor to engage in and
devote time and attention to other business or to render services of whatever
kind or nature.
9. Term of Agreement
This Agreement shall become effective as of the date first written
above and shall continue for a one-year term and shall continue thereafter so
long as such continuance is specifically approved at least annually by (i) the
Board of Trustees of the Company or (ii) a vote of a "majority" (as defined in
the Investment Company Act of 1940, as amended) of the Fund's outstanding
voting securities, provided that in either event the continuance is also
approved by a majority of the Board of Trustees who are not "interested
persons" (as defined in said Act) of any party to this Agreement, by vote cast
in person at a meeting called for the purpose of voting on such approval. This
Agreement is terminable, without penalty, on 60 days' written notice, by Sierra
Advisors, the Board of Trustees of the Company
6
<PAGE> 7
or by vote of holders of a majority of the Fund's shares, or upon 90 days'
written notice, by the Sub-Advisor and, will terminate automatically upon any
termination of the advisory agreement between the Company and Sierra Advisors.
In addition, this Agreement will also terminate automatically in the event of
its assignment (as defined in said Act). The Sub-Advisor agrees to notify the
Company of any circumstances that might result in this Agreement being deemed
to be assigned.
10. Representations of the Company and the Sub-Advisor
The Company represents that (i) a copy of its Master Trust Agreement,
dated February 22, 1989, together with all amendments thereto, is on file in
the office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of the Sub-Advisor has been duly authorized, and (iii) it has acted
and will continue to act in conformity with the Investment Company Act of 1940,
as amended, and other applicable laws.
Sierra Advisors represents that (i) it is authorized to perform the
services herein, (ii) the appointment of the Sub-Advisor has been duly
authorized, and (iii) it will act in conformity with the Investment Company Act
of 1940, as amended, and other applicable laws.
The Sub-Advisor represents that it is authorized to perform the
services described herein.
11. Indemnifications
(a) Sierra Advisors shall indemnify the Sub-Advisor and
its controlling persons, officers, directors, employees, agents, legal
representatives and persons controlled by it (collectively,
"Sub-Advisor Related Persons") to the fullest extent permitted by law
against any and all loss, damage, judgements, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees
(collectively "Losses"), incurred by the Sub-Advisor or Sub-Advisor
Related Persons arising from or in connection with this Agreement or
the performance by the Sub-Advisor or Sub-Advisor Related Persons of
its or their duties hereunder, including, without limitation, such
Losses arising under any applicable law or that may be based upon any
untrue statement of a material fact contained in the Company's
registration statement, or any amendment thereof or any supplement
thereto, or the omission to state therein a material fact known or
which should have been known and was required to be stated therein or
necessary to make the statements therein not misleading,
7
<PAGE> 8
unless such statement or omission was made in reliance upon written
information furnished to Sierra Advisors by the Sub-Advisor or a
Sub-Advisor Related Person; except to the extent any such Losses
result from willful misfeasance, bad faith, gross negligence or
reckless disregard on the part of the Sub-Advisor or a Sub-Advisor
Related Person in the performance of any of its duties under, or in
connection with, this Agreement.
(b) The Sub-Advisor shall indemnify Sierra Advisors and
its controlling persons, officers, directors, employees, agents, legal
representatives and persons controlled by it (collectively, "Sierra
Related Persons") to the fullest extent permitted by law against any
and all Losses incurred by Sierra Advisors or Sierra Related Persons
arising from or in connection with this Agreement or the performance
by Sierra Advisors or Sierra Related Persons of its or their duties
hereunder so long as such Losses arise out of the Sub-Advisor's
failure to perform its responsibilities to Sierra Advisors, the Fund
or the Company hereunder, including, without limitation, such Losses
arising under any applicable law or that may be based upon any untrue
statement of a material fact contained in the Company's registration
statement, or any amendment thereof or any supplement thereto, or the
omission to state therein a material fact known or which should have
been known and was required to be stated therein or necessary to make
the statements therein not misleading, to the extent that such
statement or omission was based on information provided by the
Sub-Advisor or a Sub-Advisor Related Person unless such statement or
omission was made in reliance upon written information furnished to
the Sub-Advisor or Sub-Advisor Related Person by Sierra Advisors or a
Sierra Related Person; and except to the extent any such Losses result
from willful misfeasance, bad faith, gross negligence or reckless
disregard on the part of Sierra Advisors or a Sierra Related Person in
the performance of any of its duties under, or in connection with,
this Agreement.
(c) The indemnifications provided in this Section 11
shall survive the termination of this Agreement.
12. Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. No amendment
8
<PAGE> 9
of this Agreement shall be effective with respect to any Fund until approved by
vote of a majority of the outstanding voting securities of such Fund.
13. Limitation of Liability
This Agreement has been executed on behalf of the Company by the
undersigned officer of the Company in his capacity as an officer of the
Company. The obligations of this Agreement shall be binding upon the assets
and property of the Fund only and not upon the assets and property of any other
investment fund of the Company and shall not be binding upon any Trustee,
officer or shareholder of the Fund and/or the Company individually.
14. Use Of Names
(a) It is understood that the name "Warburg, Pincus
Counsellors, Inc." or any derivative thereof or logo associated with
that name is the valuable property of the Sub-Advisor and its
affiliates and that the Company and/or the Fund have the right to use
such name (or derivative or logo) in offering materials of the Company
and/or Fund only with the prior written approval of the Sub- Advisor
and for so long as the Sub-Advisor is an investment sub-adviser to the
Company and/or the Fund; PROVIDED THAT the Company and the Fund may
use such name (or derivative or logo) without such prior written
approval in offering materials of the Company to the extent that (i)
such materials simply list the Sub-Advisor as the Sub-Advisor to the
Fund as part of a listing of the investment sub-advisers to the
series or portfolios of the Company with a brief description of the
Sub-Advisor's experience and duties hereunder; (ii) such materials
include such name (or derivative or logo) and any related information
that has been previously approved by the Sub-Advisor or that is
required to be disclosed by applicable law or regulation, such as
information disclosed in the Company's registration statement; or
(iii) such materials are intended for broker-dealer use only, for use
by the Company's Trustees, or for internal use by the Company and
Sierra Advisors. Such prior written approval of the Sub-Advisor shall
not be unreasonably withheld and shall be deemed to be given if no
written objection is received by the Company, the Fund or Sierra
Advisors within three business days after the request is made by the
Company, the Fund or Sierra Advisors for such use. Upon termination
of this Agreement, the Company and the Fund shall forthwith cease to
use such name (or derivative or logo) as soon as reasonably
practicable.
9
<PAGE> 10
(b) It is understood that the names "Sierra Trust Funds,"
and "Sierra Investment Advisors Corporation" or any derivatives
thereof or logos associated with such names is the valuable property
of the Company and/or Sierra Advisors and their affiliates and that
the Sub-Advisor or its affiliates have the right to use such names (or
derivatives or logos) in marketing materials of the Sub-Advisor or
its affiliates only with the prior written approval of Sierra Advisors
or the Company, as applicable, and for so long as the Sub-Advisor is
an investment sub-adviser to the Company and/or the Fund; PROVIDED
THAT the Sub-Advisor or its affiliates may use such names (or
derivatives or logos) without such prior written approval in marketing
materials of the Sub-Advisor or its affiliates to the extent that (i)
such materials simply list the Company or the Fund as part of a
listing of the investment companies advised by the Sub-Advisor or its
affiliates with a brief description of the Company or the Fund; (ii)
such materials include such names (or derivatives or logos) and any
related information that has been previously approved by the Company
or Sierra Advisors, as applicable, or that is required to be disclosed
by applicable law or regulation, such as information disclosed in the
Form ADV or Form BD of the Sub-Advisor or its affiliates; or (iii)
such materials are intended for broker-dealer use only or for internal
use by the Sub-Advisor. Such prior written approval of Sierra
Advisors or the Company, as applicable, shall not be unreasonably
withheld and shall be deemed to be given if no written objection is
received by the Sub-Advisor within three business days after the
request is made by the Sub-Advisor for such use. Upon termination of
this Agreement, the Sub-Advisor and its affiliates shall forthwith
cease to use such names (or derivatives or logos) as soon as
reasonably practicable.
15. Entire Agreement
This Agreement constitutes the entire agreement between the
parties hereto.
16. Governing Law
This Agreement shall be governed in accordance with the laws of
the Commonwealth of Massachusetts.
10
<PAGE> 11
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
SIERRA TRUST FUNDS
By /s/ Keith Pipes
----------------------
Name: Keith Pipes
Title: Executive Vice President
SIERRA INVESTMENT ADVISORS
CORPORATION
By /s/ Michael D. Goth
----------------------
Name: Michael D. Goth
Title: Chief Operating Officer
Accepted as of the date
first written above:
WARBURG, PINCUS COUNSELLORS, INC.
By /s/ Eugene P. Grace
----------------------------
Name: Eugene P. Grace
Title: Senior Vice President
11
<PAGE> 1
Exhibit 6(k)
SIERRA TRUST FUNDS
CLASS B AND CLASS S DISTRIBUTION AGREEMENT
Entered into as of December 20, 1995
Sierra Investment Services Corporation
888 South Figueroa Street, Suite 1100
Los Angeles, CA 90017
Ladies and Gentlemen:
This is to confirm that, in consideration of the mutual promises and
covenants hereinafter contained, the undersigned Sierra Trust Funds (the
"Company"), a business trust organized under the laws of the Commonwealth of
Massachusetts and registered as an open-end, management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), agrees
that Sierra Investment Services Corporation ("Sierra Services"), a corporation
organized under the laws of the state of California, shall be, for the period
of this Agreement, a distributor of certain classes of shares of beneficial
interest that are identified on Schedule 1 to this Agreement and that are
issued by the Company with respect to certain of its series as identified on
such Schedule 1 (shares of such identified classes of such identified series,
the "Shares"), each of which series is a separate investment fund (a "Fund"),
on the terms and conditions hereinafter set forth.
1. Appointment
The Company hereby appoints Sierra Services as agent of the Company to
act, for the period and on the terms set forth in this Agreement, as a
distributor of the Funds' Shares covered by the Company's registration
statement (the "Registration Statement"), prospectuses and statements of
additional information as in effect from time to time under the Securities Act
of 1933, as amended (the "1933 Act"), and the 1940 Act, and Sierra Services
accepts such appointment and agrees to render the services herein described for
the compensation herein provided.
As used in this Agreement, the terms "registration statement,"
"prospectus," and "statement of additional information" shall mean any
registration statement, prospectus and statement of additional information
filed by the Company with the SEC and any amendments thereof and supplements
thereto which at any time shall have been filed
1
<PAGE> 2
with the SEC. "Prospectus" shall mean, with respect to any Shares of any Fund
at any time, the then-current prospectus and statement of additional
information relating to such Shares.
2. Sales of Shares
2.1 Authorization. The Company hereby authorizes Sierra Services
to sell Shares of the Funds, and Sierra Services agrees to use its best efforts
to solicit orders for the sale of such Shares, at such Shares' public offering
price, as determined in accordance with the Registration Statement. Sierra
Services shall have the right to order from the Company the Shares of the Funds
needed, but not more than needed (correcting for any clerical errors or errors
of transmission), to fill such orders as are unconditional.
2.2 Selling Broker-Dealers and Other Agents. Sierra Services may,
as principal and on its own behalf, enter into agreements ("Dealer
Agreements"), on such terms and conditions as Sierra Services determines are
not inconsistent with this Agreement, with (a) any broker-dealer who is (i)
registered under the Securities Exchange Act of 1934, as amended (the "1934
Act"), (ii) registered as required under applicable state securities or blue
sky laws, and (iii) a member in good standing of the National Association of
Securities Dealers, Inc. ("NASD"); and (b) any other person (as such term is
defined in the 1934 Act) that is not required, for purposes of effecting
transactions in securities, to be registered under the 1934 Act, but is
registered as required under applicable state securities or blue sky laws,
authorizing such broker-dealers and other persons (collectively, "Brokers") to
act as agents in connection with the sale of the Shares of the Funds (which may
include accepting orders for the purchase or redemption of Shares, responding
to inquiries regarding the Company or the Funds, and performing other related
functions). Expulsion or suspension from the NASD of any Broker required to be
registered under the 1934 Act shall automatically terminate such Broker's
Dealer Agreement with Sierra Services for sales of Shares as of the effective
date of such expulsion or suspension.
2.3 Refusal and Suspension of Sales. Each of Sierra Services and
the Company reserves the right to refuse at any time or times (a) to sell any
Shares for any reason, and (b) to accept an order for Shares for any reason.
Sierra Services acknowledges specifically that, whenever in the judgment of the
Company's officers such action is warranted for any reason, including, without
limitation, market, economic or political conditions, The Company may decline
to accept any orders for, or make any sales of, any Shares of any Fund until
such time as those officers deem it advisable to accept such orders and to make
such sales.
2
<PAGE> 3
No Shares shall be offered and no orders for the purchase or sale of
Shares under any provisions of this Agreement shall be accepted by the Company
(a) if and so long as the effectiveness of the Registration Statement or any
necessary amendments thereto shall be suspended under any provisions of the
1933 Act, or (b) if and so long as a current prospectus as required by Section
5(b)(2) of the 1933 Act is not on file with the SEC; provided, however, that
nothing contained in this Section 2.3 shall in any way restrict or have an
application to or bearing upon the Company's obligation to repurchase Shares
from any holder thereof in accordance with the provisions of the Prospectus or
the Company's Master Trust Agreement dated February 22, 1989, together with all
amendments thereto (as so amended, the "Trust Agreement").
3. Distribution Services and Expenses
3.1 Distribution Expenses. Sierra Services will bear all expenses
in connection with the performance of its services and the incurring of
distribution expenses under this Agreement. For purposes of this Agreement,
"distribution expenses" of Sierra Services shall mean all expenses borne by
Sierra Services or by any other person with which Sierra Services has an
agreement (including but not limited to Dealer Agreements) approved by the
Company, which expenses represent payment for activities primarily intended to
result in the sale of Shares, including, but not limited to, the following
(provided, that "distribution expenses" shall not include any expenditures in
connection with services that Sierra Services or any other person have agreed
to bear or provide without reimbursement or compensation):
(a) payments made to, and expenses of, registered representatives
and other employees of Sierra Services or of Brokers;
(b) payments made to, and expenses of, persons providing support
services in connection with the distribution of Shares,
including but not limited to office space and equipment,
telephone facilities, answering routine inquiries regarding
the Company, and processing transactions;
(c) costs relating to the formulation and implementation of
marketing and promotional activities, including but not
limited to direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising, and
costs involved in preparing, printing and distributing
advertising and sales literature pertaining to the Company or
the Funds;
(d) costs of printing and distributing Prospectuses and reports of
the Company to prospective Shareholders of the Funds;
3
<PAGE> 4
(e) costs involved in obtaining whatever information, analyses and
reports with respect to marketing and promotional activities
that the Company may, from time to time, deem advisable; and
(f) costs of financing any of the foregoing.
3.2 Quarterly Expense Reports. Sierra Services shall prepare and
deliver quarterly reports to the Treasurer of the Company and to the advisor,
administrator and/or sub-administrator of each Fund, showing distribution
expenses incurred pursuant to this Agreement and the relevant Plan (as defined
in Section 8.1 of this Agreement) and the purposes therefor, as well as any
supplemental reports as the Trustees, from time to time, may reasonably
request.
3.3 Scope of Distribution Services. Distribution services
rendered pursuant to this Agreement with respect to any Share of any Fund shall
be deemed to be complete upon the issuance and sale of such Share.
3.4 Company Expenses. Sierra Services shall not be liable to
assume any other expenses of the Company or any Fund, which other expenses may
include without limitation: investment advisory fees; charges and expenses of
any registrar, custodian or depositary appointed by the Company for safekeeping
of its cash, portfolio securities, or other property, and any transfer,
dividend or accounting agent(s) appointed by the Company; brokers' commissions
chargeable to the Company in connection with its portfolio securities
transactions; all taxes, including securities issuance and transfer taxes; all
costs and expenses in connection with maintenance of registration of the
Company, any Fund and the Shares with the SEC, various states, and other
jurisdictions (including filing and legal fees and disbursements of counsel);
expenses of printing, including typesetting, and distributing Prospectuses to
the Funds' shareholders; all expenses of shareholders' and Trustees' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; fees and expenses of Trustees; all expenses incident to the
payment of any dividend, distribution, withdrawal or redemption, whether in
Shares or in cash; charges and expenses of any outside service used for pricing
of Shares; charges and expenses of legal counsel and independent accountants,
in connection with any matter relating to the Company; membership dues of
industry associations; interest payable on borrowings; postage; insurance
premiums on property or personnel (including officers and Trustees) of the
Company that inure to its benefit; extraordinary expenses (including but not
limited to legal claims and liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs of operations
unless otherwise explicitly provided herein.
4
<PAGE> 5
4. Compensation
4.1 Distribution Fee. The Company will pay Distributor in
consideration of its services in connection with the distribution of Shares of
each Fund its "Allocable Portion", as defined in Schedule 2 to this Agreement,
of the distribution fee allowable under the rules of fair practice of the
National Association of Securities Dealers (the "Rules of Fair Practice") in
respect of such Shares of such Fund, which fee shall accrue daily and be paid
monthly as promptly as possible after the last day of each month but in any
event prior to the tenth day of the following calendar month, at an annual rate
of 0.75% per annum of the average daily net asset value of the such Shares of
such Fund, subject to the aggregate maximum limitation on the distribution fee
allowable under the Rules of Fair Practice and the Distribution Plan in respect
of such class of Shares ("Distribution Fee").
Distributor will be deemed to have fully earned its Allocable
Portion of the Distribution Fee payable in respect of Shares of each Fund upon
the sale of the "Commission Shares" (as defined in Schedule 2 to this
Agreement) of such Fund taken into account in determining such Distributor's
Allocable Portion of such Distribution Fee.
4.2 Contingent Deferred Sales Charges. The Company shall cause
its transfer agent (the "Transfer Agent") to withhold, from redemption proceeds
payable to holders of Shares of the Funds, all contingent deferred sales
charges properly payable by such holders in accordance with the terms of the
Prospectuses relating to such Shares ("CDSCs") and shall cause the Transfer
Agent to pay such amounts over as promptly as possible after the settlement
date for each redemption of such Shares. Sierra Services' Allocable Portion
(as defined in Schedule 2 to this Agreement) of such CDSC amounts shall be
payable to Sierra Services (or to persons to whom Sierra Services directs the
Company to make payments).
4.3 Other Services; Service Fee. Upon request of the Company's
Board of Trustees, Sierra Services may, but shall be under no duty to, perform
additional services on behalf of the Company or any Fund, which services are
not required by this Agreement but may be performed by Sierra Services in
conformity with applicable law. Any such services will be performed on behalf
of the Company, and Sierra Services may impose additional charges for such
services, which charges may be billed to the Company and subject to examination
by the Company's independent accountants. Sierra Services' payment or
assumption of any expense of the Company that Sierra Services is not required
to pay or assume under this Agreement shall not relieve Sierra Services of any
of its obligations to the Company or obligate Sierra Services to pay or assume
any similar expense on any subsequent occasion.
5
<PAGE> 6
The Distribution Fee payable pursuant to this Agreement shall not be
deemed to compensate Sierra Services for any shareholder services it may
provide to the Company or any Fund pursuant to the relevant Plan, which
services may include processing of shareholder transactions, responding to
inquiries from shareholders concerning the status of their accounts and the
operations of the Company or any Fund, communicating with the Company and its
transfer agent on behalf of such shareholders, or providing other shareholder
services, nor for any expenses associated with the provision of such
shareholder services, including office space and equipment, and telephone
facilities. Any such shareholder services shall be provided pursuant to a
separate agreement.
4.4 Directed Payment; Allocable Portion Calculations. Sierra
Services may direct the Company to pay any part or all of the Distribution Fee
or CDSCs payable to Sierra Services in respect of any Shares of any Fund
directly to persons providing funds to Sierra Services to cover or otherwise
enable the incurring of expenses associated with distribution services, and the
Company agrees to accept and to comply with such direction. Sierra Services
shall, at its own expense and not the expense of the Company or any Fund,
provide the Company with any necessary calculations of Sierra Services'
Allocable Portion of any Distribution Fee or CDSCs, and the Company shall be
entitled to rely conclusively on such calculations, without prejudice to any
claim it may have concerning the accuracy of such calculations.
4.5 Maximum Charges. Notwithstanding anything to the contrary
contained in this Agreement or in any relevant Plan, (a) the amount of
asset-based sales charges and CDSCs paid to Sierra Services by any class of
shares of any Fund shall not exceed the amount permitted by the Rules of Fair
Practice of the NASD ("NASD Rules"), as in effect from time to time, and (b)
the aggregate amount of asset-based sales charges and CDSCs paid to Sierra
Services by any class of shares of any Fund shall not exceed five and one-half
percent (5 1/2%) of the total issue price of such Shares plus interest thereon
from the date of issuance through the date of payment at the prime rate
(determined in accordance with the NASD Rules in effect from time to time) plus
one percent (1%) per annum.
5. Disclosure and Sales Materials
5.1 Fund Governing Documents. The Company shall have furnished
Sierra Services with copies, properly certified or authenticated as Sierra
Services may reasonably request, of the following documents and of all
amendments or supplements thereto (such documents as so amended or
supplemented, with respect to any Fund, that Fund's "Governing Documents"):
6
<PAGE> 7
(a) The Trust Agreement;
(b) The Company's Bylaws, as amended and in effect as of the date
of this Agreement (such Bylaws, as they may be amended from
time to time hereafter, the "Bylaws");
(c) Resolutions of the Company's Board of Trustees authorizing the
appointment of Sierra Services as a Distributor of the Shares
of the Fund and authorizing this Agreement;
(d) The Company's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act,
as filed with the Securities and Exchange Commission (the
"SEC") on February 27, 1989;
(e) The Company's registration statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act"), (File No.
33- 27489) and under the 1940 Act as filed with the SEC on
March 10, 1989 relating to the Shares of the Fund, and all
amendments thereto;
(f) The most recent Prospectus relating to Shares of the Fund; and
(g) All documents, notices and reports filed with the SEC.
5.2 The Company authorizes Sierra Services and any Broker with whom
Sierra Services has entered into Dealer Agreements to use, in connection with
the sale of Shares, any Prospectus furnished by the Company from time to time.
Sierra Services shall not, and shall take reasonable steps to ensure that no
Broker will, give any information nor make any representations, concerning any
aspect of the Shares, the Funds or the Company to any persons or entity unless
such information or representations are contained in the Registration Statement
and/or the pertinent Prospectus, or are contained in sales or promotional
literature approved by the Company. Sierra Services shall not use, and shall
take reasonable steps to ensure that no Broker will, use any sales promotion
material or advertising that has not been previously approved by the Company.
6. Duties of the Company
6.1 The Company agrees at its own expense to execute any and all
documents, to furnish any and all information and to take any other actions
that may be reasonably necessary in connection with (a) the registration of
Shares under the 1933
7
<PAGE> 8
Act and (b) the qualification, pursuant to state securities laws, of the Shares
for sale in those states that Sierra Services may designate.
6.2 Information Reports; Financial Data. The Company shall
furnish to Sierra Services from time to time, for use in connection with the
sale of the Shares, such information reports with respect to the Company and
the Shares as Sierra Services may reasonably request. Such reports shall be
signed by officers of the Company duly authorized; the Company warrants the
statements contained in any reports so signed to be true and correct. The
Company shall furnish to Sierra Services, upon its request, (a) annual audits
of the Company's books and accounts made by independent public accountants
regularly retained by the Company, (b) semiannual unaudited financial
statements pertaining to the Company, (c) quarterly earnings statements
prepared by the Company, (d) a monthly itemized list of the securities in the
portfolios of all Funds, (e) monthly balance sheets as soon as practicable
after the end of each month and (f) such additional information regarding the
Company's financial condition as Sierra Services may reasonably request from
time to time.
7. Compliance; Standard of Care
7.1 Compliance. In performing any activity as distributor for
Shares of any Fund pursuant to this Agreement, Sierra Services shall comply
with:
(a) all applicable provisions of the 1940 Act and any rules and
regulations thereunder;
(b) all provisions of the Registration Statement relating of the
Fund;
(c) all provisions of the Fund's Governing Documents;
(d) all rules and regulations of the NASD and all other
self-regulatory organizations applicable to the sale of
investment company shares; and
(e) any other applicable provisions of federal and state law.
Sierra Services shall use its best efforts to maintain all required
licenses and registrations for itself as a broker or dealer, and for its
registered representatives or other associated persons, under the 1934 Act and
applicable state securities or blue sky laws. Sierra Services shall be
responsible for ensuring that each Broker and its representatives engaged in
selling Shares of the Funds shall be duly and appropriately licensed,
registered and otherwise qualified to do so under the 1934 Act and any
applicable blue sky laws of each state or other jurisdiction in which such
Shares may
8
<PAGE> 9
be sold. Sierra Services shall be responsible for ensuring that each Broker
supervises its representatives. Expulsion or suspension of Sierra Services
from the NASD shall automatically terminate this Agreement on the effective
date of such expulsion or suspension.
7.2 Direction of the Board. Any distribution activities
undertaken by Sierra Services pursuant to this Agreement or any other services
undertaken by Sierra Services on behalf of the Company or any Fund, shall at
all times be subject to any directives of the Board of Trustees of the Company.
7.3 Standard of Care. In performing its duties under this
Agreement, Sierra Services shall be obligated to exercise care and diligence
and to act in good faith and to use its best efforts within reasonable limits
in performing all services provided for under this Agreement, but shall not be
liable for any act or omission not constituting Sierra Services' willful
misfeasance, bad faith or gross negligence, or Sierra Services' reckless
disregard of its duties under this Agreement.
8. Representations and Warranties
8.1 Distribution Plan. The Company represents and warrants to Sierra
Services that the payment by the Company of fees under this Agreement for
distribution services rendered with respect to any Shares of any Fund is
authorized pursuant to the Company's Class B Distribution Plan and Class S
Distribution Plan, as amended, pertaining to such Shares of such Fund, adopted
in accordance with Rule 12b-1 under the 1940 Act (a "Plan").
8.2 Registration Statements and Prospectuses. The Company
represents to Sierra Services that all Registration Statements and Prospectuses
filed by the Company with the SEC under the 1933 Act and the 1940 Act with
respect to the Shares are in conformity with the requirements of the 1933 Act,
the 1940 Act and the rules and regulations of the SEC thereunder. The Company
represents and warrants to Sierra Services that any Registration Statement or
Prospectus, when it becomes effective, will include all statements required to
be contained therein in conformity with the 1933 Act, the 1940 Act and the
rules and regulations of the SEC; that all statements of fact contained in any
Registration Statement or Prospectus will be true and correct when such
Registration Statement or Prospectus becomes effective; and that no
Registration Statement nor any Prospectus, when the same shall become
effective, will include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of Shares. Sierra Services
may, but shall not be obligated to, propose from time to time such amendment(s)
to any Registration Statement and such supplement(s) to any
9
<PAGE> 10
Prospectus as, in the light of future developments, may, in the opinion of
Sierra Services or its counsel, be necessary or advisable. The Company shall
not file any amendment to any Registration Statement or supplement to any
Prospectus without giving Sierra Services reasonable notice thereof in advance;
provided, however, that nothing contained in this Agreement shall in any way
limit the Company's right to file at any time such amendment(s) to any
Registration Statement and supplement(s) to any Prospectus, of whatever
character, as the Company may deem advisable, such right being in all respects
absolute and unconditional.
8.3 Charter. The Company represents that a copy of its Master
Trust Agreement dated February 22, 1989, together with all amendments thereto,
is on file in the office of the Secretary of the Commonwealth of Massachusetts
and the office of the City Clerk of Boston, Massachusetts.
8.4 Authorization. Sierra Services represents to the Company that
it is authorized to perform the services described herein.
8.5 NASD. Sierra Services represents to the Company that it is a
member in good standing of the NASD.
9. Indemnification
9.1 Indemnification by the Company. The Company agrees to
indemnify, defend and hold Sierra Services, its officers, directors, agents,
employees, and any person who controls Sierra Services within the meaning of
Section 15 of the 1933 Act (Sierra Services and such persons, collectively,
"SISC Indemnified Persons"), free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) that any SISC Indemnified Person may incur under the
1933 Act, the 1940 Act or common law or otherwise, arising out of or based upon
any untrue statement (or alleged untrue statement) of a material fact contained
in any Registration Statement or Prospectus relating to Shares of the Company,
or arising out of or based upon any omission (or alleged omission) to state a
material fact required to be stated in any Registration Statement or Prospectus
relating to Shares of the Company, or necessary to make the statements in such
Registration Statement or Prospectus not misleading, or arising out of or based
upon the Company's material breach of this Agreement; provided, however, that
the Company's agreement to indemnify SISC Indemnified Persons shall not be
deemed to cover any claims, demands, liabilities or expenses arising out of or
based upon any statements or representations made by Sierra Services or its
representatives or agents other than such statements and representations as are
contained in any Registration Statement or
10
<PAGE> 11
Prospectus and in such financial and other statements regarding Shares of the
Funds as are furnished to Sierra Services pursuant to Sections 5.1 and 6.2 of
this Agreement; and provided further, that the Company's agreement to indemnify
Sierra Services and the Company's representations and warranties hereinbefore
set forth in Section 8 of this Agreement shall not be deemed to cover any
liability to the Company or its shareholders to which Sierra Services would
otherwise be subject by reason of Sierra Services' willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
Sierra Services' reckless disregard of its obligations and duties under this
Agreement.
The Company's agreement to indemnify SISC Indemnified Persons is
expressly conditioned upon such SISC Indemnified Person's notifying the
Company, or causing the Company to be notified, of any action brought against
such SISC Indemnified Person, such notification to be given by letter,
telegram, telecopy or facsimile addressed to the Company at its principal
office, within ten (10) days after the summons or other first legal process
shall be served; provided that the failure to provide such notification within
such time limit shall limit the Company's obligation to indemnify such persons
only to the extent such failure causes prejudice to the interests of the
Company with respect to such action. The failure so to notify the Company of
any such action shall not relieve the Company from any liability that the
Company may have to the person against whom such action is brought by reason of
any such untrue (or alleged untrue) statement or omission (or alleged omission)
otherwise than on account of the Company's indemnity agreement contained in
this Section 9.1. The Company's indemnification agreement contained in this
Section 9.1 and the Company's representations and warranties in this Agreement
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any SISC Indemnified Person, and shall
survive the delivery of any Shares and, to the extent permitted by law, the
termination of this Agreement. This agreement of indemnity will inure
exclusively to the benefit of SISC Indemnified Persons and their respective
estates or successors, as applicable.
9.2 Indemnification by Sierra Services. Sierra Services agrees to
indemnify, defend and hold the Company, its officers, directors, agents,
employees, and any person who controls the Company within the meaning of
Section 15 of the 1933 Act (the Company and such persons, collectively, "Trust
Indemnified Persons"), free and harmless from and against any and all claims,
demands, liabilities and expenses (including the costs of investigating or
defending such claims, demands or liabilities and any counsel fees incurred in
connection therewith) that any Trust Indemnified Person may incur under the
1933 Act, the 1940 Act or common law or otherwise, but only to the extent that
such liability or expense incurred by such Trust Indemnified Person shall arise
out of or be based upon (a) any unauthorized sales literature, advertisements,
information, statements or representations or (b) any untrue statement (or
alleged untrue statement) of a material fact contained in information furnished
in
11
<PAGE> 12
writing by Sierra Services to the Company and used in the answers to any of the
items of the Registration Statement or in the corresponding statements made in
any Prospectus, or shall arise out of or be based upon any omission (or alleged
omission) to state a material fact in connection with such information
furnished in writing by Sierra Services to the Company and required to be
stated in such answers or necessary to make such information not misleading, or
shall arise out of or be based upon SISC's material breach of this Agreement.
Sierra Services' agreement to indemnify Trust Indemnified Persons is
expressly conditioned upon such Trust Indemnified Person's notifying Sierra
Services, or causing Sierra Services to be notified, of any action brought
against such Trust Indemnified Person, such notification to be given by letter,
telegram, telecopy or facsimile addressed to Sierra Services at its principal
office, within ten (10) days after the summons or other first legal process
shall be served; provided that the failure to provide such notification within
such time limit shall limit Sierra Services' obligation to indemnify such
persons only to the extent such failure causes prejudice to the interests of
Sierra Services with respect to such action. The failure so to notify Sierra
Services of any such action shall not relieve Sierra Services from any
liability that Sierra Services may have to the Trust Indemnified Person by
reason of any such untrue (or alleged untrue) statement or omission (or alleged
omission) otherwise than on account of Sierra Services' indemnity agreement
contained in this Section 9.2. Sierra Services' indemnification agreement
contained in this Section 9.2 and its representations and warranties in this
Agreement shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Trust Indemnified Person, and shall
survive the delivery of any Shares and, to the extent permitted by law, the
termination of this Agreement. This agreement of indemnity will inure
exclusively to the benefit of Trust Indemnified Persons and their respective
estates or successors, as applicable.
9.3 Assumption of Defense. An indemnifying party will be entitled
to assume the defense of any suit brought to enforce any such claim, demand or
liability, but, in such case, such defense shall be conducted by counsel of
good standing chosen by the indemnifying party and approved by the indemnified
party (provided that such counsel shall not, except with the consent of an
indemnified party that is a SISC Indemnified Person, be counsel to any
investment fund of the Company); provided that the indemnified party shall be
entitled to conduct its own defense with counsel selected by it if such
indemnified party is advised by counsel that there may be a conflict of
interest between the indemnified party and the indemnifying party with respect
to such defense. In the event the indemnifying party elects to assume the
defense of any such suit and retain counsel of good standing approved by the
indemnified party, the defendant or defendants in such suit shall bear the fees
and expenses of any additional counsel retained by any of them; but in case the
indemnifying party
12
<PAGE> 13
does not elect or is not permitted to assume the defense of any such suit, or
in case the indemnified party does not approve of counsel chosen by the
indemnifying party, the indemnifying party will reimburse the indemnified party
named as defendant or defendants in such suit, for the fees and expenses of any
counsel retained by such indemnified party.
9.4 Notice. Each of Sierra Services and the Company agrees to
notify the other promptly of the commencement of any litigation or proceedings
against it or any of its officers or directors or Trustees, as applicable, in
connection with the issuance and sale of any Shares.
9.5 Contribution. If the indemnification provided for in this
Section shall for any reason be unavailable to or insufficient to hold harmless
a party indemnified hereunder in respect of any claim, demand, liability or
expense, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such claim, demand, liability or expense, or action in respect thereof, (a)
in such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and Sierra Services on the other from
the offering of the Shares or (b) if the allocation provided by clause (a)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (a) above but
also the relative fault of the Company (and its agents other than Sierra
Services) on the one hand and Sierra Services on the other with respect to the
statements or omissions which resulted in such claim, demand, liability or
expense, or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and Sierra Services on the other with respect to the offering of the Shares
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Shares purchased under this agreement (before deducting
expenses) received by the Company bear to the total net underwriting discounts
and commissions received by Sierra Services with respect to the Shares
purchased under this Agreement and retained by Sierra Services after payments
to the selling agents retained by it. The relative fault shall be determined
by reference to whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company (or any of its agents other than Sierra
Services) or by Sierra Services, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and Sierra Services agree that it would not
be just and equitable if contributions pursuant to this Section were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein.
The amount paid or payable by an indemnified party as a result of the claim,
demand, liability or expense, or action in respect thereof, referred to above
in this Section shall be deemed to include, for purposes of this Section, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or
13
<PAGE> 14
claim. Notwithstanding the provisions of this Section, Sierra Services shall
not be required to contribute any amount in excess of the amount by which the
total net underwriting discounts and commissions received by Sierra Services
with respect to the Shares purchased under this Agreement and retained by
Sierra Services after payments to the selling agents retained by it exceed the
amount of any damages which Sierra Services has otherwise paid or become liable
to pay by reason of any untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
10. Notice to Sierra Services.
The Company agrees to advise Sierra Services immediately in writing:
(a) of any request by the SEC for amendments to the Registration
Statement or Prospectus then in effect or for additional
information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or
Prospectus then in effect or the initiation of any proceeding
for that purpose;
(c) of the happening of any event that makes untrue any statement
of a material fact made in the Registration Statement or
Prospectus then in effect or that requires the making of a
change in such Registration Statement or Prospectus in order
to make the statements therein not misleading; and
(d) of all actions of the SEC with respect to any amendment to any
Registration Statement or Prospectus that may from time to
time be filed with the SEC.
11. Term of Agreement.
This Agreement shall become effective as of the date first set forth
above, shall remain in effect for an initial period of two years, and shall
continue thereafter from year to year for so long as such continuance is
specifically approved at least annually by
14
<PAGE> 15
(a) the Company's Board of Trustees or a vote of a "majority of
the outstanding voting securities" (as defined in the 1940
Act) of the Company; and
(b) a vote of a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Company and who
have no direct or indirect financial interest in the operation
of the Plan, in this Agreement or any other agreement related
to the Plan (the "Qualified Trustees"), such vote cast in
person at a meeting called for the purpose of the voting on
such approval.
12. Termination.
12.1 Termination on Assignment. This Agreement shall terminate
automatically in the event of its "assignment" (as defined in the 1940 Act), it
being understood that this Agreement has been approved by the Trustees,
including the Qualified Trustees, in contemplation of a Purchase and Sale
Agreement to be entered into by Sierra Services, Corporate Asset Funding
Company, Inc. and Citicorp North America, Inc., which provides for a transfer
of receivables relating to the Distribution Fees and CDSCs payable to Sierra
Services under this Agreement. Sierra Services agrees to notify the Company of
any circumstances that might result in this Agreement being deemed to be
assigned.
12.2 Voluntary Termination. The Company may terminate this
Agreement with respect to any Fund, or in its entirety, without penalty, on 60
days' written notice to Sierra Services, by vote of a majority of the Qualified
Trustees or by vote of a "majority of the outstanding voting securities" of
such Fund or the Company, as the case may be. Sierra Services may terminate
this Agreement, with respect to any Fund, or in its entirety, on 90 days'
written notice to the Company. Termination of this Agreement with respect to
any class of shares of any Fund shall not cause this Agreement to terminate
with respect to any other class of shares of such Fund or any Shares of any
other Fund. Notice of termination as provided for in this Section may be
waived by either party, such waiver to be in writing.
12.3 Continued Payment. With respect to Shares of any Fund sold
pursuant to this Agreement, the Company shall continue payment to Sierra
Services of (a) Sierra Services' Allocable Portion, as defined in Schedule 2 to
this Agreement, of the Contingent Deferred Sales Charges attributable to such
Shares of such Fund, and (b) so long as there has been no Complete Termination
(as defined in the applicable Plan), Sierra Services' Allocable Portion of the
Distribution Fee attributable to such Shares of
15
<PAGE> 16
such Fund, in either case notwithstanding termination of this Agreement
according to its terms.
13. Miscellaneous.
13.1 Non-Exclusivity. The Company recognizes that Sierra Services
and its affiliates shall be free to render distribution or other services to
others (including other investment companies) and to engage in other
activities. The Company agrees that the directors, officers and employees of
Sierra Services shall not be prohibited by reason of this Agreement from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, directors, trustees or officers of any
other firm or corporation, including the Company and other investment
companies. Sierra Services acknowledges that its appointment as distributor
pursuant to this Agreement is not exclusive, and that the Company may appoint
one or more other persons to act as distributor for the Shares of one or more
Funds.
13.2 Independent Contractor. Sierra Services and any Broker shall
be independent contractors and none of them nor any of their directors,
officers or employees shall, as such, be deemed employees of the Company.
13.3 Notices. Any notices under this Agreement shall be in
writing, mailed postage paid or sent by telegram, telecopy, or facsimile to the
other party at such address as such other party may designate from time to time
for the receipt of such notice.
13.4 Integration; Amendment; Counterparts; Governing Law.
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof, and may not be modified,
amended, or waived except by a written instrument duly executed by the party
against whom such modification, amendment, or waiver is sought to be enforced.
If any provisions of this Agreement shall be held or made invalid by a court
decision, statute rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
This Agreement shall be subject to the provisions of the 1940 Act and
the 1934 Act and the rules, regulations and rulings thereunder, and of the
applicable rules and regulations of the NASD, from time to time in effect, and
the terms hereof shall be interpreted and construed in accordance therewith.
16
<PAGE> 17
This Agreement may be executed in any number of counterparts, each of
which will be deemed an original, but all of which together will constitute one
and the same instrument.
This Agreement shall be governed in accordance with the internal
substantive laws of the Commonwealth of Massachusetts.
It is expressly agreed that the obligations of the Company hereunder
shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Company personally, but bind only the
trust property of the Company, as provided in the Trust Agreement. The
execution and delivery of this Agreement have been authorized by the Trustees
and effected by an authorized officer of the Company, acting as such, and
neither such authorization nor such execution and delivery shall be deemed to
have been made by any Trustee or officer individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Company as provided in the Trust Agreement.
Please confirm that the foregoing accurately sets forth our agreement
by indicating your acceptance hereof at the place below indicated, whereupon it
shall become a binding agreement between us as of the date first set forth
above.
Very truly yours,
SIERRA TRUST FUNDS
By /s/ F. Brian Cerini
---------------------------
Name: F. Brian Cerini
Title: President
ACCEPTED:
SIERRA INVESTMENT SERVICES CORPORATION
By /s/ Keith Pipes
------------------
Name: Keith Pipes
Authorized Officer
17
<PAGE> 18
SIERRA TRUST FUNDS
CLASS B AND CLASS S DISTRIBUTION AGREEMENT
Schedule 1
Date of Agreement: December 20, 1995
Date of this Schedule: December 20, 1995
<TABLE>
<CAPTION>
NAME OF FUND CLASS(ES) COVERED
------------ -----------------
<S> <C> <C>
1. U.S. Government Money Fund Class B
Class S
2. California Money Fund Class B
Class S
3. Global Money Fund Class B
Class S
4. U.S. Government Fund Class B
Class S
5. California Municipal Fund Class B
Class S
6. Growth and Income Fund Class B
Class S
7. Corporate Income Fund Class B
Class S
8. National Municipal Fund Class B
Class S
9. Emerging Growth Fund Class B
Class S
10. International Growth Fund Class B
Class S
11. Short Term Global Government Fund Class B
Class S
12. Growth Fund Class B
Class S
13. Florida Insured Municipal Fund Class B
Class S
14. Short Term High Quality Government Fund Class B
Class S
15. California Insured Intermediate Municipal Fund Class B
Class S
</TABLE>
<PAGE> 19
SIERRA TRUST FUNDS
CLASS B AND CLASS S DISTRIBUTION AGREEMENT
Schedule 2
Date of Agreement: December 20, 1995
Date of this Schedule: December 20, 1995
ALLOCABLE PORTIONS
Sierra Services' "Allocable Portion" of the Distribution Fee payable
on any class of Shares of any Fund, or of the CDSC in respect of any Shares of
any Fund shall be that percentage allocated to Sierra Services in accordance
with the allocation formulas set forth in Parts C and D below, and the rules of
attribution set forth in Part B below.
Capitalized terms used in this Schedule without definition and defined
in the Agreement shall have the same meanings herein as therein.
PART A: DEFINITIONS
"Commencement Date" means, in respect of any class of Shares of any
Fund, the date of the first sale of a Commission Share of such class of such
Fund during the term of the Agreement.
"Commission Share" means, in respect of any Fund, each Share of such
Fund issued under circumstances that would normally give rise to an obligation
of the holder of such Share to pay a CDSC upon redemption of such Share,
including, without limitation, any Share of such Fund issued in connection with
a "Permitted Free Exchange" (as such term is defined in that certain Purchase
and Sale Agreement dated as of December 20, 1995 by and among Sierra Services,
Citicorp North America, Inc. and Corporate Asset Funding Company, Inc., as the
same shall be amended from time to time (the "Purchase Agreement")), provided
that no such Share shall cease to be a Commission Share prior to its redemption
(including a redemption in connection with a Permitted Free Exchange) or
conversion even though the obligation of such holder to pay a CDSC shall have
expired or the CDSC on such Share shall have been waived.
"Cutoff Date" means, in respect of any class of Shares of any Fund,
the date of the last sale of a Commission Share of such class of such Fund
during the term of the Agreement.
"Distribution Fee" has the meaning given to the term "asset-based
sales charge" in Section 26(b)(8)(C) of the NASD Rules.
"Free Exchange Share" means, with respect to any Fund, any Free Share
of such Fund issued in connection with a Permitted Free Exchange.
<PAGE> 20
"Free New Share" means, in respect of any Fund, any Free Share that is
not an Free Exchange Share.
"Free Share" means, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation, any Share issued
in connection with the reinvestment of dividends.
"Non-Omnibus Shares" means, in respect of any Fund, all Shares of such
Fund other than Omnibus Shares.
"Omnibus Shares" means, in respect of any Fund, the Shares of such
Fund in any Omnibus Account on the records of a Fund maintained by the Transfer
Agent, for which account such broker-dealer provides subtransfer agency
services for that Fund.
"Sub-Transfer Agent" means, in respect of any Fund, the record owner
of any Omnibus Account.
PART B: ATTRIBUTION
Shares of each class of Shares of each Fund, which Shares are
outstanding from time to time, shall be attributed to either Sierra Services or
to any other person named as a distributor of Shares of such class of such Fund
(such person, an "Other Distributor") in accordance with the following rules:
(1) Commission Shares: Each Commission Share of a Fund is
specifically tracked, on the records maintained by the Transfer Agent or
Sub-Transfer Agents for such Fund with reference to an "original issuance date"
(a) of the Commission Share in question or (b) of the Commission Share from
which the Commission Share in question derived through one or more Permitted
Free Exchanges.
The Commission Shares of each class of Shares of each Fund outstanding
from time to time attributed to Sierra Services shall be: (a) those Commission
Shares of such class of such Fund issued, on or after the Commencement Date and
on or prior to the Cutoff Date for such class of such Fund, other than in a
Permitted Free Exchange, and (b) those Commission Shares of such class of such
Fund that are (i) issued in a Permitted Free Exchange in exchange for (ii)
Shares of another Fund that had been attributed to Sierra Services in
accordance with the preceding clause (a) of this paragraph, in each case
determined in accordance with the records maintained by the Transfer Agent or
Sub-Transfer Agents for such Fund.
The Commission Shares of each class of Shares of each Fund outstanding
from time to time attributed to Other Distributors shall be: (a) those
Commission Shares of such class of Shares of such Fund issued, prior to the
Commencement Date or after the Cutoff Date for such class of Shares of such
Fund, other than in a Permitted Free
2
<PAGE> 21
Exchange, and (b) those Commission Shares of such class of such Fund that are
(i) issued in a Permitted Free Exchange in exchange for (ii) Shares of another
Fund that were attributed to an Other Distributor in accordance with the
immediately preceding clause (a) of this paragraph, in each case determined in
accordance with the records maintained by the Transfer Agent or Sub-Transfer
Agents for such Fund.
(2) Free Shares. Free Shares of each class of Shares of each Fund
are not specifically tracked by the Transfer Agent or Sub-Transfer Agents for
such Fund. The number of Free Shares of each class of Shares of each Fund
outstanding from time to time shall be attributed to either Sierra Services or
an Other Distributor in accordance with records maintained by Sierra Services
in accordance with this paragraph (2).
(a) The number of Non-Omnibus Free New Shares, of a class of any
Fund, that are issued on or after the Commencement Date for
such class of such Fund and that are attributed to Sierra
Services shall be determined pursuant to the following
formula.
For such Shares issued during any calendar month:
FNS x [(PCS + PFS)/(TCS + TFS)]
where:
FNS = Non-Omnibus Free New Shares of such class of
such Fund that are issued during such calendar
month
PCS = Non-Omnibus Commission Shares of such class of
such Fund that have been attributed to Sierra
Services and that were outstanding as of the
close of business on the last business day of
the immediately preceding calendar month
PFS = Non-Omnibus Free Shares of such class of such
Fund that have been attributed to Sierra
Services and that were outstanding as of the
close of business on the last business day of
the immediately preceding calendar month
TCS = Non-Omnibus Commission Shares of such class of
such Fund that were outstanding as of the
close of business on the last business day of
the immediately preceding calendar month
TFS = Non-Omnibus Free Shares of such class of such
Fund that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month
3
<PAGE> 22
The balance of such Non-Omnibus Free New Shares issued during
such calendar month shall be attributed to Other Distributors.
(b) The number of Omnibus Free New Shares, of a class of any Fund,
that are issued on or after the Commencement Date for such
class of such Fund and that are attributed to Sierra Services
shall be determined pursuant to the following formula.
For such Shares issued during any calendar month:
OFNS x [(POCS + POFS)/(TOCS + TOFS)]
where:
OFS = Omnibus Free New Shares of such class of such
Fund that are issued during such calendar month
POCS = Omnibus Commission Shares of such class of
such Fund that have been attributed to Sierra
Services and that were outstanding as of the
close of business on the last business day of
the immediately preceding calendar month.
POFS = Omnibus Free Shares of such class of such Fund
that have been attributed to Sierra Services
and that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month.
TOCS = Omnibus Commission Shares of such class of
such Fund that were outstanding as of the
close of business on the last business day of
the immediately preceding calendar month.
TOFS = Omnibus Free Shares of such class of such Fund
that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month.
The balance of such Omnibus Free New Shares issued during such
calendar month shall be attributed to Other Distributors.
(c) The number of Non-Omnibus Free Exchange Shares, of a class of
any Fund (the "New Fund"), that are issued on or after the
Commencement Date for such class of such New Fund and that are
attributed to Sierra Services shall be determined pursuant to
the following formula.
4
<PAGE> 23
For such Shares issued during any calendar month in
exchange for Shares of any other Fund (each, an "Old
Fund"):
FES x (PFS(o)/TFS(o))
where:
FES = Non-Omnibus Free Exchange Shares of such class
of the New Fund that are issued during such
calendar month
PFS(o) = Non-Omnibus Free Shares of such class of the
Old Fund that had been attributed to Sierra
Services and that were outstanding as of the
close of business on the last business day of
the immediately preceding calendar month
TFS(o) = Non-Omnibus Free Shares of such class of the
Old Fund that were outstanding as of the close
of business on the last business day of the
immediately preceding calendar month
The balance of such Non-Omnibus Free Exchange Shares of the
New Fund issued during such calendar month shall be attributed
to Other Distributors.
(d) The number of Omnibus Free Exchange Shares, of a class of any
Fund (the "New Fund"), that are issued on or after the
Commencement Date for such class of such New Fund and that are
attributed to Sierra Services shall be determined pursuant to
the following formula.
For such Shares issued during any calendar month in
exchange for Shares of any other Fund (each, an "Old
Fund"):
OFES x (POFS(o)/TOFS(o))
where:
OFES = Omnibus Free Exchange Shares of such class of
the New Fund that are issued during such
calendar month
POFS(o) = Omnibus Free Shares of such class of the Old
Fund that had been attributed to Sierra
Services and that were outstanding as of the
close of business on the last business day of
the immediately preceding calendar month
5
<PAGE> 24
TOFS(o) = Omnibus Free Shares of such class of the Old
Fund that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month
The balance of such Omnibus Free Exchange Shares of the New
Fund issued during such calendar month shall be attributed to
Other Distributors.
(e) The number of Non-Omnibus Free Shares, of a class of any Fund,
that are redeemed or converted and that are attributed to
Sierra Services shall be determined pursuant to the following
formula.
For such Shares redeemed or converted during any calendar
month:
FSR x (PFS/TFS)
where:
FSR = Non-Omnibus Free Shares of such class of such
Fund that are redeemed or converted during such
calendar month
PFS = Non-Omnibus Free Shares of such class of such
Fund that have been attributed to Sierra
Services and that were outstanding as of the
close of business on the last business day of
the immediately preceding calendar month
TFS = Non-Omnibus Free Shares of such class of such
Fund that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month
The balance of such Non-Omnibus Free Shares redeemed or
converted during such calendar month shall be attributed to
Other Distributors.
(f) The number of Omnibus Free Shares, of a class of any Fund,
that are redeemed or converted and that are attributed to
Sierra Services shall be determined pursuant to the following
formula.
For such Shares redeemed or converted during any calendar
month:
OFSR x (POFS/TOFS)
where:
6
<PAGE> 25
OFSR = Omnibus Free Shares of such class of such Fund
that are redeemed or converted during such
calendar month
POFS = Omnibus Free Shares of such class of such Fund
that have been attributed to Sierra Services
and that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month
TOFS = Omnibus Free Shares of such class of such Fund
that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month
The balance of such Omnibus Free Shares redeemed or converted
during such calendar month shall be attributed to Other
Distributors.
(3) Timing of Attributions and Distributions.
(a) The attributions of all Non-Omnibus Shares of each class of
Shares of each Fund shall be made on a daily basis. The
attribution of all Omnibus Shares of each class of Shares of
each Fund shall be made monthly, for each calendar month no
later than five (5) days following the last day of such month.
(b) The parties to the Agreement acknowledge, expressly, that the
procedures for determining Sierra Services' Allocable Portion
of Free Shares of any Fund implicitly assume that Free Shares
issued in respect of dividends or other distributions made for
any calendar month will be issued not earlier than the first
business day of the following calendar month. Said parties
agree that such procedures shall be modified in the event Free
Shares attributable to reinvestment of such dividends or
distributions are issued in the same calendar month for which
such dividends are earned or distributions made.
PART C: ALLOCATION OF CDSCs
CDSCs will be allocated to either Sierra Services or an Other
Distributor depending upon whether the related redeemed Shares were attributed
to, respectively, Sierra Services or such Other Distributor in accordance with
Part B, Paragraph (1) above. CDSCs relating to Non- Omnibus Shares shall be
allocated to either Sierra Services or an Other Distributor on or prior to the
third business day of the calendar week immediately succeeding the calendar
week during which the Transfer Agent has paid such CDSC amount. CDSCs relating
to Omnibus Shares shall be allocated to either Sierra Services or an Other
Distributor on or prior to the tenth (10th) day of the calendar month
immediately succeeding the calendar month in which they are remitted
7
<PAGE> 26
by the Transfer Agent to the "Collection Account" as such term is defined in
that certain Amended and Restated Collection Agency Agreement dated as of
December 20, 1995 by and among Corporate Asset Funding Company, Inc., Citicorp
North America, Inc., Sierra Services, and Bankers Trust Company, as the same
may be amended from time to time (the "Collection Agency Agreement"), unless in
accordance with the Collection Agency Agreement more frequent allocations are
required.
PART D: ALLOCATION OF DISTRIBUTION FEE
The Distribution Fee accruing in respect of each class of Shares of
each Fund during any calendar month and that is allocated to Sierra Services
shall be determined pursuant to the following formula:
A x [(B + C)/(D + E)]
where:
A = Distribution Fee accrued in respect of such class of
Shares of such Fund during such calendar month.
B = Shares of such class of such Fund attributed to
Sierra Services and outstanding as of the close of
business on the last business day of the immediately
preceding calendar month times the net asset value
per share of such Shares as of such time.
C = Shares of such class of such Fund attributed to
Sierra Services and outstanding as of the close of
business on the last business day of such calendar
month times the net asset value per share of such
Shares as of such time.
D = Total Shares of such class of such Fund outstanding
as of the close of business on the last business day
of the immediately preceding calendar month times
the net asset value per share of such Shares as of
such time.
E = Total Shares of such class of such Fund outstanding
as of the close of business on the last business day
of such calendar month times the net asset value per
share of such Shares as of such time.
The balance of the Distribution Fee in respect of such class of Shares
of such Fund accruing during such calendar month shall be allocated to Other
Distributors.
The allocations contemplated by this Part D of Distribution Fees
accruing during any calendar month shall be made on or prior to the tenth
(10th) day of the immediately
8
<PAGE> 27
following calendar month and in all cases prior to the payment of such Fees
pursuant to the terms of the Agreement.
9
<PAGE> 1
Exhibit 6(l)
SIERRA TRUST FUNDS
AMENDED AND RESTATED CLASS B AND CLASS S DISTRIBUTION AGREEMENT
As Amended and Restated as of December 20, 1995
Funds Distributor, Inc.
Tenth Floor
One Exchange Place
Boston, MA 02109
Ladies and Gentlemen:
This is to confirm that, whereas the undersigned Sierra Trust Funds
(the "Company"), a business trust organized under the laws of the Commonwealth
of Massachusetts and registered as an open-end, management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), and
Funds Distributor, Inc. ("FDI"), a corporation organized under the laws of the
Commonwealth of Massachusetts, have entered into a Class B and Class S
Distribution Agreement dated as of July 28, 1994 (the "Original Agreement"),
pursuant to which the Company and FDI have agreed that FDI shall act as a
distributor of certain classes of shares of beneficial interest that are
identified on Schedule 1 attached hereto and that are issued by the Company
with respect to certain of its series as identified on such Schedule 1 (shares
of such identified classes of such identified series, the "Shares"), each of
which series is a separate investment fund (a "Fund"), and whereas the Company
and FDI desire to amend and restate the Original Agreement in the form hereof
(the Original Agreement as amended and restated hereby, the "Agreement"), now,
therefore, in consideration of the mutual promises and covenants hereinafter
contained, the Company and FDI do agree as follows:
1. Appointment
The Company hereby appoints FDI as agent of the Company to act, for
the period and on the terms set forth in this Agreement, as a distributor of
the Funds' Shares covered by the Company's registration statement (the
"Registration Statement"), prospectuses and statements of additional
information as in effect from time to time under the Securities Act of 1933, as
amended (the "1933 Act"), and the 1940 Act, and FDI accepts such appointment
and agrees to render the services herein described for the compensation herein
provided.
1
<PAGE> 2
As used in this Agreement, the terms "registration statement,"
"prospectus," and "statement of additional information" shall mean any
registration statement, prospectus and statement of additional information
filed by the Company with the SEC and any amendments thereof and supplements
thereto which at any time shall have been filed with the SEC. "Prospectus"
shall mean, with respect to any Shares of any Fund at any time, the
then-current prospectus and statement of additional information relating to
such Shares. The Company and FDI acknowledge expressly that references in this
Agreement to the "term" or "period" of this Agreement shall include the term or
period of the Original Agreement in addition to the period commencing on the
effective date of this amendment and restatement.
2. Sales of Shares
a. Authorization. The Company hereby authorizes FDI to sell
Shares of the Funds, and FDI agrees to use its best efforts to solicit orders
for the sale of such Shares, at such Shares' public offering price, as
determined in accordance with the Registration Statement. FDI shall have the
right to order from the Company the Shares of the Funds needed, but not more
than needed (correcting for any clerical errors or errors of transmission), to
fill such orders as are unconditional.
b. Selling Broker-Dealers and Other Agents. FDI may, as
principal and on its own behalf, enter into agreements ("Dealer Agreements"),
on such terms and conditions as FDI determines are not inconsistent with this
Agreement, with (a) any broker-dealer who is (i) registered under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), (ii) registered
as required under applicable state securities or blue sky laws, and (iii) a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and (b) any other person (as such term is defined in the 1934 Act)
that is not required, for purposes of effecting transactions in securities, to
be registered under the 1934 Act, but is registered as required under
applicable state securities or blue sky laws, authorizing such broker- dealers
and other persons (collectively, "Brokers") to act as agents in connection with
the sale of the Shares of the Funds (which may include accepting orders for the
purchase or redemption of Shares, responding to inquiries regarding the Company
or the Funds, and performing other related functions). Expulsion or suspension
from the NASD of any Broker required to be registered under the 1934 Act shall
automatically terminate such Broker's Dealer Agreement with FDI for sales of
Shares as of the effective date of such expulsion or suspension.
c. Refusal and Suspension of Sales. Each of FDI and the Company
reserves the right to refuse at any time or times (a) to sell any Shares for
any reason, and (b) to accept an order for Shares for any reason. FDI
acknowledges specifically
2
<PAGE> 3
that, whenever in the judgment of the Company's officers such action is
warranted for any reason, including, without limitation, market, economic or
political conditions, The Company may decline to accept any orders for, or make
any sales of, any Shares of any Fund until such time as those officers deem it
advisable to accept such orders and to make such sales.
No Shares shall be offered and no orders for the purchase or sale of
Shares under any provisions of this Agreement shall be accepted by the Company
(a) if and so long as the effectiveness of the Registration Statement or any
necessary amendments thereto shall be suspended under any provisions of the
1933 Act, or (b) if and so long as a current prospectus as required by Section
5(b)(2) of the 1933 Act is not on file with the SEC; provided, however, that
nothing contained in this Section 2c shall in any way restrict or have an
application to or bearing upon the Company's obligation to repurchase Shares
from any holder thereof in accordance with the provisions of the Prospectus or
the Company's Master Trust Agreement dated February 22, 1989, together with all
amendments thereto (as so amended, the "Trust Agreement").
3. Distribution Services and Expenses
a. Distribution Expenses. FDI will bear all expenses in
connection with the performance of its services and the incurring of
distribution expenses under this Agreement. For purposes of this Agreement,
"distribution expenses" of FDI shall mean all expenses borne by FDI or by any
other person with which FDI has an agreement (including but not limited to
Dealer Agreements) approved by the Company, which expenses represent payment
for activities primarily intended to result in the sale of Shares, including,
but not limited to, the following (provided, that "distribution expenses" shall
not include any expenditures in connection with services that FDI or any other
person have agreed to bear or provide without reimbursement or compensation):
(1) payments made to, and expenses of, registered
representatives and other employees of FDI or of
Brokers;
(2) payments made to, and expenses of, persons providing
support services in connection with the distribution
of Shares, including but not limited to office space
and equipment, telephone facilities, answering
routine inquiries regarding the Company, and
processing transactions;
(3) costs relating to the formulation and implementation
of marketing and promotional activities, including
but not limited to direct mail
3
<PAGE> 4
promotions and television, radio, newspaper, magazine
and other mass media advertising, and costs involved
in preparing, printing and distributing advertising
and sales literature pertaining to the Company or the
Funds;
(4) costs of printing and distributing Prospectuses and
reports of the Company to prospective Shareholders of
the Funds;
(5) costs involved in obtaining whatever information,
analyses and reports with respect to marketing and
promotional activities that the Company may, from
time to time, deem advisable; and
(6) costs of financing any of the foregoing.
b. Quarterly Expense Reports. FDI shall prepare and deliver
quarterly reports to the Treasurer of the Company and to the advisor,
administrator and/or sub-administrator of each Fund, showing distribution
expenses incurred pursuant to this Agreement and the relevant Plan (as defined
in Section 8a of this Agreement) and the purposes therefor, as well as any
supplemental reports as the Trustees, from time to time, may reasonably
request.
c. Scope of Distribution Services. Distribution services
rendered pursuant to this Agreement with respect to any Share of any Fund shall
be deemed to be complete upon the issuance and sale of such Share.
d. Company Expenses. FDI shall not be liable to assume any other
expenses of the Company or any Fund, which other expenses may include without
limitation: investment advisory fees; charges and expenses of any registrar,
custodian or depositary appointed by the Company for safekeeping of its cash,
portfolio securities, or other property, and any transfer, dividend or
accounting agent(s) appointed by the Company; brokers' commissions chargeable
to the Company in connection with its portfolio securities transactions; all
taxes, including securities issuance and transfer taxes; all costs and expenses
in connection with maintenance of registration of the Company, any Fund and the
Shares with the SEC, various states, and other jurisdictions (including filing
and legal fees and disbursements of counsel); expenses of printing, including
typesetting, and distributing Prospectuses to the Funds' shareholders; all
expenses of shareholders' and Trustees' meetings and of preparing, printing and
mailing proxy statements and reports to shareholders; fees and expenses of
Trustees; all expenses incident to the payment of any dividend, distribution,
withdrawal or redemption, whether in Shares or in cash; charges and expenses of
any outside service used for pricing of Shares; charges and expenses of legal
counsel and independent accountants, in connection with any matter relating to
the Company; membership dues of industry associations; interest payable on
borrowings; postage;
4
<PAGE> 5
insurance premiums on property or personnel (including officers and Trustees)
of the Company that inure to its benefit; extraordinary expenses (including but
not limited to legal claims and liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs of operations
unless otherwise explicitly provided herein.
4. Compensation
a. Distribution Fee. The Company will pay Distributor in
consideration of its services in connection with the distribution of Shares of
each Fund its "Allocable Portion", as defined in Schedule 2 to this Agreement,
of the distribution fee allowable under the rules of fair practice of the
National Association of Securities Dealers, Inc. (the "Rules of Fair Practice")
in respect of such Shares of such Fund, which fee shall accrue daily and be
paid monthly as promptly as possible after the last day of each month but in
any event prior to the tenth day of the following calendar month, at an annual
rate of 0.75% per annum of the average daily net asset value of the such Shares
of such Fund, subject to the aggregate maximum limitation on the distribution
fee allowable under the Rules of Fair Practice and the Distribution Plan in
respect of such class of Shares ("Distribution Fee").
Distributor will be deemed to have fully earned its Allocable
Portion of the Distribution Fee payable in respect of Shares of each Fund upon
the sale of the "Commission Shares" (as defined in Schedule 2 to this
Agreement) of such Fund taken into account in determining such Distributor's
Allocable Portion of such Distribution Fee.
b. Contingent Deferred Sales Charges. The Company shall cause
its transfer agent (the "Transfer Agent") to withhold, from redemption proceeds
payable to holders of Shares of the Funds, all contingent deferred sales
charges properly payable by such holders in accordance with the terms of the
Prospectuses relating to such Shares ("CDSCs") and shall cause the Transfer
Agent to pay such amounts over as promptly as possible after the settlement
date for each redemption of such Shares. FDI's Allocable Portion (as defined
in Schedule 2 to this Agreement) of such CDSC amounts shall be payable to FDI
(or to persons to whom FDI directs the Company to make payments).
c. Other Services; Service Fee. Upon request of the Company's
Board of Trustees, FDI may, but shall be under no duty to, perform additional
services on behalf of the Company or any Fund, which services are not required
by this Agreement but may be performed by FDI in conformity with applicable
law. Any such services will be performed on behalf of the Company, and FDI may
impose additional charges for such
5
<PAGE> 6
services, which charges may be billed to the Company and subject to examination
by the Company's independent accountants. FDI's payment or assumption of any
expense of the Company that FDI is not required to pay or assume under this
Agreement shall not relieve FDI of any of its obligations to the Company or
obligate FDI to pay or assume any similar expense on any subsequent occasion.
The Distribution Fee payable pursuant to this Agreement shall not be
deemed to compensate FDI for any shareholder services it may provide to the
Company or any Fund pursuant to the relevant Plan, which services may include
processing of shareholder transactions, responding to inquiries from
shareholders concerning the status of their accounts and the operations of the
Company or any Fund, communicating with the Company and its transfer agent on
behalf of such shareholders, or providing other shareholder services, nor for
any expenses associated with the provision of such shareholder services,
including office space and equipment, and telephone facilities. Any such
shareholder services shall be provided pursuant to a separate agreement.
d. Directed Payment; Allocable Portion Calculations. FDI may
direct the Company to pay any part or all of the Distribution Fee or CDSCs
payable to FDI in respect of any Shares of any Fund directly to persons
providing funds to FDI to cover or otherwise enable the incurring of expenses
associated with distribution services, and the Company agrees to accept and to
comply with such direction. FDI shall, at its own expense and not the expense
of the Company or any Fund, provide the Company with any necessary calculations
of FDI's Allocable Portion of any Distribution Fee or CDSCs, and the Company
shall be entitled to rely conclusively on such calculations, without prejudice
to any claim it may have concerning the accuracy of such calculations.
e. Maximum Charges. Notwithstanding anything to the contrary
contained in this Agreement or in any relevant Plan, (a) the amount of
asset-based sales charges and CDSCs paid to FDI by any class of shares of any
Fund shall not exceed the amount permitted by the Rules of Fair Practice of the
NASD ("NASD Rules"), as in effect from time to time, and (b) the aggregate
amount of asset-based sales charges and CDSCs paid to FDI by any class of
shares of any Fund shall not exceed five and one-half percent (5 1/2%) of the
total issue price of such Shares plus interest thereon from the date of
issuance through the date of payment at the prime rate (determined in
accordance with the NASD Rules in effect from time to time) plus one percent
(1%) per annum.
6
<PAGE> 7
5. Disclosure and Sales Materials
a. Fund Governing Documents. The Company shall have furnished
FDI with copies, properly certified or authenticated as FDI may reasonably
request, of the following documents and of all amendments or supplements
thereto (such documents as so amended or supplemented, with respect to any
Fund, that Fund's "Governing Documents"):
(1) The Trust Agreement;
(2) The Company's Bylaws, as amended and in effect as of
the date of this Agreement (such Bylaws, as they may
be amended from time to time hereafter, the
"Bylaws");
(3) Resolutions of the Company's Board of Trustees
authorizing the appointment of FDI as a Distributor
of the Shares of the Fund and authorizing this
Agreement as hereby amended and restated;
(4) The Company's Notification of Registration filed
pursuant to Section 8(a) of the 1940 Act on Form N-8A
under the 1940 Act, as filed with the Securities and
Exchange Commission (the "SEC") on February 27, 1989;
(5) The Company's registration statement on Form N-1A
under the Securities Act of 1933, as amended (the
"1933 Act"), (File No. 33-27489) and under the 1940
Act as filed with the SEC on March 10, 1989 relating
to the Shares of the Fund, and all amendments
thereto;
(6) The most recent Prospectus relating to Shares of the
Fund; and
(7) All documents, notices and reports filed with the
SEC.
b. The Company authorizes FDI and any Broker with whom FDI has
entered into Dealer Agreements to use, in connection with the sale of Shares,
any Prospectus furnished by the Company from time to time. FDI shall not, and
shall take reasonable steps to ensure that no Broker will, give any information
nor make any representations, concerning any aspect of the Shares, the Funds or
the Company to any persons or entity unless such information or representations
are contained in the Registration Statement and/or the pertinent Prospectus, or
are contained in sales or promotional literature approved by the Company. FDI
shall not use, and shall take reasonable
7
<PAGE> 8
steps to ensure that no Broker will, use any sales promotion material or
advertising that has not been previously approved by the Company.
6. Duties of the Company
a. The Company agrees at its own expense to execute any and all
documents, to furnish any and all information and to take any other actions
that may be reasonably necessary in connection with (a) the registration of
Shares under the 1933 Act and (b) the qualification, pursuant to state
securities laws, of the Shares for sale in those states that FDI may designate.
b. Information Reports; Financial Data. The Company shall
furnish to FDI from time to time, for use in connection with the sale of the
Shares, such information reports with respect to the Company and the Shares as
FDI may reasonably request. Such reports shall be signed by officers of the
Company duly authorized; the Company warrants the statements contained in any
reports so signed to be true and correct. The Company shall furnish to FDI,
upon its request, (a) annual audits of the Company's books and accounts made by
independent public accountants regularly retained by the Company, (b)
semiannual unaudited financial statements pertaining to the Company, (c)
quarterly earnings statements prepared by the Company, (d) a monthly itemized
list of the securities in the portfolios of all Funds, (e) monthly balance
sheets as soon as practicable after the end of each month and (f) such
additional information regarding the Company's financial condition as FDI may
reasonably request from time to time.
7. Compliance; Standard of Care
a. Compliance. In performing any activity as distributor for
Shares of any Fund pursuant to this Agreement, FDI shall comply with:
(1) all applicable provisions of the 1940 Act and any
rules and regulations thereunder;
(2) all provisions of the Registration Statement relating
of the Fund;
(3) all provisions of the Fund's Governing Documents;
(4) all rules and regulations of the NASD and all other
self-regulatory organizations applicable to the sale
of investment company shares; and
8
<PAGE> 9
(5) any other applicable provisions of federal and state
law.
FDI shall use its best efforts to maintain all required licenses and
registrations for itself as a broker or dealer, and for its registered
representatives or other associated persons, under the 1934 Act and applicable
state securities or blue sky laws. FDI shall be responsible for ensuring that
each Broker and its representatives engaged in selling Shares of the Funds
shall be duly and appropriately licensed, registered and otherwise qualified to
do so under the 1934 Act and any applicable blue sky laws of each state or
other jurisdiction in which such Shares may be sold. FDI shall be responsible
for ensuring that each Broker supervises its representatives. Expulsion or
suspension of FDI from the NASD shall automatically terminate this Agreement on
the effective date of such expulsion or suspension.
b. Direction of the Board. Any distribution activities
undertaken by FDI pursuant to this Agreement or any other services undertaken
by FDI on behalf of the Company or any Fund, shall at all times be subject to
any directives of the Board of Trustees of the Company.
c. Standard of Care. In performing its duties under this
Agreement, FDI shall be obligated to exercise care and diligence and to act in
good faith and to use its best efforts within reasonable limits in performing
all services provided for under this Agreement, but shall not be liable for any
act or omission not constituting FDI's willful misfeasance, bad faith or gross
negligence, or FDI's reckless disregard of its duties under this Agreement.
8. Representations and Warranties
a. Distribution Plan. The Company represents and warrants to FDI
that the payment by the Company of fees under this Agreement for distribution
services rendered with respect to any Shares of any Fund is authorized pursuant
to the Company's Class B Distribution Plan and Class S Distribution Plan, as
amended, pertaining to such Shares of such Fund, adopted in accordance with
Rule 12b-1 under the 1940 Act (a "Plan").
b. Registration Statements and Prospectuses. The Company
represents to FDI that all Registration Statements and Prospectuses filed by
the Company with the SEC under the 1933 Act and the 1940 Act with respect to
the Shares are in conformity with the requirements of the 1933 Act, the 1940
Act and the rules and regulations of the SEC thereunder. The Company
represents and warrants to FDI that any Registration Statement or Prospectus,
when it becomes effective, will include all statements required to be contained
therein in conformity with the 1933 Act, the 1940 Act and the
9
<PAGE> 10
rules and regulations of the SEC; that all statements of fact contained in any
Registration Statement or Prospectus will be true and correct when such
Registration Statement or Prospectus becomes effective; and that no
Registration Statement nor any Prospectus, when the same shall become
effective, will include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of Shares. FDI may, but shall
not be obligated to, propose from time to time such amendment(s) to any
Registration Statement and such supplement(s) to any Prospectus as, in the
light of future developments, may, in the opinion of FDI or its counsel, be
necessary or advisable. The Company shall not file any amendment to any
Registration Statement or supplement to any Prospectus without giving FDI
reasonable notice thereof in advance; provided, however, that nothing contained
in this Agreement shall in any way limit the Company's right to file at any
time such amendment(s) to any Registration Statement and supplement(s) to any
Prospectus, of whatever character, as the Company may deem advisable, such
right being in all respects absolute and unconditional.
c. Charter. The Company represents that a copy of its Master
Trust Agreement dated February 22, 1989, together with all amendments thereto,
is on file in the office of the Secretary of the Commonwealth of Massachusetts
and the office of the City Clerk of Boston, Massachusetts.
d. Authorization. FDI represents to the Company that it is
authorized to perform the services described herein.
e. NASD. FDI represents to the Company that it is a member in
good standing of the NASD.
9. Indemnification
a. Indemnification by the Company. The Company agrees to
indemnify, defend and hold FDI, its officers, directors, agents, employees, and
any person who controls FDI within the meaning of Section 15 of the 1933 Act
(FDI and such persons, collectively, "FDI Indemnified Persons"), free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) that any FDI
Indemnified Person may incur under the 1933 Act, the 1940 Act or common law or
otherwise, arising out of or based upon any untrue statement (or alleged untrue
statement) of a material fact contained in any Registration Statement or
Prospectus relating to Shares of the Company, or arising out of or based upon
any omission (or alleged omission) to state a material fact required to be
stated in
10
<PAGE> 11
any Registration Statement or Prospectus relating to Shares of the Company, or
necessary to make the statements in such Registration Statement or Prospectus
not misleading, or arising out of or based upon the Company's material breach
of this Agreement; provided, however, that the Company's agreement to indemnify
FDI Indemnified Persons shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of or based upon any statements or
representations made by FDI or its representatives or agents other than such
statements and representations as are contained in any Registration Statement
or Prospectus and in such financial and other statements regarding Shares of
the Funds as are furnished to FDI pursuant to Sections 5a and 6b of this
Agreement; provided further, that the Company's agreement to indemnify FDI and
the Company's representations and warranties hereinbefore set forth in Section
8 of this Agreement shall not be deemed to cover any liability to the Company
or its shareholders to which FDI would otherwise be subject by reason of FDI's
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of FDI's reckless disregard of its obligations and duties
under this Agreement; and provided further, that this Section 9 shall apply to
all acts or omissions by the parties hereto that occur on or after the date
first written above and the indemnification provisions of the Original
Agreement shall apply to all acts or omissions by the parties hereto that occur
prior to such date.
The Company's agreement to indemnify FDI Indemnified Persons is
expressly conditioned upon such FDI Indemnified Person's notifying the Company,
or causing the Company to be notified, of any action brought against such FDI
Indemnified Person, such notification to be given by letter, telegram, telecopy
or facsimile addressed to the Company at its principal office, within ten (10)
days after the summons or other first legal process shall be served; provided
that the failure to provide such notification within such time limit shall
limit the Company's obligation to indemnify such persons only to the extent
such failure causes prejudice to the interests of the Company with respect to
such action. The failure so to notify the Company of any such action shall not
relieve the Company from any liability that the Company may have to the person
against whom such action is brought by reason of any such untrue (or alleged
untrue) statement or omission (or alleged omission) otherwise than on account
of the Company's indemnity agreement contained in this Section 9a. The
Company's indemnification agreement contained in this Section 9a and the
Company's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any FDI Indemnified Person, and shall survive the delivery of
any Shares and, to the extent permitted by law, the termination of this
Agreement. This agreement of indemnity will inure exclusively to the benefit
of FDI Indemnified Persons and their respective estates or successors, as
applicable.
b. Indemnification by FDI. FDI agrees to indemnify, defend and
hold the Company, its officers, directors, agents, employees, and any person
who controls the
11
<PAGE> 12
Company within the meaning of Section 15 of the 1933 Act (the Company and such
persons, collectively, "Trust Indemnified Persons"), free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
costs of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) that any Trust Indemnified
Person may incur under the 1933 Act, the 1940 Act or common law or otherwise,
but only to the extent that such liability or expense incurred by such Trust
Indemnified Person shall arise out of or be based upon (a) any unauthorized
sales literature, advertisements, information, statements or representations or
(b) any untrue statement (or alleged untrue statement) of a material fact
contained in information furnished in writing by FDI to the Company and used in
the answers to any of the items of the Registration Statement or in the
corresponding statements made in any Prospectus, or shall arise out of or be
based upon any omission (or alleged omission) to state a material fact in
connection with such information furnished in writing by FDI to the Company and
required to be stated in such answers or necessary to make such information not
misleading, or shall arise out of or be based upon FDI's material breach of
this Agreement; provided, that this Section 9 shall apply to all acts or
omissions by the parties hereto that occur on or after the date first written
above and the indemnification provisions of the Original Agreement shall apply
to all acts or omissions by the parties hereto that occur prior to such date.
FDI's agreement to indemnify Trust Indemnified Persons is expressly
conditioned upon such Trust Indemnified Person's notifying FDI, or causing FDI
to be notified, of any action brought against such Trust Indemnified Person,
such notification to be given by letter, telegram, telecopy or facsimile
addressed to FDI at its principal office, within ten (10) days after the
summons or other first legal process shall be served; provided that the failure
to provide such notification within such time limit shall limit FDI's
obligation to indemnify such persons only to the extent such failure causes
prejudice to the interests of FDI with respect to such action. The failure so
to notify FDI of any such action shall not relieve FDI from any liability that
FDI may have to the Trust Indemnified Person by reason of any such untrue (or
alleged untrue) statement or omission (or alleged omission) otherwise than on
account of FDI's indemnity agreement contained in this Section 9b. FDI's
indemnification agreement contained in this Section 9b and its representations
and warranties in this Agreement shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Trust
Indemnified Person, and shall survive the delivery of any Shares and, to the
extent permitted by law, the termination of this Agreement. This agreement of
indemnity will inure exclusively to the benefit of Trust Indemnified Persons
and their respective estates or successors, as applicable.
c. Assumption of Defense. An indemnifying party will be entitled
to assume the defense of any suit brought to enforce any such claim, demand or
liability, but, in such case, such defense shall be conducted by counsel of
good standing chosen by
12
<PAGE> 13
the indemnifying party and approved by the indemnified party (provided that
such counsel shall not, except with the consent of an indemnified party that is
an FDI Indemnified Person, be counsel to any investment fund of the Company);
provided that the indemnified party shall be entitled to conduct its own
defense with counsel selected by it if such indemnified party is advised by
counsel that there may be a conflict of interest between the indemnified party
and the indemnifying party with respect to such defense. In the event the
indemnifying party elects to assume the defense of any such suit and retain
counsel of good standing approved by the indemnified party, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case the indemnifying party does not
elect or is not permitted to assume the defense of any such suit, or in case
the indemnified party does not approve of counsel chosen by the indemnifying
party, the indemnifying party will reimburse the indemnified party named as
defendant or defendants in such suit, for the fees and expenses of any counsel
retained by such indemnified party.
d. Notice. Each of FDI and the Company agrees to notify the
other promptly of the commencement of any litigation or proceedings against it
or any of its officers or directors or Trustees, as applicable, in connection
with the issuance and sale of any Shares.
e. Contribution. If the indemnification provided for in this
Section shall for any reason be unavailable to or insufficient to hold harmless
a party indemnified hereunder in respect of any claim, demand, liability or
expense, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such claim, demand, liability or expense, or action in respect thereof, (a)
in such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and FDI on the other from the offering
of the Shares or (b) if the allocation provided by clause (a) above is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (a) above but also the
relative fault of the Company (and its agents other than FDI) on the one hand
and FDI on the other with respect to the statements or omissions which resulted
in such claim, demand, liability or expense, or action in respect thereof, as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and FDI on the other with respect to
the offering of the Shares shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Shares purchased under this
agreement (before deducting expenses) received by the Company bear to the total
net underwriting discounts and commissions received by FDI with respect to the
Shares purchased under this Agreement and retained by FDI after payments to the
selling agents retained by it. The relative fault shall be determined by
reference to whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company (or any
13
<PAGE> 14
of its agents other than FDI) or by FDI, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and FDI agree that it would not be
just and equitable if contributions pursuant to this Section were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein.
The amount paid or payable by an indemnified party as a result of the claim,
demand, liability or expense, or action in respect thereof, referred to above
in this Section shall be deemed to include, for purposes of this Section, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section, FDI shall not be required to
contribute any amount in excess of the amount by which the total net
underwriting discounts and commissions received by FDI with respect to the
Shares purchased under this Agreement and retained by FDI after payments to the
selling agents retained by it exceed the amount of any damages which FDI has
otherwise paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
10. Notice to FDI.
a. The Company agrees to advise FDI immediately in writing:
(1) of any request by the SEC for amendments to the
Registration Statement or Prospectus then in effect
or for additional information;
(2) in the event of the issuance by the SEC of any stop
order suspending the effectiveness of the
Registration Statement or Prospectus then in effect
or the initiation of any proceeding for that purpose;
(3) of the happening of any event that makes untrue any
statement of a material fact made in the Registration
Statement or Prospectus then in effect or that
requires the making of a change in such Registration
Statement or Prospectus in order to make the
statements therein not misleading; and
(4) of all actions of the SEC with respect to any
amendment to any Registration Statement or Prospectus
that may from time to time be filed with the SEC.
14
<PAGE> 15
11. Term of Agreement.
a. This Agreement shall become effective as of the date first set
forth above, shall remain in effect for an initial period of two years, and
shall continue thereafter from year to year for so long as such continuance is
specifically approved at least annually by
(1) the Company's Board of Trustees or a vote of a
"majority of the outstanding voting securities" (as
defined in the 1940 Act) of the Company; and
(2) a vote of a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of
the Company and who have no direct or indirect
financial interest in the operation of the Plan, in
this Agreement or any other agreement related to the
Plan (the "Qualified Trustees"), such vote cast in
person at a meeting called for the purpose of the
voting on such approval.
12. Termination.
a. Termination on Assignment. This Agreement shall terminate
automatically in the event of its "assignment" (as defined in the 1940 Act), it
being understood that this Agreement has been approved by the Trustees,
including the Qualified Trustees, in contemplation of a Purchase and Sale
Agreement to be entered into by FDI, Corporate Asset Funding Company, Inc. and
Citicorp North America, Inc., which provides for a transfer of receivables
relating to the Distribution Fees and CDSCs payable to FDI under this
Agreement. FDI agrees to notify the Company of any circumstances that might
result in this Agreement being deemed to be assigned.
b. Voluntary Termination. The Company may terminate this
Agreement with respect to any Fund, or in its entirety, without penalty, on 60
days' written notice to FDI, by vote of a majority of the Qualified Trustees or
by vote of a "majority of the outstanding voting securities" of such Fund or
the Company, as the case may be. FDI may terminate this Agreement, with
respect to any Fund, or in its entirety, on 90 days' written notice to the
Company. Termination of this Agreement with respect to any class of shares of
any Fund shall not cause this Agreement to terminate with respect to any other
class of shares of such Fund or any Shares of any other Fund. Notice of
termination as provided for in this Section may be waived by either party, such
waiver to be in writing.
15
<PAGE> 16
c. Continued Payment. With respect to Shares of any Fund sold
pursuant to this Agreement, the Company shall continue payment to FDI of (a)
FDI's Allocable Portion, as defined in Schedule 2 to this Agreement, of the
Contingent Deferred Sales Charges attributable to such Shares of such Fund, and
(b) so long as there has been no Complete Termination (as defined in the
applicable Plan), FDI's Allocable Portion of the Distribution Fee attributable
to such Shares of such Fund, in either case notwithstanding termination of this
Agreement according to its terms.
13. Miscellaneous.
a. Non-Exclusivity. The Company recognizes that FDI and its
affiliates shall be free to render distribution or other services to others
(including other investment companies) and to engage in other activities. The
Company agrees that the directors, officers and employees of FDI shall not be
prohibited by reason of this Agreement from engaging in any other business
activity or from rendering services to any other person, or from serving as
partners, directors, trustees or officers of any other firm or corporation,
including the Company and other investment companies. FDI acknowledges that
its appointment as distributor pursuant to this Agreement is not exclusive, and
that the Company may appoint one or more other persons to act as distributor
for the Shares of one or more Funds.
b. Independent Contractor. FDI and any Broker shall be
independent contractors and none of them nor any of their directors, officers
or employees shall, as such, be deemed employees of the Company.
c. Notices. Any notices under this Agreement shall be in
writing, mailed postage paid or sent by telegram, telecopy, or facsimile to the
other party at such address as such other party may designate from time to time
for the receipt of such notice.
d. Integration; Amendment; Counterparts; Governing Law.
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof, and may not be modified,
amended, or waived except by a written instrument duly executed by the party
against whom such modification, amendment, or waiver is sought to be enforced.
If any provisions of this Agreement shall be held or made invalid by a court
decision, statute rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
This Agreement shall be subject to the provisions of the 1940 Act and
the 1934 Act and the rules, regulations and rulings thereunder, and of the
applicable rules and
16
<PAGE> 17
regulations of the NASD, from time to time in effect, and the terms hereof
shall be interpreted and construed in accordance therewith.
This Agreement may be executed in any number of counterparts, each of
which will be deemed an original, but all of which together will constitute one
and the same instrument.
This Agreement shall be governed in accordance with the internal
substantive laws of the Commonwealth of Massachusetts.
It is expressly agreed that the obligations of the Company hereunder
shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Company personally, but bind only the
trust property of the Company, as provided in the Trust Agreement. The
execution and delivery of this Agreement have been authorized by the Trustees
and effected by an authorized officer of the Company, acting as such, and
neither such authorization nor such execution and delivery shall be deemed to
have been made by any Trustee or officer individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Company as provided in the Trust Agreement.
Please confirm that the foregoing accurately sets forth our agreement
by indicating your acceptance hereof at the place below indicated, whereupon it
shall become a binding agreement between us as of the date first set forth
above.
Very truly yours,
SIERRA TRUST FUNDS
By /s/ F. Brian Cerini
--------------------------------
Name: F. Brian Cerini
Title: President
ACCEPTED:
FUNDS DISTRIBUTOR, INC.
By /s/ Marie E. Connolly
--------------------------
Name: Marie E. Connolly
Title: Authorized Officer
17
<PAGE> 18
SIERRA TRUST FUNDS
CLASS B AND CLASS S DISTRIBUTION AGREEMENT
Schedule 1
Date of Agreement: December 20, 1995
Date of this Schedule: December 20, 1995
<TABLE>
<CAPTION>
NAME OF FUND CLASS(ES) COVERED
------------ -----------------
<S> <C> <C>
1. U.S. Government Money Fund Class B
Class S
2. California Money Fund Class B
Class S
3. Global Money Fund Class B
Class S
4. U.S. Government Fund Class B
Class S
5. California Municipal Fund Class B
Class S
6. Growth and Income Fund Class B
Class S
7. Corporate Income Fund Class B
Class S
8. National Municipal Fund Class B
Class S
9. Emerging Growth Fund Class B
Class S
10. International Growth Fund Class B
Class S
11. Short Term Global Government Fund Class B
Class S
12. Growth Fund Class B
Class S
13. Florida Insured Municipal Fund Class B
Class S
14. Short Term High Quality Government Fund Class B
Class S
15. California Insured Intermediate Municipal Fund Class B
Class S
</TABLE>
<PAGE> 19
SIERRA TRUST FUNDS
CLASS B AND CLASS S DISTRIBUTION AGREEMENT
Schedule 2
Date of Agreement: December 20, 1995
Date of this Schedule: December 20, 1995
ALLOCABLE PORTIONS
FDI's "Allocable Portion" of the Distribution Fee payable on any class
of Shares of any Fund, or of the CDSC in respect of any Shares of any Fund
shall be that percentage allocated to FDI in accordance with the allocation
formulas set forth in Parts C and D below, and the rules of attribution set
forth in Part B below.
Capitalized terms used in this Schedule without definition and defined
in the Agreement shall have the same meanings herein as therein.
PART A: DEFINITIONS
"Commencement Date" means, in respect of any class of Shares of any
Fund, the date of the first sale of a Commission Share of such class of such
Fund during the term of the Agreement.
"Commission Share" means, in respect of any Fund, each Share of such
Fund issued under circumstances that would normally give rise to an obligation
of the holder of such Share to pay a CDSC upon redemption of such Share,
including, without limitation, any Share of such Fund issued in connection with
a "Permitted Free Exchange" (as such term is defined in that certain Amended
and Restated Purchase and Sale Agreement dated as of December 20, 1995 by and
among FDI, Citicorp North America, Inc. and Corporate Asset Funding Company,
Inc., as the same shall be amended from time to time (the "Purchase
Agreement")), provided that no such Share shall cease to be a Commission Share
prior to its redemption (including a redemption in connection with a Permitted
Free Exchange) or conversion even though the obligation of such holder to pay a
CDSC shall have expired or the CDSC on such Share shall have been waived.
"Cutoff Date" means, in respect of any class of Shares of any Fund,
the date of the last sale of a Commission Share of such class of such Fund
during the term of the Agreement.
"Distribution Fee" has the meaning given to the term "asset-based
sales charge" in Section 26(b)(8)(C) of the NASD Rules.
1
<PAGE> 20
"Free Exchange Share" means, with respect to any Fund, any Free Share
of such Fund issued in connection with a Permitted Free Exchange.
"Free New Share" means, in respect of any Fund, any Free Share that is
not an Free Exchange Share.
"Free Share" means, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation, any Share issued
in connection with the reinvestment of dividends.
"Non-Omnibus Shares" means, in respect of any Fund, all Shares of such
Fund other than Omnibus Shares.
"Omnibus Shares" means, in respect of any Fund, the Shares of such
Fund in any Omnibus Account on the records of a Fund maintained by the Transfer
Agent, for which account such broker-dealer provides subtransfer agency
services for that Fund.
"Sub-Transfer Agent" means, in respect of any Fund, the record owner
of any Omnibus Account.
PART B: ATTRIBUTION
Shares of each class of Shares of each Fund, which Shares are
outstanding from time to time, shall be attributed to either FDI or to any
other person named as a distributor of Shares of such class of such Fund (such
person, an "Other Distributor") in accordance with the following rules:
(1) Commission Shares: Each Commission Share of a Fund is
specifically tracked, on the records maintained by the Transfer Agent or
Sub-Transfer Agents for such Fund with reference to an "original issuance date"
(a) of the Commission Share in question or (b) of the Commission Share from
which the Commission Share in question derived through one or more Permitted
Free Exchanges.
The Commission Shares of each class of Shares of each Fund outstanding
from time to time attributed to FDI shall be: (a) those Commission Shares of
such class of such Fund issued, on or after the Commencement Date and on or
prior to the Cutoff Date for such class of such Fund, other than in a Permitted
Free Exchange, and (b) those Commission Shares of such class of such Fund that
are (i) issued in a Permitted Free Exchange in exchange for (ii) Shares of
another Fund that had been attributed to FDI in accordance with the preceding
clause (a) of this paragraph, in each case determined in accordance with the
records maintained by the Transfer Agent or Sub-Transfer Agents for such Fund.
The Commission Shares of each class of Shares of each Fund outstanding
from time to time attributed to Other Distributors shall be: (a) those
Commission Shares of
2
<PAGE> 21
such class of Shares of such Fund issued, prior to the Commencement Date or
after the Cutoff Date for such class of Shares of such Fund, other than in a
Permitted Free Exchange, and (b) those Commission Shares of such class of such
Fund that are (i) issued in a Permitted Free Exchange in exchange for (ii)
Shares of another Fund that were attributed to an Other Distributor in
accordance with the immediately preceding clause (a) of this paragraph, in each
case determined in accordance with the records maintained by the Transfer Agent
or Sub-Transfer Agents for such Fund.
(2) Free Shares. Free Shares of each class of Shares of each Fund
are not specifically tracked by the Transfer Agent or Sub-Transfer Agents for
such Fund. The number of Free Shares of each class of Shares of each Fund
outstanding from time to time shall be attributed to either FDI or an Other
Distributor in accordance with records maintained by FDI in accordance with
this paragraph (2).
(a) The number of Non-Omnibus Free New Shares, of a class of any
Fund, that are issued on or after the Commencement Date for
such class of such Fund and that are attributed to FDI shall
be determined pursuant to the following formula.
For such Shares issued during any calendar month:
FNS x [(PCS + PFS)/(TCS + TFS)]
where:
FNS = Non-Omnibus Free New Shares of such class of
such Fund that are issued during such
calendar month
PCS = Non-Omnibus Commission Shares of such class of
such Fund that have been attributed to FDI and
that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month
PFS = Non-Omnibus Free Shares of such class of such
Fund that have been attributed to FDI and that
were outstanding as of the close of business
on the last business day of the immediately
preceding calendar month
TCS = Non-Omnibus Commission Shares of such class of
such Fund that were outstanding as of the
close of business on the last business day of
the immediately preceding calendar month
TFS = Non-Omnibus Free Shares of such class of such
Fund that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month
3
<PAGE> 22
The balance of such Non-Omnibus Free New Shares issued during
such calendar month shall be attributed to Other Distributors.
(b) The number of Omnibus Free New Shares, of a class of any Fund,
that are issued on or after the Commencement Date for such
class of such Fund and that are attributed to FDI shall be
determined pursuant to the following formula.
For such Shares issued during any calendar month:
OFNS x [(POCS + POFS)/(TOCS + TOFS)]
where:
OFS = Omnibus Free New Shares of such class of such
Fund that are issued during such calendar month
POCS = Omnibus Commission Shares of such class of
such Fund that have been attributed to FDI and
that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month.
POFS = Omnibus Free Shares of such class of such Fund
that have been attributed to FDI and that were
outstanding as of the close of business on the
last business day of the immediately preceding
calendar month.
TOCS = Omnibus Commission Shares of such class of
such Fund that were outstanding as of the
close of business on the last business day of
the immediately preceding calendar month.
TOFS = Omnibus Free Shares of such class of such Fund
that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month.
The balance of such Omnibus Free New Shares issued during such
calendar month shall be attributed to Other Distributors.
(c) The number of Non-Omnibus Free Exchange Shares, of a class of
any Fund (the "New Fund"), that are issued on or after the
Commencement Date for such class of such New Fund and that are
attributed to FDI shall be determined pursuant to the
following formula.
4
<PAGE> 23
For such Shares issued during any calendar month in
exchange for Shares of any other Fund (each, an "Old
Fund"):
FES x (PFS(o)/TFS(o))
where:
FES = Non-Omnibus Free Exchange Shares of such class
of the New Fund that are issued during such
calendar month
PFS(o) = Non-Omnibus Free Shares of such class of the
Old Fund that had been attributed to FDI and
that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month
TFS(o) = Non-Omnibus Free Shares of such class of the
Old Fund that were outstanding as of the close
of business on the last business day of the
immediately preceding calendar month
The balance of such Non-Omnibus Free Exchange Shares of the
New Fund issued during such calendar month shall be attributed
to Other Distributors.
(d) The number of Omnibus Free Exchange Shares, of a class of any
Fund (the "New Fund"), that are issued on or after the
Commencement Date for such class of such New Fund and that are
attributed to FDI shall be determined pursuant to the
following formula.
For such Shares issued during any calendar month in
exchange for Shares of any other Fund (each, an "Old
Fund"):
OFES x (POFS(o)/TOFS(o))
where:
OFES = Omnibus Free Exchange Shares of such class of
the New Fund that are issued during such
calendar month
POFS(o) = Omnibus Free Shares of such class of the Old
Fund that had been attributed to FDI and that
were outstanding as of the close of business
on the last business day of the immediately
preceding calendar month
5
<PAGE> 24
TOFS(o) = Omnibus Free Shares of such class of the Old
Fund that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month
The balance of such Omnibus Free Exchange Shares of the New
Fund issued during such calendar month shall be attributed to
Other Distributors.
(e) The number of Non-Omnibus Free Shares, of a class of any Fund,
that are redeemed or converted and that are attributed to FDI
shall be determined pursuant to the following formula.
For such Shares redeemed or converted during any calendar
month:
FSR x (PFS/TFS)
where:
FSR = Non-Omnibus Free Shares of such class of such
Fund that are redeemed or converted during
such calendar month
PFS = Non-Omnibus Free Shares of such class of such
Fund that have been attributed to FDI and that
were outstanding as of the close of business
on the last business day of the immediately
preceding calendar month
TFS = Non-Omnibus Free Shares of such class of such
Fund that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month
The balance of such Non-Omnibus Free Shares redeemed or
converted during such calendar month shall be attributed to
Other Distributors.
(f) The number of Omnibus Free Shares, of a class of any Fund,
that are redeemed or converted and that are attributed to FDI
shall be determined pursuant to the following formula.
For such Shares redeemed or converted during any calendar
month:
OFSR x (POFS/TOFS)
where:
6
<PAGE> 25
OFSR = Omnibus Free Shares of such class of such Fund
that are redeemed or converted during such
calendar month
POFS = Omnibus Free Shares of such class of such Fund
that have been attributed to FDI and that were
outstanding as of the close of business on the
last business day of the immediately preceding
calendar month
TOFS = Omnibus Free Shares of such class of such Fund
that were outstanding as of the close of
business on the last business day of the
immediately preceding calendar month
The balance of such Omnibus Free Shares redeemed or converted
during such calendar month shall be attributed to Other
Distributors.
(3) Timing of Attributions and Distributions.
(a) The attributions of all Non-Omnibus Shares of each class of
Shares of each Fund shall be made on a daily basis. The
attribution of all Omnibus Shares of each class of Shares of
each Fund shall be made monthly, for each calendar month no
later than five (5) days following the last day of such month.
(b) The parties to the Agreement acknowledge, expressly, that the
procedures for determining FDI's Allocable Portion of Free
Shares of any Fund implicitly assume that Free Shares issued
in respect of dividends or other distributions made for any
calendar month will be issued not earlier than the first
business day of the following calendar month. Said parties
agree that such procedures shall be modified in the event Free
Shares attributable to reinvestment of such dividends or
distributions are issued in the same calendar month for which
such dividends are earned or distributions made.
PART C: ALLOCATION OF CDSCs
CDSCs will be allocated to either FDI or an Other Distributor
depending upon whether the related redeemed Shares were attributed to,
respectively, FDI or such Other Distributor in accordance with Part B,
Paragraph (1) above. CDSCs relating to Non-Omnibus Shares shall be allocated
to either FDI or an Other Distributor on or prior to the third business day of
the calendar week immediately succeeding the calendar week during which the
Transfer Agent has paid such CDSC amount. CDSCs relating to Omnibus Shares
shall be allocated to either FDI or an Other Distributor on or prior to the
tenth (10th) day of the calendar month immediately succeeding the calendar
month in which they are remitted by the Transfer Agent to the "Collection
Account" as such
7
<PAGE> 26
term is defined in that certain Amended and Restated Collection Agency
Agreement dated as of December 20, 1995 by and among Corporate Asset Funding
Company, Inc., Citicorp North America, Inc., FDI, and Bankers Trust Company, as
the same may be amended from time to time (the "Collection Agency Agreement"),
unless in accordance with the Collection Agency Agreement more frequent
allocations are required.
PART D: ALLOCATION OF DISTRIBUTION FEE
The Distribution Fee accruing in respect of each class of Shares of
each Fund during any calendar month and that is allocated to FDI shall be
determined pursuant to the following formula:
A x [(B + C)/(D + E)]
where:
A = Distribution Fee accrued in respect of such class of
Shares of such Fund during such calendar month.
B = Shares of such class of such Fund attributed to FDI
and outstanding as of the close of business on the
last business day of the immediately preceding
calendar month times the net asset value per share
of such Shares as of such time.
C = Shares of such class of such Fund attributed to FDI
and outstanding as of the close of business on the
last business day of such calendar month times the
net asset value per share of such Shares as of such
time.
D = Total Shares of such class of such Fund outstanding
as of the close of business on the last business day
of the immediately preceding calendar month times
the net asset value per share of such Shares as of
such time.
E = Total Shares of such class of such Fund outstanding
as of the close of business on the last business day
of such calendar month times the net asset value per
share of such Shares as of such time.
The balance of the Distribution Fee in respect of such class of Shares
of such Fund accruing during such calendar month shall be allocated to Other
Distributors.
The allocations contemplated by this Part D of Distribution Fees
accruing during any calendar month shall be made on or prior to the tenth
(10th) day of the immediately
8
<PAGE> 27
following calendar month and in all cases prior to the payment of such Fees
pursuant to the terms of the Agreement.
9
<PAGE> 1
Exhibit 15(c)
SIERRA TRUST FUNDS
AMENDED AND RESTATED
CLASS B DISTRIBUTION PLAN
This Amended and Restated Class B Distribution Plan dated as
of December 20, 1995 (the "Plan") is adopted in accordance with Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940, as amended (the "Act"), by
Sierra Trust Funds, a business trust organized under the laws of the
Commonwealth of Massachusetts and registered with the Securities and Exchange
Commission under the Act as an open-end management investment company (the
"Company"), the Trustees of the Company having concluded that there is a
reasonable likelihood that this Plan will benefit the Company and its
shareholders. The terms and conditions of the Plan shall be effective
retroactively to the date the Plan was originally adopted.
SECTION 1. DISTRIBUTION FEE.
(a) Payment. The Company may pay to each person as may from time to
time be engaged and appointed to act as the distributor of its Class B shares
at such point in time (any such person, a "Distributor," and such shares,
"Shares"), a distribution fee for services rendered and expenses borne in
connection with the offering and sale of Shares of one or more series of the
Company (each such series, a "Fund," and together, the "Funds"). The aggregate
distribution fees in respect of Shares of such Fund payable to all Distributors
shall not be greater than the annual rate so specified on such Schedule A.
Each distribution agreement shall provide that the Distributor that is a party
to such agreement will receive its Allocable Portion of the fee specified in
such agreement. Each Distributor's "Allocable Portion" of the total
distribution fee payable in respect of Shares of any Fund during any period
shall be the portion of such distribution fees allocated to such Distributor in
accordance with the Distributor's Allocation Schedule. The "Allocation
Schedule" is, in respect of any Shares of any Fund, a schedule assigning to
each of the current and former Distributors of Shares of a Fund the portion of
the total distribution fees payable by the Company in respect of all of the
Shares of such Fund which has been earned by such Distributor.
No amount shall be paid by the Company in contravention of any
applicable exemptive order, rule or regulation issued by the Securities and
Exchange Commission.
(b) Receipt, Retention; Direction of Payment. Any Distributor (i)
may retain all or any part of the distribution fee payable to it as
compensation for distribution services it provides to the applicable Fund
and/or as reimbursement for expenses associated with such services; (ii) may
use all or any part of such fee to compensate or reimburse persons that provide
distribution services to such Fund; and (iii) may direct the Company to pay any
part or all of such fee directly to persons providing funds to a Distributor to
cover or otherwise enable the incurring of expenses associated with such
services.
1
<PAGE> 2
The distribution fee shall be payable to the relevant Distributor or
to persons to whom such Distributor directs the Company to make payments.
SECTION 2. DISTRIBUTION SERVICES.
(a) Services. A Distributor will be deemed to have fully earned its
Allocable Portion of the distribution fee payable in respect of Shares of a
Fund upon the sale of the Commission Shares of such Fund taken into account in
determining such Distributor's Allocable Portion of such distribution fees.
For this purpose, "Commission Share" of a Fund is each share of such Fund which
is issued under circumstances which normally give rise to an obligation of the
holder of such Share to pay a contingent deferred sales charge upon redemption
of such Share (excluding any Shares of such Fund issued in connection with a
permitted free exchange) and any such Share shall not cease to be a Commission
Share prior to the redemption (including redemption in connection with a
permitted free exchange) or conversion, even though the obligation to pay the
contingent deferred sales charge shall have expired or conditions for waivers
thereof shall exist. Such distribution services may include any activities or
expenses primarily intended to result in the sale of Shares, including, but not
limited to: (i) payments made to, and expenses of, a Distributor's registered
representatives and other employees of a Distributor or other broker-dealers
that engage in the distribution of the Shares; (ii) payments made to, and
expenses of, persons who provide support services in connection with the sale
of the Shares, including, but not limited to, office space and equipment,
telephone facilities, answering routine inquiries regarding the Company,
processing shareholder transactions and providing any other shareholder
services not otherwise provided by the Company's transfer agent or any
shareholder servicing agent; (iii) costs relating to the formulation and
implementation of marketing and promotional activities, including, but not
limited to, direct mail promotions and television, radio, newspaper, magazine
and other mass media advertising; (iv) costs of printing and distributing
prospectuses, statements of additional information and reports of the Company
to prospective shareholders of the Company; (v) costs involved in preparing,
printing and distributing advertising and sales literature pertaining to the
Company; (vi) costs involved in obtaining whatever information, analyses and
reports with respect to marketing and promotional activities that the Company
may, from time to time, deem advisable; and (vii) amounts payable by a
Distributor under arrangements entered into by such Distributor to raise funds
to cover the expenditures in clauses (i) through (vi) of this Section 2(a).
(b) Continuation. Notwithstanding Section 5, 6 and 7 hereof, the
Company may agree with any Distributor that, so long as no Complete Termination
(as defined in Section 6(b) hereof) of this Plan has occurred and is
continuing, payments of such Distributor's Allocable Portion of the
distribution fee will continue to be made to or at the direction of such
Distributor notwithstanding either the termination of such agreement with such
Distributor, the termination of the role of such Distributor as Distributor
hereunder or the termination of this Plan.
(c) Financing. Sierra Investment Advisors Corporation, as investment
advisor to each of the Funds, may use its investment advisory fee for purposes
that may be deemed to be directly or indirectly related to the distribution of
Shares. To the extent that such uses might be considered
2
<PAGE> 3
to constitute the direct or indirect financing of activities primarily intended
to result in the sale of Shares, such uses are expressly authorized under the
Plan.
SECTION 3. SHAREHOLDER SERVICES AND FEE.
(a) Shareholder Services Annual Fee. The Company is authorized to
pay to a Distributor a fee, calculated daily and paid monthly in arrears, for
the shareholder services that are described in paragraph (b) of this Section 3
and that are provided by such Distributor to one or more of the Funds. The
aggregate fee paid to all Distributors under this Section 3 for shareholder
services to any Fund shall not be greater than the annual rate specified for
such Fund on Schedule B attached hereto.
(b) Shareholder Services. In addition to the distribution
services set forth in Section 2(a) above, a Distributor may provide shareholder
services to accounts of the Shares of one or more of the Funds, including but
not limited to the following: telephone service to shareholders, including
the acceptance of telephone inquiries and transaction requests; acceptance and
processing of written correspondence, new account applications and subsequent
purchases by check; mailing of confirmations, statements and tax forms directly
to shareholders; and acceptance of payment for trades by check, Federal Reserve
wire or Automated Clearing House payment. In addition, a Distributor may
perform or supervise the performance by others of other shareholder services in
connection with the operations of such Fund(s) with respect to its Shares, as
agreed from time to time.
SECTION 4. APPROVALS
(a) Shareholder Approval. This Plan will not take effect, and no fee
will be payable under any distribution agreement related to this Plan, with
respect to the Shares of a particular Fund until this Plan has been approved by
a vote of at least a majority of the outstanding Shares of that Fund. This
Plan will be deemed to have been approved with respect to the Shares of a Fund
so long as a majority of the outstanding Shares of that Fund votes for the
approval of this Plan, notwithstanding that: (i) the Plan has not been
approved by a majority of the outstanding voting securities of any other class
of shares of that Fund or any other Fund or (ii) the Plan has not been approved
by a majority of the outstanding voting securities of the Company in the
aggregate.
(b) Trustees' Approval. Neither this Plan nor any distribution
agreement related to this Plan will take effect with respect to the Shares of
any Fund until approved by a majority vote of both (i) the full Board of
Trustees of the Company and (ii) those Trustees who are not interested persons
of the Company and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related to it (the "Qualified
Trustees"), cast in person at a meeting called for the purposes of voting on
the Plan or the related agreements.
SECTION 5. CONTINUANCE OF THE PLAN.
3
<PAGE> 4
This Plan will continue in effect for so long as its
continuance is specifically approved at least annually by the Company's Board
of Trustees in the manner described in Section 4 above.
SECTION 6. TERMINATION.
(a) Termination. This Plan may be terminated at any time with
respect to the Shares of any Fund by a majority vote of the Qualified Trustees
or by vote of a majority of the outstanding Shares of such Fund. This Plan may
remain in effect for the Shares of any particular Fund even if the Plan has
been terminated in accordance with this Section 6 for the Shares of one or more
other Funds.
(b) Complete Termination. A "Complete Termination" of this Plan for
the Shares of a Fund shall occur only if and only so long as this Plan is
terminated for such Shares and following such termination, no distribution fees
are imposed either on such Shares of such Fund or on any "Similar Class" of
shares of such Fund. For purposes of determining whether any termination of
this Plan for the Shares of a Fund is a Complete Termination, a "Similar Class"
is any class of shares of such Fund that has a sales load structure
substantially similar to that of the class for which this Plan was terminated
taking into account the total sales load borne directly or indirectly by
holders of such class of shares including commissions paid directly by such
holders to brokers on issuance of shares of such class, asset based sales
charges paid by the Fund and allocated to shares of such class, contingent
deferred sales charges payable by holders of shares of such class, installment
or deferred sales charges payable by holders of shares of such class, and
similar charges borne directly or indirectly by holders of shares of such
class. A class of shares would not be considered substantially similar to the
B and S classes of shares if (i) a front end sales charge is paid by the
purchaser; or (ii)(A) the shares are purchased at net asset value, (B) any
commission paid up front to any selling agent(s) does not exceed 1.0% of the
purchase amount, (C) the period during which any contingent deferred sales
charge applies does not exceed 12 months from the purchase date, and (D) there
is no other sales load feature borne directly or indirectly by holders of such
class of shares.
SECTION 7. AMENDMENTS.
The Plan may not be amended with respect to the Shares of a
Fund so as to increase materially the amount of the fee set forth on Schedule A
with respect to the Shares of such Fund, unless the amendment is approved by a
vote of at least a majority of the outstanding Shares of such Fund. No
material amendment to this Plan may be made unless approved by the Company's
Board of Trustees in the manner described in Section 4(b) above.
SECTION 8. SELECTION OF CERTAIN TRUSTEES.
While the Plan is in effect, the selection and nomination of
the Company's Trustees who are not interested persons of the Company will be
committed to the discretion of the Trustees then in office who are not
interested persons of the Company.
4
<PAGE> 5
SECTION 9. WRITTEN REPORTS.
In each year during which the Plan remains in effect, any
person authorized to direct the disposition of monies paid or payable by the
Company pursuant to the Plan or any related agreement will prepare and furnish
to the Company's Board of Trustees, and the Board will review, at least
quarterly, written reports, complying with the requirements of the Rule, which
set out the amounts expended under the Plan and the purposes for which those
expenditures were made.
SECTION 10. PRESERVATION OF MATERIALS.
The Company will preserve copies of the Plan, any agreement
relating to the Plan and any report made pursuant to Section 9 above, for a
period of not less than six years (the first two years in an easily accessible
place) from the date of the Plan, agreement or report.
SECTION 11. MEANINGS OF CERTAIN TERMS.
As used in the Plan, the terms (a) "interested person" and (b)
"majority of the outstanding" voting securities or Shares will be deemed to
have the same meaning that those terms have under the Act and the rules and
regulations under the Act, subject to any exemption that may be granted to the
Company under the Act by the Securities and Exchange Commission.
SECTION 12. LIMITATION OF LIABILITY.
The execution of the Plan by an officer of the Company has
been authorized by both the Company's Board of Trustees and the sole
shareholder of the Shares of each Fund. As provided in the Company's Master
Trust Agreement dated February 22, 1989, as amended from time to time (the
"Trust Agreement"), in undertaking those actions, the officer, the Board of
Trustees and the sole shareholder have each acted on behalf of the Company. In
addition, as provided in the Trust Agreement, the obligations imposed under the
Plan with respect to each Fund are binding only upon the assets and property
allocated to the Shares of such Fund of the Company and are not binding upon
the officer executing the Plan, the Company's Board of Trustees or the sole
shareholder of the Shares of such Fund. The Trust Agreement is on file with
the Secretary of the Commonwealth of Massachusetts and with the City Clerk of
Boston, Massachusetts.
5
<PAGE> 6
SIERRA TRUST FUNDS
CLASS B DISTRIBUTION PLAN
Schedule A
<TABLE>
<CAPTION>
MAXIMUM ANNUAL DISTRIBUTION FEE
NAME OF FUND (as a percentage of average daily net assets)
------------ ---------------------------------------------
<S> <C> <C>
1. U.S. Government Money Fund 0.75%
2. California Money Fund 0.75%
3. Global Money Fund 0.75%
4. U.S. Government Fund 0.75%
5. California Municipal Fund 0.75%
6. Growth and Income Fund 0.75%
7. Corporate Income Fund 0.75%
8. National Municipal Fund 0.75%
9. Emerging Growth Fund 0.75%
10. International Growth Fund 0.75%
11. Short Term Global Government Fund 0.75%
12. Growth Fund 0.75%
13. Florida Insured Municipal Fund 0.75%
14. Short Term High Quality Government Fund 0.75%
15. California Insured Intermediate Municipal Fund 0.75%
</TABLE>
<PAGE> 7
SIERRA TRUST FUNDS
CLASS B DISTRIBUTION PLAN
Schedule B
<TABLE>
<CAPTION>
MAXIMUM ANNUAL SHAREHOLDER SERVICES FEE
NAME OF FUND (as a percentage of average daily net assets)
------------ ---------------------------------------------
<S> <C> <C>
1. U.S. Government Money Fund 0.25%
2. California Money Fund 0.25%
3. Global Money Fund 0.25%
4. U.S. Government Fund 0.25%
5. California Municipal Fund 0.25%
6. Growth and Income Fund 0.25%
7. Corporate Income Fund 0.25%
8. National Municipal Fund 0.25%
9. Emerging Growth Fund 0.25%
10. International Growth Fund 0.25%
11. Short Term Global Government Fund 0.25%
12. Growth Fund 0.25%
13. Florida Insured Municipal Fund 0.25%
14. Short Term High Quality Government Fund 0.25%
15. California Insured Intermediate Municipal Fund 0.25%
</TABLE>
<PAGE> 1
Exhibit 15(d)
SIERRA TRUST FUNDS
AMENDED AND RESTATED
CLASS S DISTRIBUTION PLAN
This Amended and Restated Class S Distribution Plan dated as
of December 20, 1995 (the "Plan") is adopted in accordance with Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940, as amended (the "Act"), by
Sierra Trust Funds, a business trust organized under the laws of the
Commonwealth of Massachusetts and registered with the Securities and Exchange
Commission under the Act as an open-end management investment company (the
"Company"), the Trustees of the Company having concluded that there is a
reasonable likelihood that this Plan will benefit the Company and its
shareholders. The terms and conditions of the Plan shall be effective
retroactively to the date the Plan was originally adopted.
SECTION 1. DISTRIBUTION FEE.
(a) Payment. The Company may pay to each person as may from time to
time be engaged and appointed to act as the distributor of its Class S shares
at such point in time (any such person, a "Distributor," and such shares,
"Shares"), a distribution fee for services rendered and expenses borne in
connection with the offering and sale of Shares of one or more series of the
Company (each such series, a "Fund," and together, the "Funds"). The aggregate
distribution fees in respect of Shares of such Fund payable to all Distributors
shall not be greater than the annual rate so specified on such Schedule A.
Each distribution agreement shall provide that the Distributor that is a party
to such agreement will receive its Allocable Portion of the fee specified in
such agreement. Each Distributor's "Allocable Portion" of the total
distribution fee payable in respect of Shares of any Fund during any period
shall be the portion of such distribution fees allocated to such Distributor in
accordance with the Distributor's Allocation Schedule. The "Allocation
Schedule" is, in respect of any Shares of any Fund, a schedule assigning to
each of the current and former Distributors of Shares of a Fund the portion of
the total distribution fees payable by the Company in respect of all of the
Shares of such Fund which has been earned by such Distributor.
No amount shall be paid by the Company in contravention of any
applicable exemptive order, rule or regulation issued by the Securities and
Exchange Commission.
(b) Receipt, Retention; Direction of Payment. Any Distributor (i)
may retain all or any part of the distribution fee payable to it as
compensation for distribution services it provides to the applicable Fund
and/or as reimbursement for expenses associated with such services; (ii) may
use all or any part of such fee to compensate or reimburse persons that provide
distribution services to such Fund; and (iii) may direct the Company to pay any
part or all of such fee directly to persons providing funds to a Distributor to
cover or otherwise enable the incurring of expenses associated with such
services.
1
<PAGE> 2
The distribution fee shall be payable to the relevant Distributor or
to persons to whom such Distributor directs the Company to make payments.
SECTION 2. DISTRIBUTION SERVICES.
(a) Services. A Distributor will be deemed to have fully earned its
Allocable Portion of the distribution fee payable in respect of Shares of a
Fund upon the sale of the Commission Shares of such Fund taken into account in
determining such Distributor's Allocable Portion of such distribution fees.
For this purpose, "Commission Share" of a Fund is each share of such Fund which
is issued under circumstances which normally give rise to an obligation of the
holder of such Share to pay a contingent deferred sales charge upon redemption
of such Share (excluding any Shares of such Fund issued in connection with a
permitted free exchange) and any such Share shall not cease to be a Commission
Share prior to the redemption (including redemption in connection with a
permitted free exchange) or conversion, even though the obligation to pay the
contingent deferred sales charge shall have expired or conditions for waivers
thereof shall exist. Such distribution services may include any activities or
expenses primarily intended to result in the sale of Shares, including, but not
limited to: (i) payments made to, and expenses of, a Distributor's registered
representatives and other employees of a Distributor or other broker-dealers
that engage in the distribution of the Shares; (ii) payments made to, and
expenses of, persons who provide support services in connection with the sale
of the Shares, including, but not limited to, office space and equipment,
telephone facilities, answering routine inquiries regarding the Company,
processing shareholder transactions and providing any other shareholder
services not otherwise provided by the Company's transfer agent or any
shareholder servicing agent; (iii) costs relating to the formulation and
implementation of marketing and promotional activities, including, but not
limited to, direct mail promotions and television, radio, newspaper, magazine
and other mass media advertising; (iv) costs of printing and distributing
prospectuses, statements of additional information and reports of the Company
to prospective shareholders of the Company; (v) costs involved in preparing,
printing and distributing advertising and sales literature pertaining to the
Company; (vi) costs involved in obtaining whatever information, analyses and
reports with respect to marketing and promotional activities that the Company
may, from time to time, deem advisable; and (vii) amounts payable by a
Distributor under arrangements entered into by such Distributor to raise funds
to cover the expenditures in clauses (i) through (vi) of this Section 2(a).
(b) Continuation. Notwithstanding Section 5, 6 and 7 hereof, the
Company may agree with any Distributor that, so long as no Complete Termination
(as defined in Section 6(b) hereof) of this Plan has occurred and is
continuing, payments of such Distributor's Allocable Portion of the
distribution fee will continue to be made to or at the direction of such
Distributor notwithstanding either the termination of such agreement with such
Distributor, the termination of the role of such Distributor as Distributor
hereunder or the termination of this Plan.
(c) Financing. Sierra Investment Advisors Corporation, as investment
advisor to each of the Funds, may use its investment advisory fee for purposes
that may be deemed to be directly or indirectly related to the distribution of
Shares. To the extent that such uses might be considered
2
<PAGE> 3
to constitute the direct or indirect financing of activities primarily intended
to result in the sale of Shares, such uses are expressly authorized under the
Plan.
SECTION 3. SHAREHOLDER SERVICES AND FEE.
(a) Shareholder Services Annual Fee. The Company is authorized to
pay to a Distributor a fee, calculated daily and paid monthly in arrears, for
the shareholder services that are described in paragraph (b) of this Section 3
and that are provided by such Distributor to one or more of the Funds. The
aggregate fee paid to all Distributors under this Section 3 for shareholder
services to any Fund shall not be greater than the annual rate specified for
such Fund on Schedule B attached hereto.
(b) Shareholder Services. In addition to the distribution
services set forth in Section 2(a) above, a Distributor may provide shareholder
services to accounts of the Shares of one or more of the Funds, including but
not limited to the following: telephone service to shareholders, including
the acceptance of telephone inquiries and transaction requests; acceptance and
processing of written correspondence, new account applications and subsequent
purchases by check; mailing of confirmations, statements and tax forms directly
to shareholders; and acceptance of payment for trades by check, Federal Reserve
wire or Automated Clearing House payment. In addition, a Distributor may
perform or supervise the performance by others of other shareholder services in
connection with the operations of such Fund(s) with respect to its Shares, as
agreed from time to time.
SECTION 4. APPROVALS
(a) Shareholder Approval. This Plan will not take effect, and no fee
will be payable under any distribution agreement related to this Plan, with
respect to the Shares of a particular Fund until this Plan has been approved by
a vote of at least a majority of the outstanding Shares of that Fund. This
Plan will be deemed to have been approved with respect to the Shares of a Fund
so long as a majority of the outstanding Shares of that Fund votes for the
approval of this Plan, notwithstanding that: (i) the Plan has not been
approved by a majority of the outstanding voting securities of any other class
of shares of that Fund or any other Fund or (ii) the Plan has not been approved
by a majority of the outstanding voting securities of the Company in the
aggregate.
(b) Trustees' Approval. Neither this Plan nor any distribution
agreement related to this Plan will take effect with respect to the Shares of
any Fund until approved by a majority vote of both (i) the full Board of
Trustees of the Company and (ii) those Trustees who are not interested persons
of the Company and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related to it (the "Qualified
Trustees"), cast in person at a meeting called for the purposes of voting on
the Plan or the related agreements.
SECTION 5. CONTINUANCE OF THE PLAN.
3
<PAGE> 4
This Plan will continue in effect for so long as its
continuance is specifically approved at least annually by the Company's Board
of Trustees in the manner described in Section 4 above.
SECTION 6. TERMINATION.
(a) Termination. This Plan may be terminated at any time with
respect to the Shares of any Fund by a majority vote of the Qualified Trustees
or by vote of a majority of the outstanding Shares of such Fund. This Plan may
remain in effect for the Shares of any particular Fund even if the Plan has
been terminated in accordance with this Section 6 for the Shares of one or more
other Funds.
(b) Complete Termination. A "Complete Termination" of this Plan for
the Shares of a Fund shall occur only if and only so long as this Plan is
terminated for such Shares and following such termination, no distribution fees
are imposed either on such Shares of such Fund or on any "Similar Class" of
shares of such Fund. For purposes of determining whether any termination of
this Plan for the Shares of a Fund is a Complete Termination, a "Similar Class"
is any class of shares of such Fund that has a sales load structure
substantially similar to that of the class for which this Plan was terminated
taking into account the total sales load borne directly or indirectly by
holders of such class of shares including commissions paid directly by such
holders to brokers on issuance of shares of such class, asset based sales
charges paid by the Fund and allocated to shares of such class, contingent
deferred sales charges payable by holders of shares of such class, installment
or deferred sales charges payable by holders of shares of such class, and
similar charges borne directly or indirectly by holders of shares of such
class. A class of shares would not be considered substantially similar to the
B and S classes of shares if (i) a front end sales charge is paid by the
purchaser; or (ii)(A) the shares are purchased at net asset value, (B) any
commission paid up front to any selling agent(s) does not exceed 1.0% of the
purchase amount, (C) the period during which any contingent deferred sales
charge applies does not exceed 12 months from the purchase date, and (D) there
is no other sales load feature borne directly or indirectly by holders of such
class of shares.
SECTION 7. AMENDMENTS.
The Plan may not be amended with respect to the Shares of a
Fund so as to increase materially the amount of the fee set forth on Schedule A
with respect to the Shares of such Fund, unless the amendment is approved by a
vote of at least a majority of the outstanding Shares of such Fund. No
material amendment to this Plan may be made unless approved by the Company's
Board of Trustees in the manner described in Section 4(b) above.
SECTION 8. SELECTION OF CERTAIN TRUSTEES.
While the Plan is in effect, the selection and nomination of
the Company's Trustees who are not interested persons of the Company will be
committed to the discretion of the Trustees then in office who are not
interested persons of the Company.
4
<PAGE> 5
SECTION 9. WRITTEN REPORTS.
In each year during which the Plan remains in effect, any
person authorized to direct the disposition of monies paid or payable by the
Company pursuant to the Plan or any related agreement will prepare and furnish
to the Company's Board of Trustees, and the Board will review, at least
quarterly, written reports, complying with the requirements of the Rule, which
set out the amounts expended under the Plan and the purposes for which those
expenditures were made.
SECTION 10. PRESERVATION OF MATERIALS.
The Company will preserve copies of the Plan, any agreement
relating to the Plan and any report made pursuant to Section 9 above, for a
period of not less than six years (the first two years in an easily accessible
place) from the date of the Plan, agreement or report.
SECTION 11. MEANINGS OF CERTAIN TERMS.
As used in the Plan, the terms (a) "interested person" and (b)
"majority of the outstanding" voting securities or Shares will be deemed to
have the same meaning that those terms have under the Act and the rules and
regulations under the Act, subject to any exemption that may be granted to the
Company under the Act by the Securities and Exchange Commission.
SECTION 12. LIMITATION OF LIABILITY.
The execution of the Plan by an officer of the Company has
been authorized by both the Company's Board of Trustees and the sole
shareholder of the Shares of each Fund. As provided in the Company's Master
Trust Agreement dated February 22, 1989, as amended from time to time (the
"Trust Agreement"), in undertaking those actions, the officer, the Board of
Trustees and the sole shareholder have each acted on behalf of the Company. In
addition, as provided in the Trust Agreement, the obligations imposed under the
Plan with respect to each Fund are binding only upon the assets and property
allocated to the Shares of such Fund of the Company and are not binding upon
the officer executing the Plan, the Company's Board of Trustees or the sole
shareholder of the Shares of such Fund. The Trust Agreement is on file with
the Secretary of the Commonwealth of Massachusetts and with the City Clerk of
Boston, Massachusetts.
5
<PAGE> 6
SIERRA TRUST FUNDS
CLASS S DISTRIBUTION PLAN
Schedule A
<TABLE>
<CAPTION>
MAXIMUM ANNUAL DISTRIBUTION FEE
NAME OF FUND (as a percentage of average daily net assets)
------------ ---------------------------------------------
<S> <C> <C>
1. U.S. Government Money Fund 0.75%
2. California Money Fund 0.75%
3. Global Money Fund 0.75%
4. U.S. Government Fund 0.75%
5. California Municipal Fund 0.75%
6. Growth and Income Fund 0.75%
7. Corporate Income Fund 0.75%
8. National Municipal Fund 0.75%
9. Emerging Growth Fund 0.75%
10. International Growth Fund 0.75%
11. Short Term Global Government Fund 0.75%
12. Growth Fund 0.75%
13. Florida Insured Municipal Fund 0.75%
14. Short Term High Quality Government Fund 0.75%
15. California Insured Intermediate Municipal Fund 0.75%
</TABLE>
<PAGE> 7
SIERRA TRUST FUNDS
CLASS S DISTRIBUTION PLAN
Schedule B
<TABLE>
<CAPTION>
MAXIMUM ANNUAL SHAREHOLDER SERVICES FEE (as a
percentage of average daily net assets)
----------------------------
NAME OF FUND
------------
<S> <C> <C>
1. U.S. Government Money Fund 0.25%
2. California Money Fund 0.25%
3. Global Money Fund 0.25%
4. U.S. Government Fund 0.25%
5. California Municipal Fund 0.25%
6. Growth and Income Fund 0.25%
7. Corporate Income Fund 0.25%
8. National Municipal Fund 0.25%
9. Emerging Growth Fund 0.25%
10. International Growth Fund 0.25%
11. Short Term Global Government Fund 0.25%
12. Growth Fund 0.25%
13. Florida Insured Municipal Fund 0.25%
14. Short Term High Quality Government Fund 0.25%
15. California Insured Intermediate Municipal Fund 0.25%
</TABLE>
