<PAGE> 1
As filed with the Securities and Exchange Commission on October 29, 1996
Securities Act File No. 33-27489
Investment Company Act File No. 811-5775
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 24 /X/
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 27 /X/
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Sierra Trust Funds
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(Exact Name of Registrant as Specified in Charter)
9301 Corbin Avenue
Northridge, California 91324
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (818) 725-0200
F. Brian Cerini
9301 Corbin Avenue
Northridge, California 91324
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(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
X on October 31, 1996 pursuant to paragraph (b),
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_____60 days after filing pursuant to paragraph (a), or
_____75 days after filing pursuant to paragraph (a), or
_____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
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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
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<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
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<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
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<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
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<TABLE>
<CAPTION>
Form N-1A
Item No. Location in Statement of Additional Information
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<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
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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
WESTBORO, 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 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
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<S> <C>
The Sierra Trust Funds Family................................................................. 1
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.......................................................... 17
Dividends, Capital Gains and Taxes............................................................ 18
Shareholder and Account Policies.............................................................. 20
The Fund in Detail
-- Organization............................................................................. 20
-- Sierra Advisors, Its Affiliates and Service Providers.................................... 20
-- Breakdown of Fund Expenses............................................................... 22
</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 (the "Advisor" or
"Sierra Advisors") has overall responsibility for management of the Fund.
BlackRock Financial Management, Inc. (the "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 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 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
July 24, 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
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<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 I Shares and Class S 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>
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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 (after voluntary waiver or reimbursement)(5)(7)............. 0.00%
12b-1 Fees(6)............................................................... 0.25%
Other Expenses (after voluntary waiver or reimbursement)(7)................. 0.65%
Total Fund Operating Expenses (after voluntary waiver or reimbursement)(7).. 0.90%
- ---------------------------------------------------------------------------------------------------------
</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.
(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 CDSC."
(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
restated to reflect anticipated management fees and other expenses (after
voluntary waivers or reimbursements). Actual expenses for the Fund may vary
from day to day. The Advisor and the Administrator anticipate voluntarily
waiving fees and/or bearing expenses during the current fiscal year 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, other expenses would be
1.67% and total fund operating expenses would be 2.17%.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<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 sales charge, and (3) redemption at the end of the
time period. $29 $48 $69 $129
</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/or 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 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 EACH PERIOD.
<TABLE>
<CAPTION>
CLASS A SHARES
---------------------------
YEAR ENDED PERIOD ENDED
06/30/96 6/30/95*
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<S> <C> <C>
Net asset value, beginning of year............................................. $10.78 $10.00
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INCOME FROM INVESTMENT OPERATIONS:
Net investment income.......................................................... 0.63 0.12
Net realized and unrealized investment gain/(loss) on investments.............. (0.30) 0.66
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Total from investment operations............................................... 0.33 0.78
LESS DISTRIBUTIONS:
Dividends from net investment income........................................... (0.39) --
Distributions from realized gains.............................................. -- --
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Total distributions............................................................ (0.39) --
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Net asset value, end of year................................................... $10.72 $10.78
====== ======
Total return+.................................................................. 2.91% 7.80%
====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (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/or expenses absorbed by
the investment advisor and administrator or if fees had not been reduced by
credits allowed by the custodian.
(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." 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 was 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 Shareholder
Services at 800-222-5852 for performance information. Shareholders may also make
inquiries regarding the Fund, including current total return figures, to any
Authorized Dealer.
-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.
- --------------------------------------------------------------------------------
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<PAGE> 17
HOW TO INVEST IN CLASS A SHARES OF THE FUND
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT: MINIMUM $250 TO ADD TO AN ACCOUNT: MINIMUM $100
<TABLE>
<S> <C> <C>
BY PHONE - Exchange from another Sierra Trust - Exchange from another Sierra Trust
800-222-5852 Fund, SPIF or SAM Portfolios account Fund, SPIF or SAM Portfolios account
with same registration, including with the same registration, including
name, address, and taxpayer ID number name, address, and taxpayer ID
(social security number for an number.
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
Westboro, MA 01581-5118
- ----------------------------------------------------------------------------------------------------------
BY WIRE - 1. Telephone Shareholder Services and - Instruct your bank/financial
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 at
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
Westboro, MA 01581-5118
</TABLE>
- --------------------------------------------------------------------------------
-11-
<PAGE> 18
TO PURCHASE SHARES. Purchase, sale and exchange orders received by First Data
Investor Services Group, Inc. ("First Data" or the "transfer agent") 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, Presidents' 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 or by telephoning
Shareholder Services at 800-222-5852. Write to Sierra Trust Funds, c/o First
Data at P.O. Box 5118, Westboro, 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 CDSC" 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.
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<PAGE> 19
FOR CLASS A SHARES OF THE 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 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 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 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 Privilege. 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 the
Sierra Prime Income Fund ("SPIF") and Class A and Class B Shares of the SAM
Portfolios ("Shares of qualifying Sierra Funds") 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 Shares of qualifying Sierra Funds to the attention of
Sierra Shareholder Services at the time of the current purchase.
QUANTITY DISCOUNTS. As shown in the above table and under the "Right of
Accumulation" section, larger purchases of the Fund's Class A Shares combined
with Shares of qualifying Sierra Funds reduce the sales charge paid on the
Fund's Class A Shares. The Fund will combine purchases of such Shares of
qualifying Sierra Funds 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 Shares of qualifying Sierra Funds 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 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 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
-13-
<PAGE> 20
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 the Authorized Dealer 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 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 CDSC 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 Trust 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 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.
-14-
<PAGE> 21
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 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 - You may exchange to the same class
800-222-5852 retirement of other funds of the Trust, SPIF
or SAM Portfolios 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. 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 Sierra Trust Funds, c/o 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, Westboro, Massachusetts 01581-5118. Upon 30 days' prior
written notice to shareholders, the telephone transaction privileges may be
modified or terminated.
- - 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 Business Day on which your Authorized Dealer is
given the redemption order. The Fund makes no charge for this transaction but
your Authorized Dealer may charge you a service fee.
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 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 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, SAM Portfolios or SPIF (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
-17-
<PAGE> 24
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, a SAM Portfolio 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 CDSC 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 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.
The exchange privilege is available only in those states where the offer and
sale of shares of a given Fund may legally be made. Effective January 1, 1997,
upon 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, SPIF or
SAM Portfolios 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 Trust Funds 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.
-18-
<PAGE> 25
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.
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
-19-
<PAGE> 26
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 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
-20-
<PAGE> 27
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 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 02109-2873 and 4400
Computer Drive, Westboro, Massachusetts 01581. 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-administrator's 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.
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
-21-
<PAGE> 28
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 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 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.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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<PAGE> 29
(800) 222-5852
P.O. BOX 5118
WESTBORO, 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
/ / Tenants in Name of Add'l Owner ________________ SS#/Tax ID _______________
Common
/ / Transfer to
Minors _________________ As Custodian For ____________________________
NAME OF CUSTODIAN NAME OF MINOR
Under the _________ Uniform Transfers (Gifts) to Minors
(STATE)
Act ________ Minor's SS# _______________________________
(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).
<TABLE>
<S> <C> <C>
Investment Amount
TARGET MATURITY 2002 FUND CLASS A SHARES $ ------------------
</TABLE>
- --------------------------------------------------------------------------------
3. YOUR PAYMENT METHOD FOR INITIAL INVESTMENT
/ / CHECK: $ _________________ Make check payable to Sierra Trust Funds.
/ / WIRE: Call (800) 222-5852 for instructions.
- --------------------------------------------------------------------------------
4. YOUR BROKER/DEALER
Representative Name ________________________ Representative Number _____________
Branch Number _______________________
Firm 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> 30
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 one or
more Sierra Trust Non-Money Funds, SPIF or SAM Portfolios 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. THE INTERNAL REVENUE
SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER
THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
<TABLE>
<S> <C>
X
- ------------------------------------------------------------ ------------------------------------------------------------------
Registered Representative's Name and Number SIGNATURE
Date X
------------------------------------------------------- ------------------------------------------------------------------
SIGNATURE
</TABLE>
<PAGE> 31
This prospectus describes the Class A,
Class B and Class I Shares of the
Sierra Trust Funds (the "Trust"). The
Trust consists of the fifteen separate
investment funds (each, a "Fund")
listed to the right and the Target
Maturity 2002 Fund, which is described
in a separate prospectus. The Class A,
Class B and Class I Shares offer
investors alternative ways of paying
sales charges and distribution costs.
Class I Shares are not offered or sold
to individual investors. See "Class I
Shares." 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.
SIERRA TRUST FUNDS
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 AND INCOME FUND
GROWTH FUND
EMERGING GROWTH FUND
INTERNATIONAL GROWTH FUND
PROSPECTUS
OCTOBER 31, 1996
SIERRA TRUST FUNDS
P.O. BOX 5118
WESTBORO, MASSACHUSETTS 01581-5118
800-222-5852
<PAGE> 32
CONTENTS
SUMMARY OF EXPENSES & FINANCIAL
HIGHLIGHTS
THE FUNDS' INVESTMENTS AND RISK
CONSIDERATIONS
SECURITIES AND INVESTMENT PRACTICES
PERFORMANCE INFORMATION
YOUR ACCOUNT
SHAREHOLDER AND ACCOUNT POLICIES
THE FUNDS IN DETAIL
PAGE
2 THE SIERRA TRUST FUNDS FAMILY
6 EXPENSES
10 FINANCIAL HIGHLIGHTS The financial
data the Funds will report.
16 INVESTMENT PRINCIPLES AND RISK
CONSIDERATIONS Each Fund's overall
approach to investing.
28 SECURITIES AND INVESTMENT PRACTICES
regarding each Fund's investments
and practices.
44 PERFORMANCE How each Fund's
performances may be measured and
compared.
47 WAYS TO SET UP YOUR ACCOUNT Various
ways to set up your account,
including tax-sheltered retirement
plans.
54 HOW TO SELL SHARES Taking money out
and/or closing your account.
56 EXCHANGE PRIVILEGES AND RESTRICTIONS
Exchanging shares of one Fund for
another.
57 DIVIDENDS, CAPITAL GAINS AND TAXES
60 TRANSACTION DETAILS Share price
calculations and the timing of
purchases and redemptions.
60 ORGANIZATION How each Fund is
organized and managed.
61 SIERRA ADVISORS, ITS AFFILIATES AND
SERVICE PROVIDERS
63 BREAKDOWN OF FUND EXPENSES How
operating costs are calculated and
what they include.
<PAGE> 33
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 the 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 (the "Advisor" or
"Sierra Advisors") has overall responsibility for management of the Funds.
However, each Fund has an investment sub-advisor (the "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-
-2-
<PAGE> 34
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 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
underperforms 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 primarily 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.
-3-
<PAGE> 35
STRATEGY: Investing at least 65% of its assets 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.
THE MUNICIPAL FUNDS
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 at least 80% of its assets 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 at least 80% of its assets 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 at least 80% of its assets 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.
-4-
<PAGE> 36
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 primarily in stock of leading companies located outside the
United States.
INVESTMENT MANAGEMENT: Warburg, Pincus Counsellors, Inc. ("Warburg") is the
Sub-Advisor of the Fund.
-5-
<PAGE> 37
SUMMARY OF SIERRA TRUST FUNDS EXPENSES
<TABLE>
<CAPTION>
SHORT SHORT TERM
U.S. TERM HIGH GLOBAL
GLOBAL MONEY GOVERNMENT CALIFORNIA QUALITY GOVERNMENT
FUND MONEY FUND MONEY FUND BOND FUND FUND
<S> <C> <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) 3.50%(1)
Class B............................................ None None None None None
Class I............................................ None None None None None
MAXIMUM SALES CHARGE IMPOSED ON REINVESTED DIVIDENDS
(AS A PERCENTAGE OF OFFERING PRICE)
Class A............................................ None None None None None
Class B............................................ None None None None None
Class I............................................ None None None None None
DEFERRED SALES CHARGE
Class A............................................ None(2) None(2) None(2) None(2) None(2)
Class B............................................ 5.00%(3) 5.00%(3) 5.00%(3) 4.00%(3) 4.00%(3)
Class I............................................ None None None None None
REDEMPTION FEES(4)
Class A............................................ None None None None None
Class B............................................ None None None None None
Class I............................................ None None None None None
EXCHANGE FEES(5)
Class A............................................ None None None None None
Class B............................................ None None None None None
Class I............................................ None None None None None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
MANAGEMENT FEES (AFTER VOLUNTARY WAIVERS OR
REIMBURSEMENT)(6)
Class A............................................ 0.10% 0.04% 0.11% 0.03% 0.10%
Class B............................................ 0.10% 0.04% 0.11% 0.03% 0.10%
Class I............................................ 0.10% 0.04% 0.11% 0.03% 0.10%
12B-1 FEES(7)
Class A............................................ 0.25% 0.25% 0.25% 0.25% 0.25%
Class B............................................ 1.00% 1.00% 1.00% 1.00% 1.00%
Class I............................................ 0% 0% 0% 0% 0%
OTHER EXPENSES
Class A............................................ 0.50% 0.56% 0.49% 0.62% 0.55%
Class B............................................ 0.50% 0.56% 0.49% 0.62% 0.55%
Class I............................................ 0.50% 0.56% 0.49% 0.62% 0.55%
TOTAL FUND OPERATING EXPENSES (AFTER VOLUNTARY
WAIVERS OR REIMBURSEMENT)(8)
Class A............................................ 0.85% 0.85% 0.85% 0.90% 0.90%
Class B............................................ 1.60% 1.60% 1.60% 1.65% 1.65%
Class I............................................ 0.60% 0.60% 0.60% 0.65% 0.65%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
U.S. CORPORATE
GOVERNMENT INCOME
FUND FUND
<S> <C> <C>
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES (AS A
PERCENTAGE OF OFFERING PRICE)
Class A............................................ 4.50%(1) 4.50%(1)
Class B............................................ None None
Class I............................................ None None
MAXIMUM SALES CHARGE IMPOSED ON REINVESTED DIVIDENDS
(AS A PERCENTAGE OF OFFERING PRICE)
Class A............................................ None None
Class B............................................ None None
Class I............................................ None None
DEFERRED SALES CHARGE
Class A............................................ None(2) None(2)
Class B............................................ 5.00%(3) 5.00%(3)
Class I............................................ None None
REDEMPTION FEES(4)
Class A............................................ None None
Class B............................................ None None
Class I............................................ None None
EXCHANGE FEES(5)
Class A............................................ None None
Class B............................................ None None
Class I............................................ None None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
MANAGEMENT FEES (AFTER VOLUNTARY WAIVERS OR
REIMBURSEMENT)(6)
Class A............................................ 0.27% 0.46%
Class B............................................ 0.27% 0.46%
Class I............................................ 0.27% 0.46%
12B-1 FEES(7)
Class A............................................ 0.25% 0.25%
Class B............................................ 1.00% 1.00%
Class I............................................ 0% 0%
OTHER EXPENSES
Class A............................................ 0.48% 0.49%
Class B............................................ 0.48% 0.49%
Class I............................................ 0.48% 0.49%
TOTAL FUND OPERATING EXPENSES (AFTER VOLUNTARY
WAIVERS OR REIMBURSEMENT)(8)
Class A............................................ 1.00% 1.20%
Class B............................................ 1.75% 1.95%
Class I............................................ 0.75% 0.95%
- --------------------------------------------------------------------------------
</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)Effective January 1, 1997, upon 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").
-6-
<PAGE> 38
<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
0.37% 0.05% 0.22% 0.34% 0.76% 0.92% 0.87%
0.37% 0.05% 0.22% 0.34% 0.76% 0.92% 0.87%
0.37% 0.05% 0.22% 0.34% 0.76% 0.92% 0.87%
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%
0.48% 0.70% 0.53% 0.51% 0.57% 0.54% 0.58%
0.48% 0.70% 0.53% 0.51% 0.57% 0.54% 0.58%
0.48% 0.70% 0.53% 0.51% 0.57% 0.54% 0.58%
1.10% 1.00% 1.00% 1.10% 1.58% 1.71% 1.70%
1.85% 1.75% 1.75% 1.85% 2.33% 2.46% 2.45%
0.85% 0.75% 0.75% 0.85% 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
0.83%
0.83%
0.83%
0.25%
1.00%
0%
0.75%
0.75%
0.75%
1.83%
2.58%
1.58%
- ------------------
</TABLE>
(8)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/or Administrator anticipate voluntarily
waiving fees and/or bearing expenses during the current fiscal year 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-1.15%, Class B-1.90%,
Class I-0.90%; U.S. Government Money Fund, Class A-1.21%, Class B-1.96%,
Class I-0.96%; California Money Fund, Class A-1.14%, Class B-1.89%, Class
I-0.89%; Short Term High Quality Bond Fund, Class A-1.37%, Class B-2.12%,
Class I-1.12%; Short Term Global Government Fund, Class A-1.45%, Class
B-2.20%, Class I-1.20%; U.S. Government Fund, Class A-1.28%, Class B-2.03%,
Class I-1.03%; Corporate Income Fund, Class A-1.39%, Class B-2.14%, Class
I-1.14%; California Municipal Fund, Class A-1.28%, Class B-2.03%, Class
I-1.03%; Florida Insured Municipal Fund, Class A-1.50%, Class B-2.25%, Class
I-1.25%; California Insured Intermediate Municipal Fund, Class A-1.33%, Class
B-2.08%, Class I-1.08%; and National Municipal Fund, Class A-1.31%, Class
B-2.06%, Class I-1.06%.
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.
-7-
<PAGE> 39
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 TERM SHORT TERM
U.S. 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 $9 $9 $9 $44 $44 $55 $57
3 Years 27 27 27 63 63 75 81
5 Years 47 47 47 83 83 98 108
10 Years 105 105 105 142 142 162 184
Class B (Assuming a complete
redemption at end of period)(2)....
1 Year $66 $66 $66 $57 $57 $68 $70
3 Years 80 80 80 72 72 85 91
5 Years 107 107 107 90 90 115 125
10 Years(3) 190 190 190 195 195 206 227
Class B (Assuming no redemption)(4)..
1 Year $16 $16 $16 $17 $17 $18 $20
3 Years 50 50 50 52 52 55 61
5 Years 87 87 87 90 90 95 105
10 Years(3) 190 190 190 195 195 206 227
Class I..............................
1 Year $6 $6 $6 $7 $7 $8 $10
3 Years 19 19 19 21 21 24 30
5 Years 33 33 33 36 36 42 53
10 Years 75 75 75 81 81 93 117
- ---------------------------------------------------------------------------------------------------------------------------------
</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.
-8-
<PAGE> 40
<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>
- ---------------------------------------------------------------------------------------------------------------------------------
$56 $55 $55 $56 $60 $62 $62 $63
78 75 75 78 93 96 96 100
103 98 98 103 127 134 133 140
173 162 162 173 224 238 237 250
$69 $68 $68 $69 $74 $75 $75 $76
88 85 85 88 103 107 106 110
120 115 115 120 145 151 151 157
217 206 206 217 267 280 279 291
$19 $18 $18 $19 $24 $25 $25 $26
58 55 55 58 73 77 76 80
100 95 95 100 125 131 131 137
217 206 206 217 267 280 279 291
$9 $8 $8 $9 $14 $15 $15 $16
27 24 24 27 42 46 46 50
47 42 42 47 73 80 79 86
105 93 93 105 160 175 174 188
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE> 41
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....... $ 1.00 $ 0.051 $0.000(19) $0.051 $ (0.051)
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 B SHARES
Year ended 6/30/96....... 1.00 0.043 0.000(19) 0.043 (0.043)
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....... 1.00 0.047 - 0.047 (0.047)
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....... 1.00 0.040 - 0.040 (0.040)
Year ended 6/30/95....... 1.00 0.038 - 0.038 (0.038)
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/96....... 1.00 0.029 - 0.029 (0.029)
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....... 1.00 0.022 - 0.022 (0.022)
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(17)... 2.35 0.15 (0.03) 0.12 (0.15)
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(17)... 2.35 0.13 (0.03) 0.10 (0.13)
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(17)... 2.24 0.15 0.07 0.22 (0.16)
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(17)... 2.24 0.13 0.07 0.20 (0.14)
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....... 9.67 0.67 (0.26) 0.41 (0.67)
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....... 9.67 0.60 (0.26) 0.34 (0.60)
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....... 10.52 0.76 (0.36) 0.40 (0.76)
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....... 10.52 0.68 (0.36) 0.32 (0.68)
Year ended 6/30/95....... 9.87 0.61 0.78 1.39 (0.61)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE> 42
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>
- ----------------------------------------------------------------------------------------------------------------------
$ - $(0.000)(19) $ - $ - $(0.051) $ 1.00 5.22%
- (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) - - (0.043) 1.00 4.40
- (0.000)(19) - - (0.042) 1.00 4.29
- - - - (0.047) 1.00 4.81
- - - - (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
- - - - (0.040) 1.00 4.02
- - - - (0.038) 1.00 3.91
- - - - (0.029) 1.00 3.00
- - - - (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
- - - - (0.022) 1.00 2.22
- - - - (0.020) 1.00 2.04
- - - (0.00)(14) (0.15) 2.32 5.05
(0.06) - - (0.00)(14) (0.14) 2.35 4.42
- - - - (0.09) 2.39 (0.73)
- - - (0.00)(14) (0.13) 2.32 4.27
(0.06) - - (0.00)(14) (0.12) 2.35 3.64
(0.01)(14) - - - (0.17) 2.29 10.16
(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
(0.01) - - - (0.15) 2.29 9.33
(0.00)(14) - (0.01) (0.12) (0.13) 2.24 1.33
- - - - (0.67) 9.41 4.34
- - - - (0.70) 9.67 10.17
- - (0.10) - (0.74) 9.45 (4.59)
- - - (0.03)(16) (0.77) 10.65 8.87
- - - (0.01)(16) (0.85) 10.52 13.74
- - - (0.01)(16) (0.86) 10.04 10.14
- - - - (0.74) 9.93 6.99
- - - - (0.60) 9.41 3.56
- - - - (0.63) 9.67 9.36
- - - (0.00)(14) (0.76) 10.16 3.81
(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
- - - (0.00)(14) (0.68) 10.16 3.04
(0.09) - - (0.04) (0.74) 10.52 14.73
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE> 43
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------------------------------------------------
NET
INVESTMENT
INCOME/(LOSS)
PER SHARE
WITHOUT
FEE WAIVERS,
EXPENSES
ABSORBED
RATIO OF AND/OR FEES
OPERATING RATIO OF NET REDUCED BY
NET ASSETS EXPENSES INVESTMENT CREDITS
END OF TO INCOME TO PORTFOLIO ALLOWED BY
PERIOD (IN AVERAGE AVERAGE TURNOVER THE
FUND 000'S) NET ASSETS NET ASSETS RATE CUSTODIAN(12)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GLOBAL MONEY FUND
CLASS A SHARES
Year ended 6/30/96................ $153,786 0.65% 5.04% -% $ 0.046
Year ended 6/30/95................ 110,012 0.54 5.08 - 0.043
Year ended 6/30/94................ 53,973 0.45 2.99 - 0.021
Year ended 6/30/93................ 48,283 0.41 3.15 - 0.022
Year ended 6/30/92................ 71,492 0.42 4.90 - 0.039
Year ended 6/30/91................ 92,334 0.30 6.99 - 0.060
Period ended 6/30/90(1)........... 22,834 1.00(10) 7.54(10) - 0.067
CLASS B SHARES
Year ended 6/30/96................ 422 1.40 4.29 - 0.038
Year ended 6/30/95................ 241 1.29 4.33 - 0.036
U.S. GOVERNMENT MONEY FUND
CLASS A SHARES
Year ended 6/30/96................ 39,031 0.85 4.70 - 0.043
Year ended 6/30/95................ 47,492 0.85 4.63 - 0.042
Year ended 6/30/94................ 30,180 0.85 2.68 - 0.022
Year ended 6/30/93................ 36,802 0.85 2.69 - 0.022
Year ended 6/30/92................ 44,233 0.85 4.43 - 0.037
Year ended 6/30/91................ 62,473 0.86 6.54 - 0.058
Period ended 6/30/90(2)........... 94,789 1.00(10) 7.52(10) - 0.067
CLASS B SHARES
Year ended 6/30/96................ 112 1.60 3.95 - 0.036
Year ended 6/30/95................ 123 1.60 3.88 - 0.034
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/96................ 51,211 0.85 2.94 - 0.026
Year ended 6/30/95................ 48,836 0.85 2.73 - 0.025
Year ended 6/30/94................ 62,500 0.85 1.80 - 0.014
Year ended 6/30/93................ 68,404 0.85 2.06 - 0.016
Year ended 6/30/92................ 94,607 0.85 3.31 - 0.029
Year ended 6/30/91................ 113,392 0.83 4.48 - 0.037
Period ended 6/30/90(2)........... 147,487 1.00(10) 5.07(10) - 0.040
CLASS B SHARES
Year ended 6/30/96................ 147 1.60 2.19 - 0.019
Year ended 6/30/95................ 79 1.60 1.98 - 0.017
SHORT TERM HIGH QUALITY BOND FUND
CLASS A SHARES
Year ended 6/30/96(17)............ 32,440 0.75 6.22 225 0.13
Year ended 6/30/95................ 43,811 0.75 6.10 137 0.07
Period ended 6/30/94(3)........... 21,771 0.00(10) 5.70(10) 95 0.06
CLASS B SHARES
Year ended 6/30/96(17)............ 3,437 1.50 5.47 225 0.11
Year ended 6/30/95................ 3,015 1.50 5.35 137 0.05
SHORT TERM GLOBAL GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/96(17)............ 65,726 0.85 6.75 87 0.14
Year ended 6/30/95................ 103,986 0.85 7.22 217 0.16
Year ended 6/30/94................ 220,824 0.85 6.87 222 0.16
Year ended 6/30/93................ 215,348 0.73 7.67 294 0.17
Period ended 6/30/92(4)........... 106,609 0.41(10) 8.65(10) 81 0.06
CLASS B SHARES
Year ended 6/30/96(17)............ 1,594 1.60 6.00 87 0.12
Year ended 6/30/95................ 1,297 1.60 6.47 217 0.14
U. S. GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/96................ 423,282 0.70(18) 7.34 356 0.62
Year ended 6/30/95................ 459,968 0.95(18) 7.58 226 0.66
Year ended 6/30/94................ 666,566 1.05(18) 7.26 27 0.72
Year ended 6/30/93................ 842,277 0.91(18) 6.98 67 0.70
Year ended 6/30/92................ 504,776 0.72(18) 7.67 35 0.77
Year ended 6/30/91................ 166,920 1.12(18) 8.32 54 0.79
Period ended 6/30/90(5)........... 31,430 1.13(10)(18) 8.50(10) 13 0.69
CLASS B SHARES
Year ended 6/30/96................ 23,668 1.45 6.59 356 0.55
Year ended 6/30/95................ 10,646 1.70(18) 6.83 226 0.59
CORPORATE INCOME FUND
CLASS A SHARES
Year ended 6/30/96................ 298,518 0.95 7.23 25 0.72
Year ended 6/30/95................ 383,642 0.90 8.26 55 0.64
Year ended 6/30/94................ 472,519 1.35 7.19 30 0.80
Year ended 6/30/93................ 396,357 1.24 7.67 37 0.82
Year ended 6/30/92................ 169,682 0.97 8.29 8 0.85
Period ended 6/30/91(6)........... 35,478 1.21(10) 9.01(10) 31 0.76
CLASS B SHARES
Year ended 6/30/96................ 24,606 1.70 6.48 25 0.64
Year ended 6/30/95................ 15,145 1.65 7.51 55 0.57
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
RATIO OF RATIO OF OPERATING
OPERATING EXPENSES TO
EXPENSES AVERAGE NET ASSETS
TO AVERAGE WITHOUT
NET ASSETS FEE WAIVERS,
WITHOUT EXPENSES ABSORBED
FEES REDUCED AND/OR
BY CREDITS FEES REDUCED
ALLOWED BY CREDITS
BY THE ALLOWED BY THE
FUND CUSTODIAN(21) CUSTODIAN(13)(21)
- ------------------------------------------------------------------------------
<S> <C> <C>
GLOBAL MONEY FUND
CLASS A SHARES
Year ended 6/30/96................ 0.65% 1.15%
Year ended 6/30/95................ N/A 1.18
Year ended 6/30/94................ N/A 1.35
Year ended 6/30/93................ N/A 1.32
Year ended 6/30/92................ N/A 1.34
Year ended 6/30/91................ N/A 1.51
Period ended 6/30/90(1)........... N/A 1.74(10)
CLASS B SHARES
Year ended 6/30/96................ 1.40 1.90
Year ended 6/30/95................ N/A 1.93
U.S. GOVERNMENT MONEY FUND
CLASS A SHARES
Year ended 6/30/96................ 0.85 1.22
Year ended 6/30/95................ N/A 1.25
Year ended 6/30/94................ N/A 1.32
Year ended 6/30/93................ N/A 1.34
Year ended 6/30/92................ N/A 1.35
Year ended 6/30/91................ N/A 1.52
Period ended 6/30/90(2)........... N/A 1.64(10)
CLASS B SHARES
Year ended 6/30/96................ 1.60 1.97
Year ended 6/30/95................ N/A 2.00
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/96................ N/A 1.14
Year ended 6/30/95................ N/A 1.15
Year ended 6/30/94................ N/A 1.27
Year ended 6/30/93................ N/A 1.29
Year ended 6/30/92................ N/A 1.28
Year ended 6/30/91................ N/A 1.48
Period ended 6/30/90(2)........... N/A 1.64(10)
CLASS B SHARES
Year ended 6/30/96................ N/A 1.89
Year ended 6/30/95................ N/A 1.90
SHORT TERM HIGH QUALITY BOND FUND
CLASS A SHARES
Year ended 6/30/96(17)............ 0.75 1.42
Year ended 6/30/95................ N/A 1.39
Period ended 6/30/94(3)........... N/A 1.61(10)
CLASS B SHARES
Year ended 6/30/96(17)............ 1.50 2.17
Year ended 6/30/95................ N/A 2.14
SHORT TERM GLOBAL GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/96(17)............ 0.85 1.47
Year ended 6/30/95................ N/A 1.44
Year ended 6/30/94................ N/A 1.52
Year ended 6/30/93................ N/A 1.55
Period ended 6/30/92(4)........... N/A 1.92(10)
CLASS B SHARES
Year ended 6/30/96(17)............ 1.60 2.22
Year ended 6/30/95................ N/A 2.19
U. S. GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/96................ 0.71 1.45
Year ended 6/30/95................ N/A 1.59
Year ended 6/30/94................ N/A 1.34
Year ended 6/30/93................ N/A 1.34
Year ended 6/30/92................ N/A 1.39
Year ended 6/30/91................ 1.57
Period ended 6/30/90(5)........... 1.89(10)
CLASS B SHARES
Year ended 6/30/96................ 1.46 2.20
Year ended 6/30/95................ N/A 2.34
CORPORATE INCOME FUND
CLASS A SHARES
Year ended 6/30/96................ 0.95 1.38
Year ended 6/30/95................ N/A 1.40
Year ended 6/30/94................ N/A 1.42
Year ended 6/30/93................ N/A 1.42
Year ended 6/30/92................ N/A 1.48
Period ended 6/30/91(6)........... 1.78(10)
CLASS B SHARES
Year ended 6/30/96................ 1.70 2.13
Year ended 6/30/95................ N/A 2.15
- ------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE> 44
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------------------------------------------------------
NET REALIZED
&
NET ASSETS UNREALIZED
VALUE AT NET GAIN/(LOSS)
BEGINNING INVESTMENT ON
FUND OF PERIOD INCOME/(LOSS) INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96(17)........................................... $10.53 $ 0.60 $ 0.07
Year ended 6/30/95............................................... 10.38 0.61 0.15
Year ended 6/30/94............................................... 11.22 0.61 (0.82)
Year ended 6/30/93............................................... 10.45 0.62 0.77
Year ended 6/30/92............................................... 10.07 0.65 0.38
Year ended 6/30/91............................................... 10.01 0.63 0.06
Period ended 6/30/90(5).......................................... 10.00 0.57 0.01
CLASS B SHARES
Year ended 6/30/96(17)........................................... 10.53 0.51 0.07
Year ended 6/30/95............................................... 10.38 0.53 0.15
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................................... 9.43 0.50 0.21
Year ended 6/30/95............................................... 9.40 0.52 0.03(15)
Year ended 6/30/94............................................... 10.05 0.52 0.65
Period ended 6/30/93(7).......................................... 10.00 0.00(14) 0.05
CLASS B SHARES
Year ended 6/30/96............................................... 9.43 0.42 0.21
Year ended 6/30/95............................................... 9.40 0.45 0.03(15)
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................................... 10.45 0.49 0.15
Year ended 6/30/95............................................... 10.10 0.50 0.35
Year ended 6/30/94(8)............................................ 10.00 0.11 0.11(15)
CLASS B SHARES
Year ended 6/30/96............................................... 10.45 0.41 0.15
Year ended 6/30/95............................................... 10.10 0.43 0.35
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................................... 10.76 0.61 0.07
Year ended 6/30/95............................................... 10.85 0.64 0.01(15)
Year ended 6/30/94............................................... 11.65 0.65 (0.73)
Year ended 6/30/93............................................... 10.96 0.67 0.75
Year ended 6/30/92............................................... 10.16 0.72 0.79
Period ended 6/30/91(6).......................................... 10.00 0.64 0.16
CLASS B SHARES
Year ended 6/30/96............................................... 10.76 0.53 0.07
Year ended 6/30/95............................................... 10.85 0.56 0.01(15)
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/96(17)........................................... 12.58 0.08 2.51
Year ended 6/30/95............................................... 11.30 0.13 2.04
Year ended 6/30/94............................................... 12.09 0.12 0.72
Year ended 6/30/93............................................... 11.25 0.12 0.91
Year ended 6/30/92............................................... 10.51 0.17 0.74
Year ended 6/30/91............................................... 10.12 0.23 0.43
Period ended 6/30/90(5).......................................... 10.00 0.24 0.07
CLASS B SHARES
Year ended 6/30/96(17)........................................... 12.55 (0.02) 2.50
Year ended 6/30/95............................................... 11.30 0.05 2.04
GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)........................................... 14.18 (0.07) 3.47
Year ended 6/30/95(17)........................................... 10.73 0.05 3.42
Year ended 6/30/94............................................... 10.72 (0.02) 0.03(15)
Period ended 6/30/93(9).......................................... 10.00 0.00(14) 0.72
CLASS B SHARES
Year ended 6/30/96(17)........................................... 14.10 (0.19) 3.45
Year ended 6/30/95(17)........................................... 10.73 (0.04) 3.42
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)........................................... 15.47 (0.19) 5.65
Year ended 6/30/95(17)........................................... 13.02 (0.00)(14) 2.77
Year ended 6/30/94............................................... 13.76 (0.09) 0.68
Year ended 6/30/93............................................... 11.67 (0.02) 2.31
Year ended 6/30/92(17)........................................... 9.62 (0.01) 2.16
Period ended 6/30/91(6).......................................... 10.00 0.09 (0.40)
CLASS B SHARES
Year ended 6/30/96(17)........................................... 15.37 (0.32) 5.59
Year ended 6/30/95(17)........................................... 13.02 (0.10) 2.77
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)........................................... 9.78 0.05 1.21
Year ended 6/30/95(17)........................................... 10.74 (0.11)(20) (0.31)
Year ended 6/30/94............................................... 9.80 0.06 1.15
Year ended 6/30/93............................................... 8.82 0.07 0.94
Year ended 6/30/92............................................... 8.27 0.05 0.55
Period ended 6/30/91(6).......................................... 10.00 0.02 (1.75)
CLASS B SHARES
Year ended 6/30/96(17)........................................... 9.73 (0.03) 1.21
Year ended 6/30/95(17)........................................... 10.74 (0.17)(20) (0.31)
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------------------------------------------------------
DIVIDENDS
TOTAL FROM
FROM NET
INVESTMENT INVESTMENT
OPERATIONS INCOME
FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96(17)........................................... $ 0.67 $(0.60)
Year ended 6/30/95............................................... 0.76 (0.61)
Year ended 6/30/94............................................... (0.21) (0.61)
Year ended 6/30/93............................................... 1.39 (0.62)
Year ended 6/30/92............................................... 1.03 (0.65)
Year ended 6/30/91............................................... 0.69 (0.63)
Period ended 6/30/90(5).......................................... 0.58 (0.57)
CLASS B SHARES
Year ended 6/30/96(17)........................................... 0.58 (0.51)
Year ended 6/30/95............................................... 0.68 (0.53)
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................................... 0.71 (0.50)
Year ended 6/30/95............................................... 0.55 (0.52)
Year ended 6/30/94............................................... (0.13) (0.52)
Period ended 6/30/93(7).......................................... 0.05 -
CLASS B SHARES
Year ended 6/30/96............................................... 0.63 (0.42)
Year ended 6/30/95............................................... 0.48 (0.45)
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................................... 0.64 (0.49)
Year ended 6/30/95............................................... 0.85 (0.50)
Year ended 6/30/94(8)............................................ 0.22 (0.11)
CLASS B SHARES
Year ended 6/30/96............................................... 0.56 (0.41)
Year ended 6/30/95............................................... 0.78 (0.43)
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................................... 0.68 (0.61)
Year ended 6/30/95............................................... 0.65 (0.64)
Year ended 6/30/94............................................... (0.08) (0.65)
Year ended 6/30/93............................................... 1.42 (0.67)
Year ended 6/30/92............................................... 1.51 (0.71)
Period ended 6/30/91(6).......................................... 0.80 (0.64)
CLASS B SHARES
Year ended 6/30/96............................................... 0.60 (0.53)
Year ended 6/30/95............................................... 0.57 (0.56)
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/96(17)........................................... 2.59 (0.08)
Year ended 6/30/95............................................... 2.17 (0.12)
Year ended 6/30/94............................................... 0.84 (0.12)
Year ended 6/30/93............................................... 1.03 (0.12)
Year ended 6/30/92............................................... 0.91 (0.17)
Year ended 6/30/91............................................... 0.66 (0.27)
Period ended 6/30/90(5).......................................... 0.31 (0.19)
CLASS B SHARES
Year ended 6/30/96(17)........................................... 2.48 (0.01)
Year ended 6/30/95............................................... 2.09 (0.07)
GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)........................................... 3.40 -
Year ended 6/30/95(17)........................................... 3.47 (0.02)
Year ended 6/30/94............................................... 0.01 -
Period ended 6/30/93(9).......................................... 0.72 -
CLASS B SHARES
Year ended 6/30/96(17)........................................... 3.26 -
Year ended 6/30/95(17)........................................... 3.38 (0.01)
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)........................................... 5.46 -
Year ended 6/30/95(17)........................................... 2.77 -
Year ended 6/30/94............................................... 0.59 -
Year ended 6/30/93............................................... 2.29 -
Year ended 6/30/92(17)........................................... 2.15 (0.01)
Period ended 6/30/91(6).......................................... (0.31) (0.07)
CLASS B SHARES
Year ended 6/30/96(17)........................................... 5.27 -
Year ended 6/30/95(17)........................................... 2.67 -
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)........................................... 1.26 (0.05)
Year ended 6/30/95(17)........................................... (0.42) (0.04)
Year ended 6/30/94............................................... 1.21 (0.02)
Year ended 6/30/93............................................... 1.01 (0.03)
Year ended 6/30/92............................................... 0.60 (0.05)
Period ended 6/30/91(6).......................................... (1.73) -
CLASS B SHARES
Year ended 6/30/96(17)........................................... 1.18 (0.02)
Year ended 6/30/95(17)........................................... (0.48) (0.03)
</TABLE>
- --------------------------------------------------------------------------------
-13-
<PAGE> 45
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
IN EXCESS OF DISTRIBUTIONS DISTRIBUTIONS
NET FROM NET IN EXCESS OF DISTRIBUTIONS
INVESTMENT REALIZED NET REALIZED FROM
FUND INCOME GAINS GAINS CAPITAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96(17)......................... $ - $ - $ - $ -
Year ended 6/30/95............................. - (0.00)(14) - -
Year ended 6/30/94............................. (0.00)(14) - (0.02) -
Year ended 6/30/93............................. - - - -
Year ended 6/30/92............................. - - - -
Year ended 6/30/91............................. - - - -
Period ended 6/30/90(5)........................ - - - -
CLASS B SHARES
Year ended 6/30/96(17)......................... - - - -
Year ended 6/30/95............................. - (0.00)(14) - -
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................. - - - -
Year ended 6/30/95............................. - - - -
Year ended 6/30/94............................. (0.00)(14) - (0.00)(14) -
Period ended 6/30/93(7)........................ - - - -
CLASS B SHARES
Year ended 6/30/96............................. - - - -
Year ended 6/30/95............................. - - - -
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................. - (0.04) - -
Year ended 6/30/95............................. - - - -
Period ended 6/30/94(8)........................ - (0.01) - -
CLASS B SHARES
Year ended 6/30/96............................. - (0.04) - -
Year ended 6/30/95............................. - - - -
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................. - - - -
Year ended 6/30/95............................. - (0.01) (0.09) -
Year ended 6/30/94............................. (0.00)(14) (0.07) - -
Year ended 6/30/93............................. - (0.06) - -
Year ended 6/30/92............................. - - - -
Period ended 6/30/91(6)........................ - - - -
CLASS B SHARES
Year ended 6/30/96............................. - - - -
Year ended 6/30/95............................. - (0.01) (0.09) -
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/96(17)......................... - (0.99) - -
Year ended 6/30/95............................. - (0.77) - -
Year ended 6/30/94............................. - (1.51) - -
Year ended 6/30/93............................. - (0.07) - -
Year ended 6/30/92............................. - - - -
Year ended 6/30/91............................. - - - -
Period ended 6/30/90(5)........................ - - - -
CLASS B SHARES
Year ended 6/30/96(17)......................... - (0.99) - -
Year ended 6/30/95............................. - (0.77) - -
GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)......................... - (1.89) - -
Year ended 6/30/95(17)......................... - (0.00)(14) - -
Year ended 6/30/94............................. - - - -
Period ended 6/30/93(9)........................ - - - -
CLASS B SHARES
Year ended 6/30/96(17)......................... - (1.89) - -
Year ended 6/30/95(17)......................... - (0.00)(14) - -
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)......................... - (0.76) - -
Year ended 6/30/95(17)......................... - (0.32) - -
Year ended 6/30/94............................. - (1.33) - -
Year ended 6/30/93............................. - (0.20) - -
Year ended 6/30/92(17)......................... - (0.08) - (0.01)(16)
Period ended 6/30/91(6)........................ - - - -
CLASS B SHARES
Year ended 6/30/96(17)......................... - (0.76) - -
Year ended 6/30/95(17)......................... - (0.32) - -
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)........................... (0.04) (0.46) - -
Year ended 6/30/95(17)......................... - (0.44) (0.06) -
Year ended 6/30/94............................. - (0.25) - -
Year ended 6/30/93............................. - - - -
Year ended 6/30/92............................. - - - -
Period ended 6/30/91(6)........................ - - - -
CLASS B SHARES...................................
Year ended 6/30/96(17)......................... (0.04) (0.46) - -
Year ended 6/30/95(17)......................... - (0.44) (0.06) -
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------
NET ASSET
VALUE AT
TOTAL END OF
FUND DISTRIBUTIONS PERIOD
- --------------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96(17)......................... $ (0.60) $ 10.60
Year ended 6/30/95............................. (0.61) 10.53
Year ended 6/30/94............................. (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(17)......................... (0.51) 10.60
Year ended 6/30/95............................. (0.53) 10.53
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................. (0.50) 9.64
Year ended 6/30/95............................. (0.52) 9.43
Year ended 6/30/94............................. (0.52) 9.40
Period ended 6/30/93(7)........................ - 10.05
CLASS B SHARES
Year ended 6/30/96............................. (0.42) 9.64
Year ended 6/30/95............................. (0.45) 9.43
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................. (0.53) 10.56
Year ended 6/30/95............................. (0.50) 10.45
Period ended 6/30/94(8)........................ (0.12) 10.10
CLASS B SHARES
Year ended 6/30/96............................. (0.45) 10.56
Year ended 6/30/95............................. (0.43) 10.45
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................. (0.61) 10.83
Year ended 6/30/95............................. (0.74) 10.76
Year ended 6/30/94............................. (0.72) 10.85
Year ended 6/30/93............................. (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............................. (0.53) 10.83
Year ended 6/30/95............................. (0.66) 10.76
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/96(17)......................... (1.07) 14.10
Year ended 6/30/95............................. (0.89) 12.58
Year ended 6/30/94............................. (1.63) 11.30
Year ended 6/30/93............................. (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(17)......................... (1.00) 14.03
Year ended 6/30/95............................. (0.84) 12.55
GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)......................... (1.89) 15.69
Year ended 6/30/95(17)......................... (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(17)......................... (1.89) 15.47
Year ended 6/30/95(17)......................... (0.01) 14.10
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)......................... (0.76) 20.17
Year ended 6/30/95(17)......................... (0.32) 15.47
Year ended 6/30/94............................. (1.33) 13.02
Year ended 6/30/93............................. (0.20) 13.76
Year ended 6/30/92(17)......................... (0.10) 11.67
Period ended 6/30/91(6)........................ (0.07) 9.62
Year ended 6/30/96(17)......................... (0.76) 19.88
Year ended 6/30/95(17)......................... (0.32) 15.37
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)........................... (0.55) 10.49
Year ended 6/30/95(17)......................... (0.54) 9.78
Year ended 6/30/94............................. (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(17)......................... (0.52) 10.39
Year ended 6/30/95(17)......................... (0.53) 9.73
- --------------------------------------------------
</TABLE>
-14-
<PAGE> 46
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT RATIO OF
INCOME/(LOSS) PER OPERATING
SHARE WITHOUT FEE EXPENSES TO
WAIVERS, AVERAGE NET
RATIO OF RATIO OF NET EXPENSES ASSETS WITHOUT
NET ASSETS OPERATING INVESTMENT ABSORBED AND/OR FEES REDUCED BY
TOTAL END OF EXPENSES TO INCOME TO PORTFOLIO FEES REDUCED BY CREDITS ALLOWED
RETURN PERIOD AVERAGE NET AVERAGE NET TURNOVER CREDITS ALLOWED BY THE CUSTODIAN
(11) (IN 000'S) ASSETS ASSETS RATE BY CUSTODIAN (12) (21)
- -----------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C> <C> <C>
6.40% $ 372,177 0.94% 5.56% 17% $ 0.56 0.94%
7.57 405,967 0.85 5.89 22 0.56 N/A
(2.19) 509,233 0.79 5.45 50 0.54 N/A
13.84 511,364 0.80 5.74 41 0.56 N/A
10.56 309,146 0.94 6.08 29 0.60 N/A
7.16 202,595 1.05 6.30 16 0.58 N/A
5.99 92,972 1.01(10) 6.26(10) 38 0.49 N/A
5.61 20,543 1.69 4.81 17 0.47 1.69
6.78 7,230 1.60 5.14 22 0.48 N/A
7.56 29,821 0.63 5.08 52 0.42 0.66
6.01 33,714 0.39 5.53 44 0.42 N/A
(1.50) 38,541 0.00 5.09 83 0.36 N/A
0.50 4,837 0.00(10) 0.48(10) 0 (0.02) N/A
6.76 5,428 1.38 4.33 52 0.34 1.41
5.23 3,330 1.14 4.78 44 0.35 N/A
6.25 54,518 0.73 4.62 27 0.42 0.75
8.71 54,507 0.42 4.95 13 0.40 N/A
2.20 34,147 0.00(10) 4.25(10) 17 0.06 N/A
5.46 20,948 1.48 3.87 27 0.34 1.50
7.90 12,391 1.17 4.20 13 0.33 N/A
6.41 233,359 1.04 5.58 25 0.58 1.04
6.32 269,033 0.83 5.97 23 0.59 N/A
(0.90) 354,501 0.87 5.60 44 0.59 N/A
13.41 390,187 0.86 5.89 83 0.61 N/A
15.42 226,984 0.64 6.34 61 0.63 N/A
8.27 44,915 0.55(10) 6.84(10) 81 0.53 N/A
5.62 6,800 1.79 4.83 25 0.50 1.79
5.54 4,786 1.58 5.22 23 0.51 N/A
21.36 183,084 1.54 0.60 90 0.08 1.54
20.47 170,177 1.56 1.11 72 0.13 N/A
6.67 125,249 1.50 1.04 127 0.11 N/A
9.20 97,873 1.46 1.01 47 0.12 N/A
8.65 83,825 1.50 1.51 16 0.16 N/A
6.70 33,930 1.52 2.48 19 0.21 N/A
3.17 20,964 1.37(10) 3.21(10) 16 0.19 N/A
20.53 23,924 2.29 (0.15) 90 (0.02) 2.29
19.67 6,918 2.31 0.36 72 0.05 N/A
25.44 179,720 1.70 (0.49) 205 (0.07) 1.71
32.33 154,763 1.76 0.28 233 0.05 N/A
0.00 126,808 1.75 (0.35) 227 (0.02) N/A
7.30 23,323 1.44(10) (0.63)(10) 13 (0.01) N/A
24.54 25,067 2.45 (1.24) 205 (0.19) 2.46
31.46 6,928 2.51 (0.47) 233 (0.04) N/A
35.93 283,747 1.64 (1.02) 131 (0.19) 1.65
21.54 185,722 1.68 (0.31) 181 (0.00)(14) N/A
3.40 124,941 1.66 (0.68) 224 (0.09) N/A
19.75 96,646 1.59 (0.32) 28 (0.02) N/A
22.47 27,652 1.93 (0.04) 60 (0.01) N/A
(2.95) 8,490 1.84(10) 1.10(10) 17 0.07 N/A
34.93 28,920 2.39 (1.77) 131 (0.32) 2.40
20.69 10,208 2.43 (1.06) 181 (0.10) N/A
13.16 116,254 1.77 0.46 125 0.05 1.77
(4.01) 91,763 1.69 0.62 81 (0.11) N/A
12.39 127,764 1.69 0.54 44 0.06 N/A
11.51 56,962 1.80 1.07 63 0.07 N/A
7.28 24,479 2.25 0.69 66 0.04 N/A
(17.30) 11,647 2.24(10) 0.51(10) 45 0.01 N/A
12.34 4,447 2.52 (0.29) 1.25 (0.03) 2.52
(4.61) 2,268 2.44 (0.13) 81 (0.17) N/A
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------------------------------------
RATIO OF OPERATING
EXPENSES TO
AVERAGE NET
ASSETS WITHOUT
FEE WAIVERS,
EXPENSES ABSORBED
AND/OR FEES
REDUCED BY CREDITS
ALLOWED BY
CUSTODIAN(13)(21)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
1.29%
1.29
1.39
1.41
1.40
1.60
1.84(10)
2.04
2.04
1.46
1.51
1.55
5.59(10)
2.21
2.26
1.39
1.41
1.95(10)
2.14
2.16
1.29
1.30
1.36
1.37
1.40
1.68(10)
2.04
2.05
1.54
1.56
1.59
1.46
1.55
1.78
2.01(10)
2.29
2.31
1.71
1.76
1.75
2.52(10)
2.46
2.51
1.65
1.68
1.66
1.59
1.93
2.11(10)
2.40
2.43
1.77
1.69
1.69
1.80
2.29
2.47(10)
2.52
2.44
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE> 47
(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 or if fees
had not been reduced by credits allowed by the custodian.
(12)Net investment income per share without fee waivers and/or expenses absorbed
by investment advisor, administrator, distributor and/or fees reduced by
credits allowed by custodian.
(13)Annualized operating expense ratios without fee waivers and/or expenses
absorbed by investment advisor, administrator, distributor and/or fees
reduced by credits allowed by custodian.
(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 0.82% for
1996, 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 1.57% for 1996, 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.
(21)The ratio includes custodian fees before reduction by credits allowed by the
custodian as required by amended disclosure requirements effective September
1, 1995.
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
-16-
<PAGE> 48
(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.
Up to 10% of the net 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.
-17-
<PAGE> 49
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."
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. The average
maturity of the Fund may vary depending on anticipated market conditions. 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 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
-18-
<PAGE> 50
"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 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. The average maturity
of the Fund may vary depending on anticipated market conditions. 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
-19-
<PAGE> 51
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.
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 average maturity of the Fund
may vary depending on anticipated market conditions. 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,
-20-
<PAGE> 52
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.
THE MUNICIPAL FUNDS
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.
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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 - 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.
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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
maturity date of Municipal Securities (regardless of call provisions), except
for pooled Single Family Mortgage Securities for which the effective maturity is
to be the 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
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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 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 Obligations
and 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
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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 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 in 1990, 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 a Senior Vice President of Van Kampen
since January 1995 and a First Vice President since January 1993. Mr. Johnson
has been employed as a portfolio manager 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
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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
Co-Portfolio 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
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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 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
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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,
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
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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). Such
borrowings would constitute leverage, which is a speculative characteristic.
Leveraging will magnify declines as well as increases in the NAV of a Fund's
shares and increases in the yield on a Fund's investments. 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 not 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
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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
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.
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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 Bond Funds 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 Bond Funds 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.
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
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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 million, an increase of approximately 6.1% over comparable figures in
fiscal 1993-94. Total effective appropriations for the 1994-95 fiscal year were
$14,330.8 million, with unencumbered reserves at the end of 1994-95 estimated at
$352.1 million. Estimated fiscal year 1995-96 General Revenue plus Working
Capital and Budget Stabilization funds available total $15,168.7 million, 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
$14,853.2 million, with unencumbered reserves at the end of 1995-96 estimated at
$315.5 million.
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
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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 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
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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 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
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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
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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.
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 net assets of each Non-Money Fund, and up
to 10% of the net 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.
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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 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
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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 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.
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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.
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
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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 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
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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 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
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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, 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
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<PAGE> 74
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 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
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<PAGE> 75
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 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.
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<PAGE> 76
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 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, Class B
and Class I 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.
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<PAGE> 77
TAX EQUIVALENT YIELDS
TABLE 1
<TABLE>
<CAPTION>
Combined
Federal Tax-Exempt Yield
Sample 1996 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>
$0-$24,000 $0-$40,100 15% 6.00% 20.10% 2.50% 3.13% 3.75% 4.38% 5.01%
$24,000-$58,150 $40,100-$96,900 28% 9.30% 34.70% 3.06% 3.83% 4.59% 5.36% 6.13%
$58,150-$121,300 $96,900-$147,700 31% 9.30% 37.42% 3.20% 3.99% 4.79% 5.59% 6.39%
$121,300-$263,750 $147,700-$263,750 36% 9.30% 41.95% 3.44% 4.31% 5.17% 6.03% 6.89%
$263,750 and up $263,750 and up 39.6% 9.30% 45.22% 3.65% 4.56% 5.48% 6.39% 7.30%
</TABLE>
<TABLE>
<CAPTION>
Combined
Federal
Sample 1996 Federal and
Taxable Income Brackets Federal California California
---------------------------------------- Marginal Marginal Marginal
Single Return Joint Return Tax Rate+ Tax Rate* Tax Rate**
------------------ ------------------ --------- --------- ----------
<S> <C> <C> <C> <C>
$0-$24,000 $0-$40,100 15% 6.00% 20.10%
$24,000-$58,150 $40,100-$96,900 28% 9.30% 34.70%
$58,150-$121,300 $96,900-$147,700 31% 9.30% 37.42%
$121,300-$263,750 $147,700-$263,750 36% 9.30% 41.95%
$263,750 and up $263,750 and up 39.6% 9.30% 45.22%
<CAPTION>
Tax-Exempt Yield
- --------------------------------------------------------
4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- --------------------------------------------------------
Taxable Yield
- --------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
6.89% 7.66% 8.42% 9.19% 9.95% 10.72%
7.19% 7.99% 8.79% 9.59% 10.39% 11.19%
7.75% 8.61% 9.47% 10.34% 11.20% 12.06%
8.21% 9.13% 10.04% 10.95% 11.87% 12.78%
</TABLE>
TABLE 2
<TABLE>
<CAPTION>
Tax-Exempt Yield
Sample 1996 Federal ---------------------------------------------------
Taxable Income Brackets 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
---------------------------------------- Federal Marginal ---------------------------------------------------
Single Return Joint Return Tax Rate+ Taxable Yield
------------------ ------------------ ---------------- ---------------------------------------------------
<S><C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$24,000 $0-$40,100 15% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$24,000-$58,150 $40,100-$96,900 28% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
$58,150-$121,300 $96,900-$147,700 31% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
$121,300-$263,750 $147,700-$263,750 36% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
$263,750 and up $263,750 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.
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<PAGE> 78
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.
- --------------------------------------------------------------------------------
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<PAGE> 79
HOW TO INVEST IN THE FUNDS
- --------------------------------------------------------------------------------
To Open an Account: Minimum $250 To Add to an Account: Minimum $100
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BY PHONE - Exchange from another Sierra Trust Fund, - Exchange from another Sierra Trust
SPIF or SAM Portfolios account with same Fund, SPIF or SAM Portfolios account
800-222-5852 registration, including name, address, and with the same registration, including
taxpayer ID number (social security number name, address, and taxpayer ID number.
for an individual).
- Call Shareholder Services at 800-222-
- Call Shareholder Services at 800-222- 5852. 5852.
(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 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
Westboro, 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 it institution to wire Federal Funds as
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
Westboro, MA 01581-5118
- --------------------------------------------------------------------------------------------------------------
AUTOMATICALLY 1. Obtain and complete an application form. - Pre-authorized monthly investments are
now processed automatically. (Minimum
(Minimum New Account 2. Attach a voided check or deposit slip Amount $25)
amount $100) from the bank account you would like the
investments transferred from on the 15th
of each month.
3. Mail the application to the address
listed above.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 80
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
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<PAGE> 81
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 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 CDSC" 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.
-50-
<PAGE> 82
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'
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
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, 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.
-51-
<PAGE> 83
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 investment 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 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. This reinvestment privilege does not apply to
reinvestments made through the Sierra Automatic Investment Plan. 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
-52-
<PAGE> 84
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 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 involuntary distributions; (vii) for systematic
withdrawals in amounts of 1% or less per month; and (viii) 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
-53-
<PAGE> 85
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 (the "Long Term Funds") that are
redeemed within six years of purchase, however, will be subject to a CDSC as
described below. 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 CDSC" 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 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.
-54-
<PAGE> 86
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, SPIF or SAM
Portfolios 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 800-222-5852 to verify you have
the correct paperwork and to avoid delays.
-55-
<PAGE> 87
- - 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 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. Effective January 1, 1997,
upon 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, SPIF or SAM Portfolios 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
SPIF, SAM Portfolios or the other Funds of the Trust, including the Money Funds
(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, SAM Portfolio 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 or the SAM Portfolios.
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, SAM Portfolio or
SPIF, the initial sales charge applicable to such Non-Money Fund, SAM Portfolio
or SPIF will be assessed unless the Class A Shares of the Money Funds given in
exchange were acquired through a previous exchange
-56-
<PAGE> 88
or series of exchanges for shares of a Non-Money Fund, SAM Portfolio 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 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 Eligible
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 B SHARES. Class B Shares of a Fund may be exchanged for Class B Shares of
any other Fund, including the Money Funds, or Class B Shares of the SAM
Portfolios without having to pay any CDSC at the time of the exchange. If you
exchange into Class B Shares of another Fund or Class B Shares of the SAM
Portfolios 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
or SAM Portfolios 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.
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 Sierra Shareholder Services by
telephone, an investor may deliver the transaction request to Sierra Shareholder
Services at P.O. Box 5118, Westboro, 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.
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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 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
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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
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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 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 and Class I 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, CLASS B OR
CLASS I 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."
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
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<PAGE> 92
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 $3.38 billion.
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.
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 June 30, 1996, Scudder's assets under management were in excess of $108
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.
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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 $53.3 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
a wholly-owned subsidiary of Morgan Stanley Group Inc. 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 June 30, 1996, of more than $46.6 billion.
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 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 and 4400
Computer Drive, Westboro, Massachusetts 01581. 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.
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.
Activities that may be financed under the Rule 12b-1 Plan for Class A Shares and
the Rule 12b-1 Plan for Class B Shares (collectively, the "Plans") include,
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but are not limited to: printing prospectuses and statements of additional
information and reports for other than existing shareholders, overhead,
preparation and distribution of advertising material and sales literature,
expense of organizing and conducting sales seminars, supplemental payments to
Authorized Dealers and other institutions such as asset-based sales charges or
as payments of service fees under shareholder service arrangements, and the cost
of administering the Plans.
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 (over 100%) 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.
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<PAGE> 95
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.
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<PAGE> 96
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>
<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
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
---------------------------
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.
-65-
<PAGE> 97
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-66-
<PAGE> 98
(800) 222-5852
(Logo) P.O. BOX 5118
WESTBORO, 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 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 $ ----------------------------
California Municipal Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
California Insured
Intermediate
Municipal 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 $ ----------------------------
Emerging Growth Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
International Growth Fund
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
Other $ ----------------------------
Total investment $ ----------------------------
</TABLE>
- --------------------------------------------------------------------------------
3. YOUR PAYMENT METHOD FOR INITIAL INVESTMENT
/ / CHECK: $ _________________ Make check payable to: SIERRA TRUST FUNDS.
/ / WIRE: Call (800) 222-5852 for instructions.
- --------------------------------------------------------------------------------
<PAGE> 99
- --------------------------------------------------------------------------------
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(S) 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).
----------------------------
ATTACH VOIDED CHECK HERE
----------------------------
D. SIERRA AUTOMATIC INVESTMENT PLAN (OPTIONAL).
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> 100
F. 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 Shareholder Services (800-222-5852) or the Fund'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 Sierra Trust Funds, Sierra Asset Management Portfolios
or Sierra Prime Income Fund 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 the 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 Funds,
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. THE INTERNAL REVENUE
SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER
THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
<TABLE>
<S> <C>
X
- ------------------------------------------------------------ ------------------------------------------------------------------
Registered Representative's Name and Number SIGNATURE
Date X
------------------------------------------------------- ------------------------------------------------------------------
SIGNATURE
- ----------------------------------------------------------------------------------------------------------------------------------
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 CARD SIGNATURE
Boston Safe Deposit and Trust Co. Last Name __________________ First Name ______________ Mid. Init. _______
--------------------------------- X _________________________________________________________________________
Account Number SIGNATURE
[ ] Check here if only one signature is required on checks. If neither box is checked,
All Registered Owners must [ ] Check here if both signatures are required on checks;
sign this Signature Card. all checks will require both signatures.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 101
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
Westboro, MA 01581-5118
<PAGE> 102
<TABLE>
<S> <C>
PROSPECTUS SIERRA TRUST FUNDS
OCTOBER 31, 1996 P.O. BOX 5118
WESTBORO, 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>
The Sierra Trust Funds Family............................................................................ 1
Summary of Expenses & Financial Highlights............................................................... 5
The Funds' Investments and Risk Considerations........................................................... 15
Securities and Investment Practices...................................................................... 26
Performance Information.................................................................................. 40
Your Account............................................................................................. 43
How to Invest in a SAM Account........................................................................... 44
How to Sell Shares....................................................................................... 50
Exchange Privileges and Restrictions..................................................................... 52
Dividends, Capital Gains and Taxes....................................................................... 53
Shareholder and Account Policies......................................................................... 56
The Funds in Detail...................................................................................... 56
Sierra Advisors, Its Affiliates and Service Providers.................................................... 57
Breakdown of Fund Expenses............................................................................... 59
</TABLE>
<PAGE> 103
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 not 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, the Class B Shares of the Funds or the SAM Portfolios.
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 (the "Advisor" or
"Sierra Advisors") has overall responsibility for management of the Funds.
However, each Fund has an investment sub-advisor (the "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
-1-
<PAGE> 104
underperforms 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 primarily 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 at least 65% of its assets in a broad range of U.S.
Government securities, including mortgage-backed securities.
-2-
<PAGE> 105
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.
THE MUNICIPAL FUNDS
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 at least 80% of its assets 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 at least 80% of its assets 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 at least 80% of its assets in intermediate- and long-term
fixed income municipal obligations.
INVESTMENT MANAGEMENT: Van Kampen is the Sub-Advisor of the Fund.
-3-
<PAGE> 106
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 primarily 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> 107
SUMMARY OF SIERRA TRUST FUNDS EXPENSES*
<TABLE>
<CAPTION>
SHORT SHORT TERM
U.S. TERM HIGH GLOBAL
GLOBAL MONEY GOVERNMENT CALIFORNIA QUALITY GOVERNMENT
FUND MONEY FUND MONEY FUND BOND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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) 3.50%(1)
Class S................................. None None None None None
MAXIMUM SALES CHARGE IMPOSED ON REINVESTED
DIVIDENDS (AS A PERCENTAGE OF OFFERING
PRICE)
Class A................................. None None None None None
Class S................................. None None None None None
DEFERRED SALES CHARGE
Class A................................. None(2) None(2) None(2) None(2) None(2)
Class S................................. 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3)
REDEMPTION FEES(4)
Class A................................. None None None None None
Class S................................. None None None None None
EXCHANGE FEES(5)
Class A................................. None None None None None
Class S................................. None None None None None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
MANAGEMENT FEES (AFTER VOLUNTARY WAIVERS
OR REIMBURSEMENT)(6)
Class A................................. 0.10% 0.04% 0.11% 0.03% 0.10%
Class S................................. 0.10% 0.04% 0.11% 0.03% 0.10%
12B-1 FEES(7)
Class A................................. 0.25% 0.25% 0.25% 0.25% 0.25%
Class S................................. 1.00% 1.00% 1.00% 1.00% 1.00%
OTHER EXPENSES
Class A................................. 0.50% 0.56% 0.49% 0.62% 0.55%
Class S................................. 0.50% 0.56% 0.49% 0.62% 0.55%
TOTAL FUND OPERATING EXPENSES (AFTER
VOLUNTARY WAIVERS OR REIMBURSEMENT)(8)
Class A................................. 0.85% 0.85% 0.85% 0.90% 0.90%
Class S................................. 1.60% 1.60% 1.60% 1.65% 1.65%
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
U.S.
GOVERNMENT CORPORATE
FUND INCOME FUND
- --------------------------------------------------------------------------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFERING PRICE)
Class A................................. 4.50%(1) 4.50%(1)
Class S................................. None None
MAXIMUM SALES CHARGE IMPOSED ON REINVESTED
DIVIDENDS (AS A PERCENTAGE OF OFFERING
PRICE)
Class A................................. None None
Class S................................. None None
DEFERRED SALES CHARGE
Class A................................. None(2) None(2)
Class S................................. 5.00%(3) 5.00%(3)
REDEMPTION FEES(4)
Class A................................. None None
Class S................................. None None
EXCHANGE FEES(5)
Class A................................. None None
Class S................................. None None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
MANAGEMENT FEES (AFTER VOLUNTARY WAIVERS
OR REIMBURSEMENT)(6)
Class A................................. 0.27% 0.46%
Class S................................. 0.27% 0.46%
12B-1 FEES(7)
Class A................................. 0.25% 0.25%
Class S................................. 1.00% 1.00%
OTHER EXPENSES
Class A................................. 0.48% 0.49%
Class S................................. 0.48% 0.49%
TOTAL FUND OPERATING EXPENSES (AFTER
VOLUNTARY WAIVERS OR REIMBURSEMENT)(8)
Class A................................. 1.00% 1.20%
Class S................................. 1.75% 1.95%
- --------------------------------------------------------------------------------
</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 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
CDSC."
(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)Effective January 1, 1997, upon 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 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)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/or Administrator anticipate voluntarily
waiving fees and/or bearing expenses during the current fiscal year 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> 108
<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
0.37% 0.05% 0.22% 0.34% 0.76% 0.92% 0.87%
0.37% 0.05% 0.22% 0.34% 0.76% 0.92% 0.87%
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%
0.48% 0.70% 0.53% 0.51% 0.57% 0.54% 0.58%
0.48% 0.70% 0.53% 0.51% 0.57% 0.54% 0.58%
1.10% 1.00% 1.00% 1.10% 1.58% 1.71% 1.70%
1.85% 1.75% 1.75% 1.85% 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
0.83%
0.83%
0.25%
1.00%
0.75%
0.75%
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-1.15%, Class S-1.90%, U.S.
Government Money Fund, Class A-1.21%, Class S-1.96%; California Money Fund,
Class A-1.14%, Class S-1.89%; Short Term High Quality Bond Fund, Class
A-1.37%, Class S-2.12%; Short Term Global Government Fund, Class A-1.45%,
Class S-2.20%; U.S. Government Fund, Class A-1.28%, Class S-2.03%; Corporate
Income Fund, Class A-1.39%, Class S-2.14%; California Municipal Fund, Class
A-1.28%, Class S-2.03%; Florida Insured Municipal Fund, Class A-1.50%, Class
S-2.25%; California Insured Intermediate Municipal Fund, Class A-1.33%, Class
S-2.08%; and National Municipal Fund, Class A-1.31%, Class S-2.06%.
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> 109
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........................ $9 $9 $9 $44 $44 $55 $57
3 Years....................... 27 27 27 63 63 75 81
5 Years....................... 47 47 47 83 83 98 108
10 Years....................... 105 105 105 142 142 162 184
Class S (Assuming a complete
redemption at end of period)(2)
1 Year........................ $66 $66 $66 $67 $67 $68 $70
3 Years....................... 80 80 80 82 82 85 91
5 Years....................... 107 107 107 110 110 115 125
10 Years(3).................... 190 190 190 195 195 206 227
Class S (Assuming no
redemption)(4)
1 Year........................ $16 $16 $16 $17 $17 $18 $20
3 Years....................... 50 50 50 52 52 55 61
5 Years....................... 87 87 87 90 90 95 105
10 Years(3).................... 190 190 190 195 195 206 227
- ---------------------------------------------------------------------------------------------------------------------------------
</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> 110
<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>
- ----------------------------------------------------------------------------------------------------------------------------------
$56 $55 $55 $56 $60 $62 $62 $63
78 75 75 78 93 96 96 100
103 98 98 103 127 134 133 140
173 162 162 173 224 238 237 250
$69 $68 $68 $69 $74 $75 $75 $76
88 85 85 88 103 107 106 110
120 115 115 120 145 151 151 157
217 206 206 217 267 280 279 291
$19 $18 $18 $19 $24 $25 $25 $26
58 55 55 58 73 77 76 80
100 95 95 100 125 131 131 137
217 206 206 217 267 280 279 291
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE> 111
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) INVESTMENT INVESTMENT
FUND OF PERIOD INCOME/(LOSS) ON INVESTMENTS OPERATIONS INCOME
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GLOBAL MONEY FUND
CLASS A SHARES
Year ended 6/30/96....... $ 1.00 $ 0.051 $0.000(19) $0.051 $ (0.051)
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....... 1.00 0.043 0.000(19) 0.043 (0.043)
Year ended 6/30/95....... 1.00 0.042 0.000 0.042 (0.042)
U.S. GOVERNMENT MONEY FUND
CLASS A SHARES
Year ended 6/30/96....... 1.00 0.047 - 0.047 (0.047)
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....... 1.00 0.040 - 0.040 (0.040)
Year ended 6/30/95....... 1.00 0.038 - 0.038 (0.038)
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/96....... 1.00 0.029 - 0.029 (0.029)
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....... 1.00 0.022 - 0.022 (0.022)
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(17)... 2.35 0.15 (0.03) 0.12 (0.15)
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(17)... 2.35 0.13 (0.03) 0.10 (0.13)
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(17)... 2.24 0.15 0.07 0.22 (0.16)
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(17)... 2.24 0.13 0.07 0.20 (0.14)
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....... 9.67 0.67 (0.26) 0.41 (0.67)
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....... 9.67 0.60 (0.26) 0.34 (0.60)
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....... 10.52 0.76 (0.36) 0.40 (0.76)
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 S SHARES
Year ended 6/30/96....... 10.52 0.68 (0.36) 0.32 (0.68)
Year ended 6/30/95....... 9.87 0.61 0.78 1.39 (0.61)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE> 112
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) $ - $ - $(0.051) $1.00 5.22%
- (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) - - (0.043) 1.00 4.40
- (0.000) - - (0.042) 1.00 4.29
- - - - (0.047) 1.00 4.81
- - - - (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
- - - - (0.040) 1.00 4.02
- - - - (0.038) 1.00 3.91
- - - - (0.029) 1.00 3.00
- - - - (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
- - - - (0.022) 1.00 2.22
- - - - (0.020) 1.00 2.04
- - - (0.00)(14) (0.15) 2.32 5.05
(0.06) - - (0.00)(14) (0.14) 2.35 4.42
- - - - (0.09) 2.39 (0.73)
- - - (0.00)(14) (0.13) 2.32 4.27
(0.06) - - (0.00)(14) (0.12) 2.35 3.64
(0.01) - - - (0.17) 2.29 10.16
(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
(0.01) - - - (0.15) 2.29 9.33
(0.00)(14) - (0.01) (0.12) (0.13) 2.24 1.33
- - - - (0.67) 9.41 4.34
- - - - (0.70) 9.67 10.17
- - (0.10) - (0.74) 9.45 (4.59)
- - - (0.03)(16) (0.77) 10.65 8.87
- - - (0.01)(16) (0.85) 10.52 13.74
- - - (0.01)(16) (0.86) 10.04 10.14
- - - - (0.74) 9.93 6.99
- - - - (0.60) 9.41 3.56
- - - - (0.63) 9.67 9.36
- - - (0.00)(14) (0.76) 10.16 3.81
(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
- - - (0.00)(14) (0.68) 10.16 3.04
(0.09) - - (0.04) (0.74) 10.52 14.73
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE> 113
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT
INCOME/(LOSS)
PER SHARE RATIO OF
WITHOUT OPERATING
FEE WAIVERS, EXPENSES
EXPENSES TO AVERAGE
ABSORBED NET ASSETS
AND/OR FEES WITHOUT
RATIO OF NET RATIO OF NET REDUCED BY FEES REDUCED
NET ASSETS OPERATING INVESTMENT CREDITS BY CREDITS
END OF EXPENSES TO INCOME TO PORTFOLIO ALLOWED ALLOWED
PERIOD AVERAGE AVERAGE TURNOVER BY THE BY THE
FUND (IN 000'S) NET ASSETS NET ASSETS RATE CUSTODIAN(12) CUSTODIAN(21)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GLOBAL MONEY FUND
CLASS A SHARES
Year ended 6/30/96.............. $153,786 0.65% 5.04% -% $0.046 0.65%
Year ended 6/30/95.............. 110,012 0.54 5.08 - 0.043 N/A
Year ended 6/30/94.............. 53,973 0.45 2.99 - 0.021 N/A
Year ended 6/30/93.............. 48,283 0.41 3.15 - 0.022 N/A
Year ended 6/30/92.............. 71,492 0.42 4.90 - 0.039 N/A
Year ended 6/30/91.............. 92,334 0.30 6.99 - 0.060 N/A
Period ended 6/30/90 (1)........ 22,834 1.00(10) 7.54(10) - 0.067 N/A
CLASS S SHARES
Year ended 6/30/96.............. 20,848 1.40 4.29 - 0.038 1.40
Year ended 6/30/95.............. 7,399 1.29 4.33 - 0.036 N/A
U.S. GOVERNMENT MONEY FUND
CLASS A SHARES
Year ended 6/30/96.............. 39,031 0.85 4.70 - 0.043 0.85
Year ended 6/30/95.............. 47,492 0.85 4.63 - 0.042 N/A
Year ended 6/30/94.............. 30,180 0.85 2.68 - 0.022 N/A
Year ended 6/30/93.............. 36,802 0.85 2.69 - 0.022 N/A
Year ended 6/30/92.............. 44,233 0.85 4.43 - 0.037 N/A
Year ended 6/30/91.............. 62,473 0.86 6.54 - 0.058 N/A
Period ended 6/30/90 (2)........ 94,789 1.00(10) 7.52(10) - 0.067 N/A
CLASS S SHARES
Year ended 6/30/96.............. 439 1.60 3.95 - 0.036 1.60
Year ended 6/30/95.............. 737 1.60 3.88 - 0.034 N/A
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/96.............. 51,211 0.85 2.94 - 0.026 N/A
Year ended 6/30/95.............. 48,836 0.85 2.73 - 0.025 N/A
Year ended 6/30/94.............. 62,500 0.85 1.80 - 0.014 N/A
Year ended 6/30/93.............. 68,404 0.85 2.06 - 0.016 N/A
Year ended 6/30/92.............. 94,607 0.85 3.31 - 0.029 N/A
Year ended 6/30/91.............. 113,392 0.83 4.48 - 0.037 N/A
Period ended 6/30/90 (2)........ 147,487 1.00(10) 5.07(10) - 0.040 N/A
CLASS S SHARES
Year ended 6/30/96.............. 10 1.60 2.19 - 0.019 N/A
Year ended 6/30/95.............. 10 1.60 1.98 - 0.017 N/A
SHORT TERM HIGH QUALITY BOND FUND
CLASS A SHARES
Year ended 6/30/96(17).......... 32,440 0.75 6.22 225 0.13 0.75
Year ended 6/30/95.............. 43,811 0.75 6.10 137 0.07 N/A
Period ended 6/30/94 (3)........ 21,771 0.00(10) 5.70(10) 95 0.06 N/A
CLASS S SHARES
Year ended 6/30/96(17).......... 3,531 1.50 5.47 225 0.11 1.50
Year ended 6/30/95.............. 2,303 1.50 5.35 137 0.05 N/A
SHORT TERM GLOBAL GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/96(17).......... 65,726 0.85 6.75 87 0.14 0.85
Year ended 6/30/95.............. 103,986 0.85 7.22 217 0.16 N/A
Year ended 6/30/94.............. 220,824 0.85 6.87 222 0.16 N/A
Year ended 6/30/93.............. 215,348 0.73 7.67 294 0.17 N/A
Period ended 6/30/92 (4)........ 106,609 0.41(10) 8.65(10) 81 0.06 N/A
CLASS S SHARES
Year ended 6/30/96(17).......... 2,211 1.60 6.00 87 0.12 1.60
Year ended 6/30/95.............. 2,286 1.60 6.47 217 0.14 N/A
U. S. GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/96.............. 423,282 0.70(18) 7.34 356 0.62 0.71
Year ended 6/30/95.............. 459,968 0.95(18) 7.58 226 0.66 N/A
Year ended 6/30/94.............. 666,566 1.05(18) 7.26 27 0.72 N/A
Year ended 6/30/93.............. 842,277 0.91(18) 6.98 67 0.70 N/A
Year ended 6/30/92.............. 504,776 0.72(18) 7.67 35 0.77 N/A
Year ended 6/30/91.............. 166,920 1.12(18) 8.32 54 0.79 N/A
Period ended 6/30/90 (5)........ 31,430 1.13(10)(18) 8.50(10) 13 0.69 N/A
CLASS S SHARES
Year ended 6/30/96.............. 35,667 1.45(18) 6.59 356 0.55 1.46
Year ended 6/30/95.............. 6,839 1.70(18) 6.83 226 0.59 N/A
CORPORATE INCOME FUND
CLASS A SHARES
Year ended 6/30/96.............. 298,518 0.95 7.23 25 0.72 0.95
Year ended 6/30/95.............. 383,642 0.90 8.26 55 0.64 N/A
Year ended 6/30/94.............. 472,519 1.35 7.19 30 0.80 N/A
Year ended 6/30/93.............. 396,357 1.24 7.67 37 0.82 N/A
Year ended 6/30/92.............. 169,682 0.97 8.29 8 0.85 N/A
Period ended 6/30/91 (6)........ 35,478 1.21(10) 9.01(10) 31 0.76
CLASS S SHARES
Year ended 6/30/96.............. 12,011 1.70 6.48 25 0.64 1.70
Year ended 6/30/95.............. 8,701 1.65 7.51 55 0.57 N/A
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------
RATIO OF OPERATING
EXPENSES TO
AVERAGE NET ASSETS
WITHOUT
FEE WAIVERS,
EXPENSES ABSORBED
AND/OR
FEES REDUCED
BY CREDITS
ALLOWED BY THE
FUND CUSTODIAN(13)(21)
- ----------------------------------------------------------
<S> <C>
GLOBAL MONEY FUND
CLASS A SHARES
Year ended 6/30/96.............. 1.15%
Year ended 6/30/95.............. 1.18
Year ended 6/30/94.............. 1.35
Year ended 6/30/93.............. 1.32
Year ended 6/30/92.............. 1.34
Year ended 6/30/91.............. 1.51
Period ended 6/30/90 (1)........ 1.74(10)
CLASS S SHARES
Year ended 6/30/96.............. 1.90
Year ended 6/30/95.............. 1.93
U.S. GOVERNMENT MONEY FUND
CLASS A SHARES
Year ended 6/30/96.............. 1.22
Year ended 6/30/95.............. 1.25
Year ended 6/30/94.............. 1.32
Year ended 6/30/93.............. 1.34
Year ended 6/30/92.............. 1.35
Year ended 6/30/91.............. 1.52
Period ended 6/30/90 (2)........ 1.64(10)
CLASS S SHARES
Year ended 6/30/96.............. 1.97
Year ended 6/30/95.............. 2.00
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/96.............. 1.14
Year ended 6/30/95.............. 1.15
Year ended 6/30/94.............. 1.27
Year ended 6/30/93.............. 1.29
Year ended 6/30/92.............. 1.28
Year ended 6/30/91.............. 1.48
Period ended 6/30/90 (2)........ 1.64(10)
CLASS S SHARES
Year ended 6/30/96.............. 1.89
Year ended 6/30/95.............. 1.90
SHORT TERM HIGH QUALITY BOND FUND
CLASS A SHARES
Year ended 6/30/96(17).......... 1.42
Year ended 6/30/95.............. 1.39
Period ended 6/30/94 (3)........ 1.61(10)
CLASS S SHARES
Year ended 6/30/96(17).......... 2.17
Year ended 6/30/95.............. 2.14
SHORT TERM GLOBAL GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/96(17).......... 1.47
Year ended 6/30/95.............. 1.44
Year ended 6/30/94.............. 1.52
Year ended 6/30/93.............. 1.55
Period ended 6/30/92 (4)........ 1.92(10)
CLASS S SHARES
Year ended 6/30/96(17).......... 2.22
Year ended 6/30/95.............. 2.19
U. S. GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/96.............. 1.45
Year ended 6/30/95.............. 1.59
Year ended 6/30/94.............. 1.34
Year ended 6/30/93.............. 1.34
Year ended 6/30/92.............. 1.39
Year ended 6/30/91.............. 1.57
Period ended 6/30/90 (5)........ 1.89(10)
CLASS S SHARES
Year ended 6/30/96.............. 2.20
Year ended 6/30/95.............. 2.34
CORPORATE INCOME FUND
CLASS A SHARES
Year ended 6/30/96.............. 1.38
Year ended 6/30/95.............. 1.40
Year ended 6/30/94.............. 1.42
Year ended 6/30/93.............. 1.42
Year ended 6/30/92.............. 1.48
Period ended 6/30/91 (6)........ 1.78(10)
CLASS S SHARES
Year ended 6/30/96.............. 2.13
Year ended 6/30/95.............. 2.15
- ----------------------------------------------------------
</TABLE>
-11-
<PAGE> 114
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED &
VALUE AT NET UNREALIZED
BEGINNING INVESTMENT GAIN/(LOSS) ON
FUND OF PERIOD INCOME/(LOSS) INVESTMENTS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96 (17)......................................... $ 10.53 $ 0.60 $ 0.07
Year ended 6/30/95.............................................. 10.38 0.61 0.15
Year ended 6/30/94.............................................. 11.22 0.61 (0.82)
Year ended 6/30/93.............................................. 10.45 0.62 0.77
Year ended 6/30/92.............................................. 10.07 0.65 0.38
Year ended 6/30/91.............................................. 10.01 0.63 0.06
Period ended 6/30/90 (5)........................................ 10.00 0.57 0.01
CLASS S SHARES
Year ended 6/30/96 (17)......................................... 10.53 0.51 0.07
Year ended 6/30/95.............................................. 10.38 0.53 0.15
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96.............................................. 9.43 0.50 0.21
Year ended 6/30/95.............................................. 9.40 0.52 0.03(15)
Year ended 6/30/94.............................................. 10.05 0.52 (0.65)
Period ended 6/30/93 (7)........................................ 10.00 0.00(14) 0.05
CLASS S SHARES
Year ended 6/30/96.............................................. 9.43 0.42 0.21
Year ended 6/30/95.............................................. 9.40 0.45 0.03(15)
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96.............................................. 10.45 0.49 0.15
Year ended 6/30/95.............................................. 10.10 0.50 0.35
Period ended 6/30/94 (8)........................................ 10.00 0.11 0.11(15)
CLASS S SHARES
Year ended 6/30/96.............................................. 10.45 0.41 0.15
Year ended 6/30/95.............................................. 10.10 0.43 0.35
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96.............................................. 10.76 0.61 0.07
Year ended 6/30/95.............................................. 10.85 0.64 0.01(15)
Year ended 6/30/94.............................................. 11.65 0.65 (0.73)
Year ended 6/30/93.............................................. 10.96 0.67 0.75
Year ended 6/30/92.............................................. 10.16 0.72 0.79
Period ended 6/30/91 (6)........................................ 10.00 0.64 0.16
CLASS S SHARES
Year ended 6/30/96.............................................. 10.76 0.53 0.07
Year ended 6/30/95.............................................. 10.85 0.56 0.01(15)
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/96 (17)......................................... 12.58 0.08 2.51
Year ended 6/30/95.............................................. 11.30 0.13 2.04
Year ended 6/30/94.............................................. 12.09 0.12 0.72
Year ended 6/30/93.............................................. 11.25 0.12 0.91
Year ended 6/30/92.............................................. 10.51 0.17 0.74
Year ended 6/30/91.............................................. 10.12 0.23 0.43
Period ended 6/30/90 (5)........................................ 10.00 0.24 0.07
CLASS S SHARES
Year ended 6/30/96 (17)......................................... 12.55 (0.02) 2.51
Year ended 6/30/95.............................................. 11.30 0.05 2.04
GROWTH FUND
CLASS A SHARES
Year ended 6/30/96 (17)......................................... 14.18 (0.07) 3.47
Year ended 6/30/95 (17)......................................... 10.73 0.05 3.42
Year ended 6/30/94.............................................. 10.72 (0.02) 0.03(15)
Period ended 6/30/93 (9)........................................ 10.00 0.00(14) 0.72
CLASS S SHARES
Year ended 6/30/96 (17)......................................... 14.11 (0.19) 3.44
Year ended 6/30/95 (17)......................................... 10.73 (0.04) 3.42
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/96 (17)......................................... 15.47 (0.19) 5.65
Year ended 6/30/95 (17)......................................... 13.02 (0.00)(14) 2.77
Year ended 6/30/94.............................................. 13.76 (0.09) 0.68
Year ended 6/30/93.............................................. 11.67 (0.02) 2.31
Year ended 6/30/92 (17)......................................... 9.62 (0.01) 2.16
Period ended 6/30/91 (6)........................................ 10.00 0.09 (0.40)
CLASS S SHARES
Year ended 6/30/96 (17)......................................... 15.37 (0.32) 5.59
Year ended 6/30/95 (17)......................................... 13.02 (0.10) 2.77
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/96 (17)......................................... 9.78 0.05 1.21
Year ended 6/30/95 (17)......................................... 10.74 (0.11)(20) (0.31)
Year ended 6/30/94.............................................. 9.80 0.06 1.15
Year ended 6/30/93.............................................. 8.82 0.07 0.94
Year ended 6/30/92.............................................. 8.27 0.05 0.55
Period ended 6/30/91 (6)........................................ 10.00 0.02 (1.75)
CLASS S SHARES
Year ended 6/30/96 (17)......................................... 9.73 (0.03) 1.20
Year ended 6/30/95 (17)......................................... 10.74 (0.17)(20) (0.31)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DIVIDENDS
FROM
TOTAL FROM NET
INVESTMENT INVESTMENT
FUND OPERATIONS INCOME
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96 (17)......................................... $ 0.67 $(0.60)
Year ended 6/30/95.............................................. 0.76 (0.61)
Year ended 6/30/94.............................................. (0.21) (0.61)
Year ended 6/30/93.............................................. 1.39 (0.62)
Year ended 6/30/92.............................................. 1.03 (0.65)
Year ended 6/30/91.............................................. 0.69 (0.63)
Period ended 6/30/90 (5)........................................ 0.58 (0.57)
CLASS S SHARES
Year ended 6/30/96 (17)......................................... 0.58 (0.51)
Year ended 6/30/95.............................................. 0.68 (0.53)
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96.............................................. 0.71 (0.50)
Year ended 6/30/95.............................................. 0.55 (0.52)
Year ended 6/30/94.............................................. (0.13) (0.52)
Period ended 6/30/93 (7)........................................ 0.05 -
CLASS S SHARES
Year ended 6/30/96.............................................. 0.63 (0.42)
Year ended 6/30/95.............................................. 0.48 (0.45)
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96.............................................. 0.64 (0.49)
Year ended 6/30/95.............................................. 0.85 (0.50)
Period ended 6/30/94 (8)........................................ 0.22 (0.11)
CLASS S SHARES
Year ended 6/30/96.............................................. 0.56 (0.41)
Year ended 6/30/95.............................................. 0.78 (0.43)
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96.............................................. 0.68 (0.61)
Year ended 6/30/95.............................................. 0.65 (0.64)
Year ended 6/30/94.............................................. (0.08) (0.65)
Year ended 6/30/93.............................................. 1.42 (0.67)
Year ended 6/30/92.............................................. 1.51 (0.71)
Period ended 6/30/91 (6)........................................ 0.80 (0.64)
CLASS S SHARES
Year ended 6/30/96.............................................. 0.60 (0.53)
Year ended 6/30/95.............................................. 0.57 (0.56)
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/96 (17)......................................... 2.59 (0.08)
Year ended 6/30/95.............................................. 2.17 (0.12)
Year ended 6/30/94.............................................. 0.84 (0.12)
Year ended 6/30/93.............................................. 1.03 (0.12)
Year ended 6/30/92.............................................. 0.91 (0.17)
Year ended 6/30/91.............................................. 0.66 (0.27)
Period ended 6/30/90 (5)........................................ 0.31 (0.19)
CLASS S SHARES
Year ended 6/30/96 (17)......................................... 2.49 (0.01)
Year ended 6/30/95.............................................. 2.09 (0.07)
GROWTH FUND
CLASS A SHARES
Year ended 6/30/96 (17)......................................... 3.40 -
Year ended 6/30/95 (17)......................................... 3.47 (0.02)
Year ended 6/30/94.............................................. 0.01 -
Period ended 6/30/93 (9)........................................ 0.72 -
CLASS S SHARES
Year ended 6/30/96 (17)......................................... 3.25 -
Year ended 6/30/95 (17)......................................... 3.38 (0.00)(14)
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/96 (17)......................................... 5.46 -
Year ended 6/30/95 (17)......................................... 2.77 -
Year ended 6/30/94.............................................. 0.59 -
Year ended 6/30/93.............................................. 2.29 -
Year ended 6/30/92 (17)......................................... 2.15 (0.01)
Period ended 6/30/91 (6)........................................ (0.31) (0.07)
CLASS S SHARES
Year ended 6/30/96 (17)......................................... 5.27 -
Year ended 6/30/95 (17)......................................... 2.67 -
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/96 (17)......................................... 1.26 (0.05)
Year ended 6/30/95 (17)......................................... (0.42) (0.04)
Year ended 6/30/94.............................................. 1.21 (0.02)
Year ended 6/30/93.............................................. 1.01 (0.03)
Year ended 6/30/92.............................................. 0.60 (0.05)
Period ended 6/30/91 (6)........................................ (1.73) -
CLASS S SHARES
Year ended 6/30/96 (17)......................................... 1.17 (0.02)
Year ended 6/30/95 (17)......................................... (0.48) (0.03)
- ---------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE> 115
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DISTRIBUTIONS
IN EXCESS DISTRIBUTIONS IN EXCESS
OF NET FROM NET OF NET DISTRIBUTIONS
INVESTMENT REALIZED REALIZED FROM
FUND INCOME GAINS GAINS CAPITAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96(17)........................ $ - $ - $ - $ -
Year ended 6/30/95............................ - (0.00)(14) - -
Year ended 6/30/94............................ (0.00)(14) - (0.02) -
Year ended 6/30/93............................ - - - -
Year ended 6/30/92............................ - - - -
Year ended 6/30/91............................ - - - -
Period ended 6/30/90(5)....................... - - - -
CLASS S SHARES
Year ended 6/30/96(17)........................ - - - -
Year ended 6/30/95............................ - (0.00)(14) - -
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................ - - - -
Year ended 6/30/95............................ - - - -
Year ended 6/30/94............................ (0.00)(14) - (0.00)(14) -
Period ended 6/30/93(7)....................... - - - -
CLASS S SHARES
Year ended 6/30/96............................ - - - -
Year ended 6/30/95............................ - - - -
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................ - (0.04) - -
Year ended 6/30/95............................ - - - -
Period ended 6/30/94(8)....................... - (0.01) - -
CLASS S SHARES
Year ended 6/30/96............................ - (0.04) - -
Year ended 6/30/95............................ - - - -
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................ - - - -
Year ended 6/30/95............................ - (0.01) (0.09) -
Year ended 6/30/94............................ (0.00)(14) (0.07) - -
Year ended 6/30/93............................ - (0.06) - -
Year ended 6/30/92............................ - - - -
Period ended 6/30/91(6)....................... - - - -
CLASS S SHARES
Year ended 6/30/96............................ - - - -
Year ended 6/30/95............................ - (0.01) (0.09) -
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/96(17)........................ - (0.99) - -
Year ended 6/30/95............................ - (0.77) - -
Year ended 6/30/94............................ - (1.51) - -
Year ended 6/30/93............................ - (0.07) - -
Year ended 6/30/92............................ - - - -
Year ended 6/30/91............................ - - - -
Period ended 6/30/90(5)....................... - - - -
CLASS S SHARES
Year ended 6/30/96(17)........................ - (0.99) - -
Year ended 6/30/95............................ - (0.77) - -
GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)........................ - (1.89) - -
Year ended 6/30/95(17)........................ - (0.00)(14) - -
Year ended 6/30/94............................ - - - -
Period ended 6/30/93(9)....................... - - - -
CLASS S SHARES
Year ended 6/30/96(17)........................ - (1.89) - -
Year ended 6/30/95(17)........................ - (0.00)(14) - -
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)........................ - (0.76) - -
Year ended 6/30/95(17)........................ - (0.32) - -
Year ended 6/30/94............................ - (1.33) - -
Year ended 6/30/93............................ - (0.20) - -
Year ended 6/30/92(17)........................ - (0.08) - (0.01)(16)
Period ended 6/30/91(6)....................... - - - -
CLASS S SHARES
Year ended 6/30/96(17)........................ - (0.76) - -
Year ended 6/30/95(17)........................ - (0.32) - -
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)........................ (0.04) (0.46) - -
Year ended 6/30/95(17)........................ - (0.44) (0.06) -
Year ended 6/30/94............................ - (0.25) - -
Year ended 6/30/93............................ - - - -
Year ended 6/30/92............................ - - - -
Period ended 6/30/91(6)....................... - - - -
CLASS S SHARES
Year ended 6/30/96(17)........................ (0.04) (0.46) - -
Year ended 6/30/95(17)........................ - (0.44) (0.06) -
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ---------------------------------------------------------------------------------
NET ASSET
VALUE AT
TOTAL END
FUND DISTRIBUTIONS OF PERIOD
- ---------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96(17)........................ $ (0.60) $ 10.60
Year ended 6/30/95............................ (0.61) 10.53
Year ended 6/30/94............................ (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(17)........................ (0.51) 10.60
Year ended 6/30/95............................ (0.53) 10.53
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................ (0.50) 9.64
Year ended 6/30/95............................ (0.52) 9.43
Year ended 6/30/94............................ (0.52) 9.40
Period ended 6/30/93(7)....................... - 10.05
CLASS S SHARES
Year ended 6/30/96............................ (0.42) 9.64
Year ended 6/30/95............................ (0.45) 9.43
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................ (0.53) 10.56
Year ended 6/30/95............................ (0.50) 10.45
Period ended 6/30/94(8)....................... (0.12) 10.10
CLASS S SHARES
Year ended 6/30/96............................ (0.45) 10.56
Year ended 6/30/95............................ (0.43) 10.45
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/96............................ (0.61) 10.83
Year ended 6/30/95............................ (0.74) 10.76
Year ended 6/30/94............................ (0.72) 10.85
Year ended 6/30/93............................ (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............................ (0.53) 10.83
Year ended 6/30/95............................ (0.66) 10.76
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/96(17)........................ (1.07) 14.10
Year ended 6/30/95............................ (0.89) 12.58
Year ended 6/30/94............................ (1.63) 11.30
Year ended 6/30/93............................ (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(17)........................ (1.00) 14.04
Year ended 6/30/95............................ (0.84) 12.55
GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)........................ (1.89) 15.69
Year ended 6/30/95(17)........................ (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(17)........................ (1.89) 15.47
Year ended 6/30/95(17)........................ (0.00) 14.11
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)........................ (0.76) 20.17
Year ended 6/30/95(17)........................ (0.32) 15.47
Year ended 6/30/94............................ (1.33) 13.02
Year ended 6/30/93............................ (0.20) 13.76
Year ended 6/30/92(17)........................ (0.10) 11.67
Period ended 6/30/91(6)....................... (0.07) 9.62
CLASS S SHARES
Year ended 6/30/96(17)........................ (0.76) 19.88
Year ended 6/30/95(17)........................ (0.32) 15.37
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/96(17)........................ (0.55) 10.49
Year ended 6/30/95(17)........................ (0.54) 9.78
Year ended 6/30/94............................ (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(17)........................ (0.52) 10.38
Year ended 6/30/95(17)........................ (0.53) 9.73
- ---------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE> 116
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT
INCOME/(LOSS) PER
RATIO OF NET SHARE WITHOUT FEE
INVESTMENT WAIVERS, EXPENSES ABSORBED
NET ASSETS END RATIO OF OPERATING INCOME TO PORTFOLIO AND/OR FEES REDUCED BY
TOTAL OF PERIOD EXPENSES TO AVERAGE AVERAGE NET TURNOVER CREDITS ALLOWED BY THE
RETURN(11) (IN 000'S) NET ASSETS ASSETS RATE CUSTODIAN(12)
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C> <C>
6.40% $ 372,177 0.94% 5.56% 17% $ 0.56
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
5.61 11 1.69 4.81 17 0.47
6.78 11 1.60 5.14 22 0.48
7.56 29,821 0.63 5.08 52 0.42
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)
6.76 11 1.38 4.33 52 0.34
5.23 11 1.14 4.78 44 0.35
6.25 54,518 0.73 4.62 27 0.42
8.71 54,507 0.42 4.95 13 0.40
2.20 34,147 0.00(10) 4.25(10) 17 0.06
5.46 11 1.48 3.87 27 0.34
7.90 11 1.17 4.20 13 0.33
6.41 233,359 1.04 5.58 25 0.58
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 0.53
5.62 11 1.79 4.83 25 0.50
5.54 11 1.58 5.22 23 0.51
21.36 183,084 1.54 0.60 90 0.08
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
20.51 29,481 2.29 (0.15) 90 (0.02)
19.75 14,368 2.31 0.36 72 0.05
25.44 179,720 1.70 (0.49) 205 (0.07)
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)
24.54 45,652 2.45 (1.24) 205 (0.19)
31.44 18,730 2.51 (0.47) 233 (0.04)
35.93 283,747 1.64 (1.02) 131 (0.19)
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
34.91 43,645 2.39 (1.77) 131 (0.32)
20.76 11,840 2.43 (1.06) 181 (0.10)
13.16 116,254 1.77 0.46 125 0.05
(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
12.29 38,900 2.52 (0.29) 125 (0.13)
(4.61) 11,120 2.44 (0.13) 81 (0.17)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------
RATIO OF OPERATING
EXPENSES TO AVERAGE
RATIO OF OPERATING NET ASSETS WITHOUT
EXPENSES TO AVERAGE FEE WAIVERS, EXPENSES
NET ASSETS WITHOUT ABSORBED AND/OR FEES
FEES REDUCED REDUCED BY CREDITS
BY CREDITS ALLOWED BY ALLOWED BY THE
THE CUSTODIAN(21) CUSTODIAN(13)(21)
- -----------------------------------------------------------
<S><C> <C> <C>
0.94% 1.29%
N/A 1.29
N/A 1.39
N/A 1.41
N/A 1.40
N/A 1.60
N/A 1.84(10)
1.69 2.04
N/A 2.04
0.66 1.46
N/A 1.51
N/A 1.55
N/A 5.59(10)
1.41 2.21
N/A 2.26
0.75 1.39
N/A 1.41
N/A 1.95(10)
1.50 2.14
N/A 2.16
1.04 1.29
N/A 1.30
N/A 1.36
N/A 1.37
N/A 1.40
N/A 1.68(10)
1.79 2.04
N/A 2.05
1.54 1.54
N/A 1.56
N/A 1.59
N/A 1.46
N/A 1.55
N/A 1.78
N/A 2.01(10)
2.29 2.29
N/A 2.31
1.71 1.71
N/A 1.76
N/A 1.75
N/A 2.52(10)
2.46 2.46
N/A 2.51
1.65 1.65
N/A 1.68
N/A 1.66
N/A 1.59
N/A 1.93
N/A 2.11(10)
2.40 2.40
N/A 2.43
1.77 1.77
N/A 1.69
N/A 1.69
N/A 1.80
N/A 2.29
2.47(10)
2.52 2.52
N/A 2.44
- -----------------------------------------------------------
</TABLE>
-14-
<PAGE> 117
(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 or if
fees had not been reduced by credits allowed by the custodian.
(12) Net investment income per share without fee waivers and/or expenses
absorbed by investment advisor, administrator, distributor and/or fees
reduced by credits allowed by custodian.
(13) Annualized operating expense ratios without fee waivers and/or expenses
absorbed by investment advisor, administrator, distributor and/or fees
reduced by credits allowed by custodian.
(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
0.82% for 1996, 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 1.57% for
1996, 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.
(21) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
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> 118
Up to 10% of the net 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> 119
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. The average
maturity of the Fund may vary depending on anticipated market conditions. 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 securities in at least
three different countries, one of which may be the United States. The Fund
maintains a dollar-
-17-
<PAGE> 120
weighted average portfolio maturity not exceeding three years but may hold
individual securities with longer maturities. The average maturity of the Fund
may vary depending on anticipated market conditions. 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-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."
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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 average maturity of the Fund
may vary depending on anticipated market conditions. 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.
THE MUNICIPAL FUNDS
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."
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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.
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
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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
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
maturity date of Municipal Securities (regardless of call provisions), except
for pooled single family Mortgage Securities for which the effective maturity is
to be the 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
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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 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."
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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 Obligations
and 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 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 in 1990, 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 a Senior Vice President of Van Kampen
since January 1995 and a First Vice President since January 1993. Mr. Johnson
has been employed as portfolio manager 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
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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 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
Co-Portfolio 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.
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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 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
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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, 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
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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).
Such borrowings would constitute leverage, which is a speculative
characteristic. Leveraging will magnify declines as well as increases in the NAV
of a Fund's shares and increases in the yield on a Fund's investments. 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 not 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 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
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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 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 Bond Funds 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
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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 Bond Funds 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.
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.
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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 million, an increase of approximately 6.1% over comparable figures in
fiscal 1993-94. Total effective appropriations for the 1994-95 fiscal year were
$14,330.8 million, with unencumbered reserves at the end of 1994-95 estimated at
$352.1 million. Estimated fiscal year 1995-96 General Revenue plus Working
Capital and Budget Stabilization funds available total $15,168.7 million, 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
$14,853.2 million, with unencumbered reserves at the end of 1995-96 estimated at
$315.5 million.
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
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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 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
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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
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
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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.
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 net assets of each Non-Money Fund, and up
to 10% of the net 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
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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 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-
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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 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
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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.
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
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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 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.
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<PAGE> 140
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 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.
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<PAGE> 141
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
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
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<PAGE> 142
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.
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).
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<PAGE> 143
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 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.
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<PAGE> 144
TAX EQUIVALENT YIELDS
TABLE 1
<TABLE>
<CAPTION>
Combined
Federal
and
Federal California California Tax-Exempt Yield
Sample 1996 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> <C>
$0-$24,000 $0-$40,100 15% 6.00% 20.10% 2.50% 3.13% 3.75% 4.38% 5.01%
$24,000-$58,150 $40,100-$96,900 28% 9.30% 34.70% 3.06% 3.83% 4.59% 5.36% 6.13%
$58,150-$121,300 $96,900-$147,700 31% 9.30% 37.42% 3.20% 3.99% 4.79% 5.59% 6.39%
$121,300-$263,750 $147,700-$263,750 36% 9.30% 41.95% 3.44% 4.31% 5.17% 6.03% 6.89%
$263,750 and up $263,750 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 1996 Federal Marginal Marginal Marginal -------------------------------------------------
Taxable Income Brackets Tax Rate+ Tax Rate* 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> <C> <C>
$0-$24,000 $0-$40,100 15% 6.00% 20.10% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$24,000-$58,150 $40,100-$96,900 28% 9.30% 34.70% 6.89% 7.66% 8.42% 9.19% 9.95% 10.72%
$58,150-$121,300 $96,900-$147,700 31% 9.30% 37.42% 7.19% 7.99% 8.79% 9.59% 10.39% 11.19%
$121,300-$263,750 $147,700-$263,750 36% 9.30% 41.95% 7.75% 8.61% 9.47% 10.34% 11.20% 12.06%
$263,750 and up $263,750 and up 39.6% 9.30% 45.22% 8.21% 9.13% 10.04% 10.95% 11.87% 12.78%
</TABLE>
TABLE 2
<TABLE>
<CAPTION>
Tax-Exempt Yield
Sample 1996 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> <C>
$0-$24,000 $0-$40,100 15% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$24,000-$58,150 $40,100-$96,900 28% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
$58,150-$121,300 $96,900-$147,700 31% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
$121,300-$263,750 $147,700-$263,750 36% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
$263,750 and up $263,750 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.
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<PAGE> 145
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.
- --------------------------------------------------------------------------------
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<PAGE> 146
HOW TO INVEST IN A SAM 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 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
Westboro, 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> 147
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
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<PAGE> 148
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 CDSC 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 CDSC" subsection in this section. For other waivers of Class A Shares
sales charges, see the section "Waivers of Class A Initial Sales
-46-
<PAGE> 149
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, 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.
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<PAGE> 150
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 Privilege. 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 investment 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 purchases of 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 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. This reinvestment privilege does not apply to
reinvestments made through the Sierra Automatic Investment Plan. 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
-48-
<PAGE> 151
created pursuant to Section 457 of 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 (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 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 CDSC for Class A
Shares is 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 involuntary distributions;
(vii) for systematic withdrawals in amounts of 1% or less per month; and (viii)
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
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<PAGE> 152
sales charge at the time of purchase. (Class S Shares of certain Funds are not
available for purchase directly.) 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 CDSC" 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 to
clear for deposit of the shareholder's funds into the Fund's account, and the
shareholder may
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<PAGE> 153
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 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 FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Account Type Special Requirements
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY PHONE All account types, except - You may exchange to the same class of
800-222-5852 retirement other funds of the Trust, SPIF or SAM
Portfolios 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
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.
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- - 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. Effective January 1, 1997,
upon 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, SPIF or SAM Portfolios 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 SPIF,
SAM Portfolios or any of the other Funds of the Trust, including the Money
Funds, (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, SAM Portfolio 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 or the SAM Portfolios.
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, SAM Portfolio or
SPIF, the initial sales charge applicable to such Non-Money Fund, SAM Portfolio
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, SAM Portfolio or SPIF.
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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 Eligible
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, or Class B Shares of the
SAM Portfolios without having to pay any CDSC at the time of the exchange. If
you exchange into Class S Shares of another Fund or Class B Shares of the SAM
Portfolios 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
or SAM Portfolios 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.
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 Sierra Shareholder Services by
telephone, an investor may deliver the transaction request to Sierra Shareholder
Services at P.O. Box 5118, Westboro, 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
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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 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
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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
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("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.
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."
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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 $3.38 billion.
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.
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.
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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 June 30, 1996 Scudder's assets under management were in excess of $108
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 $53.3 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
a wholly owned subsidiary of Morgan Stanley Group Inc. 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 June 30, 1996 of more than $46.6 billion.
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 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 and 4400
Computer Drive, Westboro, Massachusetts 01581. 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
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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 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
S Shares 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.
Activities that may be financed under the Rule 12b-1 Plan for Class A Shares and
the Rule 12b-1 Plan for Class S Shares (collectively, the "Plans") include, but
are not limited to: printing prospectuses and statements of additional
information and reports for other than existing shareholders, overhead,
preparation and distribution of advertising material and sales literature,
expense of organizing and conducting sales seminars, supplemental payments to
Authorized Dealers and other institutions such as asset-based sales charges or
as payments of service fees under shareholder service arrangements, and the cost
of administering the Plans.
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 (over 100%) 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 their 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.
-59-
<PAGE> 162
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>
<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* .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
---------------------------
<S> <C>
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> 163
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> 164
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> 165
SIERRA TRUST FUNDS
P.O. BOX 5118
WESTBORO, 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, Westboro, 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> 166
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION AND HISTORY . . . . . . . . .. . . . . . . . . . 3
MANAGEMENT OF THE COMPANY . . . . . . . . . . . .. . . . . . . . . . 4
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS .. . . . . . . . . . 22
PORTFOLIO TURNOVER . . . . . . . . . . . . . . .. . . . . . . . . . 78
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . .. . . . . . . . . . 80
HOW TO BUY AND REDEEM SHARES . . . . . . . . . .. . . . . . . . . . 82
NET ASSET VALUE . . . . . . . . . . . . . . . . .. . . . . . . . . . 85
HOW TO EXCHANGE SHARES . . . . . . . . . . . . .. . . . . . . . . . 87
DETERMINATION OF PERFORMANCE . . . . . . . . . .. . . . . . . . . . 88
TAXES . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . 95
DISTRIBUTOR . . . . . . . . . . . . . . . . . . .. . . . . . . . . 102
APPENDIX . . . . . . . . . . . . . . . . . . . .. . . . . . . . . A-1
</TABLE>
-2-
<PAGE> 167
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> 168
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
President and CEO of Sierra Capital Management Corporation ("SCMC")
since 1990. Formed Great Western Financial Securities Corporation ("GW
Securities") in 1985 as President and served as its President and Chairman.
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> 169
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> 170
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 (1/23/51), CHAIRMAN AND PRESIDENT
Acts as a Trustee of the Company as well as Chairman and President.
Information regarding Mr. Cerini's background is listed previously under
"Management of the Company -- Trustees."
KEITH PIPES (12/20/55), 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 (8/13/45), 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> 171
STEPHEN C. SCOTT (1/18/45), SENIOR VICE PRESIDENT
In August 1988 joined the Company to form Sierra Advisors and currently
serves as the President and Chief Investment Officer. 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 as well
as an MBA in Finance from Long Beach State University.
RICHARD W. GRANT (10/25/45), ASSISTANT SECRETARY
Has been a Partner in the firm of Morgan, Lewis & Bockius LLP since
1989. Prior to that, he was a partner in the firm of Ballard, Spahr, Andrews &
Ingersoll beginning 1983. 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 (7/8/55), 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 (10/7/59), ASSISTANT TREASURER
Joined SCMC in 1993 as Vice President, and Controller and also serves
as Assistant Treasurer for the Sierra Family of Mutual Funds. Prior to
joining Sierra Capital, he acted as Audit Manager in the Boston office of
Coopers & Lybrand, L.L.P. Prior to joining Coopers & Lybrand, L.L.P., he worked
for two other Certified Public Accounting firms for a total of four and one half
years, providing both audit and tax services to financial institutions, small
manufacturing and service industry clients. 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> 172
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 1, 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: First Interstate Bank TTee, FBO: Great
Western Bank Employee Sav. Incentive Plan-Balanced Fund, P.O. Box 9800
Calabasas, CA 91302-9200, 39.39%.
EMERGING GROWTH FUND - CLASS A: First Interstate Bank TTee, FBO: Great Western
Bank Employee Sav. Incentive Plan-Aggressive Fund, P.O. Box 9800, Calabasas, CA
91302-9200, 12.05%.
U.S. GOVERNMENT MONEY FUND - CLASS A: Los Angeles Memorial Coliseum Commission,
3911 S. Figueroa Street, Los Angeles, CA 90037, 6.82%.
First German United Methodist Church of Los Angeles, 1802 Los Encinos Avenue
#A, Glendale, CA 91208, 5.81%.
U.S. GOVERNMENT MONEY FUND - CLASS B: Jeremy Sherman, 556 Vincente Avenue,
Berkeley, CA 94707, 23.488%.
M. George Cassell, Ruth D. Cassell and Marie Cassell, 13338 St. Tropez Circle,
Palm Beach Gardens, FL 33410, 22.798%.
BSDT Cust Rollover IRA FBO, Alan B. Miller, 4 Bridle Lane, Woodside, CA 94062,
21.735%.
Pensco Pension Svcs FBO, Zealous D. Wiley, Jr. MD & Michael Darby MD &
Thomas B. Hargrave III MD, A Profit Corp Pft Sharing Plan & TR, DTD 5/9/91,
250 Montgomery Street 3rd Floor, San Francisco, CA 94104, 19.839%.
BSDT Cust IRA FBO, Thomas B. Hargrave MD, 4601 Rockingham Court, Oakland,
CA 94619, 5.103%.
U.S. GOVERNMENT MONEY FUND - CLASS S: William Pullman, c/o Marie Ambrosino Mgt,
612 No. Sepulveda Blvd., #10, Bel Air, CA 90049-2120, 58.10%.
BSDT CUST IRA ROLLOVER, Ronna-Lee Breen, 12 Standish Circle, Wellesley, MA
02181-5354, 10.35%.
BSDT CUST ROLLOVER IRA FBO, Regina A. Walls, 109 Wickerhill, Peachtree, GA
30269, 8.97%.
BSDT CUST ROLLOVER IRA FBO, Todd Michael Adamson, 17283 Regency Circle,
Riverside, CA 92503, 7.99%.
BSDT CUST ROLLOVER IRA FBO, Karen D. Salliby Geller, 16490 NE 26 Ave., Miami,
FL 33160, 6.19%.
CALIFORNIA MONEY FUND - CLASS A: Edward B. Baker TTee FBO The Baker Family
Trust, DTD 7/10/94, 1650 16th Avenue, San Francisco, CA 94122, 10.58%.
CALIFORNIA MONEY FUND - CLASS B: Oscar L. Roehl Trustee, FBO: The Oscar L. Roehl
Trust UTA DTD 12/15/89, 1826 Harding Avenue, Redwood City, CA 94062, 85.38%.
Ella M. Brown, 29094 Cobblestone Street, Nuevo, CA 92567, 14.62%.
CALIFORNIA MONEY FUND - CLASS S: Sierra Fund Administration, 9301 Corbin Avenue,
Northridge, CA 91324, 100%.
GLOBAL MONEY FUND - CLASS B: Sandra J. Kravitz and Ellen S. Hanas JTWROS, 15075
Whitney Road Unit 113, Delray Beach, FL 33484, 13.29%.
GWB TTee IRA R, Otto O. Tallent, 4210 Mesa Court, Rocklin, CA 95677-1915,
13.16%.
Roger H. Ellis & Virginia S. Ellis as Ttees of the Ellis Family Trust UTD
12/22/81, 91 Mandarin, Atherton, CA 94027, 7.12%.
GWB Ttee IRA R, Robert Spencer Hoyt, 574 Sand Hill Circle, Menlo Park, CA 94025,
7.07%.
Dorothy M. Stevenson, 1024 Mt. Carmel Drive, San Jose, CA 95120, 6.51%.
Orville D. Pruden and Carol J. Pruden JTWROS, TOD Mark D. Pruden and Beth J.
Pruden, 9157 El Cortez, Fountain Valley, CA 92708, 5.55%.
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SHORT TERM GLOBAL GOVERNMENT FUND - CLASS B: Wedbusch Morgan Securities, CUST
FBO 4671-6465, P.O. Box 30014, Los Angeles, CA 90030, 6.83%.
CALIFORNIA MUNICIPAL FUND - CLASS S: Sierra Fund Administration, 9301 Corbin
Avenue, Northridge, CA 91324, 100%.
NATIONAL MUNICIPAL FUND - CLASS S: Sierra Fund Administration, 9301 Corbin
Avenue, Northridge, CA 91324, 100%.
FLORIDA INSURED MUNICIPAL - CLASS S: Sierra Fund Administration, 9301 Corbin
Avenue, Northridge, CA 91324, 100%.
CALIFORNIA INSURED INTERMEDIATE - CLASS S: Sierra Fund Administration, 9301
Corbin Avenue, Northridge, CA 91324, 100%.
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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. 19,000 0 42,250 for service
Trustee on 4 boards
David E. Anderson 19,500** 0 43,250 for service
Trustee on 4 boards**
Edmond R. Davis, Esq. 19,000 0 42,250 for service
Trustee on 4 boards
John W. English 19,000 0 42,250 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.
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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. ("Van Kampen") is located at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181. Van Kampen, or its predecessors, has
served as the sub-advisor for the California Municipal, California Insured
Intermediate Municipal, Florida Insured Municipal, and National Municipal Funds
since each Fund's inception. 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 a wholly owned subsidiary of MSAM Holdings
II, Inc. which, in turn, is a wholly-owned subsidiary of Morgan Stanley Group
Inc. Prior to its sale in October 1996, VK/AC Holding, Inc. was 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 was the product of the acquisition, in December 1994, of
American Capital Management & Research, Inc. by Van Kampen Merritt Management
Inc., a wholly owned subsidiary of The Van Kampen Merritt Companies, Inc.
Prior to February 1993, The Van Kampen Merritt Companies, Inc. was a wholly
owned subsidiary of Xerox Financial Services, Inc. Van Kampen Merritt
Management Inc. served as sub-advisor to the U.S. Government Fund from its
inception until December 1994.
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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
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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 totaling $622,915, $175,521, $206,796,
$2,403,914, $2,581,417, $552,582, $262,885, $1,418,103, $2,233,979, $201,769,
$393,599, $1,769,245, $2,464,903, $2,023,665, $1,062,220 and $7,915 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 $622,915, $162,368,
$148,062, $262,885, $513,501, $2,581,417, $1,606,290, $1,398,796, $201,769,
$393,599, $645,198 and $7,915 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 $143,417, $13,583, $187,726, $74,295,
$47,057, and $47,054 with respect to the Global Money, Short-Term High Quality
Bond, U.S. Government, 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 totaling
$233,593, $65,820, $77,549, $1,109,499, $868,295, $238,035, $78,866, $461,755,
$684,267, $73,371, $143,109, $959,559, $1,470,531, $1,149,390, $640,950 and
$25,000 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 totaling $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,
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$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 totaling
$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 totaling $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,
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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 totaling $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 totaling $467,187, $131,641,
$155,097, $1,294,415, $1,642,720, $297,544, $184,020, $902,429, $1,421,633,
$128,399, $250,472, $809,686, $994,372, $769,573, $422,563 and $11,080 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 totaling $5,352, $11,630,
$15,947, $127,314, $20,472, $14,288 and $3,805 with respect to the Global Money,
Short Term High Quality Bond, Short Term Global Government, U.S. Government,
Florida Insured Municipal, California Insured Intermediate 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 totaling
$122,357, $65,820, $40,546, $289,871, $367,978, $66,512, $41,119, $202,099,
$318,453, $28,762, $56,128, $181,544, $222,994, $172,561, $94,735 and $2,485
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
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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 totaling $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 totaling $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 totaling
$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) totaling $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
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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
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Growth Funds, respectively. The Target Maturity Fund had not commenced
operations as of June 30, 1994.
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
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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
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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.
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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
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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
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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 and Risk Considerations - Investment Principles and Risk
Considerations - The Money Funds" 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,
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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
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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
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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.
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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,
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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
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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 of this Statement of Additional Information. Successful use
of most
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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
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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, CALIFORNIA MUNICIPAL, CALIFORNIA
INSURED INTERMEDIATE MUNICIPAL, FLORIDA INSURED MUNICIPAL, NATIONAL MUNICIPAL,
CORPORATE INCOME, SHORT TERM GLOBAL GOVERNMENT, SHORT TERM HIGH QUALITY BOND,
GROWTH, EMERGING GROWTH, GROWTH AND INCOME AND INTERNATIONAL GROWTH FUNDS
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,
the California Insured Intermediate and the Florida Insured Municipal Funds,
such investments will be made only in unusual circumstances, such as when that
Funds' 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
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Code of 1986, as amended, (the "Internal Revenue Code"), applicable to a
regulated investment company. See "Taxes" following.
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
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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
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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.
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STRATEGIES AVAILABLE TO U.S. GOVERNMENT, CORPORATE INCOME, SHORT TERM HIGH
QUALITY BOND, GROWTH AND INCOME, EMERGING GROWTH, SHORT TERM GLOBAL GOVERNMENT,
GROWTH AND INTERNATIONAL GROWTH FUNDS
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
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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
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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.
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STRATEGIES AVAILABLE TO SHORT TERM GLOBAL GOVERNMENT, GROWTH AND INCOME,
EMERGING GROWTH, INTERNATIONAL GROWTH, SHORT TERM HIGH QUALITY BOND, CALIFORNIA
INSURED INTERMEDIATE MUNICIPAL AND GROWTH FUNDS
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, EMERGING GROWTH, SHORT TERM GLOBAL
GOVERNMENT, SHORT TERM HIGH QUALITY BOND, GROWTH AND INCOME, GROWTH AND
INTERNATIONAL GROWTH FUNDS
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
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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
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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
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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 CFTC 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, GROWTH, INTERNATIONAL
GROWTH, CALIFORNIA INSURED INTERMEDIATE MUNICIPAL AND SHORT TERM HIGH QUALITY
BOND FUNDS
- -----------------------------------------------------------------------------
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.
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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.
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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 AND GROWTH FUNDS
- ----------------------------------------------------------------------------
SECURITIES IN DEVELOPING COUNTRIES. Although most of the investments
of the International Growth, Emerging Growth and Growth Funds 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.
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STRATEGY AVAILABLE TO CORPORATE INCOME, NATIONAL MUNICIPAL, SHORT TERM GLOBAL
GOVERNMENT, GROWTH, GROWTH AND INCOME, EMERGING GROWTH, INTERNATIONAL GROWTH,
GLOBAL MONEY, U.S. GOVERNMENT MONEY, CALIFORNIA MONEY, CALIFORNIA INSURED
INTERMEDIATE MUNICIPAL AND SHORT TERM HIGH QUALITY BOND FUNDS
- ----------------------------------------------------------------------------
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, CALIFORNIA MUNICIPAL, CALIFORNIA
INSURED INTERMEDIATE MUNICIPAL, FLORIDA INSURED MUNICIPAL AND NATIONAL MUNICIPAL
FUNDS
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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
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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
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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
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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
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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.
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SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL SECURITIES
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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,
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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 9" 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.
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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.
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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
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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.
The voters will be presented with a new initiative constitutional amendment on
the November 1996 ballot. The Right to Vote on Taxes Act, sponsored by the
Howard Jarvis Taxpayers Association, seeks to strengthen Proposition 62 by
requiring majority voter approval for general taxes, two-thirds voter approval
for special taxes (including taxes imposed for specific purposes but placed in
the general fund), voter approval of existing local taxes enacted after January
1, 1995, and placing other restrictions on fees and assessments. As a
constitutional amendment, the provisions would clearly apply to charter cities.
Another initiative on the November 1996 ballot, a statutory initiative sponsored
by the California Tax Reform Association, would reimpose the now sunseted
temporary 10 and 11 percent tax brackets and use the revenues from the increase
to replace a portion of the property tax revenue shifted from cities, counties
and special districts to schools on an ongoing basis since 1992.
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,
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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
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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.
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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.
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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 any twelve month period 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.
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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
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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.
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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
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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.
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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
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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
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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.
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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
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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
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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)
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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 totaling $437.3 million in the State fiscal year ended
June 30, 1995, a decrease of
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$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 totaled
$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 totaled $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.
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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 totaled
$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
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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.
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SPECIAL CONSIDERATIONS RELATING TO SHORT TERM GLOBAL GOVERNMENT, EMERGING
GROWTH AND GROWTH FUNDS
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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.
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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, CORPORATE INCOME AND SHORT TERM HIGH
QUALITY BOND FUNDS.
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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
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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.
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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, California
Municipal, California Insured Intermediate Municipal, Florida Insured
Municipal, International Growth, National Municipal, Corporate Income,
Growth, Emerging Growth, Growth and Income, Short Term High Quality
Bond and Short Term Global Government Funds 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, California Municipal, and Florida Insured Municipal
Funds) 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
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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, California Money and Short Term Global Government
Funds, 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, Growth, Short Term
Global Government and Short Term High Quality Bond Funds; and provided
further that (a) the U.S. Government, Corporate Income, Growth and
Income, Emerging Growth and International Growth Funds may purchase,
write and sell covered put and call options on securities, (b) U.S.
Government, California Municipal, Florida Insured Municipal, National
Municipal, Corporate Income, Emerging Growth, Growth and Income and
International Growth Funds may purchase, write and sell futures
contracts and options on futures contracts, (c) the California
Municipal, Florida Insured Municipal, National Municipal and California
Money Funds may acquire stand-by commitments, (d) the Growth and
Income, Emerging Growth 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 net assets of a Money Fund, or more than 15% of the net
assets of a Non-Money Fund, would be
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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,"
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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, Emerging Growth,
Growth and International Growth Funds (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
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not consider portfolio turnover rate a limiting factor in making investment
decisions.
Under certain market conditions, the U.S. Government, Corporate
Income, Growth, Emerging Growth, Growth and Income, International Growth, Short
Term High Quality Bond or Short Term Global Government Funds 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
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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.
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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 $2,584,000 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
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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, Corporate Income, California Municipal,
Florida Insured Municipal, California Insured Intermediate Municipal, National
Municipal, Growth and Income, Growth, Emerging Growth, International Growth,
Short Term High Quality Bond, Short Term Global Government and Target Maturity
Funds 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 . . . . . . . $423,282,149 $298,517,751 $372,176,606 $29,820,654 $233,358,861 $183,083,923
Outstanding Shares . . . 44,993,650 29,386,338 35,110,379 3,093,335 21,543,012 12,986,458
Net Asset Value
Per Share . . . . . . . $9.41 $10.16 $10.60 $9.64 $10.83 $14.10
Sales Charge, as a
percentage of the
offering price . . . . . 4.50% 4.50% 4.50% 4.50% 4.50% 5.75%
Offering to Public . . . $9.85 $10.64 $11.10 $10.09 $11.34 $14.96
</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 . . . . . . . $283,746,937 $179,720,185 $116,253,636 $65,726,028 $32,440,041 $54,518,352 $3,124,702
Outstanding Shares . . . 14,066,987 11,451,604 11,078,231 28,740,543 13,985,174 5,164,136 291,381
Net Asset Value
Per Share . . . . . . . $20.17 $15.69 $10.49 $2.29 $2.32 $10.56 $10.72
Sales Charge, as a
percentage of the
offering price . . . . . 5.75% 5.75% 5.75% 3.50% 3.50% 4.50% 2.00%
Offering to Public . . . $21.40 $16.65 $11.13 $2.37 $2.40 $11.06 $10.94
</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%.
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<PAGE> 245
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 "Your
Account-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"
below.
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
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<PAGE> 246
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 "Your Account-Ways to Set Up Your
Account-Waivers of Class B CDSCs" 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, Westboro, 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
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<PAGE> 247
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
"The Funds' Investments and Risk Considerations - Investment Principles and Risk
Considerations - The Money Funds." Pursuant to the rule, the Board of Trustees
also has established
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<PAGE> 248
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, the SAM
Portfolios 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, "Your Account - Exchange Privileges and Restrictions" 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,
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<PAGE> 249
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
800-222-5862. For the seven-day period ended June 30, 1996, the yields for the
outstanding shares of the Global Money, U.S. Government Money and California
Money Funds that are treated as Class A Shares were 4.74%, 4.56% and 2.71%,
respectively, and the effective yields of such shares of each such Fund for the
same period were 4.85%, 4.66% and 2.75%, respectively. The California Money
Fund may also calculate its tax equivalent yield as described on the following
page.
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<PAGE> 250
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, Corporate
Income, California Municipal, Florida Insured Municipal, California Insured
Intermediate Municipal, Short Term Global Government, Short Term High Quality
Bond, National Municipal and Target Maturity Funds for the 30-day period ended
June 30, 1996 were 6.31%, 6.72%, 5.21%, 5.10%, 4.35%, 5.50%, 5.95%, 5.25% and
5.81%, 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, Florida Insured Municipal, California Insured Intermediate Municipal
and National Municipal Funds were 5.67%, 5.16%, 4.70% and 5.72%, respectively.
The tax equivalent yield for the California Money, California Municipal,
California Insured Intermediate
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<PAGE> 251
Municipal, Florida Insured Municipal, National Municipal and Target Maturity
Funds 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 5.01%. The tax equivalent SEC 30-day yields for the period ended June
30, 1996 for the outstanding shares of the California Municipal, Florida Insured
Municipal, California Insured Intermediate Municipal, National Municipal and
Target Maturity Funds were 9.51%, 8.44%, 7.94%, 8.69% and 9.62%, 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, Florida
Insured Municipal, California Insured Intermediate Municipal and the National
Municipal Funds were 10.35%, 8.54%, 8.59% and 9.47%, 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 9.3%.
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
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<PAGE> 252
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 1.37% N/A 1.88% 5.09
Not Adjusted for Sales Charge 5.05 N/A 3.25 8.91
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 0.32 N/A 2.55 5.16
Not Adjusted for Sales Charge 4.27 N/A 3.96 8.07
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge (0.66) N/A 2.07 4.18
Not Adjusted for Sales Charge 4.27 N/A 3.96 8.06
U.S. GOVERNMENT FUND
CLASS A SHARES 7/25/89
Adjusted for Maximum Sales Charge (0.36) 5.34 6.31 52.79
Not Adjusted for Sales Charge 4.34 6.31 7.02 59.99
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge (1.31) N/A 4.54 9.27
Not Adjusted for Sales Charge 3.56 N/A 6.43 13.25
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge (1.31) N/A 4.54 9.27
Not Adjusted for Sales Charge 3.56 N/A 6.43 13.25
CORPORATE INCOME FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge (0.86) 8.03 7.98 57.88
Not Adjusted for Sales Charge 3.81 9.03 8.81 65.32
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge (1.79) N/A 6.88 14.21
Not Adjusted for Sales Charge 3.04 N/A 8.74 18.21
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge (1.79) N/A 6.88 14.21
Not Adjusted for Sales Charge 3.04 N/A 8.74 18.21
</TABLE>
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<PAGE> 253
<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 1.61% 6.12 6.31% 52.84
Not Adjusted for Sales Charge 6.40 7.10 7.02 60.04
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 0.61 N/A 4.30 8.78
Not Adjusted for Sales Charge 5.61 N/A 6.21 12.78
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 0.61 N/A 4.30 8.77
Not Adjusted for Sales Charge 5.61 N/A 6.21 12.77
CALIFORNIA INSURED INTERMEDIATE
MUNICIPAL FUND
CLASS A SHARES 4/4/94
Adjusted for Maximum Sales Charge 1.47 N/A 5.53 12.79
Not Adjusted for Sales Charge 6.25 N/A 7.72 18.11
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 0.46 N/A 4.79 9.79
Not Adjusted for Sales Charge 5.46 N/A 6.69 13.79
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 0.46 N/A 4.79 9.79
Not Adjusted for Sales Charge 5.46 N/A 6.69 13.79
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES 6/7/93
Adjusted for Maximum Sales Charge 2.72 N/A 2.48 7.80
Not Adjusted for Sales Charge 7.56 N/A 4.03 12.88
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 1.76 N/A 4.09 8.34
Not Adjusted for Sales Charge 6.76 N/A 6.00 12.34
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 1.76 N/A 4.09 8.34
Not Adjusted for Sales Charge 6.76 N/A 6.00 12.34
NATIONAL MUNICIPAL FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge 1.62 6.99 7.26 51.76
Not Adjusted for Sales Charge 6.41 7.98 8.09 58.92
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 0.62 N/A 3.68 7.48
Not Adjusted for Sales Charge 5.62 N/A 5.59 11.47
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 0.62 N/A 3.68 7.48
Not Adjusted for Sales Charge 5.62 N/A 5.59 11.47
GROWTH AND INCOME FUND
CLASS A SHARES 7/25/89
Adjusted for Maximum Sales Charge 14.39 11.78 9.88 92.12
Not Adjusted for Sales Charge 21.36 13.11 10.82 103.84
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 15.53 N/A 18.45 40.23
Not Adjusted for Sales Charge 20.53 N/A 20.13 44.23
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 15.51 N/A 18.48 40.31
Not Adjusted for Sales Charge 20.51 N/A 20.16 44.31
</TABLE>
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<PAGE> 254
<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 18.23% N/A 17.36% 65.75
Not Adjusted for Sales Charge 25.44 N/A 19.53 78.12
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 19.54 N/A 26.42 59.73
Not Adjusted for Sales Charge 24.54 N/A 28.00 63.73
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 19.54 N/A 26.41 59.70
Not Adjusted for Sales Charge 24.54 N/A 27.99 63.70
INTERNATIONAL GROWTH FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge 6.66 6.60 2.20 13.84
Not Adjusted for Sales Charge 13.16 7.87 3.22 20.79
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 7.34 N/A 1.63 3.29
Not Adjusted for Sales Charge 12.34 N/A 3.52 7.16
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 7.29 N/A 1.61 3.25
Not Adjusted for Sales Charge 12.29 N/A 3.50 7.12
SHORT TERM GLOBAL GOVERNMENT FUND*
CLASS A SHARES 2/11/92
Adjusted for Maximum Sales Charge 6.30 N/A 4.78 22.70
Not Adjusted for Sales Charge 10.16 N/A 5.63 27.15
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 5.33 N/A 3.84 7.83
Not Adjusted for Sales Charge 9.33 N/A 5.25 10.77
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 4.33 N/A 3.36 6.85
Not Adjusted for Sales Charge 9.33 N/A 5.25 10.76
EMERGING GROWTH FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge 28.31 18.78 14.97 129.11
Not Adjusted for Sales Charge 36.13 20.19 16.12 143.09
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 30.13 N/A 26.17 58.92
Not Adjusted for Sales Charge 35.13 N/A 27.75 62.92
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 30.11 N/A 26.20 58.92
Not Adjusted for Sales Charge 35.11 N/A 27.78 62.92
TARGET MATURITY 2002 FUND
CLASS A SHARES 3/20/95
Adjusted for Maximum Sales Charge 0.85 N/A 6.75 8.73
Not Adjusted for Sales Charge 2.91 N/A 8.45 10.94
* Based on a maximum sales charge of 4.5%
</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
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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:
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IRAs CAN HELP YOU EARN MORE
For $100,000 compounded annually at 8%
<TABLE>
<C> <C> <C>
$146,933+ $215,892+ $466,096+
$128,359++ 164,761++ $271,461++
---------- ---------- ----------
5 Years 10 Years 20 Years
</TABLE>
+ Tax-Deferred Growth *(after-tax contributions and tax-deferral
earnings)
++ Conventional Savings Plan (after-tax contributions and earnings)
[END OF TABULAR REPRESENTATION THAT REPLACES GRAPHIC MATERIAL
FOR EDGAR FILING PURPOSES]
* 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
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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-
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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, California Municipal, California Insured
Intermediate, Florida Insured Municipal and National Municipal Funds 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
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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.
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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
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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
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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, California Municipal, California Insured Intermediate
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Municipal, Florida Insured Municipal or National Municipal Funds 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
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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
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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 totaling (after waivers of fees) $6,430,836,
$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 $0, $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 $637,291,
$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 and operating expenses with respect to Class A Shares of
the Funds totaling $10,527,208 consisting of $250,929 for advertising; $438,458
for marketing promotion; $2,110,916 for preparation, printing and distribution
of sales literature and shareholder reports; $473,803 for fulfillment; $467,191
for seminars; $1,120,947 for salaries to the Sierra Services' personnel;
$4,977,532 in commissions and additional compensation to the Sierra Services'
personnel; $104,836 for occupancy; $82,995 for telephone; and $499,599 in
administration expenses.
Sierra Services serves as distributor of Class B and S Shares of the Company.
For the fiscal year ended June 30, 1996, Sierra Services received distribution
fees from the Funds totaling $138,238, in the aggregate under the Class B
Distribution Plan and $176,465, in the aggregate under the Class S Distribution
Plan. For the same period, Sierra Services received $43,902 representing CDSC
on redemptions of Class B Shares of the Funds and $36,178, representing CDSC on
redemptions of Class S Shares of the Funds. For the fiscal year ended June 30,
1996, Sierra Services did not waive any distribution fees. Sierra Services
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 and S Shares, respectively.
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
totaling $871,600, in the aggregate under the Class B Distribution Plan and
$967,921, in the aggregate under the Class S Distribution Plan. For the
same period, FDI received $476,513, representing CDSCs on redemptions of
Class B Shares of the Funds and $355,600, 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.
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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.
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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> 268
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> 269
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> 270
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> 271
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> 272
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> 273
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 13, 1996 relating to the financial statements and financial
highlights of each of the fund series constituting the Sierra Trust Funds.
FS-1
<PAGE> 274
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
SIERRA TRUST FUNDS
JUNE 30, 1996
<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>
ASSETS:
Investments, at value (Note 2)
See portfolios of
investments (a)........... $169,484,192 $40,884,658 $57,336,220 $39,622,332 $67,075,711 $637,581,058 $370,590,088
Cash and/or foreign currency
(b)......................... 48,899 74,900 269,335 119,680 256 308,636 --
Net unrealized appreciation of
forward foreign currency
contracts (Note 2) See
portfolios of investments... -- -- -- -- 973,410 -- --
Receivable for dollar roll fee
income (Notes 2 and 6)...... -- -- -- -- -- 330,424 --
Dividends and/or interest
receivable.................. 590,178 317,565 814,672 404,363 2,018,344 3,989,359 7,977,976
Receivable for Fund shares
sold........................ 5,805,173 2,481,344 57,787 15,573 15,384 772,118 173,670
Receivable for investment
securities sold............. 4,993,342 -- -- -- 5,142,411 15,249,825 5,575,685
Unamortized organization costs
(Note 8).................... -- -- -- 8,273 1,295 -- --
Receivable from investment
advisor..................... 8,684 -- -- -- -- -- --
Prepaid expenses and other
assets...................... 2,268 911 1,126 1,294 2,994 10,675 8,529
------------ ----------- ----------- ----------- ----------- ------------ ------------
Total Assets.............. 180,932,736 43,759,378 58,479,140 40,171,515 75,229,805 658,242,095 384,325,948
------------ ----------- ----------- ----------- ----------- ------------ ------------
LIABILITIES:
Net unrealized depreciation of
forward foreign currency
contracts (Note 2) See
portfolios of investments... -- -- -- -- -- -- --
Options written, at value
(Premiums received $31,854
and $194,487, respectively)
(Note 2)
See portfolios of
investments................. -- -- -- 27,977 289,913 -- --
Payable for dollar roll
transactions (Notes 2 and
6).......................... -- -- -- -- -- 150,678,281 46,265,313
Deferred income for dollar
roll transactions........... -- -- -- -- -- 464,764 59,111
Variation Margin (Note 2)..... -- -- -- 49,500 -- 818,969 --
Payable for Fund shares
redeemed.................... 675,325 4,110,179 14,529 37,631 28,757 610,948 1,534,024
Payable for investment
securities purchased........ 4,996,500 -- 7,023,495 497,008 5,138,320 21,562,811 --
Investment advisory fee
payable (Note 3)............ -- 2,551 8,260 1,162 3,391 23,800 117,864
Administration fee payable
(Note 3).................... 41,338 11,637 12,852 13,964 20,037 135,004 95,676
Shareholder servicing and
distribution fees payable
(Note 5).................... 45,933 9,993 10,808 16,345 16,584 129,473 90,267
Dividends payable............. 14,427 2,999 2,273 58,504 134,384 938,116 902,017
Accrued legal and audit
fees........................ 21,900 18,309 18,581 24,944 48,171 36,237 31,737
Accrued transfer agent fees... 26,634 14,473 8,572 15,743 12,340 85,706 57,526
Accrued Trustees' fees and
expenses (Note 4)........... 1,053 296 327 305 437 2,948 2,089
Due to Custodian.............. -- -- -- -- -- -- --
Accrued expenses and other
payables.................... 53,242 7,616 10,631 20,706 6,083 137,717 36,005
------------ ----------- ----------- ----------- ----------- ------------ ------------
Total Liabilities......... 5,876,352 4,178,053 7,110,328 763,789 5,698,417 175,624,774 49,191,629
------------ ----------- ----------- ----------- ----------- ------------ ------------
NET ASSETS.................... $175,056,384 $39,581,325 $51,368,812 $39,407,726 $69,531,388 $482,617,321 $335,134,319
============ =========== =========== =========== =========== ============ ============
</TABLE>
- ---------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
(A) INVESTMENTS, AT COST (NOTE
2)........................ 169,484,192 40,884,658 57,336,220 39,716,022 65,457,556 637,686,783 363,019,833
(B) CASH AND/OR FOREIGN
CURRENCY, AT COST (NOTE
2)........................ 48,899 74,900 269,335 118,750 256 308,636 --
</TABLE>
See Notes to Financial Statements.
FS-2
<PAGE> 275
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
FLORIDA INSURED
CALIFORNIA INSURED INTERMEDIATE NATIONAL GROWTH AND EMERGING
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL INCOME GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
------------ ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$388,398,075 $36,878,762 $ 74,170,062 $242,000,539 $239,638,428 $248,291,481 $360,581,190
-- 67,216 141,846 64,682 18,665 123,112 2,045,883
-- -- -- -- -- -- --
-- -- -- -- -- -- --
6,155,382 567,924 1,191,542 3,329,830 429,353 56,105 23,112
101,664 29,531 144,541 3,004,558 565,572 1,034,274 990,944
977,344 -- -- -- 4,006,081 5,634,062 1,712,869
-- 25,600 4,462 -- -- 20,728 --
-- 5,943 -- -- -- -- --
9,189 787 1,374 6,224 4,075 5,394 12,105
------------ ----------- ------------ ------------ ------------ ------------ ------------
395,641,654 37,575,763 75,653,827 248,405,833 244,662,174 255,165,156 365,366,103
------------ ----------- ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- 16,358 322,571
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
112,500 -- -- 225,000 -- 208,125 --
33,267 123,385 -- 125,201 2,764,099 666,102 1,552,015
1,504,833 2,067,274 -- 7,134,553 4,941,667 3,357,440 6,526,740
87,049 -- 1,115 70,133 155,468 186,016 251,922
112,423 10,036 21,421 68,314 71,586 71,128 102,045
92,758 10,495 27,939 52,924 85,890 93,117 117,459
644,287 70,904 68,923 453,202 21,918 -- --
28,417 15,959 18,717 27,993 30,343 24,340 29,122
65,389 4,112 14,591 39,059 52,090 41,181 67,627
2,455 219 468 1,492 1,563 1,553 2,228
169,657 -- -- -- -- -- --
57,804 13,451 23,084 37,953 48,835 60,759 82,459
------------ ----------- ------------ ------------ ------------ ------------ ------------
2,910,839 2,315,835 176,258 8,235,824 8,173,459 4,726,119 9,054,188
------------ ----------- ------------ ------------ ------------ ------------ ------------
$392,730,815 $35,259,928 $ 75,477,569 $240,170,009 $236,488,715 $250,439,037 $356,311,915
============ =========== ============ ============ ============ ============ ============
372,675,160 36,284,224 71,907,876 228,865,229 219,424,813 219,711,612 283,991,023
-- 67,216 141,846 64,682 18,665 123,403 2,035,759
<CAPTION>
INTERNATIONAL TARGET
GROWTH MATURITY
FUND 2002 FUND
------------ ---------
<S> <C> <C>
$156,082,304 $3,079,516
3,751,093 19,079
605,855 --
-- --
505,714 --
4,700,950 --
6,738,213 --
-- 44,087
-- 2,882
2,725 23
------------ ---------
172,386,854 3,145,587
------------ ---------
-- --
-- --
-- --
-- --
-- --
65,710 1,589
12,324,922 --
106,666 --
44,195 893
57,018 638
-- --
35,299 15,409
22,382 613
965 19
-- --
128,906 1,724
------------ ---------
12,786,063 20,885
------------ ---------
$159,600,791 $3,124,702
============ ==========
149,846,236 3,071,453
3,697,796 19,079
</TABLE>
See Notes to Financial Statements.
FS-3
<PAGE> 276
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
SIERRA TRUST FUNDS
JUNE 30, 1996
<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>
NET ASSETS CONSIST
OF:
Undistributed net
investment
income/
(accumulated net
investment
loss/distributions
in excess of net
investment
income)......... $ 8,033 $ 7,444 $ 2,363 $ (60,622) $ (209,594) $ 5,733 $ (1,086,967)
Accumulated net
realized
gain/(loss) on
investments
sold, futures
contracts,
closed written
options, forward
foreign currency
contracts and
foreign currency
transactions.... 969 (15,708) (40,974) (1,303,060) (2,677,835) (75,544,583) (35,032,631)
Net unrealized
appreciation/
(depreciation)
of investments,
foreign
currency,
written options,
futures
contracts,
forward foreign
currency
contracts and
other assets and
liabilities..... -- -- -- (222,271) 2,513,856 (1,889,735) 7,570,255
Paid-in capital... 175,047,382 39,589,589 51,407,423 40,993,679 69,904,961 560,045,906 363,683,662
------------ ----------- ----------- ----------- ----------- ------------ ------------
Total Net
Assets...... $175,056,384 $39,581,325 $51,368,812 $39,407,726 $69,531,388 $482,617,321 $335,134,319
============ =========== =========== =========== =========== ============ ============
NET ASSETS:
Class A Shares.... $153,785,932 $39,030,913 $51,211,246 $32,440,041 $65,726,028 $423,282,149 $298,517,751
============ =========== =========== =========== =========== ============ ============
Class B Shares.... $ 422,234 $ 111,684 $ 147,145 $ 3,436,692 $ 1,594,138 $ 23,667,824 $ 24,605,864
============ =========== =========== =========== =========== ============ ============
Class S Shares.... $ 20,848,218 $ 438,728 $ 10,421 $ 3,530,993 $ 2,211,222 $ 35,667,348 $ 12,010,704
============ =========== =========== =========== =========== ============ ============
SHARES
OUTSTANDING:
Class A Shares.... 153,677,036 39,043,239 51,252,924 13,985,174 28,740,543 44,993,650 29,386,338
============ =========== =========== =========== =========== ============ ============
Class B Shares.... 421,783 111,719 147,265 1,482,673 697,118 2,515,458 2,422,109
============ =========== =========== =========== =========== ============ ============
Class S Shares.... 20,952,825 438,893 10,430 1,522,546 966,831 3,792,380 1,182,150
============ =========== =========== =========== =========== ============ ============
CLASS A SHARES:
Net asset value
per share of
beneficial
interest
outstanding*.... $1.00 $1.00 $1.00 $2.32 $2.29 $9.41 $10.16
============ =========== =========== =========== =========== ============ ============
Maximum sales
charge.......... -- -- -- 3.50% 3.50% 4.50% 4.50%
Maximum offering
price per share
of beneficial
interest
outstanding..... -- -- -- $2.40 $2.37 $9.85 $10.64
============ =========== =========== =========== =========== ============ ============
CLASS B SHARES:
Net asset value
and offering
price per share
of beneficial
interest
outstanding*.... $1.00 $1.00 $1.00 $2.32 $2.29 $9.41 $10.16
============ =========== =========== =========== =========== ============ ============
CLASS S SHARES:
Net asset value
and offering
price per share
of beneficial
interest
outstanding*.... $1.00 $1.00 $1.00 $2.32 $2.29 $9.41 $10.16
============ =========== =========== =========== =========== ============ ============
</TABLE>
- ---------------------
* Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
+ Represents accumulated net investment loss.
See Notes to Financial Statements.
FS-4
<PAGE> 277
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
FLORIDA INSURED
CALIFORNIA INSURED INTERMEDIATE NATIONAL GROWTH AND EMERGING
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL INCOME GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
------------ ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 11,641 $ 35,177 $ 2,768 $ 39,645 $ -- $ (165,570)+ $ 322,571
(14,200,087) (3,053,564) 213,231 (10,790,495) 28,424,080 28,190,464 25,655,387
15,450,233 594,538 2,262,186 12,558,696 20,213,615 28,108,766 76,256,520
391,469,028 37,683,777 72,999,384 238,362,163 187,851,020 194,305,377 254,077,437
------------ ----------- ----------- ------------ ------------ ------------ ------------
$392,730,815 $35,259,928 $ 75,477,569 $240,170,009 $236,488,715 $250,439,037 $356,311,915
============ =========== ============ ============ ============ ============ ============
$372,176,606 $29,820,654 $ 54,518,352 $233,358,861 $183,083,923 $179,720,185 $283,746,937
============ =========== ============ ============ ============ ============ ============
$ 20,542,925 $ 5,428,026 $ 20,947,839 $ 6,799,992 $ 23,923,648 $ 25,067,245 $ 28,919,761
============ =========== ============ ============ ============ ============ ============
$ 11,284 $ 11,248 $ 11,378 $ 11,156 $ 29,481,144 $ 45,651,607 $ 43,645,217
============ =========== ============ ============ ============ ============ ============
35,110,379 3,093,335 5,164,136 21,543,012 12,986,458 11,451,604 14,066,987
============ =========== ============ ============ ============ ============ ============
1,937,826 563,020 1,984,291 627,662 1,705,017 1,620,425 1,454,916
============ =========== ============ ============ ============ ============ ============
1,065 1,167 1,077 1,030 2,100,515 2,950,379 2,195,022
============ =========== ============ ============ ============ ============ ============
$10.60 $9.64 $10.56 $10.83 $14.10 $15.69 $20.17
============ =========== ============ ============ ============ ============ ============
4.50% 4.50% 4.50% 4.50% 5.75% 5.75% 5.75%
$11.10 $10.09 $11.06 $11.34 $14.96 $16.65 $21.40
============ =========== ============ ============ ============ ============ ============
$10.60 $9.64 $10.56 $10.83 $14.03 $15.47 $19.88
============ =========== ============ ============ ============ ============ ============
$10.60 $9.64 $10.56 $10.83 $14.04 $15.47 $19.88
============ =========== ============ ============ ============ ============ ============
<CAPTION>
INTERNATIONAL TARGET
GROWTH MATURITY
FUND 2002 FUND
------------ ---------
<S> <C> <C>
$ 1,605,235 $ 102,422
424,907 6,178
6,814,070 8,063
150,756,579 3,008,039
------------ ---------
$ 159,600,791 $3,124,702
============= ==========
$ 116,253,636 $3,124,702
============= ==========
$ 4,447,178 --
=============
$ 38,899,977 --
=============
11,078,231 291,381
============= ==========
428,022 --
=============
3,746,621 --
=============
$10.49 $10.72
============= ==========
5.75% 2.00%
$11.13 $10.94
============= ==========
$10.39 --
=============
$10.38 --
=============
</TABLE>
See Notes to Financial Statements.
FS-5
<PAGE> 278
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
SIERRA TRUST FUNDS
FOR THE YEAR ENDED JUNE 30, 1996
<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>
INVESTMENT INCOME:
Dividends........... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Foreign withholding
tax on dividend
income............ -- -- -- -- -- -- --
Interest............ 8,861,890 2,435,414 1,959,603 3,663,591 6,574,203 36,235,413 29,397,282
Foreign withholding
tax on interest
income............ -- -- -- -- (112,902) -- --
Fee income (Note
6)................ -- -- -- -- -- 2,064,175 853,300
--------- --------- --------- ---------- ---------- ----------- -----------
Total investment
income........ 8,861,890 2,435,414 1,959,603 3,663,591 6,461,301 38,299,588 30,250,582
--------- --------- --------- ---------- ---------- ----------- -----------
EXPENSES:
Investment advisory
fee (Note 3)...... 622,915 175,521 206,796 262,885 552,582 2,581,417 2,403,914
Administration fee
(Note 3).......... 467,187 131,641 155,097 184,020 297,544 1,642,720 1,294,415
Custodian fees...... 14,442 2,941 3,053 9,807 15,096 116,421 7,616
Legal and audit
fees.............. 34,959 22,121 23,047 33,010 59,901 79,211 63,643
Trustees' fees and
expenses (Note
4)................ 5,026 1,412 1,675 1,742 2,745 15,120 11,719
Amortization of
organization costs
(Note 8).......... -- -- -- 3,545 2,000 -- --
Registration and
filing fees....... 85,082 31,805 11,414 37,052 4,168 20,601 4,322
Transfer agent
fees.............. 130,106 48,341 41,343 50,322 71,734 375,541 292,609
Other............... 40,484 13,842 15,620 30,919 35,399 218,581 112,060
--------- --------- --------- ---------- ---------- ----------- -----------
Subtotal........ 1,400,201 427,624 458,045 613,302 1,041,169 5,049,612 4,190,298
Shareholder
servicing and
distribution fees
(Note 5):
Class A Shares.... 353,950 108,864 128,956 108,968 203,577 1,092,257 850,156
Class B Shares.... 2,609 724 1,066 32,658 13,843 180,758 208,938
Class S Shares.... 138,880 2,624 103 57,238 21,976 143,697 88,767
Fees waived and/or
expenses absorbed
by investment
advisor and
administrator
(Note 3).......... (771,684) (162,368) (148,062) (348,098) (529,448) (2,896,457) (1,606,290)
Fees reduced by
credits allowed by
the custodian
(Note 3).......... (7,013) (1,565) -- (2,273) (808) (45,546) (1,548)
--------- --------- --------- ---------- ---------- ----------- -----------
Total expenses
before
interest
expense....... 1,116,943 375,903 440,108 461,795 750,309 3,524,321 3,730,321
--------- --------- --------- ---------- ---------- ----------- -----------
Interest expense
(Note 6).......... -- -- -- -- -- 582,417 --
--------- --------- --------- ---------- ---------- ----------- -----------
Total
expenses...... 1,116,943 375,903 440,108 461,795 750,309 4,106,738 3,730,321
--------- --------- --------- ---------- ---------- ----------- -----------
NET INVESTMENT
INCOME/(LOSS)..... 7,744,947 2,059,511 1,519,495 3,201,796 5,710,992 34,192,850 26,520,261
--------- --------- --------- ---------- ---------- ----------- -----------
NET REALIZED AND
UNREALIZED
GAIN/(LOSS) ON
INVESTMENTS
(Notes 2 and 6):
Realized gain/(loss)
from:
Security
transactions.... 1,087 (4,208) 87 (336,498) (312,843) (2,605,006) (4,000,643)
Forward foreign
currency
contracts
and foreign
currency
transactions.... -- -- -- (1,593) (2,645,891) -- --
Futures
contracts....... -- -- -- (25,171) -- (1,173,449) --
Written options... -- -- -- (14,410) 1,988,647 -- --
Net change in
unrealized
appreciation/
(depreciation) of:
Securities........ -- -- -- (538,023) (220,441) (9,885,671) (8,362,491)
Forward foreign
currency
contracts....... -- -- -- -- 3,911,295 -- --
Foreign currency,
written options,
futures
contracts and
other assets and
liabilities..... -- -- -- (128,581) (80,386) (489,868) --
--------- --------- --------- ---------- ---------- ----------- -----------
Net realized and
unrealized
gain/(loss) on
investments....... 1,087 (4,208) 87 (1,044,276) 2,640,381 (14,153,994) (12,363,134)
--------- --------- --------- ---------- ---------- ----------- -----------
NET INCREASE IN NET
ASSETS
RESULTING FROM
OPERATIONS........ $7,746,034 $2,055,303 $1,519,582 $ 2,157,520 $8,351,373 $ 20,038,856 $ 14,157,127
========== ========== ========== =========== ========== ============ ============
</TABLE>
See Notes to Financial Statements.
FS-6
<PAGE> 279
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
FLORIDA INSURED
CALIFORNIA INSURED INTERMEDIATE NATIONAL GROWTH AND EMERGING
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL INCOME GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
----------- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ -- $ 4,555,693 $ 1,461,112 $ 1,282,705
-- -- -- -- (26,222) (49,435) (25,615)
26,386,887 2,097,410 3,826,684 17,066,807 409,112 1,250,902 522,558
-- -- -- -- -- -- --
-- -- -- -- -- -- --
----------- ---------- ---------- ----------- ----------- ----------- -----------
26,386,887 2,097,410 3,826,684 17,066,807 4,938,583 2,662,579 1,779,648
----------- ---------- ---------- ----------- ----------- ----------- -----------
2,233,979 201,769 393,599 1,418,103 1,769,245 2,023,665 2,464,903
1,421,623 128,399 250,472 902,429 809,686 769,573 994,372
27,250 7,946 14,367 6,678 22,999 50,827 33,038
66,287 22,378 25,770 53,575 48,969 43,230 52,472
12,994 1,172 2,310 8,218 7,460 7,098 9,437
-- 13,143 1,622 -- -- 11,618 --
4,972 31,359 32,360 13,214 59,117 60,179 87,491
314,765 25,869 61,676 198,740 199,060 183,309 248,724
128,301 13,504 30,634 88,090 65,360 61,345 75,613
----------- ---------- ---------- ----------- ----------- ----------- -----------
4,210,171 445,539 812,810 2,689,047 2,981,896 3,210,844 3,966,050
982,698 79,701 137,766 629,965 475,235 433,346 596,859
130,879 47,938 164,456 58,399 144,106 152,906 175,798
111 110 112 110 268,342 312,489 277,830
(1,398,796) (296,536) (454,944) (645,198) -- -- --
(27,250) (7,946) (14,367) (6,678) (3,305) (15,835) (10,408)
----------- ---------- ---------- ----------- ----------- ----------- -----------
3,897,813 268,806 645,833 2,725,645 3,866,274 4,093,750 5,006,129
----------- ---------- ---------- ----------- ----------- ----------- -----------
-- -- -- -- -- -- --
----------- ---------- ---------- ----------- ----------- ----------- -----------
3,897,813 268,806 645,833 2,725,645 3,866,274 4,093,750 5,006,129
----------- ---------- ---------- ----------- ----------- ----------- -----------
22,489,074 1,828,604 3,180,851 14,341,162 1,072,309 (1,431,171) (3,226,481)
----------- ---------- ---------- ----------- ----------- ----------- -----------
1,562,145 223,803 506,699 1,820,935 38,695,226 45,059,178 38,787,429
-- -- -- -- (60) 344,548 (180,346)
49,090 (57,904) (65,939) (1,296,125) -- -- --
-- -- -- 51,255 -- -- --
1,407,766 688,756 381,603 2,355,712 4,454,639 4,062,975 48,545,776
-- -- -- -- -- 184,827 (7,972)
(272,682) -- -- (678,932) -- (453,656) (9,832)
----------- ---------- ---------- ----------- ----------- ----------- -----------
2,746,319 854,655 822,363 2,252,845 43,149,805 49,197,872 87,135,055
----------- ---------- ---------- ----------- ----------- ----------- -----------
$25,235,393 $2,683,259 $4,003,214 $16,594,007 $44,222,114 $47,766,701 $83,908,574
=========== ========== ========== =========== =========== =========== ===========
<CAPTION>
TARGET
INTERNATIONAL MATURITY
GROWTH 2002
FUND FUND
------------- ---------
<S> <C> <C>
$ 2,483,189 $ --
(284,585) --
490,034 198,898
(973) --
-- --
------------ --------
2,687,665 198,898
------------ --------
1,062,220 7,915
422,563 11,080
75,082 2,472
50,232 18,747
4,023 101
-- 11,757
50,182 16,614
101,778 2,526
74,052 1,736
----------- --------
1,840,132 72,948
240,623 7,915
31,371 --
213,460 --
-- (58,774)
(5,593) (2,430)
----------- --------
2,319,993 19,659
----------- --------
-- --
----------- --------
2,319,993 19,659
----------- --------
367,672 179,239
----------- --------
1,935,028 6,184
4,600,981 --
-- --
-- --
7,169,283 (105,710)
726,143 --
2,164 --
----------- --------
14,433,599 (99,526)
----------- --------
$14,801,271 $ 79,713
=========== ========
</TABLE>
See Notes to Financial Statements.
FS-7
<PAGE> 280
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
SIERRA TRUST FUNDS
FOR THE YEAR ENDED JUNE 30, 1996
<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>
Net investment
income/(loss)... $ 7,744,947 $ 2,059,511 $ 1,519,495 $ 3,201,796 $ 5,710,992 $ 34,192,850 $ 26,520,261
Net realized
gain/(loss) on
invest-
ments sold,
forward
foreign
currency
contracts,
foreign
currency
transactions,
futures
contracts and
closed written
options during
the year...... 1,087 (4,208) 87 (377,672) (970,087) (3,778,455) (4,000,643)
Net unrealized
appreciation/
(depreciation)
of investments,
forward
foreign
currency
contracts,
foreign
currency,
futures
contracts,
written
options and
other assets
and
liabilities
during the
year.......... -- -- -- (666,604) 3,610,468 (10,375,539) (8,362,491)
------------ ----------- ----------- ----------- ------------ ------------ ------------
Net increase in
net assets
resulting from
operations.... 7,746,034 2,055,303 1,519,582 2,157,520 8,351,373 20,038,856 14,157,127
Distributions to
shareholders
from:
Net investment
income:
Class A
Shares.... (7,159,606) (2,041,798) (1,517,163) (2,639,086) (5,494,977) (30,531,601) (24,434,855)
Class B
Shares.... (11,198) (3,454) (2,251) (174,411) (86,193) (1,121,623) (1,340,683)
Class S
Shares.... (592,142) (12,141) (914) (298,588) (129,822) (880,081) (571,737)
Distributions
in excess of
net
investment
income:
Class A
Shares.... -- -- -- -- (531,573) -- --
Class B
Shares.... -- -- -- -- (9,037) -- --
Class S
Shares.... -- -- -- -- (14,346) -- --
Net realized
gains on
investments:
Class A
Shares.... (15,528) -- -- -- -- -- --
Class B
Shares.... (29) -- -- -- -- -- --
Class S
Shares.... (1,523) -- -- -- -- -- --
Capital (Note
2):
Class A
Shares.... -- -- -- (52,911) -- -- (159,061)
Class B
Shares.... -- -- -- (3,964) -- -- (9,773)
Class S
Shares.... -- -- -- (6,948) -- -- (4,152)
Net increase/
(decrease)
in net assets
from Fund
share
transactions:
Class A
Shares.... 43,695,697 (8,459,449) 2,376,197 (10,594,238) (40,267,647) (25,372,120) (74,157,839)
Class B
Shares.... 181,339 (11,021) 68,438 482,280 271,396 13,704,112 10,428,783
Class S
Shares.... 13,562,225 (298,215) 227 1,409,207 (127,202) 29,327,645 3,739,025
------------ ----------- ----------- ----------- ------------ ------------ ------------
Net increase/
(decrease)
in net
assets........ 57,405,269 (8,770,775) 2,444,116 (9,721,139) (38,038,028) 5,165,188 (72,353,165)
NET ASSETS:
Beginning of
year.......... 117,651,115 48,352,100 48,924,696 49,128,865 107,569,416 477,452,133 407,487,484
------------ ----------- ----------- ----------- ------------ ------------ ------------
End of year..... $175,056,384 $39,581,325 $51,368,812 $ 39,407,726 $ 69,531,388 $482,617,321 $335,134,319
============ =========== =========== ============ ============ ============ ============
Undistributed
net investment
income/(accumulated
net investment
loss /distributions
in excess of
net investment
income) at end
of year....... $ 8,033 $ 7,444 $ 2,363 $ (60,622) $ (209,594) $ 5,733 $ (1,086,967)
============ =========== =========== ============ ============ ============ ============
</TABLE>
- ---------------------
+ Represents accumulated net investment loss.
See Notes to Financial Statements.
FS-8
<PAGE> 281
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
FLORIDA INSURED
CALIFORNIA INSURED INTERMEDIATE NATIONAL GROWTH AND EMERGING
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL INCOME GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
------------ ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 22,489,074 $ 1,828,604 $ 3,180,851 $ 14,341,162 $ 1,072,309 $ (1,431,171) $ (3,226,481)
1,611,235 165,899 440,760 576,065 38,695,166 45,403,726 38,607,083
1,135,084 688,756 381,603 1,676,780 4,454,639 3,794,146 48,527,972
------------ ----------- ----------- ------------ ------------ ------------ ------------
25,235,393 2,683,259 4,003,214 16,594,007 44,222,114 47,766,701 83,908,574
(21,866,901) (1,628,539) (2,545,490) (14,065,960) (1,085,188) -- --
(626,640) (207,585) (635,016) (281,673) (3,403) -- --
(533) (480) (435) (529) (6,969) -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- (228,143) -- (13,503,328) (21,692,930) (9,918,927)
-- -- (63,002) -- (940,597) (1,672,535) (667,520)
-- -- (47) -- (1,874,729) (3,964,701) (1,150,942)
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
(36,668,868) (4,691,281) (534,327) (37,924,473) (9,476,108) 7,653,290 36,111,196
13,450,075 2,048,994 8,572,391 2,018,598 15,589,484 16,910,255 14,676,449
550 500 495 554 12,104,463 25,017,241 25,583,609
------------ ----------- ----------- ------------ ------------ ------------ ------------
(20,476,924) (1,795,132) 8,569,640 (33,659,476) 45,025,739 70,017,321 148,542,439
413,207,739 37,055,060 66,907,929 273,829,485 191,462,976 180,421,716 207,769,476
------------ ----------- ----------- ------------ ------------ ------------ ------------
$392,730,815 $35,259,928 $ 75,477,569 $240,170,009 $236,488,715 $250,439,037 $356,311,915
============ =========== ============ ============ ============ ============ ============
$ 11,641 $ 35,177 $ 2,768 $ 39,645 $ -- $ (165,570)+ $ 322,571
============ =========== ============ ============ ============ ============ ============
<CAPTION>
INTERNATIONAL TARGET
GROWTH MATURITY
FUND 2002 FUND
------------ ---------
<S> <C><C> <C>
$ 367,672 $ 179,239
6,536,009 6,184
7,897,590 (105,710)
------------- ----------
14,801,271 79,713
(342,384) (116,707)
(3,408) --
(21,880) --
(387,700) --
(12,636) --
(85,984) --
(3,697,036) --
(128,323) --
(780,562) --
-- --
-- --
-- --
16,833,441 535,878
1,980,810 --
26,294,322 --
------------- ----------
54,449,931 498,884
105,150,860 2,625,818
------------- ----------
$ 159,600,791 $3,124,702
============= ==========
$ 1,605,235 $ 102,422
============= ==========
</TABLE>
See Notes to Financial Statements.
FS-9
<PAGE> 282
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
SIERRA TRUST FUNDS
FOR THE YEAR ENDED JUNE 30, 1995
<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>
Net investment
income/(loss)... $ 4,327,076 $ 1,780,115 $ 1,467,379 $ 3,274,272 $ 11,864,314 $ 39,386,893 $ 33,780,248
Net realized
gain/(loss) on
investments sold,
forward foreign
currency
contracts,
foreign currency
transactions,
futures contracts
and closed
written options
during the
year............. 21,401 (2,254) (20,162) (2,579,188) (11,992,927) (54,757,067) (28,272,871)
Net unrealized
appreciation/
(depreciation) of
investments,
forward foreign
currency
contracts,
foreign currency,
futures
contracts,
written options
and other assets
and liabilities
during the
year............. -- -- -- 1,061,733 2,985,927 61,068,404 51,363,673
------------ ----------- ----------- ----------- ------------ ------------ ------------
Net increase/
(decrease)
in net assets
resulting from
operations....... 4,348,477 1,777,861 1,447,217 1,756,817 2,857,314 45,698,230 56,871,050
Distributions to
shareholders
from:
Net investment
income:
Class A
Shares....... (4,191,083) (1,774,474) (1,465,972) (1,572,815) (1,108,181) (37,939,401) (27,582,318)
Class B
Shares....... (6,712) (1,037) (1,205) (51,308) (518) (403,591) (436,090)
Class S
Shares....... (127,884) (4,604) (202) (44,015) (648) (205,850) (284,731)
Distributions in
excess of net
investment
income:
Class A
Shares....... -- -- -- (1,368,026) (440,172) -- (3,754,869)
Class B
Shares....... -- -- -- (57,854) (206) -- (68,516)
Class S
Shares....... -- -- -- (50,627) (259) -- (44,607)
Net realized
gains on
investments:
Class A
Shares....... (1,350) -- -- -- -- -- --
Class B
Shares....... (2) -- -- -- -- -- --
Class S
Shares....... (45) -- -- -- -- -- --
Distributions in
excess of net
realized gains
on investments:
Class A
Shares....... -- -- -- -- (616,469) -- --
Class B
Shares....... -- -- -- -- (3,918) -- --
Class S
Shares....... -- -- -- -- (7,731) -- --
Capital (Note 2):
Class A
Shares....... -- -- -- (65,223) (8,263,524) -- (1,452,137)
Class B
Shares....... -- -- -- (2,758) (52,527) -- (26,497)
Class S
Shares....... -- -- -- (2,414) (103,627) -- (17,251)
Net increase/
(decrease)
in net assets
from Fund share
transactions:
Class A
Shares....... 56,025,698 17,314,506 (13,644,611) 23,435,197 (109,220,929) (213,296,316) (110,542,297)
Class B
Shares....... 240,444 122,740 78,827 3,026,900 1,341,558 10,370,819 14,144,330
Class S
Shares....... 7,390,600 737,108 10,203 2,354,086 2,365,311 6,662,705 8,162,654
------------ ----------- ----------- ----------- ------------ ------------ ------------
Net increase/
(decrease)
in net assets.... 63,678,143 18,172,100 (13,575,743) 27,357,960 (113,254,526) (189,113,404) (65,031,279)
NET ASSETS:
Beginning of
year............. 53,972,972 30,180,000 62,500,439 21,770,905 220,823,942 666,565,537 472,518,763
------------ ----------- ----------- ----------- ------------ ------------ ------------
End of year........ $117,651,115 $48,352,100 $ 48,924,696 $49,128,865 $ 107,569,416 $ 477,452,133 $ 407,487,484
============ =========== ============ =========== ============= ============= =============
Undistributed net
investment
income/(accumulated
net investment
loss/distributions
in excess of net
investment
income) at end of
year............. $ 26,032 $ 5,326 $ 3,196 $ (60,186) $ 1,813,191 $ 3,118 $ (1,086,967)
============ =========== ============ =========== ============= ============= =============
</TABLE>
- ---------------------
* The Target Maturity 2002 Fund commenced operations on March 20, 1995.
# Amount represents less than $1.00.
+ Represents accumulated net investment loss.
See Notes to Financial Statements.
FS-10
<PAGE> 283
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
FLORIDA INSURED
CALIFORNIA INSURED INTERMEDIATE NATIONAL GROWTH AND EMERGING
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL INCOME GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
------------ ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 25,870,424 $ 1,999,264 $ 2,816,965 $ 18,063,121 $ 1,817,413 $ 336,008 $ (550,525)
(4,641,450) (1,755,884) 65,027 (8,590,608) 11,539,202 17,615,980 3,026,460
7,744,208 1,600,492 2,019,396 7,239,910 17,468,762 25,111,808 29,092,221
------------- ----------- ------------ ------------ ------------ ------------ ------------
28,973,182 1,843,872 4,901,388 16,712,423 30,825,377 43,063,796 31,568,156
(25,700,052) (1,911,228) (2,488,884) (17,947,581) (1,744,256) (162,651) --
(163,977) (87,257) (327,566) (126,501) (19,234) (894) --
(544) (486) (433) (526) (42,887) (1,598) --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
(5,670) -- -- (307,407) (10,906,199) (3,749) (3,353,075)
(42) -- -- (2,881) (178,420) (71) (103,364)
(0)# -- -- (11) (521,173) (226) (68,962)
-- -- -- (2,475,316) -- -- --
-- -- -- (23,199) -- -- --
-- -- -- (88) -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
(106,271,233) (4,653,523) 18,663,791 (81,322,337) 28,907,852 (11,458,811) 34,301,173
7,142,339 3,311,767 12,002,591 4,811,084 6,481,529 6,067,316 9,447,809
10,293 10,496 10,443 10,635 13,411,643 16,110,339 11,037,190
------------- ----------- ------------ ------------ ------------ ------------ ------------
(96,015,704) (1,486,359) 32,761,330 (80,671,705) 66,214,232 53,613,451 82,828,927
509,223,443 38,541,419 34,146,599 354,501,190 125,248,744 126,808,265 124,940,549
------------- ----------- ------------ ------------ ------------ ------------ ------------
$ 413,207,739 $37,055,060 $ 66,907,929 $273,829,485 $191,462,976 $180,421,716 $207,769,476
============= =========== ============ ============ ============ ============ ============
$ 7,094 $ 10,724 $ 2,141 $ 9,823 $ 23,311 $ 64,419 $ (35,894)+
============= =========== ============ ============ ============ ============ ============
<CAPTION>
INTERNATIONAL TARGET
GROWTH MATURITY
FUND 2002 FUND*
------------ ----------
<S> <C> <C>
$ 747,107 $ 25,194
1,298,457 (6)
(7,697,847) 113,773
------------ ----------
(5,652,283) 138,961
(492,964) --
(4,215) --
(22,311) --
-- --
-- --
-- --
(5,380,826) --
(67,746) --
(358,790) --
(741,797) --
(9,339) --
(49,463) --
-- --
-- --
-- --
(24,385,190) 2,486,857
2,471,442 --
12,080,098 --
------------ ----------
(22,613,384) 2,625,818
127,764,244 --
------------ ----------
$105,150,860 $2,625,818
============ ==========
$ (2,539,903) $ 28,133
============ ==========
</TABLE>
See Notes to Financial Statements.
FS-11
<PAGE> 284
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS -- CAPITAL STOCK ACTIVITY
SIERRA TRUST FUNDS
FOR THE YEAR ENDED JUNE 30, 1996
<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>
AMOUNT
CLASS A:
Sold.................... $ 489,604,814 $ 472,714,088 $ 46,329,303 $ 45,305,421 $ 6,434,828 $ 91,110,162 $ 47,008,825
Issued as reinvestment
of dividends........... 6,822,621 1,946,590 1,482,501 1,923,361 3,769,772 18,152,728 13,378,553
Redeemed................ (452,731,738) (483,120,127) (45,435,607) (57,823,020) (50,472,247) (134,635,010) (134,545,217)
------------- ------------- ------------ ------------ ------------ ------------- -------------
Net increase/(decrease). $ 43,695,697 $ (8,459,449) $ 2,376,197 $(10,594,238) $(40,267,647) $ (25,372,120) $ (74,157,839)
============= ============= ============ ============ ============ ============= =============
CLASS B:
Sold.................... $ 411,746 $ 216,238 $ 617,620 $ 1,843,435 $ 517,070 $ 16,616,782 $ 15,286,512
Issued as reinvestment
of dividends........... 10,385 2,681 1,524 130,535 65,051 696,997 661,629
Redeemed................ (240,792) (229,940) (550,706) (1,491,690) (310,725) (3,609,667) (5,519,358)
------------- ------------- ------------ ------------ ------------ ------------- -------------
Net increase/(decrease).. $ 181,339 $ (11,021) $ 68,438 $ 482,280 $ 271,396 $ 13,704,112 $ 10,428,783
============= ============= ============ ============ ============ ============= =============
CLASS S:
Sold..................... $ 25,004,949 $ 28,107,716 $ -- $ 17,113,179 $ 2,340,079 $ 30,599,063 $ 9,973,109
Issued as reinvestment
of dividends............ 593,654 8,198 227 256,069 116,648 833,015 509,009
Redeemed............... (12,036,378) (28,414,129) -- (15,960,041) (2,583,929) (2,104,433) (6,743,093)
------------- ------------- ------------ ------------ ------------ ------------- -------------
Net increase/(decrease).. $ 13,562,225 $ (298,215) $ 227 $ 1,409,207 $ (127,202) $ 29,327,645 $ 3,739,025
============= ============= ============ ============ ============ ============= =============
SHARES
CLASS A:
Sold..................... 489,604,814 472,714,088 46,329,303 19,279,499 2,823,498 9,500,727 4,439,689
Issued as reinvestment
of dividends............ 6,822,621 1,946,590 1,482,501 820,274 1,650,964 1,882,759 1,270,593
Redeemed................. (452,731,738) (483,120,127) (45,435,607) (24,720,148) (22,088,752) (13,977,794) (12,778,541)
------------- ------------- ------------ ------------ ------------ ------------- -------------
Net increase/(decrease).. 43,695,697 (8,459,449) 2,376,197 (4,620,375) (17,614,290) (2,594,308) (7,068,259)
============= ============= ============ ============ ============ ============= =============
CLASS B:
Sold..................... 411,746 216,238 617,620 782,937 226,638 1,718,996 1,447,368
Issued as reinvestment
of dividends............ 10,385 2,681 1,524 55,691 28,488 72,444 63,015
Redeemed............... (240,792) (229,940) (550,706) (637,527) (136,155) (377,363) (527,389)
------------- ------------- ------------ ------------ ------------ ------------- -------------
Net increase/(decrease).. 181,339 (11,021) 68,438 201,101 118,971 1,414,077 982,994
============= ============= ============ ============ ============ ============= =============
CLASS S:
Sold..................... 25,004,949 28,107,716 -- 7,296,744 1,025,154 3,217,067 944,929
Issued as reinvestment
of dividends............ 593,654 8,198 227 109,688 51,009 86,865 48,653
Redeemed................. (12,036,378) (28,414,129) -- (6,864,612) (1,128,546) (219,071) (638,205)
------------- ------------- ------------ ------------ ------------ ------------- -------------
Net increase/(decrease).. 13,562,225 (298,215) 227 541,820 (52,383) 3,084,861 355,377
============= ============= ============ ============ ============ ============= =============
</TABLE>
See Notes to Financial Statements.
FS-12
<PAGE> 285
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
FLORIDA INSURED
CALIFORNIA INSURED INTERMEDIATE NATIONAL GROWTH AND EMERGING
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL INCOME GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
----------- ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 34,069,875 $ 5,527,723 $ 11,767,777 $ 67,171,006 $ 130,758,528 $ 264,718,419 $ 386,925,069
14,076,628 801,560 2,095,380 8,267,671 14,421,399 21,025,657 9,724,107
(84,815,371) (11,020,564) (14,397,484) (113,363,150) (154,656,035) (278,090,786) (360,537,980)
----------- ----------- ----------- ------------ ------------ ------------ ------------
$(36,668,868) $ (4,691,281) $ (534,327) $ (37,924,473) $ (9,476,108) $ 7,653,290 $ 36,111,196
=========== =========== =========== ============ ============ ============ ============
$ 15,440,023 $ 3,000,149 $ 10,742,428 $ 3,192,343 $ 16,894,093 $ 17,217,291 $ 16,434,061
454,106 135,115 526,187 163,852 928,373 1,658,263 663,089
(2,444,054) (1,086,270) (2,696,224) (1,337,597) (2,232,982) (1,965,299) (2,420,701)
----------- ----------- ----------- ------------ ------------ ------------ ------------
$ 13,450,075 $ 2,048,994 $ 8,572,391 $ 2,018,598 $ 15,589,484 $ 16,910,255 $ 14,676,449
=========== =========== =========== ============ ============ ============ ============
$ -- $ -- $ -- $ -- $ 27,192,294 $ 36,970,622 $ 31,956,992
550 500 495 554 1,868,391 3,938,760 1,144,027
-- -- -- -- (16,956,222) (15,892,141) (7,517,410)
----------- ----------- ----------- ------------ ------------ ------------ ------------
$ 550 $ 500 $ 495 $ 554 $ 12,104,463 $ 25,017,241 $ 25,583,609
=========== =========== =========== ============ ============ ============ ============
3,184,417 567,167 1,101,756 6,132,609 9,665,189 17,410,639 20,858,749
1,312,377 82,376 195,402 753,398 1,108,522 1,490,125 547,529
(7,935,718) (1,132,188) (1,346,623) (10,348,331) (11,315,736) (18,359,717) (19,340,963)
----------- ----------- ----------- ------------ ------------ ------------ ------------
(3,438,924) (482,645) (49,465) (3,462,324) (542,025) 541,047 2,065,315
=========== =========== =========== ============ ============ ============ ============
1,438,143 307,542 1,002,766 290,339 1,245,754 1,139,184 884,594
42,376 13,875 49,129 14,933 71,847 118,787 37,761
(229,223) (111,655) (252,784) (122,487) (163,885) (128,776) (131,591)
----------- ----------- ----------- ------------ ------------ ------------ ------------
1,251,296 209,762 799,111 182,785 1,153,716 1,129,195 790,764
=========== =========== =========== ============ ============ ============ ============
-- -- -- -- 2,011,945 2,421,489 1,767,771
50 50 44 49 144,483 282,148 65,113
-- -- -- -- (1,200,570) (1,081,090) (407,997)
----------- ----------- ----------- ------------ ------------ ------------ ------------
50 50 44 49 955,858 1,622,547 1,424,887
=========== =========== =========== ============ ============ ============ ============
<CAPTION>
INTERNATIONAL TARGET
GROWTH MATURITY
FUND 2002 FUND
------------- -----------
<C> <C>
$ 176,648,351 $ 966,053
4,387,392 116,033
(164,202,302) (546,208)
------------ --------
$ 16,833,441 $ 535,878
============ ========
$ 2,649,861 --
142,345 --
(811,396) --
1,980,810 --
------------ --------
$ 28,886,599 $ --
============ ========
17,342,075 88,006
442,357 10,379
(16,086,838) (50,572)
------------ --------
1,697,594 47,813
============ ========
260,653 --
14,437 --
(80,125) --
------------ --------
194,965 --
============ ========
2,856,688 --
89,685 --
(342,566) --
------------ --------
2,603,807 --
============ ========
</TABLE>
See Notes to Financial Statements.
FS-13
<PAGE> 286
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS -- CAPITAL STOCK ACTIVITY (CONTINUED)
SIERRA TRUST FUNDS
FOR THE YEAR ENDED JUNE 30, 1995*
<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>
AMOUNT
CLASS A:
Sold..................... $ 344,061,728 $ 273,679,428 $ 50,256,138 $ 73,205,642 $ 45,922,545 $ 69,309,832 $ 84,545,315
Issued as reinvestment
of dividends........... 3,910,296 1,667,813 1,414,049 2,310,310 6,782,801 22,425,147 19,301,502
Redeemed................. (291,946,326) (258,032,735) (65,314,798) (52,080,755) (161,926,275) (305,031,295) (214,389,114)
------------- ------------- ------------ ------------ ------------- ------------- -------------
Net increase/(decrease).. $ 56,025,698 $ 17,314,506 $(13,644,611) $ 23,435,197 $(109,220,929) $(213,296,316) $(110,542,297)
============= ============= ============ ============ ============= ============= =============
CLASS B:
Sold..................... $ 357,829 $ 296,191 $ 157,149 $ 3,748,540 $ 1,726,835 $ 12,281,469 $ 15,366,569
Issued as reinvestment
of dividends........... 6,413 543 926 78,815 37,544 243,129 237,120
Redeemed................. (123,798) (173,994) (79,248) (800,455) (422,821) (2,153,779) (1,459,359)
------------- ------------- ------------ ------------ ------------- ------------- -------------
Net increase............. $ 240,444 $ 122,740 $ 78,827 $ 3,026,900 $ 1,341,558 $ 10,370,819 $ 14,144,330
============= ============= ============ ============ ============= ============= =============
CLASS S:
Sold..................... $ 7,747,143 $ 7,486,699 $ 10,001 $ 5,178,997 $ 6,328,952 $ 7,777,250 $ 10,617,936
Issued as reinvestment
of dividends........... 127,561 1,752 202 86,181 90,872 181,744 309,996
Redeemed................. (484,104) (6,751,343) -- (2,911,092) (4,054,513) (1,296,289) (2,765,278)
------------- ------------- ------------ ------------ ------------- ------------- -------------
Net increase............. $ 7,390,600 $ 737,108 $ 10,203 $ 2,354,086 $ 2,365,311 $ 6,662,705 $ 8,162,654
============= ============= ============ ============ ============= ============= =============
SHARES
CLASS A:
Sold..................... 344,061,728 273,679,428 50,256,138 30,949,418 20,232,716 7,363,825 8,733,946
Issued as reinvestment
of dividends........... 3,910,296 1,667,813 1,414,049 887,524 2,977,677 2,386,233 1,821,240
Redeemed................. (291,946,326) (258,032,735) (65,314,798) (22,359,364) (71,314,635) (32,671,743) (21,974,395)
------------- ------------- ------------ ------------ ------------- ------------- -------------
Net increase/(decrease).. 56,025,698 17,314,506 (13,644,611) 9,477,578 (48,104,242) (22,921,685) (11,419,209)
============= ============= ============ ============ ============= ============= =============
CLASS B:
Sold..................... 357,829 296,191 157,149 1,593,248 750,403 1,306,396 1,563,762
Issued as reinvestment
of dividends........... 6,413 543 926 33,809 16,494 25,853 23,718
Redeemed................. (123,798) (173,994) (79,248) (345,485) (188,750) (230,868) (148,365)
------------- ------------- ------------ ------------ ------------- ------------- -------------
Net increase............. 240,444 122,740 78,827 1,281,572 578,147 1,101,381 1,439,115
============= ============= ============ ============ ============= ============= =============
CLASS S:
Sold..................... 7,747,143 7,486,699 10,001 2,214,031 2,785,355 827,576 1,081,002
Issued as reinvestment
of dividends........... 127,561 1,752 202 32,824 40,467 19,254 31,136
Redeemed................. (484,104) (6,751,343) -- (1,266,129) (1,806,608) (139,311) (285,365)
------------- ------------- ------------ ------------ ------------- ------------- -------------
Net increase............. 7,390,600 737,108 10,203 980,726 1,019,214 707,519 826,773
============= ============= ============ ============ ============= ============= =============
</TABLE>
- ---------------------
* The Funds, with the exception of the Target Maturity 2002 Fund, commenced
selling Class B and Class S shares, in addition to Class A shares, on July 1,
1994. Shares in existence prior to July 1, 1994 were designated Class A
shares.
** The Target Maturity 2002 Fund commenced operations on March 20, 1995.
See Notes to Financial Statements.
FS-14
<PAGE> 287
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
FLORIDA INSURED
CALIFORNIA INSURED INTERMEDIATE NATIONAL GROWTH AND EMERGING
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL INCOME GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
------------ ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 38,869,621 $ 10,025,936 $ 36,674,526 $ 71,622,721 $116,297,145 $ 164,790,182 $ 179,661,800
17,229,951 1,021,929 1,852,989 13,219,823 12,504,774 162,293 3,319,792
(162,370,805) (15,701,388) (19,863,724) (166,164,881) (99,894,067) (176,411,286) (148,680,419)
------------- ------------ ------------ ------------- ------------ ------------- -------------
$(106,271,233) $ (4,653,523) $ 18,663,791 $ (81,322,337) $ 28,907,852 $ (11,458,811) $ 34,301,173
============= ============ ============ ============= ============ ============= =============
$ 8,026,398 $ 3,929,427 $ 12,946,924 $ 5,518,679 $ 6,743,410 $ 6,556,661 $ 10,064,567
119,111 48,332 240,887 99,508 192,797 949 102,495
(1,003,170) (665,992) (1,185,220) (807,103) (454,678) (490,294) (719,253)
------------- ------------ ------------ ------------- ------------ ------------- -------------
$ 7,142,339 $ 3,311,767 $ 12,002,591 $ 4,811,084 $ 6,481,529 $ 6,067,316 $ 9,447,809
============= ============ ============ ============= ============ ============= =============
$ 67,177 $ 10,009 $ 10,010 $ 10,011 $ 15,883,019 $ 17,991,509 $ 11,489,038
517 487 433 624 561,220 1,814 68,743
(57,401) -- -- -- (3,032,596) (1,882,984) (520,591)
------------- ------------ ------------ ------------- ------------ ------------- -------------
$ 10,293 $ 10,496 $ 10,443 $ 10,635 $ 13,411,643 $ 16,110,339 $ 11,037,190
============= ============ ============ ============= ============ ============= =============
4,096,004 1,063,315 3,620,035 6,984,325 9,909,988 13,826,099 12,646,514
1,674,938 109,635 182,396 1,242,336 1,152,061 13,834 237,123
(16,298,541) (1,698,306) (1,968,744) (15,898,135) (8,616,524) (14,745,441) (10,478,150)
------------- ------------ ------------ ------------- ------------ ------------- -------------
(10,527,599) (525,356) 1,833,687 (7,671,474) 2,445,525 (905,508) 2,405,487
============= ============ ============ ============= ============ ============= =============
772,943 419,443 1,279,374 512,482 572,323 530,090 707,285
11,516 5,167 23,589 9,376 17,815 81 7,342
(97,929) (71,352) (117,783) (76,981) (38,837) (38,941) (50,475)
------------- ------------ ------------ ------------- ------------ ------------- -------------
686,530 353,258 1,185,180 444,877 551,301 491,230 664,152
============= ============ ============ ============= ============ ============= =============
6,680 1,065 990 923 1,356,937 1,478,376 801,685
50 52 43 58 51,894 155 4,924
(5,715) -- -- -- (264,174) (150,699) (36,474)
------------- ------------ ------------ ------------- ------------ ------------- -------------
1,015 1,117 1,033 981 1,144,657 1,327,832 770,135
============= ============ ============ ============= ============ ============= =============
<CAPTION>
INTERNATIONAL TARGET
GROWTH MATURITY
FUND 2002 FUND**
------------ -----------
<S> <C> <C>
$ 135,148,440 $2,509,448
6,547,275 --
(166,080,905) (22,591)
------------- ----------
$ (24,385,190) $2,486,857
============= ==========
$ 2,801,600 --
80,533 --
(410,691) --
------------- ----------
$ 2,471,442 --
============= ==========
$ 16,175,188 --
428,494 --
(4,523,584) --
------------- ----------
$ 12,080,098 --
============= ==========
13,257,566 245,738
655,962 --
(16,425,569) (2,170)
------------- ----------
(2,512,041) 243,568
============= ==========
267,274 --
8,096 --
(42,313) --
------------- ----------
233,057 --
============= ==========
1,562,186 --
43,089 --
(462,461) --
------------- ----------
1,142,814 --
============= ==========
</TABLE>
See Notes to Financial Statements.
FS-15
<PAGE> 288
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
U.S. GOVERNMENT FUND
YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Cash used for financing activities:
Proceeds from capital shares sold............................................ $ 138,005,731
Payments on capital shares redeemed.......................................... (140,189,475)
---------------
Cash used for capital share transactions..................................... (2,183,744)
Dividends and distributions paid in cash..................................... (13,058,012)
Net proceeds on dollar roll transactions..................................... 118,756,979
Net payments for reverse repurchase agreements............................... (105,594,950)
Interest paid on reverse repurchase agreements............................... (713,719)
---------------
$(2,793,446)
Cash provided by operations:
Purchases of long-term portfolio securities.................................. (1,641,802,460)
Net purchases of short-term investments...................................... (34,521,572)
Proceeds from sales of long-term portfolio securities........................ 1,641,812,210
Net payments for futures transactions........................................ (1,173,449)
Variation margin for futures transactions.................................... 685,132
---------------
(35,000,139)
---------------
Net investment income........................................................ 34,192,850
Net change in receivables/payables related to operations..................... 3,849,149
---------------
38,041,999
---------------
3,041,860
-----------
Net increase in cash........................................................... 248,414
Cash at beginning of year...................................................... 60,222
-----------
Cash at end of year............................................................ $ 308,636
===========
</TABLE>
See Notes to Financial Statements.
FS-16
<PAGE> 289
- --------------------------------------------------------------------------------
CORPORATE INCOME FUND
YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Cash used for financing activities:
Proceeds from capital shares sold........................................... $ 72,592,573
Payments on capital shares redeemed......................................... (145,511,623)
-------------
Cash used for capital share transactions.................................... (72,919,050)
Dividends and distributions paid in cash.................................... (12,156,020)
Net payments on dollar roll transactions.................................... (22,326,170)
-------------
$(107,401,240)
Cash provided by operations:
Purchases of long-term portfolio securities................................. (92,392,156)
Net proceeds from sales of short-term investments........................... 4,697,185
Proceeds from sales of long-term portfolio securities....................... 167,768,303
-------------
80,073,332
-------------
Net investment income....................................................... 26,520,261
Net change in receivables/payables related to operations.................... 807,647
-------------
27,327,908
-------------
107,401,240
-------------
Net increase in cash.......................................................... 0
Cash at beginning of year..................................................... 0
-------------
Cash at end of year........................................................... $ 0
=============
</TABLE>
See Notes to Financial Statements.
FS-17
<PAGE> 290
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
GLOBAL MONEY FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
------------------------------------------------------------- ---------------------- ----------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96 06/30/95 06/30/94 06/30/93 06/30/92 06/30/96 06/30/95* 06/30/96 06/30/95*
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning
of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS:
Net
investment
income..... 0.051 0.049 0.030 0.031 0.048 0.043 0.042 0.043 0.042
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations... 0.051 0.049 0.030 0.031 0.048 0.043 0.042 0.043 0.042
LESS
DISTRIBUTIONS:
Dividends
from net
investment
income..... (0.051) (0.049) (0.030) (0.031) (0.048) (0.043) (0.042) (0.043) (0.042)
-------- ------- ------- ------- ------- ------- ------- ------- ------
Total
distributions (0.051) (0.049) (0.030) (0.031) (0.048) (0.043) (0.042) (0.043) (0.042)
-------- ------- ------- ------- ------- ------- ------- ------- ------
Realized gain
on
investments
distributed
to
shareholders (0.000)# (0.000)# (0.000)# -- -- (0.000)# (0.000)# (0.000)# (0.000)#
-------- ------- ------- ------- ------- ------- ------- ------- ------
Net asset
value, end
of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN+ 5.22% 5.06% 3.04% 3.17% 4.95% 4.40% 4.29% 4.40% 4.29%
======== ======= ======= ======= ======= ======= ======= ======= =======
RATIOS TO
AVERAGE NET
ASSETS/
SUPPLEMENTAL
DATA:
Net assets,
end of year
(in 000's).. $153,786 $110,012 $53,973 $48,283 $71,492 $422 $241 $20,848 $7,399
Ratio of
operating
expenses to
average net
assets..... 0.65% 0.54% 0.45% 0.41% 0.42% 1.40% 1.29% 1.40% 1.29%
Ratio of net
investment
income to
average net
assets..... 5.04% 5.08% 2.99% 3.15% 4.90% 4.29% 4.33% 4.29% 4.33%
Ratio of
operating
expenses to
average net
assets
without
fees
reduced by
credits
allowed by
the
custodian.. 0.65%(a) N/A N/A N/A N/A 1.40%(a) N/A 1.40%(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.. 1.15%(a) 1.18% 1.35% 1.32% 1.34% 1.90%(a) 1.93% 1.90%(a) 1.93%
Net
investment
income per
share
without fee
waivers,
expenses
absorbed
and/or fees
reduced by
credits
allowed by
the
custodian.. $ 0.046 $ 0.043 $ 0.021 $ 0.022 $ 0.039 $ 0.038 $ 0.036 $ 0.038 $ 0.036
</TABLE>
- ---------------------
* On July 1, 1994 the Fund 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.
+ Total return represents aggregate total return for the periods indicated.
The total returns would have been lower if certain fees had not been waived
and/or expenses absorbed by the investment advisor, administrator and/or
distributor or if fees had not been reduced by credits allowed by the
custodian.
# Amount represents less than $0.001 per share.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
FS-18
<PAGE> 291
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT MONEY FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
------------------------------------------------------------- ---------------------- ----------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96 06/30/95 06/30/94 06/30/93 06/30/92 06/30/96 06/30/95* 06/30/96 06/30/95*
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning
of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS:
Net
investment
income..... 0.047 0.046 0.027 0.027 0.042 0.040 0.038 0.040 0.038
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations... 0.047 0.046 0.027 0.027 0.042 0.040 0.038 0.040 0.038
LESS
DISTRIBUTIONS:
Dividends
from net
investment
income..... (0.047) (0.046) (0.027) (0.027) (0.042) (0.040) (0.038) (0.040) (0.038)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions.. (0.047) (0.046) (0.027) (0.027) (0.042) (0.040) (0.038) (0.040) (0.038)
------- ------- ------- ------- ------- ------- ------- ------- -------
Realized gain
on
investments
distributed
to
shareholders.. -- -- -- -- 0.002 -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset
value, end
of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN+ 4.81% 4.67% 2.67% 2.70% 4.45% 4.02% 3.91% 4.02% 3.91%
======= ======= ======= ======= ======= ======= ======= ======= =======
RATIOS TO
AVERAGE NET
ASSETS/
SUPPLEMENTAL
DATA:
Net assets,
end of year
(in 000's). $39,031 $47,492 $30,180 $36,802 $44,233 $112 $123 $439 $737
Ratio of
operating
expenses to
average net
assets..... 0.85% 0.85% 0.85% 0.85% 0.85% 1.60% 1.60% 1.60% 1.60%
Ratio of net
investment
income to
average net
assets..... 4.70% 4.63% 2.68% 2.69% 4.43% 3.95% 3.88% 3.95% 3.88%
Ratio of
operating
expenses to
average net
assets
without
fees
reduced by
credits
allowed by
the
custodian.. 0.85%(a) N/A N/A N/A N/A 1.60%(a) N/A 1.60%(a) N/A
Ratio of
operating
expenses to
average net
assets
without fee
waivers
and/or fees
reduced by
credits
allowed by
the
custodian.. 1.22%(a) 1.25% 1.32% 1.34% 1.35% 1.97%(a) 2.00% 1.97%(a) 2.00%
Net
investment
income per
share
without fee
waivers
and/or fees
reduced by
credits
allowed by
the
custodian.. $ 0.043 $ 0.042 $ 0.022 $ 0.022 $ 0.037 $ 0.036 $ 0.034 $ 0.036 $ 0.034
</TABLE>
- ---------------------
* On July 1, 1994 the Fund 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.
+ Total return represents aggregate total return for the periods indicated.
The total returns would have been lower if certain fees had not been waived
by the investment advisor, administrator and/or distributor or if fees had
not been reduced by credits allowed by the custodian.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
FS-19
<PAGE> 292
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CALIFORNIA MONEY FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
-------------------------------------------------------- --------------------- ---------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96 06/30/95 06/30/94 06/30/93 06/30/92 06/30/96 06/30/95* 06/30/96 06/30/95*
-------- -------- -------- -------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income............. 0.029 0.028 0.018 0.021 0.033 0.022 0.020 0.022 0.020
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations......... 0.029 0.028 0.018 0.021 0.033 0.022 0.020 0.022 0.020
LESS DISTRIBUTIONS:
Dividends from net
investment
income............. (0.029) (0.028) (0.018) (0.021) (0.033) (0.022) (0.020) (0.022) (0.020)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions...... (0.029) (0.028) (0.018) (0.021) (0.033) (0.022) (0.020) (0.022) (0.020)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end
of year............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN+ 3.00% 2.79% 1.81% 2.07% 3.35% 2.22% 2.04% 2.22% 2.04%
======= ======= ======= ======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in 000's).... $51,211 $48,836 $62,500 $68,404 $94,607 $147 $79 $10 $10
Ratio of operating
expenses to average
net assets......... 0.85% 0.85% 0.85% 0.85% 0.85% 1.60% 1.60% 1.60% 1.60%
Ratio of net
investment income
to average net
assets............. 2.94% 2.73% 1.80% 2.06% 3.31% 2.19% 1.98% 2.19% 1.98%
Ratio of operating
expenses to average
net assets without
fee waivers........ 1.14% 1.15% 1.27% 1.29% 1.28% 1.89% 1.90% 1.89% 1.90%
Net investment income
per share without
fee waivers........ $ 0.026 $ 0.025 $ 0.014 $ 0.016 $ 0.029 $ 0.019 $ 0.017 $ 0.019 $ 0.017
</TABLE>
- ---------------------
* On July 1, 1994 the Fund 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.
+ Total return represents aggregate total return for the periods indicated. The
total returns would have been lower if certain fees had not been waived by the
investment advisor, administrator and/or distributor.
FS-20
<PAGE> 293
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SHORT TERM HIGH QUALITY BOND FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
----------------------------------- ----------------------- -----------------------
YEAR YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96++ 06/30/95 06/30/94* 06/30/96++ 06/30/95* 06/30/96++ 06/30/95*
---------- -------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.... $ 2.35 $ 2.39 $ 2.50 $ 2.35 $ 2.39 $ 2.35 $ 2.39
-------- ------- ------- -------- ------- ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.15 0.08 0.09 0.13 0.06 0.13 0.06
Net realized and unrealized
gain/(loss) on investments.......... (0.03) 0.02 (0.11) (0.03) 0.02 (0.03) 0.02
-------- ------- ------- -------- ------- ------ -------
Total from investment operations...... 0.12 0.10 (0.02) 0.10 0.08 0.10 0.08
LESS DISTRIBUTIONS:
Dividends from net investment
income.............................. (0.15) (0.08 ) (0.09) (0.13) (0.06) (0.13) (0.06)
Distributions in excess of net
investment income................... -- (0.06 ) -- -- (0.06) -- (0.06)
Distributions from capital (Note 2)... (0.00)# (0.00 )# -- (0.00)# (0.00)# (0.00)# (0.00)#
-------- ------- ------- -------- ------- ------ -------
Total distributions................... (0.15) (0.14 ) (0.09) (0.13) (0.12) (0.13) (0.12)
-------- ------- ------- -------- ------- ------ -------
Net asset value, end of year.......... $ 2.32 $ 2.35 $ 2.39 $ 2.32 $ 2.35 $ 2.32 $ 2.35
======== ======= ======= ======== ======= ====== =======
TOTAL RETURN+ 5.05% 4.42% (0.73)% 4.27% 3.64% 4.27% 3.64%
======== ======= ======= ======== ======= ====== =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).... $ 32,440 $43,811 $21,771 $ 3,437 $ 3,015 $3,531 $ 2,303
Ratio of operating expenses to average
net assets.......................... 0.75% 0.75% 0.00%** 1.50% 1.50% 1.50% 1.50%
Ratio of net investment income to
average net assets.................. 6.22% 6.10% 5.70%** 5.47% 5.35% 5.47% 5.35%
Portfolio turnover rate............... 225% 137% 95% 225% 137% 225% 137%
Ratio of operating expenses to average
net assets without fees reduced by
credits allowed by the custodian.... 0.75%(a) N/A N/A 1.50%(a) N/A 1.50%(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........................... 1.42%(a) 1.39% 1.61%** 2.17%(a) 2.14% 2.17%(a) 2.14%
Net investment income per share
without fee waivers, expenses
absorbed and/or fees reduced by
credits allowed by the custodian.... $ 0.13 $ 0.07 $ 0.06 $ 0.11 $ 0.05 $ 0.11 $ 0.05
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* The Fund commenced operations on November 1, 1993. On July 1, 1994 the Fund 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.
** Annualized.
+ 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 absorbed by the investment
advisor and/or administrator or if fees had not been reduced by credits allowed by the custodian.
++ 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.
# Amount represents less than $0.01 per share.
(a) The ratio includes custodian fees before reduction by credits allowed by the custodian as required by amended disclosure
requirements effective September 1, 1995.
See notes to financial statements.
</TABLE>
FS-21
<PAGE> 294
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SHORT TERM GLOBAL GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
----------------------------------------------------------- ----------------------- -----------------------
YEAR YEAR YEAR YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96++ 06/30/95 06/30/94 06/30/93 06/30/92* 06/30/96++ 06/30/95* 06/30/96++ 06/30/95*
---------- -------- -------- -------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
year........ $ 2.24 $ 2.34 $ 2.48 $ 2.56 $ 2.50 $ 2.24 $ 2.34 $ 2.24 $ 2.34
-------- ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income...... 0.15 0.17 0.17 0.19 0.07 0.13 0.15 0.13 0.15
Net realized
and
unrealized
gain/(loss)
on
investments... 0.07 (0.12) (0.14) (0.04) 0.07 0.07 (0.12) 0.07 (0.12)
-------- ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations... 0.22 0.05 0.03 0.15 0.14 0.20 0.03 0.20 0.03
LESS
DISTRIBUTIONS:
Dividends from
net
investment
income...... (0.16) (0.02) (0.13) (0.20) (0.08) (0.14) (0.00)# (0.14) (0.00)#
Distributions
in excess of
net
investment
income...... (0.01) (0.00)# (0.03) -- -- (0.01) (0.00)# (0.01) (0.00)#
Distributions
in excess of
net realized
gains....... -- (0.01) (0.01) (0.03) -- -- (0.01) -- (0.01)
Distributions
from capital
(Note 2).... -- (0.12) (0.00)# -- -- -- (0.12) -- (0.12)
-------- ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions.. (0.17) (0.15) (0.17) (0.23) (0.08) (0.15) (0.13) (0.15) (0.13)
-------- ------ ------ ------ ------ ------ ------ ------ ------
Net asset
value, end
of year..... $ 2.29 $ 2.24 $ 2.34 $ 2.48 $ 2.56 $ 2.29 $ 2.24 $ 2.29 $ 2.24
======== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN+ 10.16% 2.10% 1.10% 6.03% 5.34% 9.33% 1.33% 9.33% 1.33%
======== ====== ====== ====== ====== ====== ====== ====== ======
RATIOS TO
AVERAGE NET
ASSETS/
SUPPLEMENTAL
DATA:
Net assets,
end of year
(in 000's).. $ 65,726 $103,986 $220,824 $215,348 $106,609 $1,594 $1,297 $2,211 $2,286
Ratio of
operating
expenses to
average net
assets...... 0.85% 0.85% 0.85% 0.73% 0.41%** 1.60% 1.60% 1.60% 1.60%
Ratio of net
investment
income to
average net
assets...... 6.75% 7.22% 6.87% 7.67% 8.65%** 6.00% 6.47% 6.00% 6.47%
Portfolio
turnover
rate........ 87% 217% 222% 294% 81% 87% 217% 87% 217%
Ratio of
operating
expenses to
average net
assets
without fees
reduced by
credits
allowed by
the
custodian... 0.85%(a) N/A N/A N/A N/A 1.60%(a) N/A 1.60%(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... 1.47%(a) 1.44% 1.52% 1.55% 1.92%** 2.22%(a) 2.19% 2.22%(a) 2.19%
Net investment
income per
share
without fee
waivers,
expenses
absorbed
and/or fees
reduced by
credits
allowed by
the
custodian... $ 0.14 $ 0.16 $ 0.16 $ 0.17 $ 0.06 $ 0.12 $ 0.14 $ 0.12 $ 0.14
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* The Fund commenced operations on February 11, 1992. On July 1, 1994 the Fund 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.
** Annualized.
+ 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 absorbed by the investment
advisor, administrator and/or distributor or if fees had not been reduced by credits allowed by the custodian.
++ 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.
# Amount represents less than $0.01 per share.
(a) The ratio includes custodian fees before reduction by credits allowed by the custodian as required by amended disclosure
requirements effective September 1, 1995.
See notes to financial statements.
</TABLE>
FS-22
<PAGE> 295
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
-------------------------------------------------------- --------------------- ---------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96 06/30/95 06/30/94 06/30/93 06/30/92 06/30/96 06/30/95* 06/30/96 06/30/95*
-------- -------- -------- -------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year.............. $ 9.67 $ 9.45 $ 10.65 $10.52 $ 10.04 $ 9.67 $ 9.45 $ 9.67 $ 9.45
------ -------- -------- ------ -------- ------- ------- ------- ------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income............ 0.67 0.70 0.75 0.74 0.84 0.60 0.63 0.60 0.63
Net realized and
unrealized
gain/(loss) on
investments....... (0.26) 0.22 (1.21) 0.16 0.49 (0.26) 0.22 (0.26) 0.22
------ -------- -------- ------ -------- ------- ------- ------- ------
Total from
investment
operations........ 0.41 0.92 (0.46) 0.90 1.33 0.34 0.85 0.34 0.85
LESS DISTRIBUTIONS:
Dividends from net
investment
income............ (0.67) (0.70) (0.64) (0.74) (0.84) (0.60) (0.63) (0.60) (0.63)
Distributions in
excess of net
realized gains.... -- -- (0.10) -- -- -- -- -- --
Distributions from
capital (Note
2)................ -- -- -- (0.03) (0.01) -- -- -- --
------- -------- -------- ------ -------- ------- ------- ------- ------
Total
distributions..... (0.67) (0.70) (0.74) (0.77) (0.85) (0.60) (0.63) (0.60) (0.63)
------- -------- -------- ------ -------- ------- ------- ------- ------
Net asset value, end
of year........... $ 9.41 $ 9.67 $ 9.45 $10.65 $ 10.52 $ 9.41 $ 9.67 $ 9.41 $ 9.67
====== ======== ======== ====== ======== ======= ======= ======= ======
TOTAL RETURN+ 4.34% 10.17% (4.59)% 8.87% 13.74% 3.56% 9.36% 3.56% 9.36%
======== ======== ======== ====== ======== ======= ======= ======= ======
RATIOS TO AVERAGE
NET ASSETS/
SUPPLEMENTAL DATA:
Net assets, end of
year (in 000's)... $423,282 $459,968 $666,566 $842,277 $504,776 $23,668 $10,646 $35,667 $6,839
Ratio of operating
expenses to
average net
assets............ 0.70% 0.95% 1.05% 0.91% 0.72% 1.45% 1.70% 1.45% 1.70%
Ratio of net
investment income
to average
net assets........ 7.34% 7.58% 7.26% 6.98% 7.67% 6.59% 6.83% 6.59% 6.83%
Portfolio turnover
rate.............. 356% 226% 27% 67% 35% 356% 226% 356% 226%
Ratio of operating
expenses to
average net assets
without fees
reduced by credits
allowed by the
custodian......... 0.71%(a) N/A N/A N/A N/A 1.46%(a) N/A 1.46%(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..... 1.45%(a) 1.59% 1.34% 1.34% 1.39% 2.20%(a) 2.34% 2.20%(a) 2.34%
Ratio of operating
expenses to
average net assets
including interest
expense........... 0.82% 1.22% 1.06% 0.91% 0.72% 1.57% 1.97% 1.57% 1.97%
Net investment
income per share
without fee
waivers, expenses
absorbed and/or
fees reduced by
credits allowed by
the custodian..... $ 0.62 $ 0.66 $ 0.72 $ 0.70 $ 0.77 $ 0.55 $ 0.59 $ 0.55 $ 0.59
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* On July 1, 1994 the Fund 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.
+ 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 absorbed by the investment
advisor, administrator and/or distributor or if fees had not been reduced by credits allowed by the custodian.
(a) The ratio includes custodian fees before reduction by credits allowed by the custodian as required by amended disclosure
requirements effective September 1, 1995.
See notes to financial statements.
</TABLE>
FS-23
<PAGE> 296
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CORPORATE INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
-------------------------------------------------------- --------------------- ---------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96 06/30/95 06/30/94 06/30/93 06/30/92 06/30/96 06/30/95* 06/30/96 06/30/95*
-------- -------- -------- -------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year.............. $10.52 $ 9.87 $ 11.33 $ 10.52 $ 9.87 $ 10.52 $ 9.87 $ 10.52 $ 9.87
------- -------- -------- -------- -------- ------- ------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income............ 0.76 0.68 0.80 0.84 0.91 0.68 0.61 0.68 0.61
Net realized and
unrealized
gain/(loss) on
investments....... (0.36) 0.78 (1.35) 0.84 0.64 (0.36) 0.78 (0.36) 0.78
------- -------- -------- -------- -------- ------- ------- ------- -------
Total from
investment
operations........ 0.40 1.46 (0.55) 1.68 1.55 0.32 1.39 0.32 1.39
LESS DISTRIBUTIONS:
Dividends from net
investment
income............ (0.76) (0.68) (0.78) (0.84) (0.90) (0.68) (0.61) (0.68) (0.61)
Distributions in
excess of net
investment
income............ -- (0.09) (0.01) -- -- -- (0.09) -- (0.09)
Distributions from
net realized
gains............. -- -- (0.06) -- -- -- -- -- --
Distributions in
excess of net
realized gains.... -- -- (0.06) -- -- -- -- -- --
Distributions from
capital (Note
2)................ (0.00)# (0.04) -- (0.03) -- (0.00)# (0.04) (0.00)# (0.04)
------- -------- -------- -------- -------- ------- ------- ------- -------
Total
distributions..... (0.76) (0.81) (0.91) (0.87) (0.90) (0.68) (0.74) (0.68) (0.74)
------- -------- -------- -------- -------- ------- ------- ------- -------
Net asset value, end
of year........... $10.16 $ 10.52 $ 9.87 $ 11.33 $ 10.52 $ 10.16 $ 10.52 $ 10.16 $ 10.52
======= ======== ======== ======== ======== ======= ======= ======= =======
TOTAL RETURN+ 3.81% 15.57% (5.32)% 16.64% 16.29% 3.04% 14.73% 3.04% 14.73%
======= ======== ======== ======== ======== ======= ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS/
SUPPLEMENTAL DATA:
Net assets, end of
year (in 000's)... $298,518 $383,642 $472,519 $396,357 $169,682 $24,606 $15,145 $12,011 $8,701
Ratio of operating
expenses to
average net
assets............ 0.95% 0.90% 1.35% 1.24% 0.97% 1.70% 1.65% 1.70% 1.65%
Ratio of net
investment income
to average
net assets........ 7.23% 8.26% 7.19% 7.67% 8.29% 6.48% 7.51% 6.48% 7.51%
Portfolio turnover
rate.............. 25% 55% 30% 37% 8% 25% 55% 25% 55%
Ratio of operating
expenses to
average net assets
without fees
reduced by credits
allowed by the
custodian......... 0.95%(a) N/A N/A N/A N/A 1.70% (a) N/A 1.70% (a) N/A
Ratio of operating
expenses to
average net assets
without fee
waivers and/or
fees reduced by
credits allowed by
the custodian..... 1.38%(a) 1.40% 1.42% 1.42% 1.48% 2.13% (a) 2.15% 2.13% (a) 2.15%
Net investment
income per share
without fee
waivers and/or
fees reduced by
credits allowed by
the custodian..... $ 0.72 $ 0.64 $ 0.80 $ 0.82 $ 0.85 $ 0.64 $ 0.57 $ 0.64 $ 0.57
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* On July 1, 1994 the Fund 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.
+ 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 by the investment advisor, administrator and/or
distributor or if fees had not been reduced by credits allowed by the custodian.
# Amount represents less than $0.01 per share.
(a) The ratio includes custodian fees before reduction by credits allowed by the custodian as required by amended disclosure
requirements effective September 1, 1995.
See notes to financial statements.
</TABLE>
FS-24
<PAGE> 297
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CALIFORNIA MUNICIPAL FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
---------------------------------------------------------- ----------------------- -----------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96++ 06/30/95 06/30/94 06/30/93 06/30/92 06/30/96++ 06/30/95* 06/30/96++ 06/30/95*
---------- -------- -------- -------- -------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year.......... $10.53 $10.38 $ 11.22 $ 10.45 $ 10.07 $ 10.53 $ 10.38 $10.53 $ 10.38
------ ------ -------- -------- -------- ------- ------- ------ -------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income........ 0.60 0.61 0.61 0.62 0.65 0.51 0.53 0.51 0.53
Net realized and
unrealized
gain/(loss) on
investments... 0.07 0.15 (0.82) 0.77 0.38 0.07 0.15 0.07 0.15
------ ------ -------- -------- -------- ------- ------- ------ -------
Total from
investment
operations.... 0.67 0.76 (0.21) 1.39 1.03 0.58 0.68 0.58 0.68
LESS
DISTRIBUTIONS:
Dividends from
net
investment
income........ (0.60) (0.61) (0.61) (0.62) (0.65) (0.51) (0.53) (0.51) (0.53)
Distributions in
excess of net
investment
income........ -- -- (0.00)# -- -- -- -- -- --
Distributions
from net
realized
gains......... -- (0.00)# -- -- -- -- (0.00)# -- (0.00)#
Distributions in
excess of net
realized
gains......... -- -- (0.02) -- -- -- -- -- --
------ ------ -------- -------- -------- ------- ------- ------ -------
Total
distributions... (0.60) (0.61) (0.63) (0.62) (0.65) (0.51) (0.53) (0.51) (0.53)
------ ------ -------- -------- -------- ------- ------- ------ -------
Net asset value,
end of year... $10.60 $10.53 $ 10.38 $ 11.22 $ 10.45 $ 10.60 $ 10.53 $10.60 $ 10.53
====== ====== ======== ======== ======== ======= ======= ====== =======
TOTAL RETURN+ 6.40% 7.57% (2.19)% 13.84% 10.56% 5.61% 6.78% 5.61% 6.78%
====== ====== ======== ======== ======== ======= ======= ====== =======
RATIOS TO
AVERAGE NET
ASSETS/
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
000's)........ $372,177 $405,967 $509,223 $511,364 $309,146 $20,543 $7,230 $11 $11
Ratio of
operating
expenses to
average net
assets........ 0.94% 0.85% 0.79% 0.80% 0.94% 1.69% 1.60% 1.69% 1.60%
Ratio of net
investment
income to
average net
assets........ 5.56% 5.89% 5.45% 5.74% 6.08% 4.81% 5.14% 4.81% 5.14%
Portfolio
turnover
rate.......... 17% 22% 50% 41% 29% 17% 22% 17% 22%
Ratio of
operating
expenses to
average net
assets without
fees reduced
by credits
allowed by the
custodian..... 0.94%(a) N/A N/A N/A N/A 1.69%(a) N/A 1.69%(a) N/A
Ratio of
operating
expenses to
average net
assets without
fee waivers
and/or fees
reduced by
credits
allowed by the
custodian..... 1.29%(a) 1.29% 1.39% 1.41% 1.40% 2.04%(a) 2.04% 2.04%(a) 2.04%
Net investment
income per
share without
fee waivers
and/or fees
reduced by
credits
allowed by the
custodian..... $ 0.56 $ 0.56 $ 0.54 $ 0.56 $ 0.60 $ 0.47 $ 0.48 $ 0.47 $ 0.48
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* On July 1, 1994 the Fund 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.
+ 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 by the investment advisor, administrator and/or
distributor or if fees had not been reduced by credits allowed by the custodian.
++ 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.
# Amount represents less than $0.01 per share.
(a) The ratio includes custodian fees before reduction by credits allowed by the custodian as required by amended disclosure
requirements effective September 1, 1995.
</TABLE>
FS-25
<PAGE> 298
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FLORIDA INSURED MUNICIPAL FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
------------------------------------------------ ---------------------- ----------------------
YEAR YEAR YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96 06/30/95 06/30/94 06/30/93* 06/30/96 06/30/95* 06/30/96 06/30/95*
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year................. $ 9.43 $ 9.40 $ 10.05 $ 10.00 $ 9.43 $ 9.40 $ 9.43 $ 9.40
------- ------- -------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income..... 0.50 0.52 0.52 0.00# 0.42 0.45 0.42 0.45
Net realized and
unrealized gain/(loss)
on investments.......... 0.21 0.03## (0.65) 0.05 0.21 0.03## 0.21 0.03##
------- ------- -------- ------- ------- ------- ------- -------
Total from investment
operations.............. 0.71 0.55 (0.13) 0.05 0.63 0.48 0.63 0.48
LESS DISTRIBUTIONS:
Dividends from net
investment income....... (0.50) (0.52) (0.52) -- (0.42) (0.45) (0.42) (0.45)
Distributions in excess of
net investment income... -- -- (0.00)# -- -- -- -- --
Distributions in excess of
net realized gains...... -- -- (0.00)# -- -- -- -- --
------- ------- -------- ------- ------- ------- ------- -------
Total distributions....... (0.50) (0.52) (0.52) -- (0.42) (0.45) (0.42) (0.45)
------- ------- -------- ------- ------- ------- ------- -------
Net asset value, end of
year.................... $ 9.64 $ 9.43 $ 9.40 $ 10.05 $ 9.64 $ 9.43 $ 9.64 $ 9.43
======= ======= ======== ======= ======= ======= ======= =======
TOTAL RETURN+ 7.56% 6.01% (1.50)% 0.50% 6.76% 5.23% 6.76% 5.23%
======= ======= ======== ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's).............. $29,821 $33,714 $38,541 $4,837 $5,428 $3,330 $11 $11
Ratio of operating
expenses to average
net assets.............. 0.63% 0.39% 0.00% 0.00%** 1.38% 1.14% 1.38% 1.14%
Ratio of net investment
income to average net
assets.................. 5.08% 5.53% 5.09% 0.48%** 4.33% 4.78% 4.33% 4.78%
Portfolio turnover rate... 52% 44% 83% 0% 52% 44% 52% 44%
Ratio of operating
expenses to average net
assets without fees
reduced by credits
allowed by the
custodian............... 0.66%(a) N/A N/A N/A 1.41%(a) N/A 1.41%(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............... 1.46%(a) 1.51% 1.55% 5.59%** 2.21%(a) 2.26% 2.21%(a) 2.26%
Net investment
income/(loss) per share
without fee waivers,
expenses absorbed and/or
fees reduced by credits
allowed by the
custodian............... $ 0.42 $ 0.42 $ 0.36 $ (0.02) $ 0.34 $ 0.35 $ 0.34 $ 0.35
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* The Fund commenced operations on June 7, 1993. On July 1, 1994 the Fund 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.
** Annualized.
+ 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 absorbed by the investment
advisor and administrator or if fees had not been reduced by credits allowed by the custodian.
# Amount represents less than $0.01 per share.
## 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.
(a) The ratio includes custodian fees before reduction by credits allowed by the custodian as required by amended disclosure
requirements effective September 1, 1995.
</TABLE>
FS-26
<PAGE> 299
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
--------------------------------- --------------------- ---------------------
YEAR YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96 06/30/95 06/30/94* 06/30/96 06/30/95* 06/30/96 06/30/95*
-------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year......... $ 10.45 $ 10.10 $ 10.00 $ 10.45 $ 10.10 $10.45 $ 10.10
------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................... 0.49 0.50 0.11 0.41 0.43 0.41 0.43
Net realized and unrealized gain on
investments.............................. 0.15 0.35 0.11## 0.15 0.35 0.15 0.35
------- ------- ------- ------- ------- ------- -------
Total from investment operations........... 0.64 0.85 0.22 0.56 0.78 0.56 0.78
LESS DISTRIBUTIONS:
Dividends from net investment income....... (0.49) (0.50) (0.11) (0.41) (0.43) (0.41) (0.43)
Distributions from net realized gains...... (0.04) -- (0.01) (0.04) -- (0.04) --
------- ------- ------- ------- ------- ------- -------
Total distributions........................ (0.53) (0.50) (0.12) (0.45) (0.43) (0.45) (0.43)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of year............... $ 10.56 $ 10.45 $ 10.10 $ 10.56 $ 10.45 $10.56 $ 10.45
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN+ 6.25% 8.71% 2.20% 5.46% 7.90% 5.46% 7.90%
======= ======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year (in 000's)......... $54,518 $54,507 $34,147 $20,948 $12,391 $11 $11
Ratio of operating expenses to average net
assets................................... 0.73% 0.42% 0.00%** 1.48% 1.17% 1.48% 1.17%
Ratio of net investment income to average
net assets............................... 4.62% 4.95% 4.25%** 3.87% 4.20% 3.87% 4.20%
Portfolio turnover rate.................... 27% 13% 17% 27% 13% 27% 13%
Ratio of operating expenses to average net
assets without fees reduced by credits
allowed by the custodian................. 0.75%(a) N/A N/A 1.50%(a) N/A 1.50%(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................. 1.39%(a) 1.41% 1.95%** 2.14%(a) 2.16% 2.14%(a) 2.16%
Net investment income per share without fee
waivers, expenses absorbed and/or fees
reduced by credits allowed by
the custodian............................ $ 0.42 $ 0.40 $ 0.06 $ 0.34 $ 0.33 $ 0.34 $ 0.33
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* The Fund commenced operations on April 4, 1994. On July 1, 1994 the Fund 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.
** Annualized.
+ 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 absorbed by the investment
advisor and administrator or if fees had not been reduced by credits allowed by the custodian.
## 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.
(a) The ratio includes custodian fees before reduction by credits allowed by the custodian as required by amended disclosure
requirements effective September 1, 1995.
</TABLE>
FS-27
<PAGE> 300
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
NATIONAL MUNICIPAL FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
-------------------------------------------------------- --------------------- ---------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96 06/30/95 06/30/94 06/30/93 06/30/92 06/30/96 06/30/95* 06/30/96 06/30/95*
-------- -------- -------- -------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year.............. $10.76 $10.85 $ 11.65 $ 10.96 $ 10.16 $10.76 $ 10.85 $10.76 $ 10.85
------ ------ -------- -------- -------- ------ ------ ------ ------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income............ 0.61 0.64 0.65 0.67 0.72 0.53 0.56 0.53 0.56
Net realized and
unrealized
gain/(loss) on
investments....... 0.07 0.01## (0.73) 0.75 0.79 0.07 0.01## 0.07 0.01##
------ ------ -------- -------- -------- ------ ------ ------ ------
Total from
investment
operations........ 0.68 0.65 (0.08) 1.42 1.51 0.60 0.57 0.60 0.57
LESS DISTRIBUTIONS:
Dividends from net
investment
income............ (0.61) (0.64) (0.65) (0.67) (0.71) (0.53) (0.56) (0.53) (0.56)
Distributions in
excess of net
investment
income............ -- -- (0.00)# -- -- -- -- -- --
Distributions from
net realized
gains............. -- (0.01) (0.07) (0.06) -- -- (0.01) -- (0.01)
Distributions in
excess of net
realized gains.... -- (0.09) -- -- -- -- (0.09) -- (0.09)
------ ------ -------- -------- -------- ------ ------ ------ ------
Total
distributions..... (0.61) (0.74) (0.72) (0.73) (0.71) (0.53) (0.66) (0.53) (0.66)
------ ------ -------- -------- -------- ------ ------ ------ ------
Net asset value, end
of year........... $10.83 $10.76 $ 10.85 $ 11.65 $ 10.96 $10.83 $ 10.76 $10.83 $ 10.76
====== ====== ======== ======== ======== ====== ====== ====== ======
TOTAL RETURN+ 6.41% 6.32% (0.90)% 13.41% 15.42% 5.62% 5.54% 5.62% 5.54%
====== ====== ======== ======== ======== ====== ====== ====== ======
RATIOS TO AVERAGE
NET ASSETS/
SUPPLEMENTAL DATA:
Net assets, end of
year (in 000's)... $233,359 $269,033 $354,501 $390,187 $226,984 $6,800 $4,786 $11 $11
Ratio of operating
expenses to
average net
assets............ 1.04% 0.83% 0.87% 0.86% 0.64% 1.79% 1.58% 1.79% 1.58%
Ratio of net
investment income
to average net
assets............ 5.58% 5.97% 5.60% 5.89% 6.34% 4.83% 5.22% 4.83% 5.22%
Portfolio turnover
rate.............. 25% 23% 44% 83% 61% 25% 23% 25% 23%
Ratio of operating
expenses to
average net assets
without fees
reduced by credits
allowed by the
custodian......... 1.04%(a) N/A N/A N/A N/A 1.79%(a) N/A 1.79%(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..... 1.29%(a) 1.30% 1.36% 1.37% 1.40% 2.04%(a) 2.05% 2.04%(a) 2.05%
Net investment
income per share
without fee
waivers, expenses
absorbed and/or
fees reduced by
credits allowed by
the custodian..... $ 0.58 $ 0.59 $ 0.59 $ 0.61 $ 0.63 $ 0.50 $ 0.51 $ 0.50 $ 0.51
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* On July 1, 1994 the Fund 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.
+ 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 absorbed by the investment
advisor, administrator and/or distributor or if fees had not been reduced by credits allowed by the custodian.
# Amount represents less than $0.01 per share.
## 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.
(a) The ratio includes custodian fees before reduction by credits allowed by the custodian as required by amended disclosure
requirements effective September 1, 1995.
</TABLE>
FS-28
<PAGE> 301
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
GROWTH AND INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
---------------------------------------------------------- ----------------------- -----------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96++ 06/30/95 06/30/94 06/30/93 06/30/92 06/30/96++ 06/30/95* 06/30/96++ 06/30/95*
---------- -------- -------- -------- -------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
year......... $ 12.58 $ 11.30 $12.09 $ 11.25 $ 10.51 $ 12.55 $ 11.30 $ 12.55 $ 11.30
-------- -------- ------ ------- ------- -------- ------- -------- -------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income/(loss)... 0.08 0.13 0.12 0.12 0.17 (0.02) 0.05 (0.02) 0.05
Net realized
and
unrealized
gain on
investments... 2.51 2.04 0.72 0.91 0.74 2.50 2.04 2.51 2.04
-------- -------- ------ ------- ------- -------- ------- -------- -------
Total from
investment
operations... 2.59 2.17 0.84 1.03 0.91 2.48 2.09 2.49 2.09
LESS
DISTRIBUTIONS:
Dividends from
net
investment
income....... (0.08) (0.12) (0.12) (0.12) (0.17) (0.01) (0.07) (0.01) (0.07)
Distributions
from net
realized
gains........ (0.99) (0.77) (1.51) (0.07) -- (0.99) (0.77) (0.99) (0.77)
-------- -------- ------ ------- ------- -------- ------- -------- -------
Total
distributions... (1.07) (0.89) (1.63) (0.19) (0.17) (1.00) (0.84) (1.00) (0.84)
-------- -------- ------ ------- ------- -------- ------- -------- -------
Net asset
value, end of
year......... $ 14.10 $ 12.58 $11.30 $ 12.09 $ 11.25 $ 14.03 $ 12.55 $ 14.04 $ 12.55
======== ======== ====== ======= ======= ======== ======= ======== =======
TOTAL RETURN+ 21.36% 20.47% 6.67% 9.20% 8.65% 20.53% 19.67% 20.51% 19.75%
======== ======== ====== ======= ======= ======== ======= ======== =======
RATIOS TO
AVERAGE NET
ASSETS/
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
000's)....... $183,084 $170,177 $125,249 $97,873 $83,825 $23,924 $6,918 $29,481 $14,368
Ratio of
operating
expenses to
average net
assets....... 1.54% 1.56% 1.50% 1.46% 1.50% 2.29% 2.31% 2.29% 2.31%
Ratio of net
investment
income/(loss)
to average
net assets... 0.60% 1.11% 1.04% 1.01% 1.51% (0.15)% 0.36% (0.15)% 0.36%
Portfolio
turnover
rate......... 90% 72% 127% 47% 16% 90% 72% 90% 72%
Ratio of
operating
expenses to
average net
assets
without fees
reduced by
credits
allowed by
the
custodian.... 1.54%(a) N/A N/A N/A N/A 2.29%(a) N/A 2.29%(a) N/A
Ratio of
operating
expenses to
average net
assets
without fee
waivers
and/or fees
reduced by
credits
allowed by
the
custodian.... 1.54%(a) 1.56% 1.59% 1.46% 1.55% 2.29%(a) 2.31% 2.29%(a) 2.31%
Net investment
income/(loss)
per share
without fee
waivers
and/or fees
reduced by
credits
allowed by
the
custodian.... $ 0.08 $ 0.13 $ 0.11 $ 0.12 $ 0.16 $ (0.02) $ 0.05 $ (0.02) $ 0.05
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* On July 1, 1994 the Fund 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.
+ 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 by the investment advisor and/or administrator or
if fees had not been reduced by credits allowed by the custodian.
++ 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.
(a) The ratio includes custodian fees before reduction by credits allowed by the custodian as required by amended disclosure
requirements effective September 1, 1995.
</TABLE>
FS-29
<PAGE> 302
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
------------------------------------------------- ------------------------- -------------------------
YEAR YEAR YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96++ 06/30/95++ 06/30/94 06/30/93* 06/30/96++ 06/30/95*++ 06/30/96++ 06/30/95*++
---------- ---------- -------- --------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year.............. $ 14.18 $ 10.73 $ 10.72 $ 10.00 $ 14.10 $ 10.73 $ 14.11 $ 10.73
-------- -------- -------- ------- --------- --------- -------- ---------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income/(loss)..... (0.07) 0.05 (0.02) 0.00# (0.19) (0.04) (0.19) (0.04)
Net realized and
unrealized gain on
investments....... 3.47 3.42 0.03## 0.72 3.45 3.42 3.44 3.42
-------- -------- -------- ------- --------- --------- -------- ---------
Total from
investment
operations........ 3.40 3.47 0.01 0.72 3.26 3.38 3.25 3.38
LESS DISTRIBUTIONS:
Dividends from net
investment
income............ -- (0.02) -- -- -- (0.01) -- (0.00)#
Distributions from
net realized
gains............. (1.89) (0.00)# -- -- (1.89) (0.00)# (1.89) (0.00)#
-------- -------- -------- ------- --------- --------- -------- ---------
Total
distributions..... (1.89) (0.02) -- -- (1.89) (0.01) (1.89) (0.00)
-------- -------- -------- ------- --------- --------- -------- ---------
Net asset value, end
of year........... $ 15.69 $ 14.18 $ 10.73 $ 10.72 $ 15.47 $ 14.10 $ 15.47 $ 14.11
======== ======== ======== ======= ========= ========= ======== =========
TOTAL RETURN+ 25.44% 32.33% 0.00% 7.30% 24.54% 31.46% 24.54% 31.44%
======== ======== ======== ======= ========= ========= ======== =========
RATIOS TO AVERAGE
NET ASSETS/
SUPPLEMENTAL DATA:
Net assets, end of
year (in 000's)... $179,720 $154,763 $126,808 $23,323 $ 25,067 $ 6,928 $ 45,652 $ 18,730
Ratio of operating
expenses to
average net
assets............ 1.70% 1.76% 1.75% 1.44%** 2.45% 2.51% 2.45% 2.51%
Ratio of net
investment
income/(loss) to
average net
assets............ (0.49)% 0.28% (0.35)% (0.63)%** (1.24)% (0.47)% (1.24)% (0.47)%
Portfolio turnover
rate.............. 205% 233% 227% 13% 205% 233 % 205% 233%
Ratio of operating
expenses to
average net assets
without fees
reduced by credits
allowed by the
custodian......... 1.71%(a) N/A N/A N/A 2.46%(a) N/A 2.46%(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..... 1.71%(a) 1.76% 1.75% 2.52%** 2.46%(a) 2.51% 2.46%(a) 2.51%
Net investment
income/(loss) per
share without fee
waivers, expenses
absorbed and/or
fees reduced by
credits allowed by
the custodian..... $ (0.07) $ 0.05 $ (0.02) $ (0.01) $ (0.19) $ (0.04) $ (0.19) $ (0.04)
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* The Fund commenced operations on April 5, 1993. On July 1, 1994 the Fund 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.
** Annualized.
+ 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 expenses absorbed by the investment advisor
or if fees had not been reduced by credits allowed by the custodian.
++ 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.
# Amount represents less than $0.01 per share.
## 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.
(a) The ratio includes custodian fees before reduction by credits allowed by the custodian as required by amended disclosure
requirements effective September 1, 1995.
</TABLE>
FS-30
<PAGE> 303
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
EMERGING GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
---------------------------------------------------------- ------------------------ ------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96++ 06/30/95++ 06/30/94 06/30/93 06/30/92++ 06/30/96++ 06/30/95*++ 06/30/96++ 06/30/95*++
---------- ---------- -------- -------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year.......... $ 15.47 $ 13.02 $ 13.76 $ 11.67 $ 9.62 $ 15.37 $ 13.02 $ 15.37 $ 13.02
-------- -------- ------- ------- -------- -------- ------- -------- -------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
loss.......... (0.19) (0.00)# (0.09) (0.02) (0.01) (0.32) (0.10) (0.32) (0.10)
Net realized and
unrealized
gain on
investments... 5.65 2.77 0.68 2.31 2.16 5.59 2.77 5.59 2.77
-------- -------- ------- ------- -------- -------- ------- -------- -------
Total from
investment
operations.... 5.46 2.77 0.59 2.29 2.15 5.27 2.67 5.27 2.67
LESS
DISTRIBUTIONS:
Dividends from
net investment
income........ -- -- -- -- (0.01) -- -- -- --
Distributions
from net
realized
gains......... (0.76) (0.32) (1.33) (0.20) (0.08) (0.76) (0.32) (0.76) (0.32)
Distributions
from capital
(Note 2)...... -- -- -- -- (0.01) -- -- -- --
-------- -------- ------- ------- -------- -------- ------- -------- -------
Total
distributions... (0.76) (0.32) (1.33) (0.20) (0.10) (0.76) (0.32) (0.76) (0.32)
-------- -------- ------- ------- -------- -------- ------- -------- -------
Net asset value,
end of year... $ 20.17 $ 15.47 $ 13.02 $ 13.76 $ 11.67 $ 19.88 $ 15.37 $ 19.88 $ 15.37
======== ======== ======= ======= ======== ======== ======= ======== =======
TOTAL RETURN+ 35.93% 21.54% 3.40% 19.75% 22.47% 34.93% 20.69% 34.91% 20.76%
======== ======== ======= ======= ======== ======== ======= ======== =======
RATIOS TO
AVERAGE NET
ASSETS/
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
000's)........ $283,747 $185,722 $124,941 $96,646 $27,652 $28,920 $10,208 $43,645 $11,840
Ratio of
operating
expenses to
average net
assets........ 1.64% 1.68% 1.66% 1.59% 1.93% 2.39% 2.43% 2.39% 2.43%
Ratio of net
investment
loss to
average net
assets........ (1.02)% (0.31)% (0.68)% (0.32)% (0.04)% (1.77)% (1.06)% (1.77)% (1.06)%
Portfolio
turnover
rate.......... 131% 181% 224% 28% 60% 131% 181% 131% 181%
Ratio of
operating
expenses to
average net
assets without
fees reduced
by credits
allowed by the
custodian..... 1.65%(a) N/A N/A N/A N/A 2.40%(a) N/A 2.40%(a) N/A
Ratio of
operating
expenses to
average net
assets without
fee waivers
and/or fees
reduced by
credits
allowed by the
custodian..... 1.65%(a) 1.68% 1.66% 1.59% 1.93% 2.40%(a) 2.43% 2.40%(a) 2.43%
Net investment
loss per share
without fee
waivers and/or
fees reduced
by credits
allowed by the
custodian..... $ (0.19) $ (0.00)# $ (0.09) $ (0.02) $ (0.01) $ (0.32) $ (0.10) $ (0.32) $ (0.10)
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* On July 1, 1994 the Fund 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.
+ 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 by the investment advisor or if fees had not been
reduced by credits allowed by the custodian.
++ 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.
# Amount represents less than $0.01 per share.
(a) The ratio includes custodian fees before reduction by credits allowed by the custodian as required by amended disclosure
requirements effective September 1, 1995.
See notes to financial statements.
</TABLE>
FS-31
<PAGE> 304
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
INTERNATIONAL GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS S SHARES
-------------------------------------------------------- ------------------------ ------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/96++ 06/30/95++ 06/30/94 06/30/93 06/30/92 06/30/96++ 06/30/95*++ 06/30/96++ 06/30/95*++
---------- ---------- -------- -------- -------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year............ $ 9.78 $ 10.74 $ 9.80 $ 8.82 $ 8.27 $ 9.73 $ 10.74 $ 9.73 $ 10.74
-------- -------- -------- ------- ------- -------- --------- -------- -------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income/(loss)... 0.05 (0.11) 0.06 0.07 0.05 (0.03) (0.17) (0.03) (0.17)
Net realized and
unrealized
gain/(loss) on
investments..... 1.21 (0.31) 1.15 0.94 0.55 1.21 (0.31) 1.20 (0.31)
-------- -------- -------- ------- ------- -------- --------- -------- -------
Total from
investment
operations...... 1.26 (0.42) 1.21 1.01 0.60 1.18 (0.48) 1.17 (0.48)
LESS
DISTRIBUTIONS:
Dividends from net
investment
income.......... (0.05) (0.04) (0.02) (0.03) (0.05) (0.02) (0.03) (0.02) (0.03)
Distributions in
excess of net
investment
income.......... (0.04) -- -- -- -- (0.04) -- (0.04) --
Distributions from
net realized
gains........... (0.46) (0.44) (0.25) -- -- (0.46) (0.44) (0.46) (0.44)
Distributions in
excess of net
realized
gains........... -- (0.06) -- -- -- -- (0.06) -- (0.06)
-------- -------- -------- ------- ------- -------- --------- -------- -------
Total
distributions... (0.55) (0.54) (0.27) (0.03) (0.05) (0.52) (0.53) (0.52) (0.53)
-------- -------- -------- ------- ------- -------- --------- -------- -------
Net asset value,
end of year..... $ 10.49 $ 9.78 $ 10.74 $ 9.80 $ 8.82 $ 10.39 $ 9.73 $ 10.38 $ 9.73
======== ======== ======== ======= ======= ======== ========= ======== =======
TOTAL RETURN+ 13.16% (4.01)% 12.39% 11.51% 7.28% 12.34% (4.61)% 12.29% (4.61)%
======== ======== ======== ======= ======= ======== ========= ======== =======
RATIOS TO AVERAGE
NET ASSETS/
SUPPLEMENTAL
DATA:
Net assets, end of
year (in 000's). $116,254 $ 91,763 $127,764 $56,962 $24,479 $ 4,447 $ 2,268 $ 38,900 $11,120
Ratio of operating
expenses to
average net
assets.......... 1.77% 1.69% 1.69% 1.80% 2.25% 2.52% 2.44% 2.52% 2.44%
Ratio of net
investment
income/(loss) to
average net
assets.......... 0.46% 0.62% 0.54% 1.07% 0.69% (0.29)% (0.13)% (0.29)% (0.13)%
Portfolio turnover
rate............ 125% 81% 44% 63% 66% 125% 81% 125% 81%
Ratio of operating
expenses to
average net
assets without
fees reduced by
credits allowed
by the
custodian....... 1.77%(a) N/A N/A N/A N/A 2.52%(a) N/A 2.52%(a) N/A
Ratio of operating
expenses to
average net
assets without
fee waivers
and/or fees
reduced by
credits allowed
by the
custodian....... 1.77%(a) 1.69% 1.69% 1.80% 2.29% 2.52%(a) 2.44% 2.52%(a) 2.44%
Net investment
income/(loss)
per share
without fee
waivers and/or
fees reduced by
credits allowed
by the
custodian....... $ 0.05 $ (0.11) $ 0.06 $ 0.07 $ 0.04 $ (0.03) $ (0.17) $ (0.03) $ (0.17)
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* On July 1, 1994 the Fund 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.
+ 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 by the investment advisor, administrator and/or
distributor or if fees had not been reduced by credits allowed by the custodian.
++ 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.
(a) The ratio includes custodian fees before reduction by credits allowed by the custodian as required by amended disclosure
requirements effective September 1, 1995.
</TABLE>
FS-32
<PAGE> 305
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
TARGET MATURITY 2002 FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CLASS A SHARES
------------------------
YEAR PERIOD
ENDED ENDED
06/30/96 06/30/95*
-------- ---------
<S> <C> <C>
Net asset value, beginning of year................................................................... $10.78 $ 10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................................................................ 0.63 0.12
Net realized and unrealized gain/(loss) on investments............................................... (0.30) 0.66
------ ------
Total from investment operations..................................................................... 0.33 0.78
LESS DISTRIBUTIONS:
Dividends from net investment income................................................................. (0.39) --
------ ------
Total distributions.................................................................................. (0.39) --
------ ------
Net asset value, end of year......................................................................... $10.72 $ 10.78
====== ======
TOTAL RETURN+ 2.91% 7.80%
====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (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>
- ---------------------
<TABLE>
<S> <C>
* 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/or expenses absorbed by the investment advisor
and administrator or if fees had not been reduced by credits allowed by the custodian.
(a) The ratio includes custodian fees before reduction by credits allowed by the custodian as required by amended disclosure
requirements effective September 1, 1995.
</TABLE>
FS-33
<PAGE> 306
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
GLOBAL MONEY FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
COMMERCIAL PAPER -- (DOMESTIC) -- 30.7%
$7,000,000 AT&T Corporation,
5.280% due 07/03/1996++............. $ 6,997,947
7,500,000 BellSouth Capital Funding Corporation,
5.310% due 07/10/1996++............. 7,490,044
8,000,000 Coca-Cola Company,
5.350% due 08/08/1996++............. 7,954,822
7,500,000 Deere & Company,
5.310% due 07/09/1996++............. 7,491,150
7,500,000 Eli Lilly & Company,
5.350% due 07/01/1996++............. 7,500,000
7,000,000 Ford Motor Credit Company,
5.340% due 07/16/1996++............. 6,984,425
4,000,000 Southern Company,
5.400% due 07/02/1996++............. 3,999,400
5,381,000 UBS Finance, Inc.,
5.550% due 07/01/1996++............. 5,381,000
-----------
Total Commercial Paper -- (Domestic)
(Cost $53,798,788).................. 53,798,788
-----------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- 21.7%
Federal Home Loan Mortgage Corporation
(FHLMC):
5,000,000 5.200% due 07/16/1996++............... 4,989,167
5,000,000 5.270% due 07/22/1996++............... 4,984,611
8,000,000 5.280% due 07/22/1996++............... 7,975,378
5,000,000 5.290% due 07/25/1996++............... 4,982,367
5,000,000 5.280% due 07/31/1996++............... 4,978,000
5,000,000 5.300% due 08/12/1996++............... 4,969,083
5,000,000 Federal National Mortgage
Association (FNMA),
5.670% due 06/11/1997++............. 4,996,339
-----------
Total U.S. Government Agency Discount
Notes (Cost $37,874,945)............ 37,874,945
-----------
CERTIFICATES OF DEPOSIT -- (YANKEE) -- 18.3%
4,000,000 Bayerische Vereinsbank,
5.320% due 07/23/1996............... 4,000,000
5,000,000 Canadian Imperial Bank of Commerce,
5.410% due 08/26/1996............... 5,000,000
8,000,000 Credit Agricole (Chicago),
5.330% due 07/22/1996............... 8,000,000
5,000,000 National Australia Bank,
5.750% due 10/02/1996............... 4,998,416
5,000,000 National Westminster Bank USA,
5.280% due 08/20/1996............... 5,000,069
5,000,000 Societe Generale, New York,
5.350% due 07/08/1996............... 5,000,019
-----------
Total Certificates of
Deposit -- (Yankee) (Cost
$31,998,504)........................ 31,998,504
-----------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MEDIUM-TERM NOTES -- 13.7%
$5,000,000 Bayerische Landesbank,
5.354% due 01/15/1997+.............. $ 4,998,286
5,000,000 Federal Home Loan Bank (FHLB),
5.875% due 06/27/1997............... 4,993,818
Federal National Mortgage Association
(FNMA):
3,000,000 5.600% due 11/01/1996................. 2,998,356
4,000,000 5.370% due 12/18/1996................. 3,997,147
2,000,000 5.300% due 12/26/1996................. 1,997,938
5,000,000 John Deere Capital,
5.850% due 07/03/1997............... 4,996,500
-----------
Total Medium-Term Notes
(Cost $23,982,045).................. 23,982,045
-----------
COMMERCIAL PAPER -- (FOREIGN) -- 9.7%
5,000,000 Abbey National, N.A.,
5.075% due 07/26/1996++............. 4,982,378
4,000,000 Bayerische Vereinsbank,
5.310% due 07/03/1996++............. 3,998,820
8,000,000 Commerzbank U.S. Finance Inc.,
5.350% due 08/19/1996++............. 7,941,744
-----------
Total Commercial Paper -- (Foreign)
(Cost $16,922,942).................. 16,922,942
-----------
TIME DEPOSIT -- 1.4% (Cost $2,499,276)
2,500,000 NationsBank of Texas,
4.900% due 02/05/1997............... 2,499,276
-----------
CERTIFICATE OF DEPOSIT -- (DOMESTIC) -- 1.1%
(Cost $1,998,954)
2,000,000 Bank of New York,
5.550% due 04/01/1997............... 1,998,954
-----------
U.S. TREASURY BILL -- 0.2% (Cost $408,738)
415,000 5.030% due 10/17/1996++............... 408,738
-----------
TOTAL INVESTMENTS (COST $169,484,192*)..... 96.8% 169,484,192
OTHER ASSETS AND LIABILITIES (NET)......... 3.2 5,572,192
----- ------------
NET ASSETS................................. 100.0% $175,056,384
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
++ Rate represents annualized yield at date of purchase (unaudited).
See Notes to Financial Statements.
FS-34
<PAGE> 307
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
U.S. GOVERNMENT MONEY FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 98.2%
STUDENT LOAN MARKETING ASSOCIATION
(SLMA) -- 34.3%
$8,590,000 5.690% due 08/22/1996+................. $ 8,592,771
5,000,000 5.590% due 11/20/1997+................. 5,004,357
-----------
Total SLMAs (Cost $13,597,128)......... 13,597,128
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) -- 30.3%
2,700,000 Discount Note, 5.520% due
07/01/1996++......................... 2,700,000
6,900,000 Discount Note, 5.270% due
07/15/1996++......................... 6,885,859
400,000 Discount Note, 5.290% due
07/16/1996++......................... 399,118
1,900,000 Discount Note, 5.280% due
07/22/1996++......................... 1,894,148
100,000 Discount Note, 5.210% due
07/29/1996++......................... 99,595
-----------
Total FHLMCs (Cost $11,978,720)........ 11,978,720
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) -- 17.7%
3,000,000 5.405% due 10/04/1996+................. 3,000,209
2,000,000 5.390% due 12/04/1996.................. 2,000,132
2,000,000 5.400% due 04/04/1997+................. 1,999,289
-----------
Total FNMAs (Cost $6,999,630).......... 6,999,630
-----------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<S> <C> <C>
FEDERAL HOME LOAN BANK (FHLB) -- 15.9%
$1,000,000 5.380% due 03/14/1997+................. $ 997,475
2,000,000 5.300% due 05/23/1997+................. 1,998,432
3,300,000 Discount Note, 5.230% due
07/19/1996++......................... 3,291,371
-----------
Total FHLBs (Cost $6,287,278).......... 6,287,278
-----------
Total U.S. Government Agency
Obligations (Cost $38,862,756)....... 38,862,756
-----------
U.S. TREASURY NOTE -- 5.1%
(Cost $2,021,902)
2,000,000 6.875% due 02/28/1997.................. 2,021,902
-----------
TOTAL INVESTMENTS (COST $40,884,658*)....... 103.3% 40,884,658
OTHER ASSETS AND LIABILITIES (Net).......... (3.3) (1,303,333)
----- -----------
NET ASSETS.................................. 100.0% $39,581,325
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
+ Variable rate securities payable upon not more than seven calendar days'
notice. The interest rate shown reflects the rate currently in effect.
++ Rate represents annualized yield at date of purchase (unaudited).
See Notes to Financial Statements.
FS-35
<PAGE> 308
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
CALIFORNIA MONEY FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<S> <C> <C>
MUNICIPAL BONDS AND NOTES -- 111.6%
CALIFORNIA -- 111.6%
$2,500,000 Alameda County, Transportation
District, RAN, Series 96,
4.250% due 01/30/1997................ $ 2,507,017
Alameda County, IDR:
2,400,000 Heat and Control Inc., Series 95A,
3.300% due 11/01/2025+............... 2,400,000
2,400,000 JMS Family Partnership, Series 95A,
3.300% due 10/01/2025+............... 2,400,000
California Housing Finance Agency,
Home Mortgage:
2,200,000 Series 15A,
3.500% due 08/01/2025+............... 2,200,000
2,500,000 Series 96J,
4.000% due 07/24/1997................ 2,500,000
California Pollution Control Financing
Authority, Solid Waste Revenue:
3,000,000 Pacific Gas & Electric, Series 96B,
3.400% due 12/01/2016+............... 3,000,000
2,900,000 Western Waste Industries, Series 94A,
3.100% due 10/01/2006+............... 2,900,000
2,000,000 California School Cash Reserve Program
Authority, Series 95,
4.750% due 07/03/1996................ 2,000,033
1,000,000 California State Economic Development
Authority, IDR, National R.V. Inc.,
3.450% due 12/01/2020+............... 1,000,000
California Statewide Communities
Projects, IDR:
2,000,000 Howard Industrial Development, Series
95B,
3.400% due 07/01/2020+............... 2,000,000
1,120,000 Lorber Industries, Series 92,
3.400% due 06/01/1998+............... 1,120,000
500,000 Pacific Project, Series 89,
3.450% due 10/01/2009+............... 500,000
1,950,000 Independent Cities, Lease Finance
Authority, Series 88,
3.200% due 06/01/1998+............... 1,950,000
Los Angeles County:
2,400,000 MFHR, Studio Colony, Series C,
3.250% due 05/01/2007+............... 2,400,000
400,000 Museum of Art, Series 85A,
3.400% due 11/01/2005+............... 400,000
2,500,000 TRAN, Series 95,
4.500% due 07/01/1996................ 2,500,000
2,500,000 Moreno Valley, Unified School District,
GO, TRAN, Series 96,
4.500% due 06/30/1997................ 2,511,975
300,000 Oceanside, MFHR, Riverview Springs,
Series 90A,
3.800% due 07/01/2020+............... 300,000
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<S> <C> <C>
$2,000,000 Orange County, COP, Florence Crittendon
Services, Series 90,
3.300% due 03/01/2016+............... $ 2,000,000
2,000,000 Riverside County, GO, School Financing
Authority, RAN,
4.625% due 07/17/1997................ 2,011,520
5,000,000 San Bernadino County, GO, TRAN, Series
95,
4.500% due 07/05/1996................ 5,000,268
San Francisco City and County:
2,030,000 IDR, Hoefer Scientific, Series 92A,
3.800% due 08/01/2007+............... 2,030,000
1,000,000 MFHR, Bayside Village Project, Series
85B,
3.400% due 12/01/2005+............... 1,000,000
Santa Clara:
500,000 Electric Revenue, Series 85B,
3.200% due 07/01/2010+............... 500,000
2,500,000 Unified School District, GO, TRAN,
Series 95,
4.500% due 07/10/1996................ 2,500,296
885,000 Santa Clara County Housing Authority,
MFHR, Avenida Espana Gardens,
Series 91A,
3.200% due 10/01/2021+............... 885,000
3,000,000 Turlock, Irrigation District, Series
88A,
3.100% due 01/01/2014+............... 3,000,000
2,400,000 Vallejo, IDR, Meyer Cookware, Series
93A,
3.450% due 12/01/2023+............... 2,400,000
1,420,000 Ventura, Unified School District, GO,
TRAN, Series 95,
4.750% due 07/05/1996................ 1,420,111
-----------
TOTAL INVESTMENTS (COST $57,336,220*)....... 111.6% 57,336,220
OTHER ASSETS AND LIABILITIES (NET).......... (11.6) (5,967,408)
----- -----------
NET ASSETS.................................. 100.0% $51,368,812
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
+ Variable rate demand notes payable upon not more than seven calendar days'
notice. The interest rate shown reflects the rate currently in effect.
<TABLE>
<S> <C>
GLOSSARY OF TERMS
COP -- Certificates of Participation
GO -- General Obligation Bonds
IDR -- Industrial Development Revenue
MFHR -- Multi-family Housing Revenue
RAN -- Revenue Anticipation Note
TRAN -- Tax and Revenue Anticipation Note
</TABLE>
See Notes to Financial Statements.
FS-36
<PAGE> 309
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SHORT TERM HIGH QUALITY BOND FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<S> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 26.4%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) -- 16.3%
$ 299,399 #038720, Seasoned,
11.000% due 02/15/2010**............. $ 333,180
240,893 #130183, Seasoned,
11.000% due 05/15/2015**............. 268,177
229,876 #131917, Seasoned,
11.000% due 10/15/2015............... 255,911
160,831 #132833, Seasoned,
11.000% due 12/15/2015............... 179,252
110,452 #139704, Seasoned,
11.000% due 11/15/2015............... 123,103
230,506 #140835, Seasoned,
11.000% due 11/15/2015............... 256,276
119,270 #189482, Seasoned,
11.000% due 04/15/2020............... 133,065
1,320,660 #267824, Seasoned,
10.000% due 04/15/2018**............. 1,441,579
826,290 #279572, Seasoned,
9.000% due 12/15/2019**.............. 871,993
344,250 #291375, Seasoned,
11.000% due 08/15/2020**............. 384,714
81,069 #392937,
9.000% due 02/15/2025................ 84,844
422,474 #403698,
9.000% due 05/15/2025................ 442,144
492,456 #407180,
9.000% due 04/15/2025................ 515,385
1,031,923 #780081, Seasoned,
10.000% due 02/15/2025**............. 1,125,756
----------
Total GNMAs (Cost $6,404,131).......... 6,415,379
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) -- 6.5%
33,039 #250247,
7.500% due 02/01/2010................ 33,229
36,792 #304366,
7.500% due 07/01/2010................ 37,005
28,529 #309390,
7.500% due 06/01/2010................ 28,733
31,441 #322856,
7.500% due 10/01/2010................ 31,579
946,488 #343456,
7.500% due 05/01/2011................ 950,624
936,495 #347021,
7.500% due 05/01/2011................ 941,470
542,258 7 Year Balloon, #250235,
8.500% due 02/01/2002................ 555,472
----------
Total FNMAs (Cost $2,590,134).......... 2,578,112
----------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES
(ARM) -- 3.6%
$ 667,751 Federal Home Loan Mortgage Corporation,
#845988,
7.963% due 11/01/2021+............... $ 693,212
Federal National Mortgage Association:
333,262 #124571,
7.674% due 11/01/2022+............... 341,647
377,648 #152205,
7.363% due 01/01/2019+............... 388,211
----------
Total ARMs (Cost $1,407,851)........... 1,423,070
----------
Total U.S. Government Agency Mortgage-
Backed Securities (Cost
$10,402,116)......................... 10,416,561
----------
CORPORATE NOTES -- 25.7%
1,000,000 Bayerische Landesbank, MTN, (Inverse
Floater),
6.120% due 12/29/1997+............... 989,000
Capital One Bank Corporation:
500,000 6.875% due 04/24/2000.................. 495,755
300,000 7.000% due 04/30/2001.................. 297,501
700,000 General Motors Acceptance Corporation,
Deb.,
8.625% due 06/15/1999**.............. 735,672
330,000 Lockheed Martin Corporation,
5.875% due 03/15/1998................ 326,406
Lyondell Petrochemical Company:
175,000 8.250% due 03/15/1997.................. 177,105
925,000 10.000% due 06/01/1999................. 999,093
1,000,000 Southern National Corporation, Sub.
Note,
7.050% due 05/23/2003................ 994,990
500,000 Sun Communities Inc., Sr. Note,
7.625% due 05/01/2003................ 495,830
Taubman Realty Corporation, MTN:
300,000 7.400% due 06/10/2002.................. 304,071
500,000 7.500% due 06/15/2002.................. 481,150
Tele-Communications, Inc., Sr. Note,
200,000 9.250% due 04/15/2002.................. 212,666
500,000 9.875% due 04/01/1998.................. 524,210
500,000 Tenneco Inc.,
10.375% due 11/15/2000............... 560,705
The Money Store, Inc.:
200,000 9.160% due 09/09/1997++................ 205,130
400,000 9.160% due 09/09/1997++................ 410,260
1,500,000 7.630% due 04/15/1998++................ 1,511,955
Time Warner Inc.:
300,000 7.450% due 02/01/1998.................. 303,249
100,000 7.950% due 02/01/2000.................. 102,150
----------
Total Corporate Notes (Cost
$10,144,476)......................... 10,126,898
----------
ASSET-BACKED SECURITIES -- 23.4%
610,648 Advanta Mortgage Loan Trust, 1996-2-A1,
6.740% due 11/25/2009................ 613,763
650,000 Discover Card Trust, 1993-AB,
6.800% due 09/15/1998**.............. 650,813
EquiCredit:
27,233 1993-4-B1,
5.650% due 12/15/2008................ 25,952
25,884 1994-4-A1,
8.300% due 02/15/2002................ 25,959
</TABLE>
See Notes to Financial Statements.
FS-37
<PAGE> 310
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
SHORT TERM HIGH QUALITY BOND FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<S> <C> <C>
ASSET-BACKED SECURITIES -- (CONTINUED)
Green Tree Financial Corporation:
$ 450,000 1993-2-B2,
8.000% due 07/15/2018................ $ 450,702
900,000 1995-1-B2,
9.200% due 06/15/2025................ 943,875
500,000 1996-2-B2,
7.900% due 04/15/2027................ 480,780
398,489 Green Tree NIM, 1994-B, Class A,
7.850% due 07/15/2004................ 397,493
646,950 Green Tree Recreational, Equipment &
Consumer, 1996-A, Class A1,
5.550% due 02/15/2018................ 633,573
312,276 Green Tree Security Mortgage Trust,
1994-A,
6.900% due 02/15/2004................ 309,251
200,000 Household Affinity Credit Card, 1993,
4.950% due 03/15/1999**.............. 199,062
Merrill Lynch Mortgage Investors, Inc.:
236,261 1991-B-A,
9.200% due 04/15/2011................ 240,691
295,676 1991-I-A,
7.650% due 01/15/2012................ 298,077
838,928 1992-B-A4,
7.850% due 04/15/2012................ 848,626
1,316,575 Mid-State Trust, Series 4, Class A,
8.330% due 04/01/2030................ 1,365,891
Standard Credit Card Trust:
125,000 90-3B,
9.850% due 07/10/1998**.............. 129,101
200,000 94-1A,
4.650% due 03/07/1999**.............. 198,500
The Money Store, Inc.:
72,241 1993-D-A2,
5.075% due 02/15/2018................ 70,347
36,853 1994-D-A1,
7.625% due 10/15/2004................ 36,880
700,000 1996-A-A2,
6.330% due 06/15/2008................ 700,168
600,000 1996-B-A1,
6.720% due 02/15/2010................ 601,125
----------
Total Asset-Backed Securities (Cost
$9,258,855).......................... 9,220,629
----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 14.5%
75,000 Chemical Mortgage Securities Inc.,
1993-1-A4,
7.450% due 02/25/2023**.............. 75,023
Countrywide Funding Corporation:
114,402 1994-1-A3,
6.250% due 03/25/2024................ 107,109
1,000,000 1994-2-A8,
6.500% due 02/25/2009**.............. 994,060
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<S> <C> <C>
Countrywide Mortgage-Backed
Securities, Inc.:
$ 75,000 1994-A-A3,
6.750% due 03/25/2024**.............. $ 72,703
170,000 1994-C-A5,
6.375% due 03/25/2024**.............. 160,330
Federal Home Loan Mortgage Corporation
(FHLMC), P/O:
376,118 #167-A,
Zero coupon due 05/01/1999........... 326,870
754,886 REMIC, #1719-C,
Zero coupon due 04/15/1999........... 660,526
279,195 Federal National Mortgage Association
(FNMA), REMIC, 1992-121-C,
7.000% due 07/25/1999................ 278,408
690,171 Fund America Investors Corporation,
1991-1-H,
7.950% due 02/20/2020**.............. 698,577
598,555 General Electric Capital Mortgage
Association, 1994-27-A1,
6.500% due 07/25/2024**.............. 591,773
Prudential Home Mortgage Securities:
344,965 1992-47,
7.500% due 01/25/2023................ 344,534
1,069,603 1993-43-A1,
5.400% due 10/25/2023................ 1,044,531
264,359 Ryland Acceptance Corporation,
8.950% due 08/20/2019................ 273,363
100,000 Sears Mortgage Securities Corporation,
1993-11-T4,
7.125% due 11/25/2020**.............. 97,625
----------
Total Collateralized Mortgage
Obligations
(Cost $5,770,383).................... 5,725,432
----------
FOREIGN BOND -- 6.7% (Cost $2,637,679)
NZD 3,850,000 Government of New Zealand,
9.000% due 11/15/1996........... 2,636,681
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 3.2%
800,000 Federal Home Loan Bank (FHLB),
(Coupon rate is 6.250% until
06/30/1997),
7.250% due 06/11/1999........... 802,192
425,000 Federal National Mortgage
Association (FNMA), (Inverse
Floater),
9.901% due 12/29/1997+.......... 441,469
------------
Total U.S. Government Agency
Obligations (Cost $1,234,659)... 1,243,661
------------
COMMERCIAL PAPER -- 0.6% (Cost $236,000)
236,000 General Electric Capital
Corporation,
5.560% due 07/01/1996........... 236,000
------------
</TABLE>
See Notes to Financial Statements.
FS-38
<PAGE> 311
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
SHORT TERM HIGH QUALITY BOND FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL EXPIRATION STRIKE VALUE
AMOUNT DATE PRICE (NOTE 2)
- --------------- ----------- ------ -----------
<S> <C> <C> <C> <C>
PUT OPTION PURCHASED ON FOREIGN
CURRENCY -- 0.0% # (Cost $31,854)
NZD 4,006,839 New Zealand $ 16,470
Dollar Put..... 11/13/1996 $0.660
----------
TOTAL INVESTMENTS (COST $39,716,022*).......... 100.5% 39,622,332
CALL OPTION WRITTEN ON FOREIGN
CURRENCY -- (0.0)%#
(Premium received $31,854)
NZD 4,006,839 New Zealand (27,977)
Dollar Call.... 11/13/1996 $0.685
OTHER ASSETS AND LIABILITIES (Net)............. (0.5)% (186,629)
---- ----------
NET ASSETS..................................... 100.0% $39,407,726
---- ----------
---- ----------
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
** A portion or all of this security is pledged as collateral for options and
futures contracts.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
# Amount represents less than 0.1% of net assets.
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS (DEPRECIATION)
- --------- --------------
<S> <C> <C>
FUTURES CONTRACTS -- SHORT POSITION
50 U.S. Treasury Note, Five Year,
September 1996........................... $ (68,109)
33 U.S. Treasury Note, Ten Year,
September 1996........................... (65,642)
----------
Net Unrealized Depreciation of Futures
Contracts -- Short Position.............. $ (133,751)
----------
----------
GLOSSARY OF TERMS
BALLOON -- Five- and seven-year mortgages with larger
dollar amounts of payments falling due in the
later years of the obligation
MTN -- Medium Term Note
NZD -- New Zealand Dollar
P/O -- Principal Only
REMIC -- Real Estate Mortgage Investment Conduit
</TABLE>
See Notes to Financial Statements.
FS-39
<PAGE> 312
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SHORT TERM GLOBAL GOVERNMENT FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------------ ------------
<S> <C> <C>
FOREIGN BONDS AND NOTES -- 73.6%
GERMAN DEUTSCHE MARK BONDS -- 12.5%
DEM 4,720,000 Deutchmark Bank,
4.500% due 04/02/1998........ $ 3,122,870
Federal Republic of Germany:
6,700,000 6.000% due 02/20/1998.......... 4,539,513
1,565,000 5.250% due 10/20/1998.......... 1,049,440
------------
Total German Deutsche Mark
Bonds (Cost $8,429,399)...... 8,711,823
------------
ITALIAN LIRA BONDS -- 12.0%
Italian Treasury Bonds:
ITL 5,200,000,000 8.500% due 08/01/1997.......... 3,393,112
7,500,000,000 8.500% due 01/01/1999.......... 4,929,166
------------
Total Italian Lira Bonds
(Cost $7,594,322)............ 8,322,278
------------
DANISH KRONER BONDS -- 10.6%
Kingdom of Denmark:
DKK 8,600,000 5.250% due 08/10/1996.......... 1,469,148
10,900,000 9.000% due 11/15/1996.......... 1,861,874
22,000,000 9.000% due 11/15/1998.......... 4,081,545
------------
Total Danish Kroner Bonds
(Cost $7,367,523)............ 7,412,567
------------
SWEDISH KRONA BOND -- 7.7% (Cost $4,418,952)
SEK 32,000,000 Kingdom of Sweden,
11.000% due 01/21/1999....... 5,333,953
------------
AUSTRALIAN DOLLAR BOND AND NOTE -- 7.1%
AUD 3,800,000 Commonwealth of Australia,
7.000% due 08/15/1998........ 2,920,235
2,600,000 New South Wales Treasury Note,
7.500% due 02/01/1998........ 2,039,216
------------
Total Australian Dollar Bond
and
Note (Cost $4,828,782)....... 4,959,451
------------
NEW ZEALAND DOLLAR BOND -- 6.3% (Cost $4,427,565)
NZD 6,500,000 Government of New Zealand,
8.000% due 07/15/1998........ 4,362,315
------------
GREAT BRITAIN POUND STERLING NOTES -- 5.5%
GBP 1,250,000 Abbey National Treasury Note,
6.000% due 08/10/1999........ 1,877,460
1,280,000 United Kingdom Treasury Note,
7.000% due 11/06/2001........ 1,957,419
------------
Total Great Britain Pound
Sterling
Notes (Cost $3,785,675)...... 3,834,879
------------
SPANISH PESETA BOND -- 4.9% (Cost $3,440,422)
ESP 408,000,000 Government of Spain,
11.450% due 08/30/1998....... 3,432,166
------------
NETHERLANDS GUILDER BONDS -- 3.9%
Government of Netherlands:
NLG 3,375,000 6.250% due 07/15/1998.......... 2,060,026
1,000,000 7.500% due 06/15/1999.......... 630,314
------------
Total Netherlands Guilder Bonds
(Cost $2,830,483)............ 2,690,340
------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------------ ------------
<S> <C> <C>
CANADIAN DOLLAR BOND -- 3.1% (Cost $2,120,699)
CAD 2,900,000 Government of Canada,
6.500% due 09/01/1998........ $ 2,136,261
------------
Total Foreign Bonds and Notes
(Cost $49,243,822)........... 51,196,033
------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES -- 7.1%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) -- 6.1% (Cost $4,237,742)
$ 3,890,020 Pass-through certificates,
10.000% due 03/15/2018-
02/15/2021................... 4,242,135
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) -- 1.0% (Cost $674,945)
661,684 #141461,
7.667% due 11/01/2021+....... 678,332
------------
Total U.S. Government Agency
Mortgage-Backed Securities
(Cost $4,912,687)............ 4,920,467
------------
ASSET-BACKED SECURITIES -- 5.3%
2,974,058 Green Tree Security Mortgage
Trust, 1994-A,
6.900% due 02/15/2004........ 2,945,247
288,603 Household Finance Corporation,
1992-2SRS-A3,
5.250% due 10/20/2007........ 286,979
279,643 Merrill Lynch Mortgage
Investors, Inc., 1992-B-A4,
7.850% due 04/15/2012........ 282,875
155,740 Old Stone Credit Corporation,
1992-A4,
6.550% due 11/25/2007........ 153,380
------------
Total Asset-Backed Securities
(Cost $3,693,955)............ 3,668,481
------------
CORPORATE BOND AND NOTE -- 4.3%
1,000,000 Sun Communities Inc., Sr. Note,
7.625% due 05/01/2003........ 991,660
2,000,000 USAT Holdings,
9.050% due 05/15/1998++...... 1,960,000
------------
Total Corporate Bond and Note
(Cost $2,996,967)............ 2,951,660
------------
U.S. TREASURY NOTE -- 2.1% (Cost $1,481,573)
1,500,000 5.125% due 03/31/1998**........ 1,477,620
------------
COMMERCIAL PAPER -- 3.7% (Cost $2,590,000)
2,590,000 Ford Motor Credit Company,
5.500% due 07/01/1996........ 2,590,000
------------
</TABLE>
See Notes to Financial Statements.
FS-40
<PAGE> 313
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
SHORT TERM GLOBAL GOVERNMENT FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL EXPIRATION STRIKE VALUE
AMOUNT DATE PRICE (NOTE 2)
- ------------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
OPTIONS PURCHASED -- 0.4%
PUT OPTIONS PURCHASED ON FOREIGN CURRENCY -- 0.2%
DEM 8,600,000 German Deutsche $ 61,888
Mark Put......... 07/12/1996 $ 1.510
FRF 25,000,000 French Franc 21,625
Put.............. 07/17/1996 5.150
SEK 9,000,000 Swedish Krona 1
Put.............. 07/22/1996 7.124
NZD 6,622,115 New Zealand Dollar 901
Put.............. 08/12/1996 0.655
ITL 12,500,000,000 Italian Lira 2,375
Put.............. 08/21/1996 1,596.500
NZD 7,650,000 New Zealand Dollar 3,218
Put.............. 08/21/1996 0.658
SEK 29,200,000 Swedish Krona 6,094
Put.............. 08/21/1996 6.984
FRF 27,000,000 French Franc 30,348
Put.............. 11/12/1996 5.290
-----------
Total Put Options Purchased on Foreign
Currency (Cost $369,677).................. 126,450
-----------
<CAPTION>
NUMBER OF
CONTRACTS
- -------------------
<S> <C> <C> <C> <C>
CALL OPTIONS PURCHASED ON FOREIGN INTEREST RATE
FUTURES -- 0.2%
50 Euro Dollar 17,500
Call............. 09/30/1996 $ 94.250
75 Euro Dollar 46,875
Call............. 12/31/1996 94.000
75 Euro Dollar 80,625
Call............. 03/31/1997 93.750
-----------
Total Call Options Purchased on Foreign
Interest Rate Futures (Cost $168,875)..... 145,000
-----------
Total Options Purchased (Cost $538,552).... 271,450
-----------
TOTAL INVESTMENTS (COST $65,457,556*)............... 96.5% 67,075,711
-----------
<CAPTION>
PRINCIPAL
AMOUNT
- -------------------
<S> <C> <C> <C> <C>
OPTIONS WRITTEN -- (0.4)%
CALL OPTIONS WRITTEN ON FOREIGN CURRENCY -- (0.4)%
SEK 9,000,000 Swedish Krona (26,100)
Call............. 07/22/1996 $ 6.748
NZD 6,622,115 New Zealand Dollar (65,179)
Call............. 08/12/1996 0.676
ITL 12,500,000,000 Italian Lira (86,250)
Call............. 08/21/1996 1,550.770
SEK 29,200,000 Swedish Krona (65,290)
Call............. 08/21/1996 6.655
AUD 6,364,110 Australian Dollar (47,094)
Call............. 09/06/1996 0.786
-----------
Total Call Options Written on Foreign
Currency (Premiums received $194,487)..... (289,913)
-----------
OTHER ASSETS AND LIABILITIES (Net).................. 3.9% 2,745,590
------ -----------
NET ASSETS.......................................... 100.0% $69,531,388
====== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
** A portion of this security is pledged as collateral for options.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE UNREALIZED
---------------------------------------------- APPRECIATION/
EXPIRATION VALUE IN IN EXCHANGE (DEPRECIATION)
DATE LOCAL CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ----------- --------------- ----------- ------------ ------------------
<S> <C> <C> <C> <C>
08/20/1996 DEM 7,408,377 4,887,634 4,956,000 $(68,366)
08/20/1996 DEM 4,825,000 3,183,266 3,159,791 23,475
08/20/1996 DEM 16,126,583 10,639,419 10,604,710 34,709
09/18/1996 DEM 2,444,744 1,615,753 1,610,631 5,122
09/18/1996 NLG 3,929,864 2,317,886 2,317,000 886
--------
$ (4,174)
--------
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<CAPTION>
CONTRACTS TO DELIVER UNREALIZED
---------------------------------------------- APPRECIATION/
EXPIRATION VALUE IN IN EXCHANGE (DEPRECIATION)
DATE LOCAL CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ----------- --------------- ----------- ------------ ------------------
<S> <C> <C> <C> <C>
07/05/1996 FRF 6,972,931 1,355,666 1,348,390 $ (7,276)
08/20/1996 DEM 3,113,310 2,053,988 2,141,351 87,363
08/20/1996 DEM 18,746,650 12,367,993 13,000,000 632,007
08/20/1996 DEM 6,500,000 4,288,337 4,288,730 393
08/22/1996 BEF 41,306,140 1,324,400 1,386,112 61,712
09/10/1996 GBP 1,500,000 2,330,376 2,312,363 (18,013)
09/13/1996 CHF 5,082,530 4,092,254 4,296,306 204,052
09/18/1996 DEM 2,444,744 1,615,753 1,649,514 33,761
09/18/1996 NLG 20,798,957 12,267,500 12,251,085 (16,415)
--------
$977,584
--------
Net Unrealized Appreciation of Forward
Foreign Currency Contracts.................... $973,410
========
GLOSSARY OF TERMS
AUD -- Australian Dollar
BEF -- Belgian Franc
CAD -- Canadian Dollar
CHF -- Swiss Franc
DEM -- German Deutsche Mark
DKK -- Danish Kroner
ESP -- Spanish Peseta
FRF -- French Franc
GBP -- Great Britain Pound Sterling
ITL -- Italian Lira
NLG -- Netherlands Guilder
NZD -- New Zealand Dollar
SEK -- Swedish Krona
</TABLE>
See Notes to Financial Statements.
FS-41
<PAGE> 314
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
U.S. GOVERNMENT FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES -- 103.1%
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) -- 53.0%
$67,282,048 6.500% due 08/01/2010-10/01/2025**... $ 65,051,424
3,968,449 7.000% due 07/01/2024-02/01/2026**... 3,825,914
31,620,564 7.500% due 05/01/2010-01/01/2011**... 31,831,677
4,676,637 8.500% due 04/01/2019**.............. 4,849,064
1,400,318 8.750% due 01/01/2013**.............. 1,452,648
17,512,074 9.000% due 12/01/2008-08/01/2022**... 18,385,187
1,200,952 9.500% due 06/01/2015-05/01/2017**... 1,284,363
472,177 10.500% due
09/01/2009-05/01/2019**............ 517,034
90,209 10.750% due 12/01/2012**............. 98,735
175,768 11.000% due
09/01/2015-02/01/2016**............ 194,970
213,961 11.750% due 07/01/2013**............. 238,395
47,438 12.000% due 01/01/2015**............. 54,227
18,450,000 Commitment to Purchase, GOLD,
6.500% due 04/11/2011.............. 17,873,438
42,500,000 Commitment to Purchase, GOLD,
6.500% due 04/01/2025.............. 39,857,031
70,000,000 Commitment to Purchase, GOLD,
7.500% due 04/16/2011.............. 70,437,500
-----------
Total FHLMCs (Cost $257,886,440)..... 255,951,607
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) -- 29.3%
71,730,448 7.000% due 08/15/2025-05/15/2026**... 68,771,567
60,654,858 9.000% due 04/15/2016-06/15/2022**... 64,109,248
6,024,829 9.500% due 04/15/2016-11/15/2017**... 6,481,641
1,242,503 10.000% due
02/15/2019-12/15/2020**............ 1,354,533
371,128 10.500% due
09/15/2018-07/15/2020**............ 409,361
98,252 11.000% due
07/15/2018-12/15/2019**............ 109,715
-----------
Total GNMAs (Cost $141,735,544)...... 141,236,065
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) -- 12.3%
44,207 5.500% due 02/01/2009**.............. 41,264
4,465,372 7.000% due 06/01/2010-11/01/2010**... 4,411,782
12,683,000 8.000% due 05/01/2017-01/01/2025**... 12,924,797
13,711,539 8.500% due 11/01/2017-09/01/2025**... 14,146,905
4,449,163 9.000% due 06/01/2016-06/01/2021**... 4,675,241
9,873,306 10.000% due
04/01/2016-05/01/2022**............ 10,753,491
157,804 10.500% due 06/01/2020**............. 173,042
368,877 11.500% due
03/01/2011-07/01/2015**............ 414,582
12,000,000 Commitment to Purchase,
7.000% due 02/15/2011.............. 11,846,250
-----------
Total FNMAs (Cost $59,025,081)....... 59,387,354
-----------
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES
(ARM) -- 7.7%
2,048,201 Federal Home Loan Mortgage
Corporation,
7.373% due 04/01/2029+**........... 2,095,248
Federal National Mortgage
Association:
1,894,075 7.250% due 05/01/2019+**............. 1,961,257
2,533,856 7.050% due 01/01/2020+**............. 2,598,799
5,808,776 7.241% due 09/01/2025+**............. 5,965,787
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
Government National Mortgage
Association II:
$17,927,291 7.000% due 08/20/2003-09/20/2023+**.. $ 18,148,514
6,600,000 Commitment to Purchase,
6.000% due 07/20/2026+#.......... 6,540,188
-----------
Total ARMs (Cost $37,005,656)........ 37,309,793
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION II
(GNMA II) -- 0.8%
1,627,902 9.500% due 02/20/2017-03/20/2021**... 1,731,918
300,203 10.000% due 07/20/2019**............. 323,559
134,815 10.500% due
09/20/2019-11/20/2019**............ 148,811
1,144,721 11.000% due
06/20/2019-07/20/2020**............ 1,279,438
70,383 11.500% due 08/20/2019**............. 79,643
-----------
Total GNMA IIs (Cost $3,377,864)..... 3,563,369
-----------
Total U.S. Government Agency
Mortgage-Backed Securities
(Cost $499,030,585)................ 497,448,188
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 9.1%
6,961,991 Asset Securitization Corporation,
Series 96-D2, Class A1,
6.920% due 02/14/2029**............ 6,742,764
57,455 Federal Home Loan Mortgage
Corporation (FHLMC), REMIC,
Pass-through certificates, Series
1551, Class H, (I/O),
1155.758% due 05/15/2001**......... 297,385
Federal National Mortgage Association
(FNMA), REMIC, Pass-through
certificates:
4,000,000 Trust 89-18, Class-C,
9.500% due 04/25/2004**............ 4,386,240
92,797 Trust 90-98, Class K, (I/O),
949.3846% due 08/25/2020**......... 1,618,259
34,510 Trust 90-133, Class K, (I/O),
1009.500% due 11/25/2020**......... 1,093,151
1,322,054 Trust 92-83, Class X,
7.000% due 02/25/2022**............ 1,174,553
5,000,000 Trust 93-4, Class 4-HB,
11.000% due 01/25/2019**........... 5,743,750
13,812,018 Trust 93-161, Class E, P/O,
Zero coupon due 02/25/2023**....... 8,244,048
5,000,000 JP Morgan Commercial Mortgage Finance
Corporation, Series 96-C3, Class
A1,
7.330% due 04/25/2028**............ 4,990,625
10,000,000 Merrill Lynch Mortgage Investors,
Inc., 1996-CL, Class A3,
7.420% due 04/25/2028**............ 9,909,158
-----------
Total Collateralized Mortgage
Obligations (Cost $43,297,484)..... 44,199,933
-----------
</TABLE>
See Notes to Financial Statements.
FS-42
<PAGE> 315
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
U.S. GOVERNMENT FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 5.2%
SMALL BUSINESS ADMINISTRATION (SBA) -- 5.0%
$ 5,000,000 7.350% due 08/01/2005**.............. $ 4,945,313
2,969,372 8.500% due 01/01/2015**.............. 3,129,440
8,635,701 6.850% due 10/01/2015**.............. 8,314,561
4,000,000 7.600% due 05/01/2016**.............. 4,040,000
4,000,000 7.550% due 06/01/2016**.............. 4,015,000
------------
Total SBAs (Cost $24,765,249)........ 24,444,314
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) -- 0.2% (Cost $1,028,438)
1,000,000 9.550% due 12/10/1997**.............. 1,047,190
------------
Total U.S. Government Agency
Obligations (Cost $25,793,687)..... 25,491,504
------------
U.S. TREASURY OBLIGATIONS -- 4.2%
U.S. TREASURY BONDS -- 3.0%
8,855,000 8.750% due 08/15/2020**.............. 10,592,794
4,105,000 6.250% due 08/15/2023**.............. 3,721,429
------------
Total U.S. Treasury Bonds
(Cost $14,466,874)................. 14,314,223
------------
U.S. TREASURY NOTES -- 1.2%
700,000 5.375% due 11/30/1997**.............. 694,204
750,000 7.250% due 02/15/1998**.............. 763,245
4,200,000 6.000% due 05/31/1998**.............. 4,190,802
------------
Total U.S. Treasury Notes
(Cost $5,652,429).................. 5,648,251
------------
Total U.S. Treasury Obligations
(Cost $20,119,303)................. 19,962,474
------------
ASSET-BACKED SECURITIES -- 2.7%
5,000,000 Discover Card Trust, 1994-2A,
5.850% due 10/16/2004+**........... 5,034,350
5,000,000 First Chicago Master Trust II,
Series 94-J, Class A,
5.720% due 01/16/2001+**........... 5,012,500
3,000,000 New York City Housing Development
Corporation, Series 96,
6.750% due 06/25/2006**............ 2,902,031
------------
Total Asset-Backed Securities
(Cost $12,951,658)................. 12,948,881
------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTE -- 7.4%
(Cost $35,600,000)
35,600,000 Federal Home Loan Bank (FHLB),
5.520% due 07/01/1996++**.......... 35,600,000
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION STRIKE VALUE
CONTRACTS DATE PRICE (NOTE 2)
--------- ---------- ------- -------------
<S> <C> <C> <C> <C>
CALL OPTION PURCHASED ON U.S. TREASURY BOND
FUTURES -- 0.4% (Cost $894,066)
675 U.S. Treasury
Bond Call......... 08/24/1996 $105.00 $ 1,930,078
------
TOTAL INVESTMENTS (COST $637,686,783*).... 132.1% 637,581,058
OTHER ASSETS AND LIABILITIES (NET)........ (32.1) (154,963,737)
----- -------------
NET ASSETS................................ 100.0% $ 482,617,321
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $638,504,512 (Note 6).
** Securities are pledged as collateral for futures contracts, dollar roll
transactions and when-issued securities.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
++ Rate represents annualized yield at date of purchase (unaudited).
# Security purchased on a when-issued basis (Note 2).
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS APPRECIATION
- ---------- --------------
<S> <C> <C>
FUTURES CONTRACTS -- LONG POSITION
10 U.S. Treasury Note, Five Year,
September 1996..................... $ 5,938
============
<CAPTION>
UNREALIZED
(DEPRECIATION)
--------------
<S> <C> <C>
FUTURES CONTRACTS -- SHORT POSITION
2 U.S. Treasury Note, Two Year,
September 1996..................... $ (2,447)
139 U.S. Treasury Note, Ten Year,
September 1996..................... (331,660)
643 U.S. Treasury Bond, Twenty Year,
September 1996..................... (1,455,841)
------------
Net Unrealized Depreciation of
Futures Contracts -- Short
Position........................... $ (1,789,948)
============
GLOSSARY OF TERMS
GOLD -- Payments are on an accelerated 45-day
payment cycle instead of 75-day cycle
I/O -- Interest Only
P/O -- Principal Only
REMIC -- Real Estate Mortgage Investment Conduit
</TABLE>
See Notes to Financial Statements.
FS-43
<PAGE> 316
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
CORPORATE INCOME FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------ ------------
<S> <C> <C>
CORPORATE BONDS AND NOTES -- 92.9%
MANUFACTURING -- 18.3%
$ 4,000,000 Boeing Company, Deb.,
8.750% due 08/15/2021**............ $ 4,550,000
5,000,000 Caterpillar Inc., Sinking Fund Deb.,
9.750% due 06/01/2019.............. 5,575,000
Ford Motor Company, Deb.:
3,750,000 8.875% due 01/15/2022................ 4,214,062
8,000,000 8.875% due 11/15/2022................ 8,520,000
14,500,000 General Motors Corporation, Deb.,
9.400% due 07/15/2021.............. 16,983,125
7,800,000 Textron Inc., Deb.,
8.750% due 07/01/2022.............. 8,229,000
10,450,000 Tyco Laboratories, Inc., Deb.,
9.500% due 05/01/2022.............. 12,030,563
1,000,000 V.F. Corporation, Note,
9.500% due 05/01/2001.............. 1,100,000
------------
61,201,750
------------
INDUSTRIAL -- 12.0%
2,000,000 AMAX Inc., Note,
9.875% due 06/13/2001.............. 2,230,000
6,000,000 Circus Circus Enterprises Inc., Sr.
Note,
6.450% due 02/01/2006.............. 5,557,500
6,030,000 Conrail Inc., Deb.,
9.750% due 06/15/2020.............. 7,386,750
5,000,000 du Pont (E.I.) de Nemours & Company,
Deb.,
8.250% due 01/15/2022**............ 5,137,500
5,000,000 Northrop Grumman Corporation, Deb.,
9.375% due 10/15/2024.............. 5,300,000
6,500,000 Ogden Corporation, Deb.,
9.250% due 03/01/2022.............. 7,280,000
6,860,000 Praxair, Inc., Deb.,
8.700% due 07/15/2022.............. 7,357,350
------------
40,249,100
------------
FOREST PRODUCTS -- 9.1%
6,351,000 Boise Cascade Corporation, Deb.,
9.450% due 11/01/2009.............. 7,176,630
3,010,000 Federal Paper Board Company, Deb.,
10.000% due 04/15/2011............. 3,657,150
Georgia-Pacific Corporation, Deb.:
5,000,000 9.875% due 11/01/2021................ 5,512,500
7,000,000 9.500% due 05/15/2022................ 7,516,250
6,000,000 James River Corporation, Deb.,
9.250% due 11/15/2021.............. 6,720,000
------------
30,582,530
------------
YANKEE (U.S. DOLLAR DENOMINATED) -- 7.3%
8,400,000 Laidlaw Inc., Deb.,
8.250% due 05/15/2023.............. 8,568,000
8,500,000 Petro-Canada, Deb.,
9.250% due 10/15/2021.............. 9,860,000
5,750,000 Trans-Canada Pipeline Corporation,
Deb.,
8.500% due 03/20/2023.............. 5,951,250
------------
24,379,250
------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------ ------------
<S> <C> <C>
ELECTRIC -- 6.5%
$ 5,000,000 Louisiana Power & Light Company,
First Mortgage,
8.500% due 07/01/2022.............. $ 4,950,000
5,000,000 Mississippi Power & Light Company,
First and Refundable Mortgage,
8.650% due 01/15/2023.............. 5,287,500
5,000,000 Philadelphia Electric Company, First
and Refundable Mortgage,
8.250% due 09/01/2022.............. 4,956,250
Texas Utilities Electric Company,
First Mortgage:
1,200,000 8.875% due 02/01/2022................ 1,263,000
3,000,000 8.750% due 11/01/2023................ 3,142,500
2,050,000 Utilicorp United Inc., Sr. Note,
10.500% due 12/01/2020............. 2,275,500
------------
21,874,750
------------
REGIONAL BANKS -- 6.4%
400,000 Banc One Corporation, Sub. Note,
10.000% due 08/15/2010............. 486,500
1,000,000 Barnett Banks, Florida, Inc., Sub.
Note,
10.875% due 03/15/2003............. 1,193,750
1,100,000 First Interstate Bancorp, Sub. Note,
9.125% due 02/01/2004.............. 1,216,875
1,000,000 Mellon Financial Company, Sub. Deb.,
9.750% due 06/15/2001.............. 1,117,500
NCNB Corporation, Sub. Note:
4,200,000 9.375% due 09/15/2009................ 4,845,750
10,125,000 10.200% due 07/15/2015**............. 12,605,625
------------
21,466,000
------------
TRANSPORTATION -- 6.3%
2,000,000 American Airlines Inc., Pass-through
certificates, Series A,
8.040% due 09/16/2011.............. 1,935,000
4,775,000 Carnival Corporation, Deb.,
7.200% due 10/01/2023**............ 4,345,250
United Air Lines Inc.:
5,000,000 Equipment Trust certificates,
10.850% due 07/05/2014............. 5,968,750
Pass-through certificates:
3,000,000 9.080% due 10/26/2015................ 3,097,500
5,500,000 9.560% due 10/19/2018................ 5,946,875
------------
21,293,375
------------
ENERGY -- 6.2%
2,850,000 BP America Inc., Guaranteed Deb.,
(British Petroleum Company),
10.000% due 07/01/2018............. 3,106,500
8,700,000 Occidental Petroleum Corporation,
Sr. Deb.,
11.125% due 08/01/2010............. 11,157,750
5,950,000 Phillips Petroleum Company, Deb.,
9.180% due 09/15/2021.............. 6,411,125
------------
20,675,375
------------
</TABLE>
See Notes to Financial Statements.
FS-44
<PAGE> 317
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
CORPORATE INCOME FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------ ------------
<S> <C> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
FINANCIAL -- 6.1%
American General Corporation:
$ 2,000,000 9.625% due 02/01/2018................ $ 2,165,000
3,425,000 Sinking Fund Deb.,
7.500% due 07/15/2025.............. 3,330,813
Barclays North American Capital
Corporation, Capital Note:
1,000,000 10.500% due 12/15/2017**............. 1,101,250
9,000,000 9.750% due 05/15/2021**.............. 10,271,250
2,000,000 Ford Holdings, Inc., Deb.,
9.375% due 03/01/2020**............ 2,340,000
1,000,000 GATX Leasing Corporation, MTN,
10.000% due 03/21/2001............. 1,116,250
------------
20,324,563
------------
MEDIA -- 5.5%
Tele-Communications, Inc.:
Sr. Deb.:
2,000,000 9.800% due 02/01/2012................ 2,150,000
3,950,000 9.250% due 01/15/2023................ 3,930,250
4,000,000 Sr. Note,
9.250% due 04/15/2002................ 4,250,000
7,760,000 Time Warner Inc., Deb.,
9.150% due 02/01/2023.............. 8,089,800
------------
18,420,050
------------
GAS -- 5.2%
12,625,000 ANR Pipeline Company, Deb.,
9.625% due 11/01/2021.............. 14,897,500
2,500,000 Panhandle Eastern Pipe Line Company,
Deb.,
8.625% due 04/15/2025.............. 2,553,125
------------
17,450,625
------------
RETAIL -- 3.6%
May Department Stores Company, Deb.:
1,500,000 9.875% due 06/15/2021**.............. 1,726,875
10,100,000 8.375% due 10/01/2022**.............. 10,314,625
------------
12,041,500
------------
TELECOMMUNICATIONS -- 0.4%
GTE Corporation:
250,000 Deb.,
10.300% due 11/15/2017............. 273,125
1,000,000 Sinking Fund Deb.,
10.750% due 09/15/2017............. 1,092,500
------------
1,365,625
------------
Total Corporate Bonds and Notes
(Cost $304,131,431)................ 311,324,493
------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------ ------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 15.0%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 7.1%
Commitment to Purchase:
$ 9,000,000 7.500% due 07/01/2011................ $ 9,047,812
15,000,000 7.500% due 07/01/2026................ 14,789,063
------------
Total FNMAs (Cost $23,637,188)....... 23,836,875
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) -- 6.8% (Cost $22,453,750)
23,000,000 Commitment to Purchase, GOLD,
7.500% due 07/01/2026.............. 22,647,812
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 1.1%
GOLD:
2,395,843 #C00362,
9.000% due 06/01/2024.............. 2,498,415
1,230,791 #C80253,
9.000% due 01/01/2025.............. 1,283,484
------------
Total FHLMCs (Cost $3,730,901)....... 3,781,899
------------
Total U.S. Government Agency
Mortgage-Backed Securities (Cost
$49,821,839)....................... 50,266,586
------------
U.S. TREASURY BOND -- 2.6% (Cost $8,687,813)
6,000,000 13.750% due 08/15/2004............... 8,620,259
------------
<CAPTION>
SHARES
- ------------
<C> <S> <C>
INVESTMENT COMPANY SECURITY -- 0.1% (Cost $378,750)
378,750 Lehman Provident Tempfund............ 378,750
------------
TOTAL INVESTMENTS (COST $363,019,833*)..... 110.6% 370,590,088
OTHER ASSETS AND LIABILITIES (NET)......... (10.6) (35,455,769)
----- ------------
NET ASSETS................................. 100.0% $335,134,319
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
** Security is pledged as collateral for dollar roll transactions.
<TABLE>
<S> <C>
GLOSSARY OF TERMS
GOLD -- Payments are on an accelerated 45-day
payment cycle instead of 75-day cycle
MTN -- Medium Term Note
</TABLE>
See Notes to Financial Statements.
FS-45
<PAGE> 318
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
CALIFORNIA MUNICIPAL FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS AND NOTES -- 98.9%
CALIFORNIA -- 98.7%
Alameda, Improvement Board Act of
1915, Marina Village Assessment
District, Series 89-1:
$ 3,075,000 7.650% due 09/02/2013................ $ 3,167,311
3,310,000 7.650% due 09/02/2014................ 3,409,101
5,360,000 Alhambra, Improvement Board Act of
1915, Assessment District No. 1,
Public Works, (MBIA Insured),
6.125% due 09/02/2018.............. 5,453,800
4,000,000 Anaheim, Public Financing Authority
Revenue, Residual Interest Bond,
(MBIA Insured),
6.450% due 12/28/2018+............. 4,215,000
1,000,000 Arcadia, Hospital Revenue Authority,
(Methodist Hospital),
6.500% due 11/15/2012.............. 1,012,500
2,000,000 Barstow Redevelopment Agency, Central
Redevelopment Project, Tax
Allocation, Series A, (MBIA
Insured),
7.000% due 09/01/2014.............. 2,302,500
1,000,000 Brea & Olinda, Unified School
District, (High School Refinancing
Project), COP, Series A, (FSA
Insured),
6.000% due 08/01/2009.............. 1,028,750
1,535,000 Brisbane, (Capital Improvement
Refinancing Project), COP,
6.000% due 04/01/2018.............. 1,437,144
California Educational Facilities
Authority Revenue:
4,795,000 (College of Osteopathic Medicine),
7.500% due 06/01/2018.............. 5,508,256
(University LaVerne):
705,000 5.700% due 04/01/2001................ 704,119
2,000,000 6.300% due 04/01/2009................ 1,980,000
California Health Facilities
Authority Revenue:
2,140,000 (Aids Healthcare Foundation), Series
C,
6.250% due 09/01/2017.............. 2,140,000
1,000,000 (Kaiser Permanent), Series A,
7.000% due 12/01/2010.............. 1,078,750
4,000,000 (R.F. Kennedy Medical Center),
(State Insured),
7.750% due 03/01/2014.............. 4,310,000
California Housing Finance Agency,
Home Ownership & Improvement
Revenue, AMT:
1,895,000 Series 1988G,
8.150% due 08/01/2019.............. 1,954,219
3,105,000 Series 1989D,
7.500% due 08/01/2020.............. 3,236,962
5,010,000 Series C,
6.650% due 08/01/2014.............. 5,179,087
665,000 Series D, (MBIA Insured),
6.300% due 08/01/2014.............. 670,819
2,630,000 Series F, (MBIA Insured),
6.800% due 08/01/2014.............. 2,754,925
4,370,000 Series F-2,
7.250% due 08/01/2016.............. 4,561,187
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
California Pollution Control
Financing Authority, PCR, AMT:
$ 1,000,000 (Keller Canyon Landfill Company
Project),
6.875% due 11/01/2027.............. $ 1,037,500
5,000,000 (Pacific Gas and Electric), Series B,
(AMBAC Insured),
8.875% due 01/01/2010.............. 5,393,750
4,000,000 (San Diego Gas and Electric), Series
A, (AMBAC Insured),
5.850% due 06/01/2021.............. 3,890,000
(Southern California Edison Company):
4,000,000 (AMBAC Insured),
6.000% due 07/01/2027+............. 3,950,000
13,250,000 Series B, (AMBAC Insured),
6.400% due 12/01/2024.............. 13,713,750
5,000,000 Series B, (FGIC Insured),
6.400% due 12/01/2024**............ 5,175,000
6,565,000 (Tracy Material Recovery Project),
Series A,
6.600% due 08/01/2014**............ 6,638,856
5,000,000 (Waste Management), Series A,
7.150% due 02/01/2011.............. 5,400,000
3,100,000 (Waste Removal Systems), Series A,
7.100% due 11/01/2009.............. 3,262,750
2,250,000 California Residential Efficiency
Financing Authority, (First
Resource Efficiency), (AMBAC
Insured),
6.000% due 07/01/2017.............. 2,264,063
1,425,000 California Rural Home Mortgage
Finance Authority, SFMR,
Mortgage-Backed Securities Project,
Series A-2,
(GNMA Insured),
7.950% due 12/01/2024.............. 1,542,562
7,750,000 California State, GO, (MBIA Insured),
6.000% due 10/01/2014**............ 7,798,437
California Statewide Communities
Development Authority, COP:
3,000,000 (Cedars-Sinai Medical Center),
(MBIA Insured),
6.500% due 08/01/2012.............. 3,198,750
2,500,000 (Childrens Campus),
6.500% due 09/01/2022.............. 2,534,375
Capistrano Unified School District,
Community Facilities District,
Supplemental Tax, (Aliso Viejo):
5,500,000 #87-1,
8.375% due 10/01/2020.............. 5,768,125
2,500,000 #88-1,
7.600% due 09/01/2014.............. 2,521,875
5,865,000 Carson, Improvement Board Act
of 1915, GO,
7.375% due 09/02/2022.............. 5,982,300
Centralia, School District, COP:
775,000 Zero coupon due 06/01/2008........... 383,625
835,000 Zero coupon due 06/01/2009........... 385,144
890,000 Zero coupon due 06/01/2010........... 380,475
940,000 Zero coupon due 06/01/2011........... 374,825
1,010,000 Zero coupon due 06/01/2012........... 374,962
1,075,000 Zero coupon due 06/01/2013........... 370,875
4,675,000 Chula Vista, IDR, (San Diego Gas
and Electric), Series A, AMT,
(AMBAC Insured),
6.400% due 12/01/2027.............. 4,826,938
</TABLE>
See Notes to Financial Statements.
FS-46
<PAGE> 319
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
CALIFORNIA MUNICIPAL FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
$ 3,000,000 Chula Vista, Redevelopment Agency,
Tax Allocation Revenue,
8.625% due 09/01/2024.............. $ 3,468,750
Clovis, Unified School District,
Capital Appreciation, Series B,
(FGIC Insured):
2,000,000 Zero coupon due 08/01/2007........... 1,095,000
2,000,000 Zero coupon due 08/01/2008........... 1,025,000
2,750,000 Contra Costa County, COP, (Merrithew
Memorial Hospital),
6.625% due 11/01/2022.............. 2,835,938
Contra Costa County, Finance
Authority, Tax Allocation Revenue,
Series A:
1,595,000 7.000% due 08/01/2009................ 1,650,825
1,000,000 7.100% due 08/01/2022................ 1,036,250
7,749,000 Contra Costa County, MFHR, (Crescent
Park Apartments Project), Series B,
(GNMA Insured),
7.800% due 06/20/2034.............. 8,456,096
3,270,000 Delano, COP, Series A,
9.250% due 01/01/2022.............. 3,560,213
1,985,000 El Cajon, COP, (Helix View Nursing
Hospital), Limited Obligation,
Series 1990, AMT, (FHA Insured),
7.750% due 02/01/2029.............. 2,041,275
4,975,000 Fairfield Housing Authority Revenue,
Mortgage Revenue, (Creekside
Estates Project),
7.875% due 02/01/2015.............. 5,055,844
Foothill Eastern Transportation
Corridor Agency, Series A:
5,000,000 Zero coupon due 01/01/2008........... 2,962,500
10,000,000 Zero coupon due 01/01/2019........... 2,212,500
1,400,000 Fresno, Joint Powers Financing
Authority, Local Agency Revenue,
Series A,
(MBIA Insured),
6.550% due 09/02/2012.............. 1,365,000
Gilroy, Unified School District,
COP, (Measure J Capital Projects),
(FSA Insured):
1,135,000 6.000% due 09/01/2007................ 1,196,006
2,000,000 6.250% due 09/01/2012................ 2,060,000
2,555,000 Kern, High School District, GO,
Series A, (MBIA Insured),
6.600% due 08/01/2016.............. 2,753,013
1,250,000 Kings County, Waste Management
Authority, Solid Waste Revenue,
AMT,
7.200% due 10/01/2014.............. 1,321,875
1,500,000 La Verne, Public Financing Authority,
Capital Improvement,
7.250% due 09/01/2026.............. 1,500,000
1,000,000 Lancaster, Redevelopment Agency,
MFHR, (High Valley Apartments
Project),
(FHA Insured),
6.000% due 06/01/2027.............. 966,250
12,690,000 Long Beach, Harbor Revenue, Series
1989A, AMT, (MBIA Insured),
7.250% due 05/15/2019**............ 13,435,537
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
Los Angeles, Community Redevelopment
Agency, AMT:
$ 1,425,000 5.850% due 12/01/2026................ $ 1,348,406
3,735,000 COP, (Allright Garage L.A.),
7.550% due 10/01/2008.............. 3,912,412
3,490,000 Series C, (AMBAC Insured),
6.750% due 07/01/2014.............. 3,647,050
3,000,000 Los Angeles County, MFHR, (GNMA
Insured),
7.400% due 01/20/2022.............. 3,102,180
Los Angeles County, Residual Interest
Bond:
4,200,000 8.160% due 11/01/2011+**............. 4,326,000
1,000,000 9.076% due 06/01/2015+............... 980,000
3,740,000 (Edmund D. Edelman Children's
Center), COP, (AMBAC Insured),
6.000% due 04/01/2012.............. 3,758,700
11,110,000 (Pension Obligation), COP, (MBIA
Insured), Non-income producing
until 06/30/1996,
6.900% due 06/30/2008.............. 12,401,538
1,520,000 Los Angeles County, Single
Family Housing Revenue, Series B,
(GNMA Insured)
7.600% due 08/01/2016.............. 1,577,000
660,000 Los Angeles, Home Mortgage Revenue,
GNMA collateralized,
8.100% due 05/01/2017.............. 695,475
Los Angeles, Los Angeles Convention
and Exposition Center, Series 1990,
(AMBAC Insured):
5,000,000 Zero coupon due 08/15/2002........... 3,681,250
5,000,000 Zero coupon due 08/15/2003........... 3,481,250
550,000 Los Angeles, SFMR, Program 1990,
Issue A, GNMA collateralized, AMT,
7.550% due 12/01/2023.............. 569,250
1,000,000 Montebello, Unified School District
Revenue,
6.300% due 06/01/2011.............. 966,250
7,000,000 National City Community Development
Revenue, Series A, (AMBAC Insured),
6.250% due 08/01/2012**............ 7,192,500
New Haven, Unified School District,
Capital Appreciation, Series D,
FGIC Insured):
5,720,000 Zero coupon due 08/01/2018........... 1,480,050
5,920,000 Zero coupon due 08/01/2019........... 1,443,000
1,000,000 Newport Beach, Special Tax
Improvement, District No. 95-1,
Series A,
6.750% due 09/01/2020.............. 950,000
3,500,000 Novato, Special Tax Revenue,
(Community Facilities District),
7.200% due 08/01/2015.............. 3,543,750
Oakland, Unified School District:
2,645,000 7.000% due 11/15/2011................ 2,694,594
3,445,000 COP, Energy Retrofit,
6.750% due 11/15/2014.............. 3,358,875
Orange County, Airport Revenue, AMT:
1,400,000 (John Wayne International Airport),
6.625% due 07/01/2017.............. 1,407,644
600,000 Pre-refunded,
6.625% due 07/01/2017.............. 615,498
</TABLE>
See Notes to Financial Statements.
FS-47
<PAGE> 320
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
CALIFORNIA MUNICIPAL FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
$ 3,000,000 Orange County, Series A, (MBIA
Insured),
6.000% due 06/01/2010.............. $ 3,067,500
4,500,000 Palm Desert, Financing Authority, Tax
Allocation Revenue, (MBIA Insured),
(Inverse Floater),
8.845% due 04/01/2022+............. 4,702,500
1,150,000 Palm Springs, Financing Authority,
(Convention Center Project), Series
A, (MBIA Insured),
6.750% due 11/01/2021.............. 1,237,687
3,000,000 Pasadena, Special Tax No. 1,
7.200% due 12/01/2012.............. 3,056,250
Port Oakland:
12,500,000 Port Revenue, Series 1989A, AMT,
(MBIA/BIGI Insured),
7.600% due 11/01/2016**............ 13,024,000
(Mitsu Osk Lines Ltd.), Series A:
3,030,000 6.750% due 01/01/2012................ 3,132,263
2,300,000 6.800% due 01/01/2019................ 2,366,125
3,000,000 Rancho, Water District Financing
Authority, Residual Interest Bond,
(AMBAC Insured),
9.074% due 08/17/2021+............. 3,562,500
2,750,000 Redding, Electrical Systems Revenue,
COP, (Inverse Floater), (MBIA
Insured),
8.901% due 07/08/2022+............. 3,076,563
1,500,000 Riverside, School District, Special
Project,
7.250% due 09/01/2018.............. 1,505,625
85,000 Sacramento, City Financing Authority,
Revenue Bonds,
6.700% due 11/01/2011.............. 89,038
6,500,000 Sacramento County, Airport System
Revenue, Series 1989, AMT,
(AMBAC Insured),
7.000% due 07/01/2020.............. 6,922,500
10,000,000 San Bernardino County, Residual
Interest Bond, COP, (MBIA Insured),
7.350% due 07/01/2016+**........... 9,537,500
4,000,000 San Diego County, Residual Interest
Bond, COP, Series B, (MBIA
Insured),
8.670% due 04/08/2021+............. 4,260,000
5,000,000 San Diego, IDR, (San Diego Gas and
Electric Company), Series B, AMT,
(AMBAC Insured),
7.375% due 12/01/2021.............. 5,149,100
3,000,000 San Francisco, City and County,
Airport Commission, International
Airport Revenue, Second Series,
Issue 8A, (FGIC Insured),
6.250% due 05/01/2020.............. 3,026,250
San Francisco, City and County,
Multi-family Mortgage Revenue,
Series A:
1,000,000 6.350% due 02/15/2012................ 1,015,000
1,250,000 6.450% due 02/15/2024................ 1,260,938
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
San Francisco, City and County,
Redevelopment Agency, Lease
Revenue, Capital Appreciation,
(George R. Moscone Project):
$ 3,500,000 Zero coupon due 07/01/2007........... $ 1,833,125
4,500,000 Zero coupon due 07/01/2010........... 1,912,500
3,750,000 Zero coupon due 07/01/2011........... 1,485,938
4,250,000 Zero coupon due 07/01/2013........... 1,455,625
280,000 San Francisco, City and County, SFMR,
GNMA and FNMA Mortgage-Backed
Securities Program,
7.450% due 01/01/2024.............. 291,200
575,000 San Jose, Airport Revenue Authority,
(San Jose Airport), AMT, (AMBAC
Insured), Unrefunded,
7.500% due 03/01/2018.............. 608,781
2,735,000 San Jose, Financing Authority
Revenue, Series C,
7.000% due 09/02/2015.............. 2,782,863
3,000,000 Santa Clarita, Community Development
Authority,
7.500% due 11/15/2012.............. 3,086,250
4,765,000 Santa Rosa, Mortgage Revenue,
(Channate Lodge), (FHA Insured),
6.700% due 12/01/2024.............. 4,925,819
2,000,000 Shasta Lake, COP, (FSA Insured),
6.000% due 04/01/2016.............. 1,997,500
10,000 Sonoma County, Home Mortgage Revenue,
SFMR,
9.125% due 06/01/2015.............. 10,325
South Orange County, Public Financing
Authority, Special Tax Revenue, Sr.
Lien, Series A, (MBIA Insured):
5,000,000 7.000% due 09/01/2008................ 5,675,000
5,000,000 6.200% due 09/01/2013................ 5,081,250
1,200,000 South Tahoe, Joint Powers Financing
Authority, Series B,
6.000% due 10/01/2010.............. 1,153,500
Southern California, Housing Finance
Agency, SFMR, GNMA and FNMA
Mortgage-Backed Securities Program:
1,095,000 Series 1988A, GNMA collateralized,
AMT,
8.125% due 02/01/2021.............. 1,160,700
1,545,000 Series A,
7.350% due 09/01/2024.............. 1,599,075
210,000 Series B,
6.900% due 10/01/2024.............. 219,450
Stockton, Community Facilities
Supplemental Tax #90-2, SFMR, GNMA
Mortgage-Backed Securities Program:
55,000 Series A,
7.450% due 08/01/2010.............. 58,162
4,000,000 Series 002,
7.750% due 08/01/2015.............. 4,110,000
5,000,000 University of California, (Multiple
Purpose Review Projects), (MBIA
Insured),
6.300% due 09/01/2014.............. 5,175,000
1,000,000 Valley Health Systems, California
Hospital Revenue, (Hospital Revenue
Refunding and Improvement Project),
Series A,
6.500% due 05/15/2025.............. 950,000
</TABLE>
See Notes to Financial Statements.
FS-48
<PAGE> 321
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
CALIFORNIA MUNICIPAL FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
$ 1,510,000 Watsonville, Insured Hospital,
Watsonville Community Hospital,
Series A,
6.200% due 07/01/2012.............. $ 1,530,762
-----------
Total Municipal Bonds and Notes
(Cost $371,775,160)................ 387,498,075
-----------
SHORT-TERM MUNICIPAL BOND -- 0.2%
(Cost $900,000)
900,000 California, Pollution Control
Financing Authority, PCR,
(Burney Forest Products Project), Series A,
3.650% due 09/01/2020+............... 900,000
-----------
TOTAL INVESTMENTS (COST $372,675,160*)....... 98.9% 388,398,075
OTHER ASSETS AND LIABILITIES (NET)........... 1.1 4,332,740
----- ------------
NET ASSETS................................... 100.0% $392,730,815
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
** A portion or all of this security is pledged as collateral for futures
contracts.
+ Variable rate daily demand notes are payable upon not more than one business
day's notice. The interest rate shown reflects the rate currently in effect.
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS (DEPRECIATION)
- ---------- --------------
<S> <C> <C>
FUTURES CONTRACTS -- SHORT POSITION
100 U.S. Treasury Bond, Twenty Year,
September 1996..................... $ (272,682)
==========
GLOSSARY OF TERMS
AMBAC -- American Municipal Bond Assurance
Corporation
AMT -- Alternative Minimum Tax
BIGI -- Bond Investors Guarantee Insurance
COP -- Certificates of Participation
CPGAR -- Capital Guaranty
FGIC -- Federal Guaranty Insurance Corporation
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GO -- General Obligation Bonds
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Investors Assurance
MFHR -- Multi-family Housing Revenue
PCR -- Pollution Control Revenue
SFMR -- Single Family Mortgage Revenue
</TABLE>
See Notes to Financial Statements.
FS-49
<PAGE> 322
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
FLORIDA INSURED MUNICIPAL FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<S> <C> <C>
MUNICIPAL BONDS AND NOTES -- 97.5%
FLORIDA -- 97.5%
Brevard County, School Board, COP,
(AMBAC Insured):
$1,000,000 Series A,
5.400% due 07/01/2012................ $ 976,250
1,000,000 Series B,
5.500% due 07/01/2021................ 951,250
2,270,000 Broward County, Educational Facilities
Authority Revenue, (Nova Southeastern
University Project), (CONNIE LEE
Insured),
6.000% due 04/01/2008................ 2,360,800
1,000,000 Collier County, Industrial Development
Authority, IDR, (Southern States
Utilities Project), AMT,
6.500% due 10/01/2025................ 956,250
1,940,000 Dade County, Aviation Revenue, Series
B, AMT, (MBIA Insured),
6.600% due 10/01/2022................ 2,041,850
1,690,000 Dade County, School Board, COP, Series
A, (MBIA Insured),
5.750% due 05/01/2008................ 1,734,362
2,000,000 Escambia County, Health Facilities
Revenue, Baptist Hospital, Series B,
6.000% due 10/01/2014................ 1,880,000
1,000,000 Escambia County, PCR,
(Champion International Corporation
Project), AMT,
6.900% due 08/01/2022................ 1,053,750
Florida Housing Finance Agency:
480,000 Landings Boot Ranch, Series K,
(AMBAC Insured),
5.875% due 11/01/2015................ 469,800
715,000 SFMR, Series A, AMT, (GNMA Insured),
6.650% due 01/01/2024................ 741,812
1,000,000 Florida State Turnpike Authority,
Turnpike Revenue, Department of
Transportation, Series A, (FGIC
Insured),
5.000% due 07/01/2016................ 906,250
1,445,000 Hillsborough County, Capital
Improvement Revenue, Criminal Justice
Facilities, (FGIC Insured),
5.250% due 08/01/2016................ 1,351,075
1,000,000 Hillsborough County, Industrial
Development Authority, IDR, Allegany
Health Systems, (John Knox Village of
Tampa Bay, Inc.), (MBIA Insured),
6.000% due 12/01/2006................ 1,051,250
1,500,000 Hillsborough County, PCR, (Tampa
Electric Company Project), (MBIA
Insured),
6.250% due 12/01/2034................ 1,556,250
2,000,000 Hillsborough County, School Board, COP,
(FGIC Insured),
6.000% due 07/01/2012................ 2,042,500
1,000,000 Jacksonville, Health Facilities
Revenue, Baptist Medical Center,
Series A, (MBIA Insured),
7.300% due 06/01/2019................ 1,076,250
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<S> <C> <C>
$1,530,000 Jacksonville, Port Authority, Airport
Revenue, AMT, (AMBAC Insured),
5.250% due 10/01/2017................ $ 1,405,688
1,500,000 Jacksonville, Water & Sewer Revenue,
(United Water Project), AMT,
(AMBAC Insured),
6.350% due 08/01/2025................ 1,545,000
1,350,000 Kissimmee, Utility Authority, Electric
Revenue, (FGIC Insured),
5.250% due 10/01/2018................ 1,260,562
1,000,000 Manatee County, Housing Finance
Authority, SFMR, Sub Series 4, AMT,
(GNMA/FNMA Collateral),
6.875% due 11/01/2026................ 1,063,750
2,000,000 Melbourne, Airport Revenue, AMT,
(MBIA Insured),
6.250% due 10/01/2018................ 2,075,000
1,000,000 Orange County, Housing Finance
Authority, MFHR, (Hands Inc.
Project), Series A,
8.000% due 10/01/2025................ 992,500
1,000,000 Orlando & Orange County, Expressway
Authority, Expressway Revenue, Jr.
Lien, (FSA Insured),
5.950% due 07/01/2023................ 1,005,000
1,050,000 Seminole County, School Board
Authority, COP, Series A, (MBIA
Insured),
6.125% due 07/01/2014................ 1,082,813
1,250,000 Village Center Community Development
District, Flautil Revenue, (FGIC
Insured),
6.000% due 11/01/2018................ 1,303,125
500,000 Volusia County, Educational Facilities
Authority Revenue, Embry-Riddle
Aeronautical University,
6.125% due 10/15/2016................ 495,625
1,000,000 Volusia County, Health Facilities
Authority Revenue, John Knox Village
of Tampa Bay, Inc., Series A,
6.000% due 06/01/2017................ 1,000,000
-----------
Total Municipal Bonds and Notes
(Cost $33,784,224)................... 34,378,762
-----------
SHORT-TERM MUNICIPAL BOND -- 7.1%
(Cost $2,500,000)
2,500,000 Pinellas County, Health Facilities
Authority Revenue, Pooled Hospital
Loan Program,
3.600% due 12/01/2015+............... 2,500,000
-----------
TOTAL INVESTMENTS (COST $36,284,224*)......... 104.6% 36,878,762
OTHER ASSETS AND LIABILITIES (NET)............ (4.6) (1,618,834)
----- -----------
NET ASSETS.................................... 100.0% $35,259,928
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
+ Variable rate daily demand bonds are payable upon not more than one business
day's notice. The interest rate shown reflects the rate currently in effect.
See Notes to Financial Statements.
FS-50
<PAGE> 323
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
FLORIDA INSURED MUNICIPAL FUND
JUNE 30, 1996
<TABLE>
<S> <C>
GLOSSARY OF TERMS
AMBAC -- American Municipal Bond Assurance
Corporation
AMT -- Alternative Minimum Tax
CONNIE LEE -- College Construction Loan Association
COP -- Certificates of Participation
FGIC -- Federal Guaranty Insurance Corporation
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Investors Assurance
MFHR -- Multi-family Housing Revenue
PCR -- Pollution Control Revenue
SFMR -- Single Family Mortgage Revenue
</TABLE>
See Notes to Financial Statements.
FS-51
<PAGE> 324
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ---------- -----------
<S> <C> <C>
MUNICIPAL BONDS AND NOTES -- 95.6%
CALIFORNIA -- 94.3%
$ 380,000 Adelanto, School District, Capital
Appreciation, GO, Series B, (FGIC
Insured),
Zero coupon due 09/01/2002........... $ 281,675
1,075,000 Alhambra, Redevelopment Agency Tax
Allocation, (Industrial Redevelopment
Project), (FSA Insured),
4.700% due 05/01/2006................ 1,025,281
595,000 Alta Loma, Elementary School District,
GO, Series 2, (AMBAC Insured),
7.250% due 06/01/2002................ 670,863
200,000 Alum Rock, Unified School District,
Series B, (FGIC Insured),
Zero coupon due 09/01/2002........... 147,500
625,000 Berkeley, Unified School District,
Series C, (AMBAC Insured),
5.875% due 08/01/2006................ 659,375
985,000 Brea & Olinda, School District, (High
School Refinancing Program), Series
A, (CGIC Insured),
6.000% due 08/01/2009................ 1,013,319
California Education Facilities
Authority Revenue, University La
Verne:
745,000 5.800% due 04/01/2002................ 745,931
790,000 5.900% due 04/01/2003................ 790,987
California Housing Finance Agency
Revenue, AMT:
2,350,000 Home Mortgage, Series B1,
(AMBAC Insured),
6.200% due 02/01/2007................ 2,452,812
445,000 Series E, (MBIA Insured),
6.050% due 08/01/2006................ 472,812
California State, GO:
(AMBAC Insured):
1,000,000 6.200% due 09/01/2002................ 1,073,750
1,240,000 7.250% due 08/01/2003................ 1,407,400
(FGIC Insured):
200,000 7.100% due 05/01/2005................ 228,000
1,000,000 6.200% due 09/01/2005................ 1,078,750
California State, Public Works Board,
(Various California University
Projects), Series A:
1,000,000 5.900% due 10/01/2004................ 1,051,250
1,500,000 (AMBAC Insured),
5.900% due 12/01/2003................ 1,586,250
California State University Revenue:
200,000 Housing System, (FGIC Insured),
7.625% due 11/01/2003................ 232,500
1,495,000 Series AJ, AL, AM, AN, AP, AQ, AR,
(AMBAC Insured),
6.750% due 11/01/2007................ 1,622,075
California Statewide Communities
Development Authority:
1,600,000 (Children's Hospital), (MBIA Insured),
6.000% due 06/01/2007................ 1,676,000
1,000,000 MFHR, Series E,
5.500% due 12/01/2005................ 995,000
1,255,000 (St. Joseph Health Systems),
(AMBAC Insured),
5.875% due 07/01/2005................ 1,314,613
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ---------- -----------
<S> <C> <C>
$ 350,000 Campbell, Housing Facility Revenue,
(San Tomas Gardens Project), Series
A, (GNMA Insured),
5.750% due 10/20/2004................ $ 355,250
1,000,000 Castaic Lake, Water Agency, COP, (Water
Systems Improvement Project), Series
A, (MBIA Insured),
5.600% due 08/01/2005................ 1,038,750
1,000,000 Desert Hospital District, Hospital
Revenue, COP, (FSA Insured),
6.350% due 07/01/2004................ 1,075,000
1,000,000 Foothill Eastern Transportation
Corridor Agency, Toll Road Revenue,
Capital Appreciation, Sr. Lien,
Series A,
Zero coupon due 01/01/2004........... 625,000
Gilroy, Unified School District, COP,
(FSA Insured):
1,390,000 5.600% due 09/01/2003................ 1,442,125
1,400,000 5.625% due 09/01/2004................ 1,452,500
Los Angeles, Community Redevelopment
Agency, MFHR, (AMBAC Insured):
965,000 5.650% due 07/01/2000................ 987,919
1,155,000 6.000% due 07/01/2004................ 1,201,200
Los Angeles, Department of Water and
Power, Electric Revenue Bond,
(MBIA Insured):
1,500,000 8.500% due 01/15/2002................ 1,762,500
1,000,000 5.400% due 09/01/2006................ 1,013,750
1,000,000 Los Angeles, GO, Series A, (FGIC
Insured),
5.700% due 09/01/2008................ 1,021,250
1,500,000 Los Angeles, Unified School District,
Series B, (AMBAC Insured),
6.000% due 12/01/2001................ 1,591,875
Los Angeles, Wastewater System Revenue:
775,000 Series A, (MBIA Insured),
8.500% due 06/01/2002................ 916,437
1,000,000 Series C,
6.900% due 06/01/2009................ 1,076,250
2,500,000 Los Angeles County, Capital Asset
Leasing Corporation Leashold Revenue,
(AMBAC Insured),
6.000% due 12/01/2006................ 2,646,875
500,000 Los Angeles County, COP, Structured
Yield Curve Certificates,
7.660% due 11/01/2001+............... 524,375
694,000 Modesto, Mortgage Revenue Bond,
(GNMA Insured),
5.875% due 12/01/2004................ 704,410
1,000,000 Murrieta Valley, Unified School
District, GO, (FGIC Insured),
5.200% due 09/01/2007................ 982,500
2,000,000 Oakland, Health Facilities Revenue,
(Children's Hospital Project), Series
A, (CONNIE LEE Insured),
5.300% due 07/01/2008................ 1,935,000
Oakland, Improvement Bond Act of 1915,
Medical Hill Parking Assessment
District #3, (MBIA Insured):
150,000 5.500% due 09/02/1999................ 154,500
250,000 6.000% due 09/02/2004................ 257,778
</TABLE>
See Notes to Financial Statements.
FS-52
<PAGE> 325
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ---------- -----------
<S> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
$ 500,000 Orange County, Local Transit Authority,
Sales Tax Revenue Bond, (FGIC
Insured),
5.600% due 02/15/2003................ $ 513,750
Orange County, Recovery Project, Series
A, (MBIA Insured):
1,000,000 6.000% due 06/01/2008................ 1,033,750
1,000,000 COP,
6.000% due 07/01/2006................ 1,048,750
Oxnard, Harbor District Revenue, (FSA
Insured):
1,075,000 7.000% due 08/01/2001................ 1,187,875
1,155,000 7.000% due 08/01/2002................ 1,290,713
1,240,000 7.000% due 08/01/2003................ 1,396,550
Paramount, Redevelopment Agency Tax
Allocation, (Redevelopment Project
Area #1), (MBIA Insured):
1,820,000 6.100% due 08/01/2006................ 1,940,575
1,925,000 6.100% due 08/01/2007................ 2,040,500
560,000 Pioneers Memorial Hospital District,
GO, (AMBAC Insured),
7.000% due 10/01/2005................ 641,900
1,300,000 Sacramento, Municipal Utility District,
Electric Revenue, (AMBAC Insured),
5.500% due 05/15/2007................ 1,313,000
1,000,000 San Diego, Unified School District,
COP, (Capital Projects), Series B,
6.000% due 07/01/2003................ 1,058,750
1,000,000 San Diego County, Water Authority, COP,
Series A, (MBIA Insured),
6.000% due 05/01/2001................ 1,052,500
100,000 San Francisco, Airports Commission, San
Francisco International Airport,
Second Series, (MBIA Insured),
6.350% due 05/01/2004................ 108,250
1,000,000 San Francisco, City and County, GO,
(FGIC Insured), (Public Safety
Improvement Project), Series F,
6.500% due 06/15/2006................ 1,060,000
1,360,000 San Jose, Redevelopment Agency, (Merged
Area Redevelopment Project), Tax
Allocation Bond, (MBIA Insured),
6.000% due 08/01/2006................ 1,443,300
1,050,000 Santa Ana, COP, (Santa Ana Recycling
Project), Series A, AMT, (AMBAC
Insured)
5.400% due 05/01/2007................ 1,044,750
1,350,000 Solano County, (Solano Park Hospital
Project), COP, (FSA Insured),
6.500% due 08/01/2006................ 1,468,125
1,500,000 South Orange County, Public Financing
Authority, Special Tax Revenue, Sr.
Lien, Series A, (MBIA Insured),
5.400% due 09/01/2003................ 1,535,625
University of California:
(MBIA Insured):
1,250,000 Housing Systems, Series A,
5.300% due 11/01/2005................ 1,262,500
1,000,000 (Multiple Purpose Review Projects),
10.000% due 09/01/2001............... 1,235,000
1,070,000 Series A, (CONNIE LEE Insured),
5.500% due 09/01/2006................ 1,070,000
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ---------- -----------
<S> <C> <C>
$1,000,000 Valley Health Systems, California
Hospital Revenue, (Hospital Revenue
Refunding & Improvement Project),
Series A,
6.125% due 05/15/2005................ $ 975,000
1,040,000 Victor Valley, Joint Union High School
District, (MBIA Insured),
5.600% due 09/01/2004................ 1,080,300
1,070,000 Watsonville, Hospital Revenue,
Watsonville Community Hospital,
Series A,
5.850% due 07/01/2006................ 1,084,712
-----------
71,177,562
-----------
GUAM -- 1.3%
1,000,000 Government of Guam, GO, Series A,
5.900% due 09/01/2005................ 992,500
-----------
Total Municipal Bonds and Notes (Cost
$69,907,876)......................... 72,170,062
-----------
SHORT-TERM MUNICIPAL BONDS -- 2.7%
California, Pollution Control Financing
Authority, PCR:
300,000 (Burney Forest Products Project),
Series A,
3.650% due 09/01/2020++............ 300,000
Southern California Edison Company:
500,000 Series A,
3.450% due 02/28/2008++............ 500,000
600,000 Series B,
3.450% due 02/28/2008++............ 600,000
600,000 Series D,
3.450% due 02/28/2008++............ 600,000
-----------
Total Short-Term Municipal Bonds (Cost
$2,000,000).......................... 2,000,000
-----------
TOTAL INVESTMENTS (COST $71,907,876*)...... 98.3% 74,170,062
OTHER ASSETS AND LIABILITIES (NET)......... 1.7 1,307,507
----- -----------
NET ASSETS................................. 100.0% $75,477,569
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
++ Variable rate daily demand bonds are payable upon not more than one business
day's notice. The interest rate shown reflects the rate currently in effect.
<TABLE>
<S> <C>
GLOSSARY OF TERMS
AMBAC -- American Municipal Bond Assurance
Corporation
AMT -- Alternative Minimum Tax
CGIC -- Capital Guaranty Insurance Corporation
CONNIE LEE -- College Construction Loan Association
COP -- Certificates of Participation
FGIC -- Federal Guaranty Insurance Corporation
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GO -- General Obligation Bonds
MBIA -- Municipal Bond Investors Assurance
MFHR -- Multi-family Housing Revenue
PCR -- Pollution Control Revenue
</TABLE>
See Notes to Financial Statements.
FS-53
<PAGE> 326
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
NATIONAL MUNICIPAL FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS AND NOTES -- 96.6%
ALABAMA -- 2.2%
$ 4,000,000 Courtland, Industrial Development
Board of Solid Waste, (Champion
International Corporation Project),
Disposal Revenue, AMT,
7.750% due 01/01/2020.............. $ 4,270,000
1,000,000 Mobile, Industrial Development Board,
Solid Waste Disposal Revenue,
6.950% due 01/01/2020.............. 1,031,250
------------
5,301,250
------------
ARIZONA -- 0.4%
740,000 Tucson, Airport Authority Inc.,
Supplemental Facilities Revenue,
AMT,
8.700% due 09/01/2019.............. 841,750
------------
CALIFORNIA -- 0.7%
1,550,000 Los Angeles, Regional Airport
Improvement, Series A, AMT,
6.700% due 01/01/2022.............. 1,557,750
------------
COLORADO -- 8.4%
19,000,000 Arapahoe County, Highway Revenue,
Zero coupon due 08/31/2026......... 2,066,250
Denver City and County, Airport
Revenue, AMT:
Series A:
2,000,000 8.875% due 11/15/2012.............. 2,370,000
1,140,000 8.500% due 11/15/2023**............ 1,308,150
2,000,000 8.000% due 11/15/2025**............ 2,255,000
1,920,000 Series C,
6.600% due 11/15/2004.............. 2,028,000
4,500,000 Meridian Metropolitan District, GO,
7.500% due 12/01/2011.............. 4,876,875
5,000,000 University of Colorado, Hospital
Authority, Series A, (AMBAC
Insured),
6.250% due 11/15/2012**............ 5,200,000
------------
20,104,275
------------
DISTRICT OF COLUMBIA -- 1.7%
1,150,000 District of Columbia, COP,
6.875% due 01/01/2003.............. 1,148,563
1,500,000 District of Columbia, Land
Redevelopment Agency, Washington
D.C. Sports Arena, Special Tax,
5.625% due 11/01/2010.............. 1,417,500
1,500,000 Metropolitan District, Washington
D.C., Airport Authority, General
Airport Revenue, Series A, AMT,
(MBIA Insured),
6.625% due 10/01/2019**............ 1,558,125
------------
4,124,188
------------
FLORIDA -- 3.7%
Dade County, Seaport Authority,
Refunding, (MBIA Insured):
425,000 6.500% due 10/01/2008................ 471,219
500,000 6.500% due 10/01/2009................ 552,500
800,000 6.500% due 10/01/2010................ 880,000
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
$22,520,000 Dade County, Guaranteed Entitlement
Revenue, Capital Appreciation,
Series A, (MBIA Insured),
Zero coupon due 02/01/2018......... $ 6,136,700
240,000 Largo, Sun Coast Health Systems,
5.750% due 03/01/2000.............. 240,900
610,000 Pinellas County, Health Facilities
Authority, (Sun Coast Health Care
Systems Project), Series A,
8.500% due 03/01/2020.............. 698,450
------------
8,979,769
------------
GEORGIA -- 4.2%
1,000,000 Atlanta, Airport Facilities Revenue,
AMT,
7.250% due 01/01/2017.............. 1,076,250
Monroe, PCR, (Oglethorpe Power
Company):
5,000,000 6.700% due 01/01/2009.............. 5,425,000
3,410,000 6.750% due 01/01/2010.............. 3,695,587
------------
10,196,837
------------
HAWAII -- 1.6%
3,500,000 Hawaii Department of Budget and
Finance, Residual Interest Bond,
AMT,
9.232% due 11/01/2021++............ 3,788,750
------------
IDAHO -- 1.5%
2,000,000 Idaho Health Facilities Authority
Revenue, (Inverse Floater),
8.600% due 02/15/2021++............ 2,150,000
1,500,000 Idaho Housing and Finance
Association, SFHR, Series D, AMT,
6.450% due 07/01/2014.............. 1,500,000
------------
3,650,000
------------
ILLINOIS -- 15.6%
Chicago, O'Hare Airport Supplemental
Facilities, AMT:
6,000,000 (MBIA Insured),
6.750% due 01/01/2012**............ 6,337,500
700,000 Special Series A,
7.875% due 11/01/2025.............. 749,875
150,000 Special Series B,
8.500% due 05/01/2018.............. 164,250
United Air Lines:
615,000 8.400% due 05/01/2004.............. 673,425
790,000 8.950% due 05/01/2018.............. 887,763
Cook County, Community High School,
Number 217, (AMBAC Insured):
1,090,000 6.400% due 12/01/2003**............ 1,164,938
1,130,000 6.500% due 12/01/2004**............ 1,207,688
1,370,000 6.600% due 12/01/2005**............ 1,464,188
Cook County, School District, Number
026, (MBIA Insured):
1,445,000 Zero coupon due 12/01/2003......... 977,181
1,020,000 Zero coupon due 12/01/2004......... 651,525
1,000,000 Decatur, Hospital Revenue,
(Decatur Memorial Hospital), Series
B, (MBIA Insured),
6.850% due 10/01/2016**............ 1,056,250
</TABLE>
See Notes to Financial Statements.
FS-54
<PAGE> 327
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
NATIONAL MUNICIPAL FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
ILLINOIS -- (CONTINUED)
Illinois Health Facilities Authority
Revenue:
Glenoak Medical Center, Series D:
$ 210,000 Pre-refunded,
9.500% due 11/15/2015............ $ 252,263
280,000 Unrefunded,
9.500% due 11/15/2015............ 320,250
4,765,000 Hindsdale Hospital, Series B,
9.000% due 11/15/2015............ 5,384,450
5,000,000 Residual Interest Bond, (MBIA
Insured),
9.547% due 06/19/2015++.......... 5,568,750
300,000 Riverside Senior Living Center
Project,
7.500% due 11/01/2020............ 319,875
5,000,000 Sarah Bush Lincoln,
7.250% due 05/15/2022............ 5,112,500
1,230,000 Servantcor, Series A,
8.000% due 08/15/2021............ 1,419,113
3,000,000 St. Luke's Medical, Residual
Interest Bond, (MBIA Insured),
9.547% due 10/01/2024++.......... 3,330,000
365,000 Illinois Housing Development
Authority, Series A, AMT,
7.350% due 08/01/2010............ 385,075
------------
37,426,859
------------
INDIANA -- 0.8%
2,000,000 Indianapolis, Public Improvement
Board, Series D, (LOC INB National
Bank),
6.500% due 02/01/2022.............. 2,030,000
------------
KENTUCKY -- 1.4%
3,000,000 Jefferson County, Hospital Revenue,
Residual Interest Bond, (MBIA
Insured),
8.759% due 10/01/2008++............ 3,382,500
------------
LOUISIANA -- 1.6%
300,000 East Baton Rouge, Sewer Commission
Revenue,
9.125% due 09/01/2006.............. 325,875
1,500,000 Louisiana Public Facility Authority
Revenue, Series B,
Zero coupon due 12/01/2019......... 360,000
10,000,000 Orleans Parish, School Board Revenue,
(FGIC Insured),
Zero coupon due 02/01/2015......... 3,162,500
------------
3,848,375
------------
MARYLAND -- 0.4%
1,000,000 State of Maryland, Community
Development Administration,
Department of Housing, Single
Family Project, AMT,
7.450% due 04/01/2032.............. 1,036,250
------------
MASSACHUSETTS -- 2.3%
750,000 Commonwealth of Massachusetts,
Consolidated Loan, Series A,
7.625% due 06/01/2008.............. 855,000
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
Commonwealth of Massachusetts, Health
and Educational Facilities
Authority:
$ 500,000 Framingham Union Hospital, Series B,
8.500% due 07/01/2010.............. $ 575,625
3,000,000 Saint Memorial Medical Center, Series
A,
6.000% due 10/01/2023.............. 2,362,500
400,000 Commonwealth of Massachusetts, Health
Finance Authority,
Melrose-Wakefield Hospital, Series
A,
8.625% due 07/01/2018.............. 408,000
Massachusetts State, GO:
125,000 Pre-refunded,
7.500% due 12/01/2007.............. 141,094
125,000 Unrefunded,
7.500% due 12/01/2007.............. 141,094
1,000,000 Plymouth County, COP, Series A,
7.000% due 04/01/2022.............. 1,081,250
------------
5,564,563
------------
MICHIGAN -- 2.4%
2,670,000 Michigan Municipal Bond Authority,
Revenue Reference, Series A,
(FGIC Insured),
4.750% due 12/01/2009**............ 2,419,687
Michigan State Hospital Finance
Authority Revenue, Detroit Medical,
Series A:
1,500,000 7.500% due 08/15/2011.............. 1,616,250
850,000 5.875% due 07/01/2014.............. 799,000
Reed City, Public Schools Revenue,
(AMBAC Insured):
590,000 Zero coupon due 05/01/2013......... 218,300
610,000 Zero coupon due 05/01/2014......... 209,687
615,000 Zero coupon due 05/01/2015......... 196,800
630,000 Zero coupon due 05/01/2016......... 192,937
------------
5,652,661
------------
MINNESOTA -- 0.2%
2,000,000 Southern Minnesota Municipal Power
Agency, (Capital Appreciation),
Series A, (MBIA Insured),
Zero coupon due 01/01/2024......... 385,000
------------
MISSISSIPPI -- 2.4%
5,000,000 Lowndes County, Solid Waste Disposal,
PCR, Residual Interest Bond,
Floating Rate Note,
8.600% due 04/01/2022++............ 5,475,000
200,000 Warren County, Solid Waste Disposal
Revenue, (International Paper
Project), Series A, AMT,
7.700% due 11/15/2009.............. 214,500
------------
5,689,500
------------
MISSOURI -- 1.7%
1,000,000 Missouri State, Health and
Educational Facilities Authority
Revenue,
6.800% due 11/01/2016**............ 1,113,750
3,000,000 St. Louis, Parking Facilities
Revenue,
6.625% due 12/15/2021.............. 3,060,000
------------
4,173,750
------------
</TABLE>
See Notes to Financial Statements.
FS-55
<PAGE> 328
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
NATIONAL MUNICIPAL FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
MONTANA -- 0.5%
$ 1,000,000 Forsyth, PCR, Series B, AMT, (AMBAC
Insured),
7.250% due 08/01/2021**............ $ 1,096,250
------------
NEBRASKA -- 0.3%
700,000 Nebraska Investment Finance
Authority, Single Family Housing,
Residual Interest Bond, AMT, (GNMA
Insured),
9.475% due 09/15/2024++............ 713,125
------------
NEVADA -- 4.1%
4,000,000 Clark County, IDR, Series A, AMT,
(FGIC Insured),
6.700% due 06/01/2022**............ 4,170,000
5,495,000 Nevada Housing Division, Single
Family Program, Series A-2, AMT,
(FHA Insured),
6.700% due 10/01/2025.............. 5,563,687
------------
9,733,687
------------
NEW HAMPSHIRE -- 0.4%
1,000,000 New Hampshire State Higher Education
& Health Facilities Authority
Revenue,
8.250% due 07/01/2013.............. 1,068,750
------------
NEW JERSEY -- 1.3%
3,000,000 Bergen County, Utilities Authority
Revenue, (FGIC Insured),
6.500% due 12/15/2012**............ 3,176,250
------------
NEW YORK -- 12.8%
400,000 City of New York, IDR, Industrial
Development Agency, Supplemental
Facilities, AMT,
8.000% due 07/01/2020.............. 427,500
3,000,000 Housing of New York Corporation
Revenue,
5.000% due 11/01/2013.............. 2,613,750
Metropolitan Transportation Authority
Revenue:
2,000,000 Commuter Facilities, Series O,
5.750% due 07/01/2007.............. 1,992,500
1,265,000 Transportation Facilities, Series 7,
4.750% due 07/01/2019.............. 1,030,975
1,000,000 New York, Finance Authority, Series
B, (FSA Insured),
7.000% due 06/01/2014**............ 1,115,000
New York, GO:
995,000 Series A,
8.000% due 08/15/2020............ 1,149,225
5,200,000 Series C,
6.500% due 08/01/2005............ 5,343,000
Series F:
1,845,000 Pre-refunded,
8.250% due 11/15/2018............ 2,163,262
160,000 Unrefunded,
8.250% due 11/15/2018............ 184,000
New York State Energy, Research &
Development Authority:
2,200,000 6.000% due 04/01/2000................ 2,255,000
2,500,000 8.755% due 04/01/2020+............... 2,643,750
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
New York State Energy, Research &
Development Authority (Continued):
Gas Facilities:
$ 5,225,000 7.125% due 12/01/2020................ $ 5,375,114
500,000 (MBIA Insured),
7.125% due 03/15/2022.............. 517,285
275,000 New York State Medical Care
Facilities Finance Authority,
7.750% due 08/15/2011.............. 305,594
2,000,000 New York State Multi-family Mortgage
Revenue, AMT,
6.625% due 08/15/2012.............. 2,075,000
1,490,000 State of New York, Urban Development
Corporation Revenue,
5.625% due 01/01/2007.............. 1,443,437
------------
30,634,392
------------
OHIO -- 1.2%
650,000 East Liverpool, Hospital Revenue,
Series B,
8.125% due 10/01/2011.............. 687,375
1,240,000 Lorain County, Hospital Revenue,
Series B,
7.200% due 12/15/2011.............. 1,326,800
900,000 Westerville, Minerva Place & Blendon
Joint Township Hospital District,
(AMBAC Insured),
6.800% due 09/15/2006.............. 981,000
------------
2,995,175
------------
OKLAHOMA -- 0.9%
1,885,000 Oklahoma Housing and Finance
Authority, Single Family Revenue,
Series B, AMT, (GNMA Insured),
7.997% due 08/01/2018**............ 2,042,869
200,000 Tulsa, Municipal Airport Revenue,
American Airlines Project, AMT,
7.600% due 12/01/2030.............. 213,500
------------
2,256,369
------------
PENNSYLVANIA -- 9.5%
Allegheny County, Hospital
Development Revenue, (Ohio Valley
General Hospital):
700,000 5.100% due 04/01/2001.............. 688,625
735,000 5.300% due 04/01/2002.............. 723,056
625,000 5.400% due 04/01/2003.............. 611,719
3,000,000 5.875% due 04/01/2011.............. 2,816,250
Beaver County, IDR, PCR, (Edison
Project), Series A, (FGIC Insured):
3,675,000 7.000% due 06/01/2021**............ 3,932,250
300,000 7.750% due 09/01/2024.............. 317,250
300,000 Lancaster County, Solid Waste
Authority, Series A, AMT,
8.375% due 12/15/2004.............. 319,500
600,000 Lehigh County, General Purpose
Authority, Series A,
8.100% due 07/15/2010.............. 636,000
500,000 McKean County, Hospital Authority
Revenue,
8.875% due 10/01/2020.............. 585,625
1,250,000 Montgomery County, Higher Education
Revenue,
6.875% due 11/15/2020.............. 1,253,125
</TABLE>
See Notes to Financial Statements.
FS-56
<PAGE> 329
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
NATIONAL MUNICIPAL FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
PENNSYLVANIA -- (CONTINUED)
Pennsylvania State Higher Education
Revenue, Student Loan Revenue,
Residual Interest Bond, AMT:
$ 3,000,000 (AMBAC Insured),
9.622% due 09/01/2026++............ $ 3,168,750
3,000,000 Series A,
7.250% due 03/01/2011.............. 3,345,000
1,890,000 Series B,
7.250% due 03/01/2005.............. 2,107,350
1,000,000 Philadelphia, Municipal Authority
Revenue, Series B, (FGIC Insured),
7.125% due 11/15/2018**............ 1,123,750
1,000,000 Philadelphia, Water and Sewer
Revenue,
7.500% due 08/01/2010**............ 1,136,250
------------
22,764,500
------------
PUERTO RICO -- 0.9%
2,000,000 Puerto Rico (Commonwealth of), Public
Improvement Revenue,
6.800% due 07/01/2021**............ 2,235,000
------------
RHODE ISLAND -- 1.0%
200,000 Rhode Island Housing and Mortgage
Finance Corporation, AMT,
7.875% due 10/01/2022.............. 207,000
2,000,000 Rhode Island State Health and
Education Revenue, Residual
Interest Bond,
(FGIC Insured),
9.715% due 08/15/2021++............ 2,240,000
------------
2,447,000
------------
TEXAS -- 6.5%
4,000,000 Alliance Airport Authority, (Federal
Express Corporation), AMT,
6.375% due 04/01/2021.............. 3,955,000
80,000 Bexar County, Housing Finance, GNMA
Mortgage, AMT,
8.100% due 03/01/2024.............. 83,300
550,000 Brazos, Higher Educational Facilities
Authority, Series C-2, AMT,
7.100% due 11/01/2004.............. 585,063
5,000,000 Dallas-Fort Worth International
Airport, (Facility Improvement
Corporate Revenue), (American
Airlines, Inc.), AMT,
7.500% due 11/01/2025.............. 5,312,500
4,000,000 Texas State, Department of Housing,
Community Affairs, Residual
Interest Bond, AMT, (GNMA Insured),
9.815% due 07/02/2024++............ 4,275,000
749,000 Texas State, Higher Education
Coordinating Board, Student Loan,
AMT,
7.700% due 10/01/2025.............. 771,470
500,000 West Side Calhoun County, Revenue
Bond, AMT,
8.200% due 03/15/2021.............. 551,875
------------
15,534,208
------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
VERMONT -- 0.2%
Vermont Housing Finance Agency,
Single Family, Series 1, AMT:
$ 140,000 6.800% due 05/01/2025.............. $ 141,575
220,000 8.150% due 05/01/2025.............. 231,825
------------
373,400
------------
WASHINGTON -- 1.8%
4,000,000 Tacoma, Electric System Revenue,
Residual Interest Bond, Series C,
(AMBAC Insured),
8.972% due 01/02/2015++............ 4,320,000
------------
WEST VIRGINIA -- 1.5%
2,500,000 Harrison County, Solid Waste
Disposal, (Monongahelea Power),
Series A, AMT,
6.875% due 04/15/2022.............. 2,631,250
150,000 Kanawha County, IDR, Union Carbide
Project), Series A, AMT,
8.000% due 08/01/2020.............. 162,937
750,000 South Charleston, IDR, (Union Carbide
Project), Series A, AMT,
8.000% due 08/01/2020.............. 812,812
------------
3,606,999
------------
WISCONSIN -- 0.5%
1,000,000 Madison, IDR, (Madison Gas & Electric
Company), (Project A), AMT,
6.750% due 04/01/2027................ 1,035,000
250,000 Wisconsin State Health Facilities
Authority Revenue, Franciscan
Health Systems,
7.800% due 03/01/2014.............. 261,407
------------
1,296,407
------------
Total Municipal Bonds and Notes
(Cost $218,850,229)................ 231,985,539
------------
SHORT-TERM MUNICIPAL BONDS -- 4.2%
ILLINOIS -- 1.8%
3,200,000 Illinois Development Finance
Authority Revenue, (Ulichs
Childrens Home),
3.550% due 04/01/2007+............. 3,200,000
1,115,000 Illinois Health Facilities Authority
Revenue, Fransican Sisters Health,
3.750% due 01/01/2018+............. 1,115,000
------------
4,315,000
------------
LOUISIANA -- 0.7%
1,600,000 Louisiana State Recovery District,
Sales Tax Revenue,
3.650% due 07/01/1997+............. 1,600,000
------------
MISSISSIPPI -- 0.9%
2,200,000 Jackson County, PCR, Chevron USA
Inc.,
3.500% due 06/01/2023+............. 2,200,000
------------
NEW YORK -- 0.8%
1,900,000 New York, Municipal Water Finance
Authority, Water & Sewer System
Revenue, Series A,
3.750% due 06/15/2025+............. 1,900,000
------------
Total Short-Term Municipal Bonds
(Cost $10,015,000)................. 10,015,000
------------
</TABLE>
See Notes to Financial Statements.
FS-57
<PAGE> 330
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
NATIONAL MUNICIPAL FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
(NOTE 2)
------------
<S> <C> <C>
TOTAL INVESTMENTS (COST $228,865,229*)..... 100.8% $242,000,539
OTHER ASSETS AND LIABILITIES (NET)......... (0.8) (1,830,530)
----- ------------
NET ASSETS................................. 100.0% $240,170,009
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
** A portion or all of this security is pledged as collateral for futures
contracts.
+ Variable rate daily demand notes are payable upon not more than one business
day's notice. The interest rate shown reflects the rate currently in effect.
++ Floating rate note. The interest rate shown reflects the rate currently in
effect.
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS (DEPRECIATION)
- ----------- --------------
<S> <C> <C>
FUTURES CONTRACTS -- SHORT POSITION
200 U.S. Treasury Bond, Twenty Year,
September 1996..................... $ (576,614)
===========
GLOSSARY OF TERMS
AMBAC -- American Municipal Bond Assurance
Corporation
AMT -- Alternative Minimum Tax
COP -- Certificates of Participation
FGIC -- Federal Guaranty Insurance Corporation
FHA -- Federal Housing Authority
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GO -- General Obligation Bonds
IDR -- Industrial Development Revenue
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
SFHR -- Single Family Housing Revenue
</TABLE>
See Notes to Financial Statements.
FS-58
<PAGE> 331
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
GROWTH AND INCOME FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
COMMON STOCKS -- 96.8%
MATERIALS & PROCESSING -- 15.7%
3,200 Albemarle Corporation................. $ 58,400
20,700 Allegheny Ludlum Corporation.......... 390,712
33,500 Aluminum Company of America........... 1,922,062
55,500 du Pont (E.I.) de Nemours & Company... 4,391,437
39,200 Grainger (W.W.) Inc. ................. 3,038,000
109,800 International Game Technology......... 1,852,875
21,400 Reynolds Metals Company............... 1,115,475
155,300 Teledyne Inc. ........................ 5,610,213
82,400 Tyco International Ltd. .............. 3,357,800
138,400 Union Carbide Corporation............. 5,501,400
108,600 USG Corporation+...................... 3,027,225
94,600 Wellman Inc. ......................... 2,211,275
140,700 WMX Technologies, Inc. ............... 4,607,925
------------
37,084,799
------------
CONSUMER DISCRETIONARY -- 14.7%
81,600 Bausch & Lomb Inc. ................... 3,468,000
71,500 Circuit City Stores Inc. ............. 2,582,937
38,700 Colgate-Palmolive Company............. 3,279,825
94,500 Fruit of the Loom, Inc., Class A+..... 2,409,750
97,100 General Instrument Corporation+....... 2,803,763
40,600 International Flavors & Fragrances
Inc. ............................... 1,933,575
104,200 Limited Inc. ......................... 2,240,300
50,900 Melville Corporation.................. 2,061,450
48,200 Procter & Gamble Company.............. 4,368,125
92,800 Time Warner, Inc. .................... 3,642,400
129,500 Toys R Us Inc.+....................... 3,690,750
46,900 Turner Broadcasting Systems, Inc.,
Class B............................. 1,289,750
27,100 Viacom Inc., Class B+................. 1,053,513
------------
34,824,138
------------
FINANCIAL SERVICES -- 12.5%
27,300 Aetna Life & Casualty Company......... 1,951,950
64,000 AMBAC Inc. ........................... 3,336,000
28,200 BankAmerica Corporation............... 2,136,150
37,700 Dean Witter, Discover & Company....... 2,158,325
20,200 First Hawaiian Inc. .................. 575,700
34,000 First Union Corporation............... 2,069,750
50,400 Firstar Corporation................... 2,324,700
77,300 Fleet Financial Group Inc. (New)...... 3,362,550
55,600 NationsBank Corporation............... 4,593,950
34,700 Pinnacle West Capital Corporation..... 1,054,013
94,000 Providian Corporation................. 4,030,250
48,300 Standard Federal Bancorporation....... 1,859,550
------------
29,452,888
------------
ENERGY -- 8.9%
42,000 Anadarko Petroleum Corporation........ 2,436,000
41,789 Cooper Cameron Corporation+........... 1,828,269
69,200 Diamond Shamrock Inc. ................ 1,998,150
40,200 Exxon Corporation..................... 3,492,375
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
63,500 Repsol SA, ADR........................ $ 2,206,625
23,200 Royal Dutch Petroleum Company, ADR.... 3,567,000
106,000 Sun Company Inc. ..................... 3,219,750
26,800 Texaco Inc. .......................... 2,247,850
------------
20,996,019
------------
CONSUMER STAPLES -- 8.8%
14,600 CPC International Inc. ............... 1,051,200
17,100 Kellogg Company....................... 1,252,575
28,100 Nabisco Holdings Corporation, Class
A................................... 994,038
85,000 PepsiCo Inc. ......................... 3,006,875
60,500 Philip Morris Companies Inc........... 6,292,000
55,200 Ralston Purina Company................ 3,539,700
184,200 Wal-Mart Stores Inc. ................. 4,674,075
------------
20,810,463
------------
TELECOMMUNICATIONS -- 8.1%
70,700 AT&T Corporation...................... 4,383,400
54,500 GTE Corporation....................... 2,438,875
32,500 Harris Corporation.................... 1,982,500
60,800 MCI Communications Corporation........ 1,558,000
24,400 Motorola, Inc. ....................... 1,534,150
269,600 Tele-Communications Inc., TCI Group,
Class A+............................ 4,886,500
77,100 U.S. West Inc. ....................... 2,457,563
------------
19,240,988
------------
HEALTH CARE -- 7.9%
112,400 ALZA Corporation+..................... 3,076,950
77,100 Columbia/HCA Healthcare Corporation... 4,115,213
69,600 Forest Labs Inc.+..................... 2,688,300
41,791 Gensia, Inc.+......................... 211,567
159,100 Humana Inc.+.......................... 2,843,913
31,600 Pfizer, Inc. ......................... 2,255,450
65,000 Warner Lambert Company................ 3,575,000
------------
18,766,393
------------
AUTOS & TRANSPORTATION -- 7.6%
42,800 Boeing Company........................ 3,728,950
85,900 Consolidated Freightways Inc. ........ 1,814,637
127,100 Cooper Tire & Rubber Company.......... 2,827,975
62,500 General Motors Corporation............ 3,273,438
14,300 Johnson Controls Inc. ................ 993,850
76,000 Union Pacific Corporation............. 5,310,500
------------
17,949,350
------------
TECHNOLOGY -- 5.3%
26,300 Adobe Systems Inc. ................... 943,512
52,500 Advanced Micro Devices Inc.+.......... 715,312
26,600 Autodesk Inc. ........................ 794,675
23,300 Broderbund Software Corporation+...... 751,425
119,000 EMC Corporation+...................... 2,216,375
23,300 Hewlett-Packard Company............... 2,321,262
46,600 MagneTek Inc.+........................ 448,525
</TABLE>
See Notes to Financial Statements.
FS-59
<PAGE> 332
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
GROWTH AND INCOME FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
TECHNOLOGY -- (CONTINUED)
43,200 Perkin Elmer Corporation.............. $ 2,084,400
96,200 Quantum Corporation+.................. 1,406,925
47,800 Soft Key International Inc.+.......... 905,212
------------
12,587,623
------------
PRODUCER DURABLES -- 4.8%
60,400 AlliedSignal Inc. .................... 3,450,350
139,200 Coltec Industries, Inc.+.............. 1,983,600
90,600 Cooper Industries, Inc. .............. 3,759,900
13,100 General Electric Company.............. 1,133,150
53,000 Rohr Inc.+............................ 1,106,375
------------
11,433,375
------------
UTILITIES -- 2.5%
32,400 Entergy Corporation................... 919,350
27,100 Illinova Corporation.................. 779,125
97,100 Pacific Gas & Electric Company........ 2,257,575
4,300 Southern Company...................... 105,887
59,000 Western Resources Inc. ............... 1,762,625
------------
5,824,562
------------
Total Common Stocks (Cost
$209,366,738)....................... 228,970,598
------------
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS -- 1.5%
27,000 K-Mart Financing, Conv. Pfd........... $ 1,464,750
36,500 Owens-Corning, Conv. Pfd.+++.......... 2,057,688
------------
Total Convertible Preferred Stocks
(Cost $3,232,370)................... 3,522,438
------------
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<S> <C> <C>
CONVERTIBLE NOTE -- 0.3% (Cost $446,250)
$ 375,000 Rohr Inc., Conv. Sub. Note,
7.750% due 05/15/2004............... 765,937
------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTE -- 1.5%
(Cost $3,545,000)
3,545,000 5.200% due 07/01/1996++............... 3,545,000
------------
U.S. TREASURY BILL -- 1.2% (Cost $2,834,455)
2,867,000 5.100% due 09/19/1996++............... 2,834,455
------------
TOTAL INVESTMENTS (COST $219,424,813*)..... 101.3% 239,638,428
OTHER ASSETS AND LIABILITIES (NET)......... (1.3) (3,149,713)
----- ------------
NET ASSETS................................. 100.0% $236,488,715
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $219,699,438 (Note 6).
+ Non-income producing security.
++ Rate represents annualized yield at date of purchase (unaudited).
+++ Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
<TABLE>
<S> <C>
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
</TABLE>
See Notes to Financial Statements.
FS-60
<PAGE> 333
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
GROWTH FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
COMMON STOCKS -- 80.6%
TECHNOLOGY -- 23.9%
1,900 ABR Information Services, Inc.+...... $ 95,475
9,525 ADTRAN, Inc.+........................ 675,084
27,850 American Management Systems, Inc.+... 814,612
259,537 Analog Devices Inc.+................. 6,618,194
24,300 Aspen Technology Inc.+............... 1,336,500
38,475 BMC Software Inc.+................... 2,298,881
138,700 Cisco Systems, Inc.+................. 7,853,888
1,675 Citrix Systems Inc.+................. 63,650
18,150 Computer Associates International,
Inc. .............................. 1,256,887
65,050 Dell Computer Corporation+........... 3,309,419
6,100 FORE Systems Inc.+................... 220,363
22,350 Gateway 2000 Inc.+................... 759,900
24,675 Glenayre Technologies Inc.+.......... 1,233,750
34,425 Indus Group Inc.+.................... 697,106
70,425 Informix Corporation+................ 1,584,563
80,600 JDA Software Group Inc.+............. 1,662,375
40,375 Lernout & Hauspie Speech Products
N.V.+.............................. 908,438
48,775 Linear Technology Corporation........ 1,463,250
56,575 Macromedia Inc.+..................... 1,237,578
242,225 Macronix International Company, Ltd.,
ADR+............................... 3,936,156
18,650 Netscape Communications
Corporation+....................... 1,160,962
17,850 PairGain Technologies Inc.+.......... 1,106,700
41,975 PC Docs Group International Inc.+.... 834,253
26,850 Peoplesoft Inc.+..................... 1,913,063
77,475 Pittway Corporation, Class A......... 3,602,588
47,300 Sterling Commerce, Inc.+............. 1,756,013
10,150 Sterling Software Inc.+.............. 781,550
8,650 Technology Solutions Company+........ 299,506
35,350 U.S. Satellite Broadcasting Company,
Class A+........................... 1,334,462
10,650 UUNET Technologies Inc.+............. 705,562
12,775 VeriFone Inc.+....................... 539,744
65,800 Westell Technologies, Inc.+.......... 2,582,650
37,550 Wonderware Corporation+.............. 708,756
35,925 Xeikon N.V., ADR+.................... 408,647
89,950 Xylan Corporation+................... 4,182,675
------------
59,943,200
------------
HEALTH CARE -- 13.0%
21,975 Amgen Inc.+.......................... 1,186,650
3,475 Arrow International.................. 93,825
30,500 ARV Assisted Living, Inc.+........... 472,750
315,850 Centocor, Inc.+...................... 9,436,019
17,850 Coherent, Inc.+...................... 928,200
30,150 CompDent Corporation+................ 1,401,975
162,575 Eli Lilly & Company.................. 10,567,375
21,825 Genzyme Corporation+................. 1,096,706
22,475 Glaxo Wellcome Plc, ADR.............. 601,206
21,750 Glaxo Wellcome Plc, Ord. ............ 292,939
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
59,150 ICU Medical Inc.+.................... $ 813,313
25,700 Omnicare Inc......................... 681,050
10,925 Oxford Health Plans Inc.+............ 449,291
23,650 Respironics Inc.+.................... 437,525
49,050 SmithKline Beecham, ADR.............. 2,667,094
13,250 Sofamor/Danek Group Inc.+............ 367,688
27,425 Target Therapeutics Inc.+............ 1,124,425
------------
32,618,031
------------
FINANCIAL SERVICES -- 12.3%
66,525 Alco Standard Corporation............ 3,010,256
54,375 Associates 1st Capital Corporation,
Class A+........................... 2,045,859
21,868 Banca Popolare Di Bergamo............ 333,356
15,450 Bank of New York Company, Inc. ...... 791,812
75,325 First Data Corporation............... 5,997,753
104,013 Grupo Financiero Inbursa, Series B... 430,588
31,225 Keane Inc.+.......................... 1,151,422
19,275 SunAmerica Inc. ..................... 1,089,037
84,800 UNUM Corporation..................... 5,278,800
45,166 Wells Fargo & Company................ 10,789,028
------------
30,917,911
------------
CONSUMER DISCRETIONARY -- 11.0%
39,800 Anchor Gaming+....................... 2,397,950
39,600 APAC Teleservices, Inc.+............. 1,425,600
13,850 Business Objects SA, ADR+............ 557,462
10,925 Coleman Company+..................... 462,947
8,800 Extended Stay America, Inc.+......... 277,200
53,900 FelCor Suite Hotels Inc. ............ 1,643,950
27,350 Fila Holding SpA, ADR................ 2,358,937
10,000 Grupo Casa Autrey SA, ADR............ 215,000
68,200 Gucci Group+......................... 4,398,900
20,150 ITT Corporation (New)+............... 1,334,938
136,623 Kinnevik Investment, Series B........ 4,147,594
17,775 La Quinta Inns, Inc. ................ 595,463
1,200 Nike Inc., Class B................... 123,300
6,075 Papa John's International Inc.+...... 296,156
75,150 Renters Choice Inc.+................. 1,916,325
22,050 Shiva Corporation+................... 1,764,000
91,225 Singer Company....................... 1,847,306
69,900 Thrifty PayLess Holdings, Inc., Class
B+................................. 1,205,775
12,525 Tommy Hilfiger Corporation+.......... 671,653
------------
27,640,456
------------
TELECOMMUNICATIONS -- 9.9%
26,045 Arch Communications Group Inc.+...... 485,088
16,500 Ascend Communications Inc.+.......... 928,125
46,825 Cincinnati Bell, Inc. ............... 2,440,753
28,375 CommNet Cellular Inc.+............... 851,250
76,200 Heartland Wireless Communications
Inc.+.............................. 1,809,750
53,275 Itron Inc.+.......................... 1,511,678
112,775 Korea Mobile Telecommunications,
ADR+............................... 1,931,272
</TABLE>
See Notes to Financial Statements.
FS-61
<PAGE> 334
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
GROWTH FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
TELECOMMUNICATIONS -- (CONTINUED)
27,875 MFS Communication Company, Inc.+..... $ 1,048,797
52,650 Millicom International Cellular
SA+................................ 2,507,456
146,704 NetCom Systems AB, Class B+.......... 1,661,803
182,875 Paging Network Inc.+................. 4,389,000
68,025 Palmer Wireless Inc., Class A+....... 1,360,500
28,275 PictureTel Corporation+.............. 1,113,328
13,525 Premisys Communications, Inc.+....... 825,025
33,250 Stratacom Inc.+...................... 1,870,313
------------
24,734,138
------------
OTHER -- 3.7%
132,625 HFS, Inc.+........................... 9,283,750
------------
MATERIALS & PROCESSING -- 3.2%
69,425 Arcadian Corporation................. 1,371,144
51,775 Danka Business Systems, ADR.......... 1,514,419
117,425 International Game Technology........ 1,981,547
18,349 Potash Corporation of Saskatchewan... 1,215,621
44,725 Praxair, Inc. ....................... 1,889,631
------------
7,972,362
------------
PRODUCER DURABLES -- 2.0%
21,325 General Motors, Class H.............. 1,282,166
40,546 Metra AB, Series B, Ord.............. 1,819,148
304,036 Rentokil Group Plc................... 1,932,845
------------
5,034,159
------------
AUTOS & TRANSPORTATION -- 0.9%
8,200 Amway Asia Pacific Ltd. ............. 248,050
28,050 Trans World Airlines Inc.+........... 399,712
50,775 Wisconsin Central Transportation
Corporation+....................... 1,650,188
------------
2,297,950
------------
ENERGY -- 0.4%
18,700 Triton Energy Ltd.+.................. 909,288
------------
CONSUMER STAPLES -- 0.3%
12,539 Cultor OY, Series 1.................. 616,672
------------
Total Common Stocks
(Cost $175,236,075)................ 201,967,917
------------
PREFERRED STOCK -- FOREIGN -- 3.2%
(Cost $6,245,054)
54,527 SAP, AG, Non-Voting, Pfd. ........... 8,093,081
------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<S> <C> <C>
COMMERCIAL PAPER -- 8.5%
$ 9,300,000 Ford Motor Credit Company,
5.490% due 07/01/1996.............. $ 9,300,000
12,000,000 General Electric Capital Corporation,
5.370% due 07/02/1996.............. 11,998,210
------------
Total Commercial Paper
(Cost $21,298,210)................. 21,298,210
------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- 6.0%
5,000,000 Federal Home Loan Mortgage
Corporation (FHLMC),
5.480% due 07/01/1996++.............. 5,000,000
10,000,000 Federal National Mortgage Association
(FNMA),
5.270% due 07/29/1996++.............. 9,959,011
------------
Total U.S. Government Agency
Discount Notes
(Cost $14,959,011)................. 14,959,011
------------
U.S. TREASURY BILL -- 0.8% (Cost $1,973,262)
2,000,000 5.120% due 10/03/1996++**............ 1,973,262
------------
TOTAL INVESTMENTS (COST $219,711,612*)..... 99.1% 248,291,481
OTHER ASSETS AND LIABILITIES (NET)......... 0.9 2,147,556
----- ------------
NET ASSETS................................. 100.0% $250,439,037
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $220,097,724 (Note 6).
** Security is pledged as collateral for futures contracts.
+ Non-income producing security.
++ Rate represents annualized yield at date of purchase (unaudited).
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS (DEPRECIATION)
----------- --------------
<S> <C> <C>
FUTURES CONTRACTS -- SHORT POSITION
S&P 500 Index Futures, September
111 1996................................ $ (454,259)
=============
</TABLE>
See Notes to Financial Statements.
FS-62
<PAGE> 335
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
GROWTH FUND
JUNE 30, 1996
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE UNREALIZED
-------------------------------------- APPRECIATION/
EXPIRATION VALUE IN IN EXCHANGE (DEPRECIATION)
DATE LOCAL CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ---------------------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
07/25/1996 FIM 2,211,000 477,569 480,768 $ (3,199)
07/25/1996 SEK 13,000,000 1,962,758 1,907,697 55,061
07/25/1996 SEK 3,500,000 528,435 514,139 14,296
08/09/1996 ITL 1,375,000,000 894,005 873,547 20,458
08/12/1996 FIM 2,500,000 540,530 555,914 (15,384)
09/12/1996 CHF 3,300,000 2,656,817 2,711,617 (54,800)
09/12/1996 JPY 69,500,000 642,286 674,560 (32,274)
10/01/1996 CHF 750,000 604,759 612,565 (7,806)
10/01/1996 JPY 60,000,000 555,923 583,788 (27,865)
10/22/1996 SEK 11,005,000 1,661,378 1,613,163 48,215
10/22/1996 JPY 35,000,000 325,291 341,463 (16,172)
11/15/1996 ITL 2,000,000,000 1,291,473 1,276,039 15,434
--------
$ (4,036)
--------
</TABLE>
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER UNREALIZED
-------------------------------------- APPRECIATION/
EXPIRATION VALUE IN IN EXCHANGE (DEPRECIATION)
DATE LOCAL CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ---------------------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
07/02/1996 FIM 110,531 23,843 23,931 $ 88
07/02/1996 SEK 264,338 39,923 39,932 9
07/03/1996 FIM 48,322 10,424 10,426 2
07/03/1996 SEK 231,359 34,942 34,869 (73)
07/15/1996 DEM 500,000 329,132 351,642 22,510
07/25/1996 FIM 2,211,000 477,570 489,652 12,082
07/25/1996 SEK 3,500,000 528,435 502,513 (25,922)
07/25/1996 SEK 13,000,000 1,962,758 1,873,064 (89,694)
08/08/1996 DEM 1,918,000 1,264,408 1,311,812 47,404
08/09/1996 ITL 1,700,000,000 1,105,316 1,057,148 (48,168)
08/12/1996 DEM 1,270,000 837,440 867,072 29,632
08/12/1996 FIM 4,960,000 1,072,412 1,077,394 4,982
09/12/1996 CHF 3,300,000 2,656,817 2,806,480 149,663
09/12/1996 ITL 175,000,000 113,490 109,949 (3,541)
09/12/1996 JPY 69,500,000 642,286 674,888 32,602
09/13/1996 DEM 2,150,000 1,420,538 1,420,868 330
10/01/1996 CHF 750,000 604,759 641,849 37,090
10/01/1996 GBP 1,070,000 1,662,337 1,627,577 (34,760)
10/01/1996 JPY 60,000,000 555,923 578,732 22,809
10/22/1996 FIM 750,000 162,780 158,295 (4,485)
10/22/1996 GBP 100,000 155,357 150,805 (4,552)
10/22/1996 JPY 35,000,000 325,291 335,892 10,601
10/22/1996 SEK 18,000,000 2,717,385 2,678,811 (38,574)
11/12/1996 FIM 3,921,000 852,011 822,875 (29,136)
11/15/1996 ITL 2,300,000,000 1,485,194 1,463,272 (21,922)
11/25/1996 SEK 22,500,000 3,397,295 3,324,837 (72,458)
12/04/1996 DEM 1,222,000 811,626 808,254 (3,372)
12/04/1996 GBP 400,000 621,481 616,012 (5,469)
------------
$ (12,322)
------------
Net Unrealized Depreciation of Forward
Foreign Currency Contracts.......................... $ (16,358)
============
</TABLE>
<TABLE>
<CAPTION>
GLOSSARY OF TERMS
<S> <C>
ADR -- American Depositary Receipt
CHF -- Swiss Franc
DEM -- German Deutsche Mark
FIM -- Finnish Markka
GBP -- Great Britain Pound Sterling
ITL -- Italian Lira
JPY -- Japanese Yen
SEK -- Swedish Krona
</TABLE>
See Notes to Financial Statements.
FS-63
<PAGE> 336
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
EMERGING GROWTH FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
COMMON STOCKS -- 95.1%
CONSUMER DISCRETIONARY -- 24.3%
101,100 Barnett Inc.+......................... $ 2,906,625
242,550 Family Golf Centers Inc.+............. 6,094,069
16,625 Fastenal Company...................... 723,187
14,565 Fotolabo SA........................... 6,047,388
9,350 Grand Optical-Photoservices........... 1,205,044
159,177 Grosvenor Inns Plc.................... 653,180
85,925 Heritage Media Corporation, Class
A+.................................. 3,426,259
1,184,798 J.D. Wetherspoon Plc Ord.............. 18,507,980
58,475 MSC Industrial Direct Company, Class
A+.................................. 1,885,819
266,400 Papa John's International Inc.+....... 12,987,000
600,000 Petco Animal Supplies Inc.+........... 17,250,000
585,324 PizzaExpress Plc...................... 3,348,057
156,225 Premier Parks Inc.+................... 3,358,837
234,849 Renters Choice Inc.+.................. 5,988,649
56,800 Sunglass Hut International, Inc.+..... 1,384,500
37,425 Wilmar Industries, Inc.+.............. 973,050
-----------
86,739,644
-----------
TELECOMMUNICATIONS -- 16.7%
95,400 Arch Communications Group, Inc.+...... 1,776,825
350,000 CommNet Cellular Inc.+................ 10,500,000
129,825 Millicom International Cellular SA+... 6,182,916
291,525 Omnipoint Corporation+................ 7,597,870
918,375 Paging Network Inc.+.................. 22,041,000
90,800 Palmer Wireless, Inc., Class A+....... 1,816,000
248,781 Pricellular Corporation, Class A+..... 3,016,470
228,500 360(++) Communications Company+....... 5,484,000
45,525 Western Wireless Corporation, Class
A+.................................. 973,097
-----------
59,388,178
-----------
HEALTH CARE -- 12.3%
360,650 ARV Assisted Living Inc.+............. 5,590,075
391,425 DepoTech Corporation+................. 9,883,481
252,025 Exogen Inc.+.......................... 2,142,213
85,525 Gulf South Medical Supply Inc.+....... 3,335,475
52,775 ICU Medical Inc.+..................... 725,656
320,175 Matrix Pharmaceutical, Inc.+.......... 5,763,150
66,450 Medaphis Corporation+................. 2,641,387
39,950 Omnicare Inc.......................... 1,058,675
72,000 QLT Phototherapeutics Inc.+........... 1,332,000
106,725 Respironics Inc.+..................... 1,974,413
52,675 Steris Corporation+................... 1,685,600
402,750 TheraTech Inc.+....................... 7,752,937
-----------
43,885,062
-----------
FINANCIAL SERVICES -- 9.9%
51,850 First Commonwealth Inc.+.............. 1,445,319
772,000 Insignia Financial Group Inc., Class
A+.................................. 20,940,500
195,775 Profit Recovery Group International,
Inc.+............................... 3,964,444
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
99,100 Protective Life Corporation........... $ 3,480,888
525,500 PT Lippo Life Insurance............... 677,336
49,400 United Insurance Companies Ltd.+...... 1,123,850
500,000 World Acceptance Corporation+......... 3,625,000
-----------
35,257,337
-----------
PRODUCER DURABLES -- 7.2%
338,225 APS Holding Corporation, Class A+..... 7,440,950
133,125 Culligan Water Technologies, Inc.+.... 5,058,750
1,803,621 Rentokil Group Plc.................... 11,466,140
88,675 York Group Inc. ...................... 1,529,644
-----------
25,495,484
-----------
MATERIALS & PROCESSING -- 7.1%
100,000 Hughes Supply Inc. ................... 3,475,000
203,630 Minerals Technologies Inc. ........... 6,974,328
102,650 Philip Environmental, Inc.+........... 808,369
144,500 Sealed Air Corporation+............... 4,858,812
480,375 Trigen Energy Corporation............. 9,067,078
-----------
25,183,587
-----------
AUTOS & TRANSPORTATION -- 6.5%
105,675 AutoZone Inc.+........................ 3,672,206
125,325 O'Reilly Automotive Inc.+............. 4,543,031
459,900 Wisconsin Central Transportation
Corporation+........................ 14,946,750
-----------
23,161,987
-----------
TECHNOLOGY -- 4.7%
166,050 American Business Information,
Inc.+............................... 3,030,412
100,000 Bell & Howell Holdings Company+....... 3,262,500
85,150 Black Box Corporation+................ 2,022,313
78,900 CIBER Inc.+........................... 1,735,800
50,975 Lernout & Hauspie Speech Products
N.V.+............................... 1,146,938
88,700 SAES Getters SpA, Sponsored ADR+...... 1,785,087
110,275 Technology Solutions Company+......... 3,818,272
-----------
16,801,322
-----------
OTHER -- 4.6%
137,425 Global DirectMail Corporation+........ 5,428,288
158,975 HFS, Inc.+............................ 11,128,250
-----------
16,556,538
-----------
CONSUMER STAPLES -- 1.8%
250,000 JP Foodservice Inc.+.................. 6,250,000
-----------
Total Common Stocks
(Cost $263,774,988)................. 338,719,139
-----------
WARRANT -- 1.2% (Cost $2,716,035)
149,770 Littelfuse Inc., Series A,
expires 12/27/2001+................. 4,362,051
-----------
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<S> <C> <C>
COMMERCIAL PAPER -- 3.5% (Cost $12,500,000)
$12,500,000 Ford Motor Credit Company,
5.490% due 07/01/1996............... 12,500,000
-----------
</TABLE>
See Notes to Financial Statements.
FS-64
<PAGE> 337
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
EMERGING GROWTH FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY DISCOUNT NOTE -- 1.4%
(Cost $5,000,000)
$5,000,000 Federal Home Loan Mortgage Corporation
(FHLMC),
5.480% due 07/01/1996++............. $ 5,000,000
-----------
TOTAL INVESTMENTS (COST $283,991,023*)..... 101.2% 360,581,190
OTHER ASSETS AND LIABILITIES (NET)......... (1.2) (4,269,275)
----- ------------
NET ASSETS................................. 100.0% $356,311,915
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $284,070,872 (Note 6).
+ Non-income producing security.
++ Rate represents annualized yield at date of purchase (unaudited).
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER
--------------------------------------------- UNREALIZED
EXPIRATION VALUE IN IN EXCHANGE (DEPRECIATION)
DATE LOCAL CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ----------- ---------------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
07/15/1996 GBP 1,337,000 2,077,810 2,031,421 $ (46,389)
10/01/1996 GBP 3,500,000 5,437,552 5,323,850 (113,702)
11/25/1996 GBP 3,500,000 5,437,788 5,281,850 (155,938)
12/04/1996 GBP 515,000 800,157 793,615 (6,542)
-------------
Net Unrealized Depreciation of Forward
Foreign Currency Contracts................... $ (322,571)
=============
</TABLE>
<TABLE>
<CAPTION>
GLOSSARY OF TERMS
<S> <C>
ADR -- American Depositary Receipt
GBP -- Great Britain Pound Sterling
</TABLE>
See Notes to Financial Statements.
FS-65
<PAGE> 338
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
INTERNATIONAL GROWTH FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
COMMON STOCKS -- 89.3%
JAPAN - 30.1%
31,000 Advantest Corporation................. $ 1,232,633
115,000 Anritsu Corporation................... 1,597,806
12,000 Bank of Tokyo-Mitsubishi Ltd.+........ 279,707
75,000 Canon Inc. ........................... 1,563,071
60,000 Cosmo Oil............................. 371,846
243 DDI Corporation....................... 2,123,473
92,000 Denki Kogyo Company Ltd. ............. 950,274
14,000 Diamond Lease Company................. 190,676
160 East Japan Railway Company............ 840,951
50 Fuji Denki Reiki...................... 640
150,000 Fujikura Ltd. ........................ 1,244,973
86,000 Hankyu Realty......................... 919,744
130,000 Hitachi Ltd. ......................... 1,212,066
85,000 Honda Motor Company................... 2,206,581
190,000 Japan Synthetic Rubber Company+....... 1,370,292
50 Japan Tobacco Inc. ................... 383,912
64,000 JUSCO Company......................... 2,100,183
295,000 Kawasaki Heavy Industries............. 1,496,572
160,000 Komatsu Forklift Company, Ltd. ....... 1,162,706
60,000 Matsushita Electric Industrial
Company............................. 1,118,830
117,000 Mitsubishi Estate Company............. 1,614,899
162,000 Mitsubishi Heavy Industrials Ltd. .... 1,411,207
45,000 NEC Corporation....................... 489,488
30,000 Nippon Road Company Ltd. ............. 258,867
5,000 Nitta Corporation..................... 93,693
560,000 NKK Corporation+...................... 1,699,452
50,000 Nomura Securities Company Ltd. ....... 978,062
29,000 Noritsu Koki Company Ltd. ............ 1,468,556
40 NTT Data Communication Systems
Corporation......................... 1,199,269
36,000 Orix Corporation...................... 1,336,015
700 Parco Company......................... 7,806
115,000 Pioneer Electric Corporation.......... 2,743,601
18,000 Rohm Company.......................... 1,191,225
82,000 Sharp Corporation..................... 1,439,122
33,000 Sony Corporation...................... 2,174,863
350,000 Sumitomo Metal Industries............. 1,074,954
55,000 Sumitomo Realty & Development......... 435,877
50,000 Takashimaya Company Ltd. ............. 776,965
30,000 TDK Corporation....................... 1,793,419
50 Tohoku Electric & Power Company....... 1,120
50,000 Tokio Marine & Fire Insurance
Company............................. 667,276
225,000 Toray Industries Inc. ................ 1,554,845
50,000 Toyo Trust and Banking Company........ 516,453
30,000 Toyota Motor Company.................. 751,371
----------
48,045,341
----------
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
UNITED STATES -- 15.1%
42,428 Asia Cement, GDS...................... $ 859,175
56,000 Banco de Edwards, ADR................. 1,176,000
145,500 Buenos Aires Embotelladora SA, ADR.... 1,927,875
13,000 ECI Telecommunications Ltd., ADR...... 302,250
94,000 Enersis SA, ADR....................... 2,914,000
63,000 Guangshen Railway Ltd., ADR+.......... 1,204,875
19,500 Hansol Paper Company, GDS+............ 380,250
1,184,000 Hong Kong Land Holdings............... 2,664,000
7,800 Hub Power Company, GDR+............... 189,150
25,400 Hyundai Motor Company Ltd., GDR+...... 311,150
42,000 Jardine Matheson Holdings............. 308,700
25,700 Korea Electric Power Corporation,
ADR................................. 623,225
34,500 Macronix International
Company Ltd., ADR+.................. 560,625
54,666 Mavesa SA, ADR........................ 215,108
35,000 Panamerican Beverages, Class A........ 1,566,250
2,200 Pick Szeged, GDS+..................... 90,200
40,000 Portugal Telecommunications, ADR...... 1,050,000
43,000 Quantas Airways, ADR++................ 728,275
164,000 Reliance Industries Ltd., GDS......... 2,173,000
11,300 Repsol SA, ADR........................ 392,675
20,980 Samsung Electronics Company Ltd.,
GDS................................. 508,753
70,000 Telefonica de Argentina, ADR.......... 2,073,750
85,000 YPF Sociedad Anonima, Sponsored ADR... 1,912,500
----------
24,131,786
----------
FRANCE -- 6.6%
19,000 Assurance Generale de France.......... 514,866
12,536 AXA Company........................... 686,230
15,700 Compagnie Bancaire SA................. 1,770,132
16,850 Credit Commercial de France........... 781,535
71,580 La Gardere Groupe..................... 1,846,463
4,120 L'Air Liquide......................... 728,013
4,850 Promodes.............................. 1,399,115
5,454 Societe Generale Paris................ 600,080
152,800 Usinor Sacilor........................ 2,205,453
----------
10,531,887
----------
UNITED KINGDOM -- 5.9%
220,000 British Airport Authority............. 1,600,358
430,000 Cookson Group Plc..................... 1,894,830
211,000 General Electric Company Plc Ord...... 1,138,048
520,000 Pace Micro Technology++............... 1,535,697
350,000 Rolls Royce Plc....................... 1,218,610
35,000 RTZ Corporation....................... 518,453
419,100 Vodafone Group........................ 1,560,170
----------
9,466,166
----------
</TABLE>
See Notes to Financial Statements.
FS-66
<PAGE> 339
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
INTERNATIONAL GROWTH FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
NEW ZEALAND -- 4.7%
1,700,500 Fletcher Challenge -- Building
Division+........................... $ 3,334,341
2,075,200 Fletcher Challenge -- Forest
Division............................ 2,584,206
2,160,000 Wrightson Ltd. ....................... 1,590,106
----------
7,508,653
----------
GERMANY -- 3.8%
2,120 Ava Allgemeine Handels Der Verbr AG... 655,246
1,760 M.A.N. AG............................. 438,423
1,183 Munchener Ruckversicherungs........... 2,442,784
1,700 SGL Carbon AG......................... 198,994
2,210 Thyssen AG............................ 404,170
36,450 Veba AG............................... 1,938,455
----------
6,078,072
----------
AUSTRALIA -- 2.6%
285,000 Boral Ltd............................. 739,092
39,210 Broken Hill Proprietary Company
Ltd................................. 541,388
94,400 CSR................................... 333,087
96,000 Lend Lease Corporation................ 1,471,112
52,800 National Australia Bank Ltd........... 487,542
50,700 The News Corporation.................. 287,265
50,550 Western Mining Corporation
Holdings, Ltd....................... 361,495
----------
4,220,981
----------
SPAIN -- 2.5%
5,100 Banco Popular de Espanol.............. 909,996
300,600 Iberdrola SA.......................... 3,088,075
----------
3,998,071
----------
HONG KONG -- 2.5%
93,000 Cheung Kong Holdings.................. 669,799
102,000 Henderson China+...................... 227,962
39,000 Henderson Land Development Company.... 292,220
110,000 Hong Kong Electric Holdings........... 335,368
283,600 Hong Kong Telecommunications.......... 509,258
38,400 HSBC Holdings Ord..................... 580,409
57,000 Hutchison Whampoa Ltd................. 358,609
434,000 Luoyang Glass Company Ltd............. 103,163
71,000 New World Development Company......... 329,283
34,000 Swire Pacific Ltd., Class A........... 290,992
72,000 Television Broadcasts Ltd............. 270,206
----------
3,967,269
----------
NORWAY -- 2.0%
317,000 Den Norske Bank....................... 962,227
18,000 Kvaerner Industrier, Class B.......... 696,143
30,000 Norsk Hydro A.S....................... 1,469,942
----------
3,128,312
----------
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
SINGAPORE -- 1.9%
281,000 D.B.S. Land Ltd. ..................... $ 963,884
65,000 Development Bank of Singapore (F)..... 810,773
72,000 Singapore International Airlines Ltd.
(F)................................. 760,312
28,000 Singapore Press Holdings (F).......... 549,681
----------
3,084,650
----------
FINLAND -- 1.7%
17,400 Metra AB, Class B..................... 780,673
111,800 Valmet Corporation, Class A........... 1,893,076
----------
2,673,749
----------
SWITZERLAND -- 1.5%
1,920 Ciba Geigy AG......................... 2,342,400
----------
MALAYSIA -- 1.2%
150,000 Commerce Asset Holdings Berhad........ 914,011
190,000 New Straits Time Press Berhad......... 990,178
----------
1,904,189
----------
PHILLIPINES -- 1.1%
1,434,750 Filinvest Land Inc. .................. 588,686
63,000 Manila Electric Company, Class B...... 661,259
28,400 Philippine National Bank+............. 474,237
----------
1,724,182
----------
PORTUGAL -- 1.0%
64,000 Portugal Telecommunications SA+....... 1,673,280
----------
SWEDEN -- 0.9%
4,790 ABB AB, B Shares...................... 507,142
11,000 Astra AB, Class B..................... 480,139
22,000 Stadshypotek AB....................... 491,769
----------
1,479,050
----------
POLAND -- 0.9%
14,300 Bank Przemyslcowo-Handlowy SA+........ 1,032,525
75,500 Polifarb-Cieszyn SA+.................. 383,826
----------
1,416,351
----------
NETHERLANDS -- 0.8%
18,000 ABN Amro Holdings NV.................. 966,755
23,000 Elsevier NV........................... 349,282
----------
1,316,037
----------
THAILAND -- 0.8%
21,000 Advanced Information Service
Public (F).......................... 311,013
38,200 Bangkok Bank Public Company
Ltd. (F)............................ 517,599
6,700 Siam Cement Public Company
Ltd. (F)............................ 328,825
5,800 Siam Commercial Bank (F).............. 84,071
----------
1,241,508
----------
DENMARK -- 0.7%
48,000 International Service Systems AS,
Class B............................. 1,073,221
----------
</TABLE>
See Notes to Financial Statements.
FS-67
<PAGE> 340
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
INTERNATIONAL GROWTH FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
INDONESIA -- 0.6%
200,000 P.T. Inco+............................ $ 455,424
171,500 Semen Gresik (F)...................... 499,211
----------
954,635
----------
BELGIUM -- 0.4%
4,600 Fortis AG............................. 607,748
----------
Total Common Stocks
(Cost $136,647,206)................. 142,567,538
----------
PREFERRED STOCKS -- 0.7%
1,900 Henkel, Pfd. ..................... 820,899
1,700 Jungheinrich AG, Pfd. ............ 301,845
------------
Total Preferred Stocks
(Cost $1,012,470)............... 1,122,744
------------
WARRANTS -- 0.2%
120 Dowa Mining Company, expire
12/09/1997+..................... 140,250
261,264 United Overseas Land, expire
06/09/1997+..................... 192,569
------------
Total Warrants (Cost $410,349).... 332,819
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
- ---------------
<S> <C> <C>
CORPORATE BONDS -- 2.8%
$ 55,000 Bangkok Bank, Convertible,
3.250% due 03/03/2004........... 62,535
JPY 80,000,000 BTM Cayman Finance,
4.250% due 03/31/2003........... 1,095,064
JPY 46,000,000 Daido Hoxan Inc., Convertible,
1.600% due 03/29/2002........... 471,773
CHF 790,000 Sandoz Capital Ltd., Convertible,
1.250% due 10/23/2002........... 883,220
$ 1,135,000 Telekom Malaysia Berhad,
4.000% due 10/03/2004........... 1,191,750
JPY 50,000,000 Toyota Motor Corporation,
1.200% due 01/28/1998........... 656,764
------------
Total Corporate Bonds
(Cost $4,094,017)............... 4,361,106
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
- -----------
<S> <C> <C>
INVESTMENT COMPANY SECURITY -- 2.0%
(Cost $3,019,191)
3,270,000 General Pacific Securities Taiwan
Index Fund.......................... 3,139,200
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<S> <C> <C>
REPURCHASE AGREEMENT -- 2.8%
(Cost $4,513,000)
$4,513,000 Agreement with State Street Bank &
Trust Company, 5.100% dated
06/28/1996, to be repurchased at
$4,514,918 on 07/01/1996,
collateralized by $4,520,000 U.S.
Treasury Note, 6.000% due 08/31/1997
(Market Value -- $4,604,750)........ 4,513,000
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL EXPIRATION STRIKE VALUE
AMOUNT DATE PRICE (NOTE 2)
- --------------- ---------- ------ ------------
<S> <C> <C> <C> <C>
CALL OPTION PURCHASED ON STOCK INDEX -- 0.0%#
(Cost $150,003)
KRW 11,497,156 Kospi 200 Stock $0.126 $ 45,897
Index........... 12/06/1996
-----------
TOTAL INVESTMENTS (COST $149,846,236*)......... 97.8% 156,082,304
OTHER ASSETS AND LIABILITIES (NET)............. 2.2 3,518,487
-----------
NET ASSETS..................................... 100.0% $159,600,791
===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $149,853,748 (Note 6).
+ Non-income producing security.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
# Amount represents less than 0.1% of net assets.
As of June 30, 1996, sector diversification was as follows (unaudited):
<TABLE>
<CAPTION>
% OF VALUE
SECTOR DIVERSIFICATION NET ASSETS (NOTE 2)
- -------------------------------------- ---------- ------------
<S> <C> <C>
COMMON STOCKS:
Material & Processing................. 16.6% $ 26,453,458
Financial Services.................... 14.9 23,825,610
Producer Durables..................... 9.8 15,692,635
Telecommunications.................... 9.6 15,377,733
Utilities............................. 7.5 12,004,286
Consumer Discretionary................ 6.5 10,420,851
Consumer Staples...................... 5.7 9,096,547
Technology............................ 5.5 8,737,776
Autos & Transportation................ 5.4 8,624,267
Energy................................ 2.6 4,146,964
Health Care........................... 0.3 480,139
Other................................. 4.9 7,707,272
----- ------------
TOTAL COMMON STOCKS................... 89.3 142,567,538
OTHER INVESTMENTS..................... 8.5 13,514,766
----- ------------
TOTAL INVESTMENTS..................... 97.8 156,082,304
OTHER ASSETS AND LIABILITIES (Net).... 2.2 3,518,487
----- ------------
NET ASSETS............................ 100.0% $159,600,791
===== ============
</TABLE>
See Notes to Financial Statements.
FS-68
<PAGE> 341
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
INTERNATIONAL GROWTH FUND
JUNE 30, 1996
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE UNREALIZED
--------------------------------------- APPRECIATION/
EXPIRATION VALUE IN IN EXCHANGE (DEPRECIATION)
DATE LOCAL CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
---------- ------------------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/01/1996 JPY 154,516,983 1,412,404 1,418,889 $ (6,485)
07/02/1996 NZD 1,567,746 1,078,498 1,070,300 8,198
07/02/1996 JPY 396,181,935 3,621,407 3,621,407 0
--------
$ 1,713
--------
</TABLE>
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER UNREALIZED
--------------------------------------- APPRECIATION/
EXPIRATION VALUE IN IN EXCHANGE (DEPRECIATION)
DATE LOCAL CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
---------- ------------------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/01/1996 GBP 311,824 484,682 479,898 $ (4,784)
07/01/1996 MYR 444,439 178,164 177,911 (253)
07/01/1996 FRF 10,590,560 2,058,718 2,053,230 (5,488)
07/02/1996 MYR 393,176 157,610 157,579 (31)
03/05/1997 JPY 3,960,839,231 37,511,382 38,117,572 606,190
03/07/1997 FRF 43,731,583 8,605,158 8,613,666 8,508
-----------
$604,142
-----------
Net Unrealized Appreciation of Forward
Foreign Currency Contracts.................. $605,855
===========
</TABLE>
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
ADS -- American Depositary Share
CHF -- Swiss Franc
(F) -- Foreign or Alien Shares
FRF -- French Franc
GBP -- Great Britain Pound Sterling
GDS -- Global Depositary Share
JPY -- Japanese Yen
KRW -- South Korean Won
MYR -- Malaysian Ringgit
NZD -- New Zealand Dollar
See Notes to Financial Statements.
FS-69
<PAGE> 342
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
TARGET MATURITY 2002 FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ----------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATION -- 98.6%
U.S. TREASURY STRIP
$4,655,000 Zero coupon due 11/15/2002............... $3,079,516
----------
TOTAL INVESTMENTS (COST $3,071,453*)........... 98.6% 3,079,516
OTHER ASSETS AND LIABILITIES (NET)............. 1.4 45,186
----------
NET ASSETS..................................... 100.0% $3,124,702
==========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
GLOSSARY OF TERMS
STRIP -- Separate trading of registered interest and
principal of securities
See Notes to Financial Statements.
FS-70
<PAGE> 343
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
SIERRA TRUST FUNDS
1. ORGANIZATION AND BUSINESS
Sierra Trust Funds (the "Company") was organized under the laws of the
Commonwealth of Massachusetts on February 22, 1989 as a business entity commonly
known as a "Massachusetts business trust." The Company is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company offers sixteen managed investment
funds (the "Funds"): the Global Money, U.S. Government Money and California
Money Funds (the "Money Funds"); the Short Term High Quality Bond, Short Term
Global Government, U.S. Government, Corporate Income, California Municipal,
Florida Insured Municipal, California Insured Intermediate Municipal and
National Municipal Funds (the "Bond Funds"); the Growth and Income, Growth,
Emerging Growth and International Growth Funds (the "Equity Funds"); and the
Target Maturity 2002 Fund.
Each of the Funds, except the Target Maturity 2002 Fund, offers three classes of
shares, Class A Shares, Class B Shares and Class S Shares. The Target Maturity
2002 Fund offers only Class A Shares. Class A Shares of non-Money Funds are
subject to an initial sales charge at the time of purchase. Class A Shares of
Money Funds are not subject to an initial sales charge; however, certain Class A
Shares of non-Money Funds purchased without an initial sales charge and Class A
Shares of Money Funds received in exchange for such shares may be subject to a
contingent deferred sales charge ("CDSC") if redeemed within one year or two
years of purchase, depending on the circumstances. Class B Shares and Class S
Shares are not subject to an initial sales charge. 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 (the "Long Term Funds") that are redeemed within six years
of purchase will be subject to a CDSC. Class B Shares of Money Funds are not
available for purchase directly and may be purchased only by exchange for Class
B Shares of non-Money Funds. Class S Shares are subject to a CDSC if redeemed
within six years of purchase. Class S Shares are available only to investors who
have Sierra Asset Management Program ("SAM") accounts or do not redeem their
Class S Shares after they close their SAM accounts.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Funds in the
preparation of their financial statements.
PORTFOLIO VALUATION:
Money Funds: The investments of each Money Fund are valued on the basis of
amortized cost so long as the Company's Board of Trustees (the "Board of
Trustees") determines that this method constitutes fair value. Amortized cost
involves valuing a portfolio instrument at its cost initially 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. Each Money Fund attempts to maintain a constant net asset value
of $1.00 per share.
Bond Funds, Equity Funds and Target Maturity 2002 Fund: A security that is
primarily traded on a United States ("U.S.") or foreign 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. Portfolio securities that are primarily traded on
foreign exchanges are generally valued at the most recent closing values of such
securities on their respective exchanges, except when an occurrence subsequent
to the time a value was so established is likely to have changed the value, then
the fair value of those securities will be determined in good faith through
consideration of other factors by or under the direction of the Board of
Trustees or its delegates. Over-the-counter securities that are not traded
through the NASDAQ National Market System and securities listed or traded on
certain foreign exchanges whose operations are similar to the U.S.
over-the-counter market, are valued on the basis of the bid price at the close
of business on each day. Investments in U.S. Government securities (other than
short-term securities) are valued at the average of the quoted bid and asked
prices in the over-the-counter market. The current market value of an option is
the last price on the principal exchange on which such option is traded or in
the absence of a sale, is the mean between the last bid and offering price.
Short-term investments that mature in 60 days or less are valued at amortized
cost; such investments denominated in foreign currencies are stated at amortized
cost as determined in the foreign currency, translated to U.S. dollars at the
current day's exchange rate.
Corporate debt securities and debt securities of U.S. issuers (other than U.S.
Government securities and short-term investments), including municipal
securities, are valued by an independent pricing service which utilizes market
quotations and transactions, quotations from dealers and various relationships
among securities in determining value. If not valued by a pricing service, such
FS-71
<PAGE> 344
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
securities are valued at prices obtained from independent brokers. Investments
with prices that cannot be readily obtained, if any, are carried at fair value
as determined in good faith under consistently applied procedures established by
and under the supervision of the Board of Trustees.
REPURCHASE AGREEMENTS:
Each Fund may engage in repurchase agreement transactions. Under the terms of a
typical repurchase agreement, the Fund through its custodian takes possession of
an underlying debt obligation subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is at
least equal at all times to the total amount of the repurchase obligation,
including interest. In the event of counterparty default, the Fund has the right
to use the collateral to offset losses incurred. There is potential loss to the
Fund in the event the Fund is delayed or prevented from exercising its right to
dispose of the collateral securities, including the risk of a possible decline
in the value of the underlying securities during the period while the Fund seeks
to assert its rights. Each Fund's respective Sub-advisor, acting under the
supervision of the Company's investment advisor, Sierra Investment Advisors
Corporation ("Sierra Advisors"), and the Board of Trustees, reviews the value of
the collateral and the creditworthiness of those banks and dealers with which
the Fund enters into repurchase agreements to evaluate potential risks.
REVERSE REPURCHASE AGREEMENTS:
The 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, Growth and Income, Growth,
Emerging Growth, International Growth and Target Maturity 2002 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 may use reverse repurchase
agreements to borrow short term funds. The value of the reverse repurchase
agreements that the Funds have committed to sell are reflected in the Funds'
Statements of Assets and Liabilities. 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 risks that the market value of the securities sold by the
Funds may decline below the repurchase price of the securities and, if the
proceeds from the reverse repurchase agreement are invested in securities, that
the market value of the securities bought may decline below the repurchase price
of the securities sold.
OPTION CONTRACTS:
The Short Term High Quality Bond, Short Term Global Government, U.S. Government,
Corporate Income, California Insured Intermediate Municipal, Growth and Income,
Growth, Emerging Growth and International Growth Funds may engage in option
contracts. The Funds may use option contracts to manage their exposure to the
stock and bond markets and to fluctuations in interest rates and currency
values. The underlying principal amounts and option values are shown in the
Portfolio of Investments under the captions "Call Option Purchased on U.S.
Treasury Bond Futures," "Options Written," "Options on Foreign Currency
Purchased" and "Call Options Written on Foreign Interest Rate Futures." These
amounts reflect each contract's exposure to the underlying instrument at June
30, 1996. Writing puts and buying calls tends to increase the Funds' exposure to
the underlying instrument. Buying puts and writing calls tends to decrease the
Funds' exposure to the underlying instruments or to hedge other Fund
investments.
Upon the purchase of a put option or a call option by the Funds, the premium
paid is recorded as an investment, the value of which is marked-to-market daily.
When a purchased option expires, the Funds will realize a loss in the amount of
the cost of the option. When the Funds enter into a closing sale transaction,
the Funds will realize a gain or loss depending on whether the sales proceeds
from the closing sale transaction are greater or less than the cost of the
option. When the Funds exercise a put option, they will realize a gain or loss
from the sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. When the Funds exercise a call option,
the cost of the security which the Funds purchase upon exercise will be
increased by the premium originally paid.
When the Funds write a call option or a put option, an amount equal to the
premium received by the Funds is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Funds realize a gain
equal to the amount of the premium received. When the Funds enter into a closing
purchase transaction, the Funds realize a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is eliminated. When a written call
FS-72
<PAGE> 345
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
option is exercised, the Funds realize a gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security that the Funds
purchased upon exercise.
The risk associated with purchasing options is limited to the premium originally
paid. Options written by a Fund involve, to varying degrees, risk of loss in
excess of the option value reflected in the Statements of Assets and
Liabilities. The risk in writing a covered call option is that the Funds may
forego the opportunity of profit if the market price of the underlying security
increases and the option is exercised. The risk in writing a covered put option
is that the Funds may incur a loss if the market price of the underlying
security decreases and the option is exercised. In addition, there is the risk
the Funds may not be able to enter into a closing transaction because of an
illiquid secondary market or, for over-the-counter options, because of the
counterparty's inability to perform.
The Short Term High Quality Bond, Short Term Global Government, California
Insured Intermediate Municipal, Growth and International Growth Funds may engage
in options on foreign currency and options on interest rate futures as a hedge
to provide protection against adverse movements in the value of foreign
securities in the portfolio.
Certain risks are associated with the use of options on foreign currency and
options on interest rate futures contracts as hedging devices. The predominant
risk is that the movement in the price of the instrument underlying such options
may not correlate perfectly with the movement in the prices of the assets being
hedged. The lack of correlation could render the Funds' hedging strategy
unsuccessful and could result in a loss to the Funds. In addition, there is the
risk the Funds may not be able to enter into a closing transaction because of an
illiquid secondary market or, for over-the-counter options, because of the
counterparty's inability to perform. Options written by a Fund involve, to
varying degrees, risk of loss in excess of the option value reflected in the
Statements of Assets and Liabilities.
FUTURES CONTRACTS:
The 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, Growth and Income, Growth,
Emerging Growth and International Growth Funds may engage in futures
transactions. The Funds may use futures contracts to manage their exposure to
the stock and bond markets and to fluctuations in interest rates and currency
values. The underlying value of a futures contract is incorporated within the
unrealized appreciation/(depreciation) shown in the Portfolio of Investments
under the caption "Futures Contracts." This amount reflects each contract's
exposure to the underlying instrument at June 30, 1996. Buying futures contracts
tends to increase the Fund's exposure to the underlying instrument. Selling
futures contracts tends to either decrease the Fund's exposure to the underlying
instrument, or to hedge other Fund investments.
Upon entering into a futures contract, the Fund is required to deposit with the
broker an amount of cash or cash equivalents equal to a certain percentage of
the contract amount. This is known as the "initial margin." Subsequent payments
("variation margin") are made or received by the Fund each day, depending on the
daily fluctuation of the value of the contract. The daily changes in contract
value are recorded as unrealized gains or losses and the Fund recognizes a
realized gain or loss when the contract is closed. Futures contracts are valued
at the settlement price established by the board of trade or exchange on which
they are traded.
There are several risks in connection with the use of futures contracts as a
hedging device. Futures contracts involve, to varying degrees, risk of loss in
excess of the futures variation margin reflected in the Statements of Assets and
Liabilities. The change in the value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in the value of the hedged instruments. In addition, there is the risk
that the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.
FOREIGN CURRENCY:
The books and records of the Funds are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars at the exchange rates prevailing at the end of the period, and
purchases and sales of investment securities, income and expenses are translated
on the respective dates of such transactions. It is not practicable to isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the portion that arises from changes in market
prices of investments during the period. Accordingly, all such changes have been
reflected as net gain/(loss) on security transactions in the Statements of
Operations.
Unrealized gains and losses, not relating to securities, which result from
changes in foreign currency exchange rates have been included in unrealized
appreciation/(depreciation) of foreign currency and other assets and
liabilities. Unrealized gains and losses
FS-73
<PAGE> 346
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
of securities, which result from changes in foreign currency exchange rates as
well as changes in market prices of securities, have been included in unrealized
appreciation/(depreciation) of securities. Net realized foreign currency gains
and losses resulting from changes in exchange rates include foreign currency
gains and losses between trade date and settlement date on investment securities
transactions, gains and losses on foreign currency transactions and the
difference between the amounts of interest and dividends recorded on the books
of the Funds and the amount actually received. The portion of foreign currency
gains and losses related to fluctuation in exchange rates between the initial
purchase trade date and subsequent sale trade date is included in realized
gain/(loss) from investment securities sold.
FORWARD FOREIGN CURRENCY CONTRACTS:
The Short Term High Quality Bond, Short Term Global Government, Corporate
Income, Growth and Income, Growth, Emerging Growth and International Growth
Funds may enter into forward foreign currency contracts. Forward foreign
currency contracts are agreements to exchange one currency for another at a
future date and at a specified price. The Funds may use forward foreign currency
contracts to facilitate transactions in foreign securities and to manage the
Funds' foreign currency exposure. The U.S. dollar market value, contract value
and the foreign currencies the Funds have committed to buy or sell are shown in
the Portfolio of Investments under the caption "Schedule of Forward Foreign
Currency Contracts." These amounts represent the aggregate exposure to each
foreign currency the Funds have acquired or hedged through forward foreign
currency contracts at June 30, 1996. Forward foreign currency contracts are
reflected as both a forward foreign currency contract to buy and a forward
foreign currency contract to sell. Forward foreign currency contracts to buy
generally are used to acquire exposure to foreign currencies, while forward
foreign currency contracts to sell are used to hedge the Funds' investments
against currency fluctuations. Also, a forward foreign currency contract to buy
or sell can offset a previously acquired opposite forward foreign currency
contract.
Forward foreign currency contracts are marked-to-market daily using foreign
currency exchange rates supplied by an independent pricing service. The change
in a contract's market value is recorded by the Funds as an unrealized gain or
loss. When the contract is closed or delivery is taken, the Funds record a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations in
the underlying prices of the Fund's securities, but it does establish a rate of
exchange that can be achieved in the future. These forward foreign currency
contracts involve market risk in excess of the unrealized
appreciation/(depreciation) of forward foreign currency contracts reflected in
the Funds' Statements of Assets and Liabilities. Although forward foreign
currency contracts used for hedging purposes limit the risk of loss due to a
decline in the value of the hedged currency, they also limit any potential gain
that might result should the value of the currency increase. In addition, the
Funds could be exposed to risks if the counterparties to the contracts are
unable to meet the terms of their contracts. The Fund's Sub-advisor will enter
into forward foreign currency contracts only with parties approved by the Board
of Trustees because there is a risk of loss to the Funds if the counterparties
do not complete the transaction.
DOLLAR ROLL TRANSACTIONS:
The Short Term High Quality Bond, U.S. Government and Corporate Income Funds, in
order to seek a high level of current income, may enter into dollar roll
transactions with financial institutions to take advantage of opportunities in
the mortgage market. The value of the dollar roll transactions are reflected in
the Funds' Statements of Assets and Liabilities. A dollar roll transaction
involves a sale by the Funds of securities that they hold with an agreement by
the Funds to repurchase similar securities at an agreed upon price and date. The
securities repurchased will bear the same interest as those sold, but generally
will be collateralized at time of delivery by different pools of mortgages with
different prepayment histories than those securities sold. The Funds are paid a
fee for entering into a dollar roll transaction, that is accrued as income over
the life of the dollar roll contract. During the period between the sale and
repurchase, the Funds will not be entitled to receive interest and principal
payments on the securities sold. Management anticipates that the proceeds of the
sale will be invested in additional instruments for the Funds, and the income
from these investments, together with any additional fee income received on the
dollar roll transaction will generate income for the Funds exceeding the
interest that would have been earned on the securities sold. Dollar roll
transactions involve the risk that the market value of the securities sold by
the Funds may decline below the repurchase price of those similar securities
which the Fund is obligated to purchase or that the return earned by the Fund
with the proceeds of a dollar roll may not exceed transaction costs.
FS-74
<PAGE> 347
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
INDEXED SECURITIES:
Each of the Funds, except for the Money Funds, may invest in indexed securities
whose value is linked either directly or inversely to changes in foreign
currencies, interest rates, commodities, indices, or other reference
instruments. Indexed securities may be more volatile than the reference
instrument itself, but any loss is limited to the amount of the original
investment.
ILLIQUID INVESTMENTS:
Up to 15% of the assets of each Bond Fund, Equity Fund and the Target Maturity
2002 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; (5) certain variable rate demand notes having
a demand period of more than seven days; and (6) securities, the disposition of
which are restricted under Federal securities laws, excluding certain Rule 144A
securities, as defined below.
Illiquid securities generally cannot be sold or disposed of in the ordinary
course of business within seven days at approximately the value at which the
Funds have valued the investments. This may have an adverse effect on the Fund's
ability to dispose of particular illiquid 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 may be resold only to
other qualified institutional buyers. If a particular investment in Rule 144A
securities is not determined to be liquid under the guidelines established by
the Board of Trustees, that investment will be included within the 15% or 10%
limitation, as applicable, on investment in illiquid securities.
CASH FLOW INFORMATION:
Cash, as used in the Statements of Cash Flows for the U.S. Government Fund and
Corporate Income Fund, is the amount reported in the Statements of Assets and
Liabilities and represents cash on hand at the Fund's custodian bank account and
does not include any short term investments as of June 30, 1996. Information on
financial transactions which have been settled through receipt or disbursement
of cash is presented in the Statements of Cash Flows. Accounting practices that
do not affect reporting activities on a cash basis include unrealized gain or
loss on investment securities, accretion of income recognized on investment
securities and amortization of deferred organization costs.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date (the date the order to
buy or sell is executed). Realized gains and losses from securities sold are
recorded on the identified cost basis. Interest income is recorded on the
accrual basis and consists of interest accrued and, if applicable, discount
earned less premiums amortized. Dividend income is recorded on the ex-dividend
date, except that certain dividends from foreign securities are recorded as soon
as the Funds are informed of the ex-dividend date. Each Fund's investment income
and realized and unrealized gains and losses are allocated among the classes of
that Fund based upon the relative average net assets of each class. Securities
purchased or sold on a when-issued or delayed-delivery basis may be settled a
month or more after the trade date; interest income is not accrued until
settlement date. Each Fund instructs the custodian to segregate assets of the
Fund in a separate account with a current value at least equal to the amount of
its when-issued purchase commitments.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income of the Money Funds and the Bond Funds are
declared daily and paid monthly. Dividends from the net investment income of the
Growth and Income Fund are declared and paid quarterly. Dividends from the net
investment income of the Growth Fund are declared and paid semiannually.
Dividends from the net investment income of the Emerging Growth, International
Growth and Target Maturity 2002 Funds are declared and paid annually.
Distributions of any net long-term capital gains earned by a Fund are made
annually. Distributions of any net short-term capital gains earned by a Fund are
distributed no less frequently than annually at the discretion of the Board of
Trustees. Additional distributions of net investment income and capital gains
for each Fund may be made at the discretion of the Board of Trustees in order to
avoid the application of a 4% non-deductible excise tax on certain undistributed
amounts of ordinary income and capital gains. Income distributions and capital
gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments of income and gains on
FS-75
<PAGE> 348
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
various investment securities held by the Funds, timing differences and
differing characterization of distributions made by each Fund as a whole.
For the year ended June 30, 1996, permanent differences resulting from book and
tax accounting for organizational costs and redesignated distributions were
reclassified to paid-in capital at year end as stated in the table below.
Certain reclassification adjustments were also made between undistributed net
investment income and realized gains due to different book and tax accounting
for currency gains and losses, market discounts, and paydowns of certain debt
instruments. Per share information in the Financial Highlights reflects the
effect of these reclassifications.
<TABLE>
<CAPTION>
INCREASE/(DECREASE) INCREASE/(DECREASE)
UNDISTRIBUTED NET ACCUMULATED
DECREASE INVESTMENT NET REALIZED
PAID-IN CAPITAL INCOME/(LOSS) GAIN/(LOSS)
--------------- ------------------- -------------------
<S> <C> <C> <C>
Short Term High Quality Bond Fund................................ $ (2,777) $ (90,147) $ 92,924
Short Term Global Government Fund................................ -- (1,467,829) 1,467,829
U.S. Government Fund............................................. -- (1,656,930) 1,656,930
Corporate Income Fund............................................ -- (172,986) 172,986
California Municipal Fund........................................ -- 9,547 (9,547)
Florida Insured Municipal Fund................................... (2,700) 32,453 (29,753)
California Insured Intermediate Municipal Fund................... -- 717 (717)
National Municipal Fund.......................................... -- 36,822 (36,822)
Growth and Income................................................ -- (60) 60
Growth Fund...................................................... (1,101) 1,201,182 (1,200,081)
Emerging Growth Fund............................................. -- 3,584,946 (3,584,946)
International Growth Fund........................................ -- 4,631,458 (4,631,458)
Target Maturity 2002 Fund........................................ (11,757) 11,757 --
</TABLE>
Paid-in capital was reduced by $63,823 and $172,986 for the Short Term High
Quality Bond and Corporate Income Funds, respectively, due to a tax return of
capital.
FEDERAL INCOME TAXES:
It is each Fund's policy to qualify as a regulated investment company by
complying with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and by, among other
things, distributing substantially all of its taxable and tax-exempt earnings to
its shareholders. Therefore, no Federal income tax provision is required.
EXPENSES:
General expenses of the Company are allocated to all the Funds based upon
relative net assets of each Fund. Operating expenses directly attributable to a
class of shares are charged to the operations of that class of shares. Expenses
of each Fund not directly attributable to the operations of any class of shares
are prorated among the classes to which the expenses relate based on the
relative average net assets of each class of shares.
OTHER:
The California Municipal, Florida Insured Municipal, California Insured
Intermediate Municipal and National Municipal Funds (the "Municipal Funds") and
the Corporate Income Fund may purchase floating rate, inverse floating rate and
variable rate obligations, including municipal securities and 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. Although variable rate
demand notes are frequently not rated by credit rating agencies, unrated notes
purchased by the Funds will be of comparable quality at the time of purchase to
rated instruments that may be purchased by such Fund, as determined by such
Fund's Sub-advisor. Moreover, while there may be no active secondary market with
respect to a particular
FS-76
<PAGE> 349
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
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. Inherent in these instruments is the risk of potential loss should the
Fund be delayed or prevented from exercising the put feature.
3. INVESTMENT ADVISORY, SUB-ADVISORY, ADMINISTRATION FEES AND OTHER
TRANSACTIONS
Sierra Advisors, an indirect wholly-owned subsidiary of Great Western Financial
Corporation ("GWFC"), a publicly held corporation, serves as investment advisor
to the Company. Alliance Capital Management L.P. ("Alliance Capital"), a limited
partnership whose general partner is Alliance Capital Management Corporation, an
indirect wholly-owned subsidiary of The Equitable Life Assurance Society of the
United States, serves as the Sub-advisor to the U.S. Government Money and
California Money Funds. J.P. Morgan Investment Management Inc. ("J.P. Morgan"),
a wholly-owned subsidiary of J.P. Morgan & Co. Incorporated, a publicly traded
company, serves as the Sub-advisor to the Global Money and Growth and Income
Funds and, until April 8, 1996, served as the Sub-advisor to the International
Growth Fund. Warburg, Pincus Counsellors, Inc. ("Warburg"), a privately held
corporation, began serving as the Sub-advisor to the International Growth Fund
on April 8, 1996. Van Kampen American Capital Management Inc. ("Van Kampen"), a
wholly-owned subsidiary of VK/AC Holding, Inc., which 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, serves as the Sub-advisor to the California Municipal,
Florida Insured Municipal, California Insured Intermediate Municipal and
National Municipal Funds. BlackRock Financial Management, Inc. ("BlackRock"), an
indirect wholly-owned subsidiary of PNC Bank, N.A., an indirect wholly-owned
subsidiary of PNC Bank Corp. ("PNC"), a publicly traded multi-bank holding
company, serves as the Sub-advisor to the U.S. Government and Target Maturity
2002 Funds. TCW Funds Management, Inc. ("TCW"), a wholly-owned subsidiary of The
TCW Group, Inc., a privately held company, serves as the Sub-advisor to the
Corporate Income Fund. Scudder, Stevens & Clark, Inc., a privately held
corporation, serves as the Sub-advisor to the Short Term Global Government and
Short Term High Quality Bond Funds. Janus Capital Corporation ("Janus"), an
indirect majority-owned subsidiary of Kansas City Southern Industries, Inc.,
which is a publicly traded holding company, serves as the Sub-advisor to the
Growth and Emerging Growth Funds. Each of the foregoing sub-advisors is referred
to individually as a "Sub-advisor" and collectively as the "Sub-advisors."
Sierra Advisors is entitled to a monthly fee, in arrears, based on a percentage
of the average daily net assets of each Fund during the month, out of which
Sierra Advisors pays the Sub-advisor of each Fund a monthly fee, in arrears, at
annual rates as follows:
<TABLE>
<CAPTION>
FEES ON ASSETS FEES ON
EQUAL TO OR ASSETS
LESS THAN EXCEEDING
NAME OF FUND $500 MILLION $500 MILLION
- ------------------------------------------------------------------------------------ -------------- --------------
<S> <C> <C>
Global Money, U.S. Government Money and California Money Funds+
Sierra Advisors................................................................ .35% .25%
Sub-advisor.................................................................... .15% .15%
--- ---
Total fees paid to Sierra Advisors*....................................... .50% .40%
=== ===
</TABLE>
<TABLE>
<CAPTION>
FEES ON ASSETS
EXCEEDING
FEES ON ASSETS $200 MILLION FEES ON
EQUAL TO OR AND EQUAL TO ASSETS
LESS THAN OR LESS THAN EXCEEDING
$200 MILLION $500 MILLION $500 MILLION
-------------- -------------- --------------
<S> <C> <C> <C>
Short Term High Quality Bond Fund
Sierra Advisors................................................... .35% .35% .30%
Sub-advisor....................................................... .15% .10% .10%
--- --- ---
Total fees paid to Sierra Advisors*.......................... .50% .45% .40%
=== === ===
</TABLE>
FS-77
<PAGE> 350
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
<TABLE>
<CAPTION>
FEES ON ASSETS
EXCEEDING
FEES ON ASSETS $200 MILLION FEES ON
EQUAL TO OR AND EQUAL TO ASSETS
LESS THAN OR LESS THAN EXCEEDING
NAME OF FUND $200 MILLION $500 MILLION $500 MILLION
- ----------------------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Short Term Global Government Fund
Sierra Advisors................................................... .37% .55% .45%
Sub-advisor....................................................... .28%++ .10% .10%
--- --- ---
Total fees paid to Sierra Advisors*.......................... .65% .65% .55%
=== === ===
</TABLE>
<TABLE>
<CAPTION>
WHEN "COMBINED ASSETS"**
WHEN "COMBINED ASSETS"** EXCEED $650 MILLION AND
ARE EQUAL TO OR LESS ARE EQUAL TO OR LESS WHEN "COMBINED ASSETS"**
THAN $650 MILLION THAN $1 BILLION EXCEED $1 BILLION
---------------------------------- ---------------------------------- ----------------------------------
FEES ON FEES ON FEES ON
ASSETS EQUAL FEES ON ASSETS EQUAL FEES ON ASSETS EQUAL FEES ON
TO OR LESS THAN ASSETS EXCEEDING TO OR LESS THAN ASSETS EXCEEDING TO OR LESS THAN ASSETS EXCEEDING
$500 MILLION $500 MILLION $500 MILLION $500 MILLION $500 MILLION $500 MILLION
--------------- ---------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
Fund
Sierra
Advisors.... .415% .315% .45% .35% .50% .40%
Sub-advisor**... .185% .185% .15% .15% .10% .10%
---- ---- --- --- --- ---
Total
fees
paid to
Sierra
Advisors*... .600% .500% .60% .50% .60% .50%
==== ==== === === === ===
</TABLE>
<TABLE>
<CAPTION>
FEES ON ASSETS FEES ON
EQUAL TO OR ASSETS
LESS THAN EXCEEDING
$500 MILLION $500 MILLION
-------------- --------------
<S> <C> <C>
Corporate Income Fund
Sierra Advisors................................................................ .35% .25%
Sub-advisor.................................................................... .30% .25%
--- ---
Total fees paid to Sierra Advisors*....................................... .65% .50%
=== ===
</TABLE>
<TABLE>
<CAPTION>
FEES ON ASSETS
EXCEEDING
FEES ON ASSETS $150 MILLION FEES ON
EQUAL TO OR AND EQUAL TO ASSETS
LESS THAN OR LESS THAN EXCEEDING
$150 MILLION $500 MILLION $500 MILLION
-------------- -------------- --------------
<S> <C> <C> <C>
California Municipal Fund
Sierra Advisors................................................ .45% .50% .35%
Sub-advisor***................................................. .20% .15% .15%
--- --- ---
Total fees paid to Sierra Advisors*....................... .65% .65% .50%
=== === ===
</TABLE>
<TABLE>
<CAPTION>
FEES ON ASSETS
EXCEEDING
FEES ON ASSETS $75 MILLION FEES ON
EQUAL TO OR AND EQUAL TO ASSETS
LESS THAN OR LESS THAN EXCEEDING
$75 MILLION $500 MILLION $500 MILLION
-------------- -------------- --------------
<S> <C> <C> <C>
Florida Insured Municipal Fund
Sierra Advisors................................................ .40% .475% .325%
Sub-advisor.................................................... .20% .125% .125%
---- ---- ----
Total fees paid to Sierra Advisors*....................... .60% .600% .450%
==== ==== ====
California Insured Intermediate Municipal Fund
Sierra Advisors................................................ .45% .525% .375%
Sub-advisor.................................................... .20% .125% .125%
---- ---- ----
Total fees paid to Sierra Advisors*....................... .65% .650% .500%
==== ==== ====
</TABLE>
FS-78
<PAGE> 351
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
<TABLE>
<CAPTION>
FEES ON ASSETS
EXCEEDING
FEES ON ASSETS $150 MILLION FEES ON
EQUAL TO OR AND EQUAL TO ASSETS
LESS THAN OR LESS THAN EXCEEDING
NAME OF FUND $150 MILLION $500 MILLION $500 MILLION
- -------------------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
National Municipal Fund
Sierra Advisors................................................ .40% .45% .30%
Sub-advisor***................................................. .20% .15% .15%
---- ---- ----
Total fees paid to Sierra Advisors*....................... .60% .60% .45%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
FEES ON ASSETS FEES ON ASSETS FEES ON ASSETS
EXCEEDING EXCEEDING EXCEEDING
FEES ON ASSETS $100 MILLION $200 MILLION $400 MILLION FEES ON
EQUAL TO OR AND EQUAL TO AND EQUAL TO AND EQUAL TO ASSETS
LESS THAN OR LESS THAN OR LESS THAN OR LESS THAN EXCEEDING
$100 MILLION $200 MILLION $400 MILLION $500 MILLION $500 MILLION
-------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Growth and Income Fund
Sierra Advisors................... .35% .35% .35% .35% .275%
Sub-advisor....................... .45% .40% .35% .30% .300%
--- --- --- --- ----
Total fees paid to Sierra
Advisors*.................. .80% .75% .70% .65% .575%
=== === === === ====
</TABLE>
<TABLE>
<CAPTION>
FEES ON ASSETS
EXCEEDING
FEES ON ASSETS $100 MILLION FEES ON
EQUAL TO OR AND EQUAL TO ASSETS
LESS THAN OR LESS THAN EXCEEDING
$100 MILLION $200 MILLION $200 MILLION
-------------- -------------- ------------
<S> <C> <C> <C>
Growth Fund
Sierra Advisors................................................. .40% .40% .375%
Sub-advisor..................................................... .55% .50% .500%
--- --- ----
Total fees paid to Sierra Advisors*........................ .95% .90% .875%
=== === ====
</TABLE>
<TABLE>
<CAPTION>
FEES ON ASSETS
EXCEEDING
FEES ON ASSETS $100 MILLION FEES ON
EQUAL TO OR AND EQUAL TO ASSETS
LESS THAN OR LESS THAN EXCEEDING
$100 MILLION $500 MILLION $500 MILLION
-------------- -------------- --------------
<S> <C> <C> <C>
Emerging Growth Fund
Sierra Advisors................................................ .35% .35% .25%
Sub-advisor.................................................... .55% .50% .50%
--- --- ----
Total fees paid to Sierra Advisors*....................... .90% .85% .75%
=== === ====
</TABLE>
<TABLE>
<CAPTION>
FEES ON ASSETS
EXCEEDING
FEES ON ASSETS $50 MILLION FEES ON
EQUAL TO OR AND EQUAL TO ASSETS
LESS THAN OR LESS THAN EXCEEDING
$50 MILLION $125 MILLION $125 MILLION
-------------- -------------- ------------
<S> <C> <C> <C>
International Growth Fund
Sierra Advisors................................................. .45% .35% .15%
Sub-advisor****................................................. .50% .50% .50%
--- --- ---
Total fees paid to Sierra Advisors*........................ .95% .85% .65%
=== === ===
</TABLE>
FS-79
<PAGE> 352
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
<TABLE>
<CAPTION>
FEES ON ASSETS FEES ON
EQUAL TO OR ASSETS
LESS THAN EXCEEDING
NAME OF FUND $500 MILLION $500 MILLION
- --------------------------------------------------------------------- -------------- ------------
<S> <C> <C>
Target Maturity 2002 Fund
Sierra Advisors................................................................. .20% .15%
Sub-advisor..................................................................... .05%+++ .05%
-------- -------
Total fees paid to Sierra Advisors*........................................ .25% .20%
======== =======
</TABLE>
- ---------------------
* Sierra Advisors retains only the net amount of the fees after
sub-advisory fees have been paid.
** The monthly fee paid to BlackRock is based upon the combined average
daily net assets of the U.S. Government Fund and The Sierra Variable
Trust's U.S. Government Fund (together, the "Combined Assets").
*** 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 (together, 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 an annual rate as
follows: .15% of the Combined Assets up to $1 billion; plus .125% of the
Combined Assets over $1 billion.
**** As of April 8, 1996, Warburg replaced J.P. Morgan as Sub-advisor to the
International Growth Fund pursuant to a sub-advisory agreement pending
shareholder approval. On July 31, 1996, at a special meeting of
shareholders, the shareholders of the International Growth Fund approved
the sub-advisory agreement. Prior to April 8, 1996, J.P. Morgan received
monthly fees at the following annual rates: (i) .60% of the Fund's
average daily net assets equal to or less than $50 million; (ii) .50% of
the Fund's average daily net assets exceeding $50 million and equal to or
less than $125 million; and (iii) .40% of the Fund's average daily net
assets exceeding $125 million. As of April 8, 1996, Warburg is paid a
monthly fee at an annual rate of .50% of the Fund's average daily net
assets.
+ Fees paid to Sierra Advisors are based on aggregate assets in the three
Money Funds.
++ The Sub-advisor receives a minimum annual fee of $137,500.
+++ The Sub-advisor receives a minimum annual fee of $25,000.
Sierra Advisors 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 below.
<TABLE>
<CAPTION>
NAME OF FUND
-----------------------------------------------------------------------------------
<S> <C>
Global Money Fund.................................................................. .40%
U.S. Government Money Fund......................................................... .40%
California Money Fund.............................................................. .40%
U.S. Government Fund............................................................... .55%
California Municipal Fund.......................................................... .55%
Florida Insured Municipal Fund..................................................... .55%
California Insured Intermediate Municipal Fund..................................... .55%
National Municipal Fund............................................................ .55%
</TABLE>
Fees voluntarily waived and expenses absorbed by Sierra Advisors for the year
ended June 30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME OF FUND FEES WAIVED EXPENSES ABSORBED
-------------------------------------------------------------- ----------- -----------------
<S> <C> <C>
Global Money Fund............................................. $ 622,915 $ 143,417
U.S. Government Money Fund.................................... 162,368 --
California Money Fund......................................... 148,062 --
Short Term High Quality Bond Fund............................. 262,885 73,583
Short Term Global Government Fund............................. 513,501 --
U.S. Government Fund.......................................... 2,581,417 187,726
Corporate Income Fund......................................... 1,606,290 --
California Municipal Fund..................................... 1,398,796 --
Florida Insured Municipal Fund................................ 201,769 74,295
California Insured Intermediate Municipal Fund................ 393,599 47,057
National Municipal Fund....................................... 645,198 --
Target Maturity 2002 Fund..................................... 7,915 47,054
</TABLE>
Sierra Fund Administration Corporation ("Sierra Administration"), an indirect
wholly-owned subsidiary of GWFC serves as administrator and transfer agent to
each Fund. First Data Investor Services Group, Inc., ("FDISG"), formerly The
Shareholder Services Group, Inc., a wholly-owned subsidiary of First Data
Corporation, serves as sub-administrator and sub-transfer agent to each Fund.
For its services as administrator and transfer agent to each Fund, Sierra
Administration is entitled to a monthly fee at an annual rate of .35% of each
non-Money Fund's average daily net assets and at an annual rate of .30% of each
Money Fund's
FS-80
<PAGE> 353
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
average daily net assets. Out of its fee, Sierra Administration pays FDISG for
its services as sub-administrator and sub-transfer agent. FDISG, as
sub-administrator, is paid a gross annual fee of $1.71 million on the first $1.6
billion of aggregate average daily net assets of the Company, plus fees at the
annual rate of .0452% on the next $1.3 billion aggregate average daily net
assets of the Company, .0429% on the next $1.7 billion aggregate average daily
net assets of the Company and .0362% on the next $3.1 billion aggregate average
daily net assets of the Company. Effective July 1, 1996, FDISG began serving as
transfer agent of the Company.
Fees voluntarily waived by Sierra Administration for the year ended June 30,
1996 are as follows:
<TABLE>
<CAPTION>
NAME OF FUND FEES WAIVED
------------------------------------------------------------------------------- -----------
<S> <C>
Global Money Fund.............................................................. $ 5,352
Short Term High Quality Bond Fund.............................................. 11,630
Short Term Global Government Fund.............................................. 15,947
U.S. Government Fund........................................................... 127,314
Florida Insured Municipal Fund................................................. 20,472
California Insured Intermediate Municipal Fund................................. 14,288
Target Maturity 2002 Fund...................................................... 3,805
</TABLE>
The Company also pays FDISG and Boston Safe Deposit and Trust Company ("Boston
Safe"), the Company's custodian, certain custodial transaction charges reflected
as administration fees. Boston Safe is an indirect wholly-owned subsidiary of
The Boston Company, Inc., which is a wholly-owned subsidiary of Mellon Bank
Corporation.
Custodian fees for certain Funds have been reduced by credits allowed by Boston
Safe for the year ended June 30, 1996 as follows:
<TABLE>
<CAPTION>
CREDITS ALLOWED
BY THE
NAME OF FUND CUSTODIAN
---------------------------------------------------------------------------- ---------------
<S> <C>
Global Money Fund........................................................... $ 7,013
U.S. Government Money Fund.................................................. 1,565
Short Term High Quality Bond Fund........................................... 2,273
Short Term Global Government Fund........................................... 808
U.S. Government Fund........................................................ 45,546
Corporate Income Fund....................................................... 1,548
California Municipal Fund................................................... 27,250
Florida Insured Municipal Fund.............................................. 7,946
California Insured Intermediate Municipal Fund.............................. 14,367
National Municipal Fund..................................................... 6,678
Growth and Income Fund...................................................... 3,305
Growth Fund................................................................. 15,835
Emerging Growth Fund........................................................ 10,408
International Growth Fund................................................... 5,593
Target Maturity 2002 Fund................................................... 2,430
</TABLE>
For the year ended June 30, 1996, GW Securities and Sierra Services have
informed the Funds that they received $3,982,988 and $637,291, respectively,
representing commissions (front-end sales charges). In addition, for the year
ended June 30, 1996, Sierra Services and Funds Distributor Inc. informed the
Funds that they received $912,193 from CDSC fees.
4. TRUSTEES' FEES
No director, officer or employee of Great Western Financial Securities
Corporation ("GW Securities"), a registered broker-dealer, Sierra Investment
Services Corporation ("Sierra Services"), a registered investment adviser and
broker-dealer, Sierra Advisors, Sierra Administration, the Sub-advisors or
FDISG, or any of their affiliates receives any compensation from the Company for
serving as an officer or Trustee of the Company. GW Securities is a wholly-owned
subsidiary (directly held as of January 1, 1996) and Sierra Services is an
indirect wholly-owned subsidiary of GWFC. The Company pays each Trustee who is
not a director, officer or employee of GW Securities, Sierra Services, Sierra
Advisors, the Sub-advisors or FDISG, or any of their affiliates, $7,500 per
annum plus $1,500 per board meeting attended, $1,000 per audit and/or nominating
committee meeting attended and reimbursement for travel and out-of-pocket
expenses. The Chairman of the Audit Committee receives $1,500 per audit
committee meeting attended.
FS-81
<PAGE> 354
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
Pursuant to an exemptive order granted by the Securities and Exchange Commission
on October 11, 1995, the Company's eligible Trustees may participate in a
deferred compensation plan (the "Plan") which may be terminated at any time.
Under the Plan, Trustees may elect to defer receipt of all or a portion of their
fees which, in accordance with the Plan, are invested in mutual fund shares.
Upon termination of the Plan, Trustees that have deferred accounts under the
Plan will be paid benefits not later than the time the payments would otherwise
have been made without regard to such termination. All benefits provided under
these plans are funded and any payments to plan participants are paid solely out
of the Company's assets.
5. DISTRIBUTION PLANS
Sierra Services serves as distributor for Class A Shares, Class B Shares and
Class S Shares of the Funds. Prior to December 20, 1995, Funds Distributor Inc.,
a registered broker-dealer, served as distributor for Class B Shares and Class S
Shares of the Funds.
The Company has adopted a Distribution Plan (the "Class A Plan"), as amended,
pursuant to Rule 12b-1 under the 1940 Act. Under the Class A Plan, Sierra
Services is paid an annual distribution fee of up to .25% of the average daily
net assets of the Class A Shares of each Fund for activities primarily intended
to result in the sale of Fund shares. (The Class A Plan applies to all Class A
Shares of the Funds and all shares of the Funds that were outstanding at the
time of commencement of the offering of Class B Shares or Class S Shares, which
outstanding shares are treated for all purposes as Class A Shares.) For the
Funds which offer Class B Shares and Class S Shares, the Company has also
adopted a Rule 12b-1 distribution plan for each of the Class B Shares (the
"Class B Plan") and Class S Shares (the "Class S Plan") of the Funds. Under the
Class B Plan and the Class S Plan, Sierra Services is paid an annual
distribution fee of up to .75% of the average daily net assets of the Class B
Shares and Class S Shares of a Fund for activities primarily intended to result
in the sale of Class B Shares and Class S Shares of the Fund, respectively. In
addition, under the Class B Plan and the Class S Plan, 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 the Class B Shares and Class S Shares of the Fund,
respectively. The service fee is paid by the Fund to Sierra Services, which in
turn, pays a portion of the service fee to broker/dealers, including GW
Securities, that sell Class B Shares and Class S Shares and provide services,
such as, accepting telephone inquiries and transaction requests and processing
correspondences, new account applications and subsequent purchases by check, for
the shareholders. Under their terms each of the Class A Plan, Class B Plan and
Class S Plan shall remain in effect from year to year, provided such continuance
is approved annually by vote of the Board of Trustees, including a majority of
those Trustees who are not "interested persons" of the Company, as defined in
the 1940 Act, and who have no direct or indirect financial interest in the
operation of such distribution plans, or any agreements related to such plans,
respectively.
For the year ended June 30, 1996, the Funds incurred the following fees pursuant
to the respective distribution plans described above:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS S
------------ ---------------------- ----------------------
DISTRIBUTION DISTRIBUTION SERVICE DISTRIBUTION SERVICE
NAME OF FUND FEE FEE FEE FEE FEE
- ----------------------------------------------------------- ------------ ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Global Money Fund.......................................... $ 353,950 $ 1,957 $ 652 $104,160 $34,720
U.S. Government Money Fund................................. 108,864 543 181 1,968 656
California Money Fund...................................... 128,956 799 267 77 26
Short Term High Quality Bond Fund.......................... 108,968 24,494 8,164 42,928 14,310
Short Term Global Government Fund.......................... 203,577 10,382 3,461 16,482 5,494
U.S. Government Fund....................................... 1,092,257 135,569 45,189 107,773 35,924
Corporate Income Fund...................................... 850,156 156,704 52,234 66,575 22,192
California Municipal Fund.................................. 982,698 98,159 32,720 83 28
Florida Insured Municipal Fund............................. 79,701 35,954 11,984 82 28
California Insured Intermediate Municipal Fund............. 137,766 123,342 41,114 84 28
National Municipal Fund.................................... 629,965 43,799 14,600 83 27
Growth and Income Fund..................................... 475,235 108,079 36,027 201,256 67,086
Growth Fund................................................ 433,346 114,680 38,226 234,367 78,122
Emerging Growth Fund....................................... 596,859 131,848 43,950 208,373 69,457
International Growth Fund.................................. 240,623 23,528 7,843 160,095 53,365
Target Maturity 2002 Fund.................................. 7,915 -- -- -- --
</TABLE>
FS-82
<PAGE> 355
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
6. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, excluding
U.S. Government and short-term investments, for the year ended June 30, 1996
were as follows:
<TABLE>
<CAPTION>
NAME OF FUND PURCHASES SALES
---------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Short Term High Quality Bond Fund............................... $ 75,132,448 $ 32,090,163
Short Term Global Government Fund............................... 61,748,468 100,926,074
U.S. Government Fund............................................ 53,403,158 43,329,164
Corporate Income Fund........................................... 9,404,490 64,059,025
California Municipal Fund....................................... 66,545,973 92,969,120
Florida Insured Municipal Fund.................................. 19,235,875 21,775,320
California Insured Intermediate Municipal Fund.................. 20,892,777 18,618,203
National Municipal Fund......................................... 64,107,806 104,530,181
Growth and Income Fund.......................................... 205,091,040 204,361,188
Growth Fund..................................................... 406,757,198 406,334,518
Emerging Growth Fund............................................ 429,732,779 363,520,876
International Growth Fund....................................... 180,408,595 143,039,389
</TABLE>
The aggregate cost of purchases and proceeds from sales of U.S. Government
securities, excluding short-term investments, for the year ended June 30, 1996
were as follows:
<TABLE>
<CAPTION>
NAME OF FUND PURCHASES SALES
------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Short Term High Quality Bond Fund............................ $ 38,205,458 $ 89,233,539
Short Term Global Government Fund............................ 5,577,830 1,880,879
U.S. Government Fund......................................... 1,594,663,584 1,584,347,559
Corporate Income Fund........................................ 80,726,766 109,284,963
Target Maturity 2002 Fund.................................... 680,488 164,231
</TABLE>
At June 30, 1996, aggregate gross unrealized appreciation for all securities in
which there is an excess of value over tax cost and aggregate gross unrealized
depreciation for all securities in which there is an excess of tax cost over
value were as follows:
<TABLE>
<CAPTION>
TAX BASIS TAX BASIS
UNREALIZED UNREALIZED
NAME OF FUND APPRECIATION DEPRECIATION
------------------------------------------------------------------- ----------- ----------
<S> <C> <C>
Short Term High Quality Bond Fund.................................. $ 180,256 $ 273,946
Short Term Global Government Fund.................................. 2,347,984 729,829
U.S. Government Fund............................................... 5,567,358 6,490,812
Corporate Income Fund.............................................. 10,456,077 2,885,822
California Municipal Fund.......................................... 16,420,705 697,790
Florida Insured Municipal Fund..................................... 740,027 145,489
California Insured Intermediate Municipal Fund..................... 2,375,881 113,695
National Municipal Fund............................................ 14,021,214 885,904
Growth and Income Fund............................................. 25,544,967 5,605,977
Growth Fund........................................................ 34,540,025 6,346,268
Emerging Growth Fund............................................... 84,284,258 7,773,940
International Growth Fund.......................................... 11,122,107 4,893,551
Target Maturity 2002 Fund.......................................... 8,063 --
</TABLE>
Option activity for the Short Term High Quality Bond Fund for the year ended
June 30, 1996 was as follows:
<TABLE>
<CAPTION>
WRITTEN OPTIONS ON FOREIGN CURRENCY: PREMIUMS
------------------------------------ --------
<S> <C>
Options outstanding at June 30, 1995................................ $ 0
Options written..................................................... 68,721
Options closed...................................................... (36,867)
--------
Options outstanding at June 30, 1996................................ $ 31,854
========
</TABLE>
FS-83
<PAGE> 356
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
Option activity for the Short Term Global Government Fund for the year ended
June 30, 1996 was as follows:
<TABLE>
<CAPTION>
WRITTEN OPTIONS ON FOREIGN CURRENCY: PREMIUMS
------------------------------------ -----------
<S> <C>
Options outstanding at June 30, 1995............................... $ 793,146
Options written.................................................... 2,533,638
Options expired.................................................... (401,418)
Options closed..................................................... (2,730,879)
-----------
Options outstanding at June 30, 1996............................... $ 194,487
===========
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
WRITTEN OPTIONS ON FOREIGN INTEREST RATE FUTURES: PREMIUMS CONTRACTS
------------------------------------------------- --------- ---------
<S> <C> <C>
Options outstanding at June 30, 1995.................................. $ 160,050 120
Options written....................................................... 92,815 76
Options closed........................................................ (252,865) (196)
--------- ----
Options outstanding at June 30, 1996.................................. $ 0 0
========= ====
</TABLE>
Option activity for the National Municipal Fund for the year ended June 30, 1996
was as follows:
<TABLE>
<CAPTION>
NUMBER OF
WRITTEN OPTIONS: PREMIUMS CONTRACTS
---------------- --------- ---------
<S> <C> <C>
Options outstanding at June 30, 1995................................ $ 0 0
Options written..................................................... 107,661 600
Options closed...................................................... (107,661) (600)
-------- ----
Options outstanding at June 30, 1996................................ $ 0 0
======== ====
</TABLE>
Information regarding dollar roll transactions by the U.S. Government and
Corporate Income Funds is as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT CORPORATE INCOME
DOLLAR ROLL TRANSACTIONS: FUND FUND
------------------------- --------------- ----------------
<S> <C> <C>
Maximum amount outstanding during the year.................. $ 313,043,594 $ 52,833,656
Average amount outstanding during the year*................. $ 152,879,279 $ 43,387,887
Average monthly shares outstanding during the year.......... 48,758,959 35,256,936
Average debt per share outstanding during the year.......... $3.14 $1.23
</TABLE>
- ---------------------
* The average amount outstanding during the year was calculated by adding the
borrowings at the end of each day and dividing the sum by the number of days
in the year ended June 30, 1996.
Fee income earned for the year ended June 30, 1996 by the U.S. Government and
Corporate Income Funds for dollar roll transactions aggregated $2,064,175 and
$853,300, respectively.
Information regarding reverse repurchase agreement transactions by the U.S.
Government Fund is as follows:
<TABLE>
<CAPTION>
REVERSE REPURCHASE AGREEMENTS:
------------------------------
<S> <C>
Maximum amount outstanding during the year................................... $135,105,000
Average amount outstanding during the year*.................................. $11,343,525
Average monthly shares outstanding during the year........................... 48,758,959
Average debt per share outstanding during the year........................... $0.23
</TABLE>
- ---------------------
* The average amount outstanding during the year was calculated by summing
borrowings at the end of each day and dividing the sum by the number of days
in the year ended June 30, 1996.
Interest rates ranged from 1.25% to 6.10% during the year. Interest paid for the
year ended June 30, 1996, on borrowings by the Fund under reverse repurchase
agreements, aggregated $582,417.
FS-84
<PAGE> 357
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
7. SHARES OF BENEFICIAL INTEREST
The Company may issue an unlimited number of shares of beneficial interest each
without par value.
As of June 30, 1996, First Interstate Bank as Trustee for Great Western Employee
Saving Plan -- Balanced Fund owned the following Class A Shares:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NAME OF FUND FUND SHARES TOTAL FUND SHARES
----------------------------------------------------------------- ----------- -----------------
<S> <C> <C>
Growth and Income Fund........................................... 702,375 5.41%
</TABLE>
As of June 30, 1996, First Interstate Bank as Trustee for Great Western Employee
Savings Plan -- Aggressive Fund owned the following Class A Shares:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NAME OF FUND FUND SHARES TOTAL FUND SHARES
----------------------------------------------------------------- ----------- -----------------
<S> <C> <C>
Emerging Growth Fund............................................. 1,513,319 10.76%
</TABLE>
As of June 30, 1996, Sierra Administration owned greater than five percent of
the following Funds:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
FUND SHARES TOTAL FUND SHARES
----------------- -----------------
NAME OF FUND CLASS B CLASS S CLASS B CLASS S
-------------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Government Money Fund.................................... 10,103 -- 9.04% --
California Money Fund......................................... -- 10,430 -- 100.00%
California Municipal Fund..................................... -- 1,065 -- 100.00
Florida Insured Municipal Fund................................ -- 1,167 -- 100.00
California Insured Intermediate Municipal Fund................ -- 1,077 -- 100.00
National Municipal Fund....................................... -- 1,030 -- 100.00
</TABLE>
8. ORGANIZATION COSTS
Expenses incurred in connection with the organization of the Funds, including
the fees and expenses of registering and qualifying its shares for distribution
under Federal and state securities regulations, are being amortized on a
straight-line basis over a period of five years from commencement of operations
of each Fund, respectively. In the event any of the initial shares of a Fund are
redeemed by any holder thereof during the amortization period, the proceeds of
such redemptions will be reduced by an amount equal to the pro-rata portion of
unamortized deferred organizational expenses in the same proportion as the
number of shares being redeemed bears to the number of initial shares of such
Fund outstanding at the time of such redemption.
9. CAPITAL LOSS CARRYFORWARDS
At June 30, 1996, the following Funds had available for federal income tax
purposes unused capital losses as follows:
<TABLE>
<CAPTION>
EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
NAME OF FUND IN 2000 IN 2001 IN 2002 IN 2003 IN 2004
-------------------------------------------- -------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
U.S. Government Money Fund.................. -- -- $9,246 $ 1,367 $ 2,404
California Money Fund....................... $7,635 $5,715 7,549 1,294 18,781
Short Term High Quality Bond Fund........... -- -- -- 206,653 672,111
Short Term Global Government Fund........... -- -- -- -- 2,595,508
U.S. Government Fund........................ -- -- -- 37,871,949 33,050,799
Corporate Income Fund....................... -- -- -- 22,615,168 9,952,150
California Municipal Fund................... -- -- -- 9,970,802 4,501,967
Florida Insured Municipal Fund.............. -- -- -- 1,590,869 1,462,695
National Municipal Fund..................... -- -- -- -- 11,367,109
</TABLE>
Under current tax law, capital losses realized after October 31 may be deferred
and treated as occurring on the first day of the following fiscal year.
FS-85
<PAGE> 358
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
For the fiscal year ended June 30, 1996, the following Funds have elected to
defer losses occurring between November 1, 1995 and June 30, 1996 under these
rules, as follows:
<TABLE>
<CAPTION>
CAPITAL CURRENCY
NAME OF FUND LOSSES DEFERRED LOSSES DEFERRED
------------------------------------------------------------------ --------------- ---------------
<S> <C> <C>
Global Money Fund................................................. $ 8,316 --
U.S. Government Money Fund........................................ 2,691 --
Short Term High Quality Bond Fund................................. 558,047 $ 435
Short Term Global Government Fund................................. 106,202 --
U.S. Government Fund.............................................. 4,552,104 --
Corporate Income Fund............................................. 2,465,313 --
International Growth Fund......................................... 1,377,313 --
</TABLE>
Such deferred losses will be treated as arising on the first day of the fiscal
year ending June 30, 1997.
10. GEOGRAPHIC AND INDUSTRY CONCENTRATION
There are certain risks arising from the California Money Fund, California
Municipal Fund and California Insured Intermediate Municipal Funds'
concentration in California municipal securities. Certain California
constitutional amendments, legislative measures, executive orders,
administrative regulations, court decisions and voter initiatives could result
in certain adverse consequences including impairing the ability of certain
issuers of California municipal securities to pay principal and interest on
their obligations.
In addition, the Global Money Fund may invest at least 25% of its assets in bank
obligations. As a result of this concentration policy, 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 the banking industry and the inability of borrowers to pay
principal and interest when due. In addition, foreign banks present risks
similar to those investing in foreign securities generally and are not subject
to the same reserve requirements and other regulations as U.S. banks.
The Florida Insured Municipal Fund primarily invests in debt obligations issued
by the State of Florida and its political subdivisions, agencies and public
authorities to obtain funds for various public purposes. The Florida Insured
Municipal Fund is more susceptible to factors adversely affecting issuers of
Florida municipal securities than is a municipal bond fund that is not
concentrated in these issuers to the same extent. Uncertain economic conditions
may affect the ability of Florida municipal securities issuers to meet their
financial obligations.
The Global Money, Short Term Global Government, Corporate Income, Growth,
Emerging Growth and International Growth Funds invest in securities of foreign
companies and foreign governments. There are certain risks involved in investing
in foreign securities that are in addition to the usual risks inherent in
domestic investments. These risks include those resulting from future adverse
political and economic developments and the possible imposition of currency
exchange blockages or other foreign governmental laws or restrictions.
11. LINE OF CREDIT
The Company, on behalf of the Bond Funds and the Equity Funds, participates in a
$40 million line of credit provided by Deutsche Bank AG, New York Branch (the
"Bank") under a Credit Agreement (the "Agreement") dated May 22, 1996, primarily
for temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of securities.
Under the Agreement, each Fund as a separate and distinct borrower may borrow up
to its designated base commitment allocation specified in the Agreement, plus
its pro rata portion of any unused base commitment allocation of the other
borrowers under the Agreement. Interest is payable at one of the following rates
depending on the type of loan designated by the borrower: (i) the higher of
0.50% in excess of the Federal Funds Rate and the prime lending rate announced
by the Bank; (ii) the New York Interbank Offered Rate (NIBOR) plus 0.35% on an
annualized basis; or (iii) the London Interbank Offered Rate (LIBOR) plus 0.35%
on an annualized basis. The Funds are charged an aggregate commitment fee
computed at a rate equal to 0.05% on an annual basis of the daily average
unutilized credit balance. The Agreement requires, among other provisions, that
the aggregate outstanding principal amount of the loans made to each borrower
under the Agreement shall not exceed the lesser of (i) 33 1/3% of the value of
the total assets of the borrower less all liabilities and indebtedness not
represented by senior securities;
FS-86
<PAGE> 359
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIERRA TRUST FUNDS
and (ii) any borrower limitations described for such borrowers in the Company's
prospectus. During the period ended June 30, 1996, no Fund borrowed under the
Agreement.
12. SUBSEQUENT EVENT (UNAUDITED)
On June 24, 1996, VK/AC Holding, Inc., the parent of Van Kampen, 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-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.
FS-87
<PAGE> 360
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES AND SHAREHOLDERS
OF THE SIERRA TRUST FUNDS
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations, of
changes in net assets, the financial highlights and the statements of cash flows
of U.S. Government Fund and Corporate Income Fund present fairly, in all
material respects, the financial position of each of the sixteen fund series
constituting Sierra Trust Funds (the "Company") at June 30, 1996, the results of
their operations, the changes in their net assets and their financial highlights
for the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of those financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at June 30, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
BOSTON, MASSACHUSETTS
AUGUST 13, 1996
FS-88
<PAGE> 361
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, Florida Insured Municipal Fund and Target
Maturity 2002 Fund for the fiscal year ended June 30,
1996 including the following:
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> 362
(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 (24)
(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> 363
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> 364
(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> 365
(5)(ii) Investment Sub-Advisory Agreement of the International Growth
Fund (24)
(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) is replaced by (6)(m)
(6)(b) Supplement to Distribution Agreement relating to the National
Municipal Fund, Corporate Income Fund, Emerging Growth Fund
and International Growth Fund (7) is replaced by (6)(m)
(6)(c) Supplement to Distribution Agreement relating to the Short
Term Global Government Fund (12) is replaced by (6)(m)
(6)(d) Amendment No. 1 to Distribution Agreement (10) is replaced by
(6)(m)
(6)(e) Supplement to Distribution Agreement relating to the Growth
Fund (15) is replaced by (6)(m)
(6)(f) Supplement to Distribution Agreement relating to the Florida
Insured Municipal Fund (15) is replaced by (6)(m)
(6)(g) Supplement to Distribution Agreement relating to the Short
Term High Quality Bond Fund (22) is replaced by (6)(m)
(6)(h) Supplement to Distribution Agreement relating to the
California Insured Intermediate Municipal Fund (22) is
replaced by (6)(m)
(6)(i) Form of Class B and Class S Distribution Agreement relating to
all series funds of Registrant (18) is replaced by (6)(k)
(6)(j) Supplement to Distribution Agreement relating to the Target
Maturity 2002 Fund (23) is replaced by (6)(m)
(6)(k) Class B and Class S Distribution Agreement with Sierra
Investment Services Corporation relating to all series Funds
of Registrant (24)
(6)(l) Amended and Restated Class B and S Distribution Agreement with
Funds Distributor, Inc. relating to all series Funds of
Registrant (24) is replaced by (6)(k)
(6)(m) Class A Distribution Agreement with Sierra Investment Services
Corporation as amended and supplemented as of July 1, 1995
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> 366
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)
(8)(l) Supplement to Custody and Sub-Administration Agreement
relating to the Short Term Global Government Fund(*)
(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) is replaced by (9)(n)
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<PAGE> 367
(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) is replaced by (9)(o)
(9)(m) Amendment to Transfer Agency and Registrar Agreement for GW
Sierra Trust Funds (22) is replaced by (9)(o)
(9)(n) Transfer Agency and Registrar Agreement dated as of January 1,
1992.(*) is replaced by (9)(o)
(9)(o) Form of Transfer Agency and Services Agreement dated May 1,
1996(*)
(9)(p) Administration Agreement dated July 1, 1996(*)
(9)(q) Service Agency Agreement with The Shareholder Services Group,
Inc.(*)
(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 (*)
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<PAGE> 368
(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(24) (Replaces
Form of Class B Distribution Plan(18))
(15)(d) Amended and Restated Class S Distribution Plan (24) (Replaces
Form of Class S Distribution Plan (18))
(15)(e) Class A Distribution Plan dated July 7, 1989, as amended as of
July 1, 1995(*)
(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)
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<PAGE> 369
(17) Financial Data Schedule (*)
(18) Rule 18f-3 Multiple Class Plan (22)
(19)-(23) Not Applicable
(24) Powers of Attorney with respect to Registration Statement and
Amendments thereto signed by the following person in their
capacities as Trustees and, where applicable, Officers of the
Trust: F. Brian Cerini, Arthur H. Bernstein, David E. Anderson,
Edmond R. Davis, John W. English and Alfred E. Osborne, Jr.(*)
___________________________________
* Filed herewith
(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.
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<PAGE> 370
(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.
(24) Incorporated by reference to Post-Effective Amendment No. 23 filed
with the SEC on August 30, 1996.
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>
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<PAGE> 371
<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
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<PAGE> 372
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").
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<PAGE> 373
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 a
wholly-owned subsidiary of Morgan Stanley Group Inc. Van Kampen 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
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<PAGE> 374
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.
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<PAGE> 375
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
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<PAGE> 376
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)
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<PAGE> 377
(4) Sierra Fund Administration Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as
administrator)
(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, shareholder servicing
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)
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<PAGE> 378
(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.
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<PAGE> 379
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 29th day of October, 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, October 29, 1996
---------------------------- President and Trustee
F. Brian Cerini
(Principal Executive Officer)
/s/ Keith B. Pipes Executive Vice President, October 29, 1996
---------------------------- Treasurer and Secretary
Keith B. Pipes
(Principal Financial and
Accounting Officer)
/s/ Arthur H. Bernstein Trustee October 29, 1996
----------------------------
Arthur H. Bernstein, Esq.
/s/ David E. Anderson Trustee October 29, 1996
----------------------------
David E. Anderson
/s/ Edmond R. Davis Trustee October 29, 1996
----------------------------
Edmond R. Davis, Esq.
/s/ John W. English Trustee October 29, 1996
----------------------------
John W. English
/s/ Alfred E. Osborne Trustee October 29, 1996
---------------------------
Alfred E. Osborne, Jr. Ph.D.
</TABLE>
<PAGE> 380
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 (24)
(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> 381
<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> 382
<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>
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<PAGE> 383
<TABLE>
<S> <C>
(5)(hh) Investment Sub-Advisory Agreement of the National Municipal Fund (22)
(5)(ii) Investment Sub-Advisory Agreement of the International Growth Fund (24)
(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)
is replaced by (6)(m)
(6)(b) Supplement to Distribution Agreement relating to the National Municipal Fund, Corporate Income Fund, Emerging
Growth Fund and International Growth Fund (7) is replaced by (6)(m)
(6)(c) Supplement to Distribution Agreement relating to the Short Term Global Government Fund (12) is replaced
by (6)(m)
(6)(d) Amendment No. 1 to Distribution Agreement (10) is replaced by (6)(m)
(6)(e) Supplement to Distribution Agreement relating to the Growth Fund (15) is replaced by (6)(m)
(6)(f) Supplement to Distribution Agreement relating to the Florida Insured Municipal Fund (15) is replaced by (6)(m)
(6)(g) Supplement to Distribution Agreement relating to the Short Term High Quality Bond Fund (22) is replaced
by (6)(m)
(6)(h) Supplement to Distribution Agreement relating to the California Insured Intermediate Municipal Fund (22) is
replaced by (6)(m)
(6)(i) Form of Class B and Class S Distribution Agreement relating to all series funds of Registrant (18) is replaced
by (6)(k)
(6)(j) Supplement to Distribution Agreement relating to the Target Maturity 2002 Fund (23) is replaced by (6)(m)
(6)(k) Class B and Class S Distribution Agreement with Sierra Investment Services Corporation relating to all series
Funds of Registrant (24)
(6)(l) Amended and Restated Class B and S Distribution Agreement with Funds Distributor, Inc. relating to all series
Funds of Registrant (24) is replaced by (6)(k)
EX-99.B (6)(m) Class A Distribution Agreement with Sierra Investment Services Corporation as amended and supplemented as of
July 1, 1995 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>
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<PAGE> 384
<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)
EX-99.B (8)(l) Supplement to Custody and Sub-Administration Agreement relating to the Short Term Global Government Fund(*)
(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) is
replaced by (9)(n)
</TABLE>
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<PAGE> 385
<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)
is replaced by (9)(o)
(9)(m) Amendment to Transfer Agency and Registrar Agreement for GW Sierra Trust Funds (22)
is replaced by (9)(o)
Ex-99.B (9)(n) Transfer Agency and Registrar Agreement dated as of January 1, 1992.(*) is replaced by (9)(o)
Ex-99.B (9)(o) Form of Transfer Agency and Services Agreement dated May 1, 1996(*)
Ex-99.B (9)(p) Administration Agreement dated July 1, 1996(*)
Ex-99.B (9)(q) Service Agency Agreement With The Shareholder Services Group, Inc.(*)
(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)
Ex-99.B (11) Consent of Independent Accountants (*)
</TABLE>
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<PAGE> 386
<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(24) (Replaces Form of Class B Distribution Plan(18))
(15)(d) Amended and Restated Class S Distribution Plan (24) (Replaces Form of Class S Distribution Plan (18))
Ex-99.B (15)(e) Class A Distribution Plan dated July 7, 1989, as amended as of July 1, 1995(*)
(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>
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<PAGE> 387
<TABLE>
<S> <C>
(17) Not Applicable
(18) Rule 18f-3 Multiple Class Plan (22)
(19)-(23) Not Applicable
Ex-99.B (24) Powers of Attorney with respect to Registration Statement and Amendments thereto signed by the
following person in their capacities as Trustees and, where applicable, Officers of the Trust:
F. Brian Cerini, Arthur H. Bernstein, David E. Anderson, Edmond R. Davis, John W. English and
Alfred E. Osborne, Jr.(*)
(25)-(26) Not Applicable
Ex-99.B (27) Financial Data Schedules(*)
</TABLE>
___________________________________
* Filed herewith
(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> 388
(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.
(24) Incorporated by reference to Post-Effective Amendment No. 23 filed
with the SEC on August 30, 1996.
-9-
<PAGE> 1
Exhibit (6)(m)
CLASS A DISTRIBUTION AGREEMENT
Dated July 7, 1989, as amended and
supplemented as of July 1, 1995
Sierra Investment Services Corporation
9301 Corbin Avenue
Northridge, CA 91324
Dear Sirs:
This is to confirm our agreement that, in consideration of the
agreements hereinafter contained, the undersigned, Sierra Trust Funds (the
"Company"), an open-end, management investment company organized as a business
trust under the laws of the Commonwealth of Massachusetts, 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, the distributor of the Class A shares of beneficial interest issued
by the Company with respect to each of its investment funds (the "Shares"), on
the following terms:
1. Services as Distributor
1.1 Sierra Services will act as agent for the
distribution of the Shares covered by the registration statement, prospectuses
and statements of additional information then in effect (the "Registration
Statement") under the Securities Act of 1933, as amended (the "1933 Act"), and
the Investment Company Act of 1940, as amended (the "1940 Act").
1.2 Sierra Services agrees to use its best efforts to
solicit orders for the sale of the Shares at the public offering price, as
determined in accordance with the Registration Statement, and will undertake
such advertising and promotion as it believes is reasonable in connection with
such solicitation.
1.3 All activities by Sierra Services as distributor of
the Shares shall comply with all applicable laws, rules and regulations,
including, without limitation, all rules and regulations made or adopted by the
Securities and Exchange Commission (the "SEC") or by any securities association
registered under the Securities Exchange Act of 1934, as amended.
1.4 Sierra Services will provide one or more persons
during normal business hours to respond to telephone questions concerning the
Company.
<PAGE> 2
1.5 Sierra Services acknowledges 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, those
officers may decline to accept any orders for, or make any sales of, any series
of the Shares until such time as those officers deem it advisable to accept
such orders and to make such sales.
1.6 Sierra Services will act only on its own behalf as
principal should it choose to enter into selling agreements with selected
dealers or others.
1.7 In consideration of the services rendered pursuant to
this Agreement, as promptly as is possible after the last day of each month
this Agreement is in effect, the Company shall pay to or at the direction of
Sierra Services a fee or portions thereof, calculated daily and paid monthly,
in the aggregate at the annual rate of .25% of the average daily net assets for
the prior month of each series of the Shares. The payment by the Company of
fees under this Agreement is authorized pursuant to the Company's Distribution
Plan, as amended, adopted in accordance with Rule 12b-1 under the 1940 Act (the
"Plan").
1.8 Sierra Services or any other person with which Sierra
Services has a written agreement to provide services as permitted by this
Agreement and the Plan (each, a "Designated Provider") will bear all expenses
in connection with the performance of 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 one or more Designated Providers, which expenses
represent payment for activities primarily intended to result in the sale of
Shares, including, but not limited to, the following:
(a) payments made to, and expenses of, Sierra Services,
registered representatives and other employees of Sierra Services,
each of the Designated Providers, or other broker-dealers that engage
in the distribution of Shares;
(b) payments made to, and expenses of, persons who
provide 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, processing shareholder transactions and providing any other
shareholder services not otherwise provided by the Company's transfer
agent or any shareholder servicing agent;
(c) costs relating to the formulation and implementation
of marketing and promotional activities,
2
<PAGE> 3
including, but not limited to, direct mail promotions and television,
radio, newspaper, magazine and other mass media advertising;
(d) costs of printing and distributing prospectuses and
reports of the Company to prospective shareholders of the Company;
(e) costs involved in preparing, printing and
distributing advertising and sales literature pertaining to the
Company; and
(f) 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;
except that distribution expenses shall not include any expenditures in
connection with services which Sierra Services, any of its affiliates, or any
other person have agreed to bear without reimbursement.
1.9 Sierra Services shall prepare and deliver reports to
the Treasurer of the Company and to the advisor, administrator and/or
sub-administrator to each series of the Shares on a regular, at least
quarterly, basis, showing the distribution expenses incurred pursuant to this
Agreement and the Plan and the purposes therefor, as well as any supplemental
reports as the Trustees, from time to time, may reasonably request.
2. Duties of the Company
2.1 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 the qualification
of the Shares for sale in those states that Sierra Services may designate.
2.2 The Company shall furnish 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, all of which shall be signed by one or more of the Company's duly
authorized officers; and the Company warrants that the statements contained in
any such reports, when so signed by one or more of the Company's officers,
shall be true and correct. The Company shall also furnish Sierra Services upon
request with: (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
3
<PAGE> 4
itemized list of the securities in the portfolios of all series of the Shares,
(e) monthly balance sheets as soon as practicable after the end of each month
and (f) from time to time such additional information regarding the Company's
financial condition as Sierra Services may reasonably request.
2.3 The Company shall pay to Sierra Services the proceeds
from any front-end sales charge and any contingent deferred sales charge
imposed on the purchase and redemption, respectively, of the Shares as
specified in the Registration Statement.
3. Representations and Warranties
(a) The Company represents to Sierra Services that all
registration statements, prospectuses and statements of additional information
filed by the Company with the SEC under the 1933 Act and the 1940 Act with
respect to the Shares have been carefully prepared in conformity with the
requirements of the 1933 Act, the 1940 Act and the rules and regulations of the
SEC thereunder. 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 and supplements thereto
which at any time shall have been filed with the SEC. The Company represents
and warrants to Sierra Services that any registration statement, prospectus and
statement of additional information., when such registration statement 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,
prospectus or statement of additional information will be true and correct when
such registration statement becomes effective; and that neither any
registration statement nor any prospectus or statement of additional
information when such registration statement becomes effective will include an
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 or amendments to any registration
statement and such supplement or supplements to any prospectus or statement of
additional information as, in the light of future developments, may, in the
opinion of Sierra Services' counsel, be necessary or advisable. If the Company
shall not propose such amendment or amendments and/or supplement or supplements
within fifteen days after receipt by the Company of a written request from
Sierra Services to do so, Sierra Services may, at its option, terminate this
Agreement. The Company shall not file any amendment to any registration
4
<PAGE> 5
statement or supplement to any prospectus or statement of additional
information 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 amendments to any
registration statement and/or supplements to any prospectus or statement of
additional information, of whatever character, as the Company may deem
advisable, such right being in all respects absolute and unconditional.
(b) Sierra Services represents to the Company that it is
authorized to perform the services described herein.
4. Indemnification
4.1 The Company authorizes Sierra Services and any
dealers with whom Sierra Services has entered into dealer agreements to use any
prospectus or statement of additional information furnished by the Company from
time to time, in connection with the sale of Shares. The Company agrees to
indemnify, defend and hold Sierra Services, its several officers and directors,
and any person who controls Sierra Services within the meaning of Section 15 of
the 1933 Act, 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) which Sierra Services, its officers and directors, or any such
controlling 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, any
prospectus or any statement of additional information, 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, any prospectus or any statement of
additional information, or necessary to make the statements in any of them not
misleading; provided, however, that the Company's agreement to indemnify Sierra
Services, its officers or directors, and any such controlling person 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, prospectus or statement of additional
information and in such financial and other statements as are furnished to
Sierra Services pursuant to paragraph 2.2 hereof; and further provided that the
Company's agreement to indemnify Sierra Services and the Company's
representations and warranties hereinbefore set forth in paragraph 3 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 willful misfeasance,
bad faith
5
<PAGE> 6
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 Sierra Services, its officers
and directors, and any such controlling person, as aforesaid, is expressly
conditioned upon the Company's being notified of any action brought against
Sierra Services, its officers or directors, or any such controlling person,
such notification to be given by letter or by telegram addressed to the Company
at its principal office in Los Angeles, California and sent to the Company by
the person against whom such action is brought, within ten days after the
summons or other first legal process shall have been served. 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 paragraph 4.1. The Company's indemnification agreement
contained in this paragraph 4.1 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 Sierra Services,
its officers and directors, or any controlling person, and shall survive the
delivery of any Shares. This agreement of indemnity will inure exclusively to
Sierra Services' benefit, to the benefit of its several officers and directors,
and their respective estates, and to the benefit of the controlling persons and
their successors. The Company agrees to notify Sierra Services promptly of the
commencement of any litigation or proceedings against the Company or any of its
officers or trustees in connection with the issuance and sale of any Shares.
4.2 Sierra Services agrees to indemnify, defend and hold
the Company, its several officers and trustees, and any person who controls the
Company within the meaning of Section 15 of the 1933 Act, 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 the
Company, its officers or trustees or any such controlling 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 the Company, its officers or
trustees or such controlling person resulting from such claims or demands shall
arise out of or be based upon (a) any unauthorized sales literature,
advertisements, information, statements or representations or (b) any untrue or
alleged untrue statement of a material fact contained in information furnished
in 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 the prospectus or statement of additional
6
<PAGE> 7
information, 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. Sierra Services'
agreement to indemnify the Company, its officers and trustees, and any such
controlling person, as aforesaid, is expressly conditioned upon Sierra
Services' being notified of any action brought against the Company, its
officers or trustees, or any such controlling person, such notification to be
given by letter or telegram addressed to Sierra Services at its principal
office in Los Angeles, California and sent to Sierra Services by the person
against whom such action is brought, within ten days after the summons or other
first legal process shall have been served. 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 Company, its officers or
trustees, or to such controlling 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 paragraph 4.2. Sierra
Services agrees to notify the Company promptly of the commencement of any
litigation or proceedings against Sierra Services or any of its officers or
directors in connection with the issuance and sale of any Shares.
4.3 In case any action shall be brought against any
indemnified party under paragraph 4.1 or 4.2, and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it shall wish to do so, to
assume the defense thereof with counsel satisfactory to such indemnified party.
If the indemnifying party opts to assume the defense of such action, the
indemnifying party will not be liable to the indemnified party for any legal or
other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than (a) reasonable costs of investigation or
the furnishing of documents or witnesses and (b) all reasonable fees and
expenses of separate counsel to such indemnified party if (i) the indemnifying
party and the indemnified party shall have agreed to the retention of such
counsel or (ii) the indemnified party shall have concluded reasonably that
representation of the indemnifying party and the indemnified party by the same
counsel would be inappropriate due to actual or potential differing interests
between them in the conduct of the defense of such action.
5. Effectiveness of Registration
None of the Shares shall be offered by either Sierra Services
or the Company under any of the provisions of this Agreement and no orders for
the purchase or sale of the Shares
7
<PAGE> 8
hereunder shall be accepted by the Company if and so long as the effectiveness
of the registration statement then in effect or any necessary amendments
thereto shall be suspended under any of the provisions of the 1933 Act or 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 paragraph 5 shall in any way restrict or have an application to or bearing
upon the Company's obligation to repurchase Shares from any shareholder in
accordance with the provisions of the Company's prospectus, statement of
additional information or articles of incorporation.
6. 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, prospectus or statement of additional
information 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, prospectus
or statement of additional information 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,
prospectus or statement of additional information then in effect or
that requires the making of a change in such registration statement,
prospectus or statement of additional information 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, prospectus or statement of additional
information which may from time to time be filed with the SEC.
7. Term of Agreement
This Agreement shall continue for an initial two-year period
and shall continue thereafter for so long as such continuance is specifically
approved at least annually by (a) the Company's Board of Trustees and (b) a
vote of a majority (as defined in the 1940 Act) of the Company's 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 agreement related
8
<PAGE> 9
to the Plan (the "Qualified Trustees"), by any vote cast in person at a meeting
called for the purpose of the voting on such approval. This Agreement is
terminable with respect to the Company or any series of the Shares, as the case
may be, without penalty, (a) on 60 days' written notice, by vote of a majority
of the Qualified Trustees or by vote of a majority (as defined in the 1940 Act)
of the outstanding voting securities of the Company or such series, as the case
may be, or (b) on 90 days' written notice by Sierra Services. This Agreement
may remain in effect with respect to a series of the Shares even if it has been
terminated in accordance with this paragraph with respect to one or more other
series of the Shares. This Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act). Sierra Services agrees
to notify the Company of any circumstances that might result in this Agreement
being deemed to be assigned.
8. Miscellaneous
The Company recognizes that directors, officers and employees
of Sierra Services may from time to time serve as directors, trustees, officers
and employees of corporations and business trusts (including other investment
companies) and that Sierra Services or its affiliates may enter into
distribution or other agreements with such other corporations and trusts.
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.
This Agreement constitutes the entire agreement between the
parties hereto. This Agreement shall be governed in accordance with the 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 Master Trust
Agreement of the Company. The execution and delivery of this Agreement have
been authorized by the Trustees and the sole shareholder of each series of the
Shares and signed by an authorized officer of the Company, acting as such, and
neither such authorization by such Trustees and shareholder nor such execution
and delivery by such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the trust property of the Company as provided in its Master Trust
Agreement.
9
<PAGE> 10
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 July 1, 1995.
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
Title: Authorized Officer
10
<PAGE> 1
Exhibit (8)(l)
SUPPLEMENT TO CUSTODY
AND SUB-ADMINISTRATION AGREEMENTS
FEBRUARY 3, 1992
GW Sierra Trust Funds, a Massachusetts business trust organized under
the laws of the Commonwealth of Massachusetts (the "Company"), hereby
supplements its Custody Agreement, dated July 7, 1989, as supplemented and
amended, with Boston Safe Deposit and trust Company (the "Custodian"); and
Great Western Fund Administration Corporation hereby supplements its
Sub-Administration Agreement, dated July 7, 1989, as supplemented, with The
Boston Company Advisors, Inc., each to provide those services described in the
above-mentioned agreements to the GW Short Term Global Government Fund (the
"New Portfolio"). Fees to be paid to the Custodian and Sub-Administrator will
be assessed and paid out in accordance with the effective fee letter among all
such parties.
Limitation of Liability. This supplement has been executed on behalf
of the Company by the undersigned officer of the Company in his or her capacity
as an officer of the Company. The obligations of this supplement shall be
binding only upon the assets and property of the New Portfolio affected and not
upon the assets and property of any other portfolio of the Company and shall
not be binding upon any Trustee of the Company, officer of the Company or
shareholder of the New Portfolio and/or the Company individually.
IN WITNESSETH WHEREOF, the parties hereto have caused this Supplement
to be executed by their officers designated below as of the 3rd day of
February, 1992.
<TABLE>
<S> <C>
GREAT WESTERN FUND
GW SIERRA TRUST FUNDS ADMINISTRATION CORPORATION
By: /s/ F. Brian Cerini By: /s/ Tai-Chin Tung
--------------------------------------- ---------------------------------
Authorized Signature Authorized Signature
BOSTON SAFE DEPOSIT THE BOSTON COMPANY
AND TRUST COMPANY ADVISORS, INC.
By: /s/ Kevin E. Connolly By: /s/ Peter Meenan
-------------------------------------- ---------------------------------
Authorized Signature Authorized Signature
Kevin E. Connolly
Vice President
</TABLE>
<PAGE> 1
Exhibit (9)(n)
TRANSFER AGENCY AND REGISTRAR AGREEMENT
AGREEMENT, dated as of January 1, 1992, between GW SIERRA TRUST FUNDS,
(the "Trust"), a Massachusetts business trust having its principal place of
business at 888 South Figueroa Street, Suite 1100, Los Angeles, California
90017, and Great Western Financial Fund Administration Corporation ("GW
Administration," the "Transfer Agent") a corporation organized under the laws
of California.
WITNESSETH
That for and in consideration of the mutual covenants and promises
hereinafter set forth, the Trust and the Transfer Agent agree as follows:
1. Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
(a) "Articles of Incorporation" shall mean the Articles
of Incorporation, Declaration of Trust, Partnership Agreement, or similar
organizational document as the case may be, of the Trust as the same may be
amended from time to time.
(b) "Authorized Person" shall be deemed to include any
person, whether or not such person is an officer or employee of the Trust, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Trust as indicated in a certificate furnished to the Transfer Agent pursuant to
Section 4(c) hereof as may be received by the Transfer Agent from time to time.
(c) "Board of Trustees" shall mean the Board of Trustees
of the Trust.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian
of securities and other property which the Trust may from time to time
deposit, or cause to be deposited or held under the name or account of such a
custodian pursuant to a Custodian Agreement.
(f) "Oral instructions" shall mean instructions, other
than Written Instructions, actually received by the Transfer Agent from a
person reasonably believed by the Transfer Agent to be an Authorized Person.
(g) "Prospectus" shall mean the most recently dated Trust
Prospectus and Statement of Additional Information, including any supplements
thereto if any, which has become effective under the Securities Act of 1933 and
the 1940 Act.
<PAGE> 2
(h) "Shares" refers collectively to such shares of
capital stock, beneficial interest or limited partnership interests, as the
case may be, of the Trust as may be issued from time to time and, if the Trust
is a closed-end or a series fund, as such terms are used in the 1940 Act any
other classes or series of stock, shares of beneficial interest or limited
partnership interests that may be issued from time to time.
(i) "Shareholder" shall mean a holder of shares of
capital stock, beneficial interest or any other class or series, and also
refers to partners of limited partnerships.
(j) "Trust" refers to GW Sierra Global Income Money
Market Fund, GW Sierra U.S. Government Money Market Fund, GW Sierra California
Municipal Money Market Fund, GW Sierra U.S. Government Securities Fund, GW
Sierra California Municipal Income Fund, GW Sierra National Municipal Income
Fund, GW Sierra Corporate Income Fund, GW Sierra Growth and Income Fund, GW
Sierra Equity Opportunity Fund, GW Sierra Strategic International Fund and such
other separate and distinct portfolios as may be established and designated by
the Trust and as agreed upon by the Trust and the Transfer Agent.
(k) "Written Instructions" shall mean a written
communication signed by a person reasonably believed by the Transfer Agent to
be an Authorized Person and actually received by the Transfer Agent. Written
instructions shall include manually executed originals and authorized
electronic transmissions, including telefacsimile of a manually executed
original or other process.
(l) "1940 Act" shall mean the Investment Company Act of
1940 and the Rules and Regulations promulgated thereunder, as amended from time
to time.
2. Appointment of the Transfer Agent. The Trust hereby appoints
and constitutes the Transfer Agent as transfer agent, registrar and dividend
disbursing agent for Shares of the Trust and as shareholder servicing agent for
the Trust. The Transfer Agent accepts such appointments or appoints a service
agent and agrees to perform the duties hereinafter set forth.
3. Compensation.
(a) The Trust will compensate or cause the Transfer Agent
to be compensated for the performance of its obligations hereunder in
accordance with the fees set forth in the written schedule of fees annexed
hereto as Schedule A and incorporated herein. The Transfer Agent will transmit
an invoice to the Trust as soon as practicable after the end of each calendar
month which will be detailed in accordance with Schedule A, and the Trust will
pay to the Transfer Agent the amount of such invoice as soon as reasonable
after the Trust's receipt of the invoice.
In addition, the Trust agrees to pay, and will be billed
separately for, out-of-pocket expenses incurred by the Transfer Agent and its
service agent in the performance of the duties
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<PAGE> 3
hereunder. Out-of-pocket expenses shall include, but shall not be limited to,
the items specified in the written schedule of out-of-pocket charges annexed
hereto as Schedule B and incorporated herein. Schedule B may be modified by
the Transfer Agent upon not less than 30 days' prior written notice to the
Trust. Unspecified out-of-pocket expenses shall be limited to those
out-of-pocket expenses reasonably incurred by the Transfer Agent and its
service agent in the performance of the obligations hereunder. Reimbursement
by the Trust for expenses incurred by the Transfer Agent and its service agent
in any month shall be made as soon as practicable after the receipt of an
itemized bill from the Transfer Agent.
(b) Any compensation agreed to hereunder may be adjusted
from time to time by attaching to Schedule A, a revised fee schedule executed
and dated by the parties hereto.
4. Documents. In connection with the appointment of the Transfer
Agent, the Trust shall deliver or caused to be delivered to the Transfer Agent
or its service agent the following documents on or before the date this
Agreement goes into effect, but in any case within a reasonable period of time
for the Transfer Agent and its service agent to prepare to perform its duties
hereunder:
(a) All account application forms and other documents
relating to Shareholder accounts or to any plan, program or service offered by
the Trust.
(b) A signature card bearing the signatures of any
officer of the Trust or other Authorized Person who will sign Written
Instructions or is authorized to give Oral Instructions.
(c) A certified copy of the Articles of Incorporation.
(d) A certified copy of the By-laws of the Trust, as
amended.
(e) A copy of the resolution of the Board of Trustees
authorizing the execution and delivery of this Agreement.
(f) A certified list of Shareholders of the Trust with
the name, address and taxpayer identification number of each Shareholder, and
the number of Shares of the Trust held by each, certificate numbers and
denominations (if any certificates have been issued), lists of any accounts
against which stop transfer orders have been placed, together with the reasons
therefore, and the number of Shares redeemed by the Trust.
(g) An opinion of counsel for the Trust with respect to
the validity of the Shares and the status of such Shares under the Securities
Act of 1933, as amended.
5. Further Documentation. The Trust will also furnish the
Transfer Agent and its service agent with copies of the following documents
promptly after the same shall become available:
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<PAGE> 4
(a) each resolution of the Board of Trustees authorizing
the issuance of Shares;
(b) any registration statements filed on behalf of the
Trust and all pre-effective and post-effective amendments thereto filed with
the Commission;
(c) a certified copy of each amendment to the Articles of
Incorporation or the By-laws of the Trust;
(d) certified copies of each resolution of the Board of
Trustees or other authorization designating Authorized Persons; and
(e) such other certificates, documents, or opinions as
the Transfer Agent may be reasonably request in connection with the
performance of its duties hereunder.
6. Representations of the Trust. The Trust represents to the
Transfer Agent that all outstanding Shares are validly issued, fully paid and
non-assessable. When Shares are hereafter issued in accordance with the terms
of the Trust's Articles of Incorporation and its Prospectus, such Shares shall
be validly issued, fully paid and non-assessable.
7. Distributions Payable in Shares. In the event that the Board
of Trustees of the Trust shall declare a distribution payable in Shares, the
Trust shall deliver or cause to be delivered to the Transfer Agent or its
service agent written notice of such declaration signed on behalf of the Trust
by an officer thereof, upon which the Transfer Agent or its service agent shall
be entitled to rely for all purposes, certifying (i) the identity of the Shares
involved, (ii) the number of Shares involved, and (iii) that all appropriate
action has been taken.
8. Duties of the Transfer Agent. The Transfer Agent or its
designee shall be responsible for administering and/or performing those
functions typically performed by a transfer agent; for acting as service agent
in connection with dividend and distribution functions; and for performing
shareholder account and administrative agent functions in connection with the
issuance, transfer, and redemption or repurchase (including coordination with
the Custodian) of Shares in accordance with the terms of the Prospectus and
applicable law. The operating standards and procedures to be followed shall be
determined from time to time by agreement between the Trust and the Transfer
Agent and shall initially be as described in Schedule C attached hereto. In
addition, the Trust shall deliver to the Transfer Agent all notices issued by
the Trust with respect to the Shares in accordance with and pursuant to the
Articles of Incorporation or By-laws of the Trust or as required by law and
shall perform such other specific duties as are set forth in the Articles of
Incorporation including the giving of notice of any special or annual meeting
of shareholders and any other notices required thereby.
9. Record Keeping and Other Information. The Transfer Agent
shall create and maintain all records required of it pursuant to its duties
hereunder and as set forth in Schedule C
-4-
<PAGE> 5
in accordance with all applicable laws, rules and regulations, including
records required by Section 31(a) of the 1940 Act. All records shall be
available during regular business hours for inspection and use by the Trust.
Where applicable, such records shall be maintained by the Transfer Agent and
its designee for the periods and in the places required by Rule 3la-2 under the
1940 Act.
Upon reasonable notice by the Trust, the Transfer Agent and
its designee shall make available during regular business hours such of its
facilities and premises employed in connection with the performance of its
duties under this Agreement for reasonable visitation by the Trust, or any
person retained by the Trust as may be necessary for the Trust to evaluate the
quality of the services performed by the Transfer Agent pursuant hereto.
10. Other Duties. In addition to the duties set forth in Schedule
C, the Transfer Agent shall perform such other duties and functions, and shall
be paid such amounts therefore, as may from time to time be agreed upon in
writing between the Trust and the Transfer Agent. The compensation for such
other duties and functions shall be reflected in a written amendment to
Schedule A or B and the duties and functions shall be reflected in an amendment
to Schedule C, both dated and signed by authorized persons of the parties
hereto.
11. Reliance by Transfer Agent; Instructions
(a) The Transfer Agent will have no liability when acting
upon Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written Instruction
thereof from the Trust pursuant to Section 4(b).
(b) At any time, the Transfer Agent may apply to any
Authorized Person of the Trust for Written Instructions and may seek advice
from legal counsel for the Trust, or its own legal counsel, with respect to any
matter arising in connection with this Agreement, and it shall not be liable
for any action taken or not taken or suffered by it in good faith in accordance
with such Written Instructions or in accordance with the opinion of counsel for
the Trust or for the Transfer Agent. Written Instructions requested by the
Transfer Agent will be provided by the Trust within a reasonable period of
time. In addition, the Transfer Agent, its officers, agents or employees,
shall accept Oral Instructions or Written Instructions given to them by any
person representing or acting on behalf of the Trust only if said
representative is an Authorized Person. The Trust agrees that all Oral
Instructions shall be followed within one business day by confirming Written
Instructions, and that the Trust's failure to so shall not impair in any
respect the Transfer Agent's right to rely on Oral Instructions. The Transfer
Agent shall have no duty or obligation to inquire into, nor shall the Transfer
Agent be responsible for, the legality of any act done by it upon the request
or direction of a person reasonably believed by the Transfer Agent to be an
Authorized Person.
(c) Notwithstanding any of the foregoing provisions of
this Agreement, the Transfer Agent shall be under no duty or obligation to
inquire into, and shall not be liable for: (i)
-5-
<PAGE> 6
the legality of the issuance or sale of any Shares or the sufficiency of the
amount to be received therefor; (ii) the legality of the redemption of any
Shares, or the propriety of the amount to be paid therefor; (iii) the legality
of the declaration of any dividend by the Board of Trustees, or the legality of
the issuance of any Shares in payment of any dividend; or (iv) the legality of
any recapitalization or readjustment of the Shares.
12. Acts of God, etc. The Transfer Agent win not be liable or
responsible for delays or errors by acts of God or by reason of circumstances
beyond its control, including acts of civil or military authority, national
emergencies, labor difficulties, mechanical breakdown, insurrection, war,
riots, or failure or unavailability of transportation, communication or power
supply, fire, flood or other catastrophe.
13. Duty of Care and Indemnification. The Trust will indemnify the
Transfer Agent against and hold it harmless from any and all losses, claims,
damages, liabilities or expenses of any sort or kind (including reasonable
counsel fees and expenses) resulting from any claim, demand, action or suit or
other proceeding (a "Claim") unless such Claim has been judicially determined
to have resulted from a negligent failure to act or omission to act or bad
faith of the Transfer Agent in the performance of its duties hereunder. In
addition, the Trust will indemnify the Transfer Agent against and hold it
harmless from any claim, damages, liabilities, or expenses (including
reasonable counsel fees) that is a result of: (i) any action taken in
accordance with Written or Oral Instructions, or any other instructions
reasonably believed by the Transfer Agent to be genuine and to be signed,
countersigned or executed, or orally communicated by an Authorized Person; (ii)
any action taken in accordance with written or oral advice reasonably believed
by the Transfer Agent to have been given by counsel for the Trust or its own
counsel; or (iii) any action taken as a result of any error or omission in any
record (including but not limited to magnetic tapes, computer printouts, hard
copies and microfilm copies) delivered, or caused to be delivered by the Trust
to the Transfer Agent in connection with this Agreement.
In any case in which the Trust may be asked to indemnify or
hold the Transfer Agent harmless, the Trust shall be advised of all pertinent
facts concerning the situation in question. The Transfer Agent will notify the
Trust promptly after identifying any situation which it believes presents or
appears likely to present a claim for indemnification against the Trust
although the failure to do so shall not prevent recovery by the Transfer Agent.
The Trust shall have the option to defend the Transfer Agent against any Claim
which may be the subject of this indemnification, and, in the event that the
Trust so elects, such defense shall be conducted by counsel chosen by the Trust
and satisfactory to the Transfer Agent, and thereupon the Trust shall take over
complete defense of the Claim and the Transfer Agent shall sustain no further
legal or other expenses in respect of such claim. The Transfer Agent will not
confess any Claim or make any compromise in any case in which the Trust will be
asked to provide indemnification, except with the Trust's prior written
consent. The obligations of the parties hereto under this Section shall
survive the termination of this Agreement.
14. Consequential Damages. In no event and under no circumstances
shall either party
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<PAGE> 7
under this Agreement be liable to the other party for consequential or indirect
loss of profits, reputation or business or any other special damages under any
provision of this Agreement or for any act or failure to act hereunder.
15. Term and Termination.
(a) This Agreement shall be effective on the date first
written above and shall continue for one year, and thereafter shall
automatically continue for successive annual periods ending on the anniversary
of the date first written above, provided that it may be terminated by either
party upon written notice given at least 90 days prior to such anniversary
date.
(b) In the event a termination notice is given by the
Trust, it shall be accompanied by a resolution of the Board of Trustees,
certified by the Secretary of the Trust, designating a successor transfer
agent. Upon such termination and at the expense of the Trust, the Transfer
Agent will deliver to such successor a certified list of shareholders of the
Trust (with names and addresses), and all other relevant books, records,
correspondence and other Trust records or data in the possession of the
Transfer Agent, and the Transfer Agent will cooperate with the Trust and any
successor transfer agent or agents in the substitution process.
16. Confidentiality. Both parties hereto agree that any non
public information obtained hereunder concerning the other party is
confidential and may not be disclosed to any other person without the consent
of the other party, except as may be required by applicable law or at the
request of the Commission or other governmental agency. The parties further
agree that a breach of this provision would irreparably damage the other party
and accordingly agree that each of them is entitled, without bond or other
security, to an injunction or injunctions to prevent breaches of this
provision.
17. Amendment. This Agreement may only be amended or modified by
a written instrument executed by both parties.
18. Subcontracting. The Trust agrees that the Transfer Agent may,
in its discretion, subcontract for certain of the services described under this
Agreement or the Schedules hereto; provided that the appointment of any such
Transfer Agent shall not relieve the Transfer Agent of its responsibilities
hereunder.
19. Miscellaneous.
(a) Notices. Any notice or other instrument authorized
or required by this Agreement to be given in writing to the Trust or the
Transfer Agent, shall be sufficiently given if addressed to that party and
received by it at its office set forth below or at such other place as it may
from time to time designate in writing.
-7-
<PAGE> 8
To the Trust:
GW Sierra Trust
888 South Figueroa Street, Suite 1100
Los Angeles, CA 90017
Attention F. Brian Cerini, President
with a copy to: Richard W. Grant, Esq.
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103-6993
Lawrence J. Sheehan, Esq.
O' Melveney & Myers
400 South Hope Street
Los Angeles, CA 90071
To the Transfer Agent:
Great Western Financial Fund Administration
888 South Figueroa Street, Suite 1100
Los Angeles, CA 90017
(b) Successors. This Agreement shall extend to and shall
be binding upon the parties hereto, and their respective successors and
assigns, provided, however, that this Agreement shall not be assigned to any
person other than a person controlling, controlled by or under common control
with the assignor without the written consent of the other party, which consent
shall not be unreasonably withheld.
(c) Governing Law. This Agreement shall be governed
exclusively by the laws of the State of California.
(d) Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original; but
such counterparts shall, together, constitute only one instrument.
(e) Captions. The captions of this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
(f) Independent Contractors. The parties agree that they
are independent
-8-
<PAGE> 9
contractors and not partners or co-venturers.
(g) Entire Agreement; Severability. This Agreement and
the Schedules attached hereto constitute the entire agreement of the parties
hereto relating to the matters covered hereby and supersede any previous
agreements. If any provision is held to be illegal, unenforceable or invalid
for any reason, the remaining provisions shall not be affected or impaired
thereby.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their duly authorized officers, as of the day
and year first above written.
GW SIERRA FUNDS
By /s/ F. Brian Cerini
-------------------------------------
Title Chairman
-----------------------------------
GW FINANCIAL FUND ADMINISTRATION
By /s/ Tai-Chin Tung
--------------------------------------
Title Chief Operating Officer
-----------------------------------
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<PAGE> 10
SCHEDULE A
TRANSFER AGENT FEE
The Trust shall pay the Transfer Agent a fee set forth in The
Administration Agreement. Such fee shall be billed by the Transfer Agent
monthly in arrears.
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<PAGE> 11
SCHEDULE B
OUT-OF-POCKET EXPENSES
The Trust shall reimburse the Transfer Agent monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks, and
stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct
pass through to the Trust
- Due diligence mailings
- Telephone and telecommunication costs, including all lease,
maintenance and line costs
- Ad hoc reports
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified, and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other equipment and
any expenses incurred in connection with such terminals and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Overtime, as approved by the Trust
- Temporary staff, as approved by the Trust
- Record retention, retrieval, and destruction costs, including, but
not limited to, exit fees charged by third party record keeping
vendors
- All Systems enhancements
- Such other miscellaneous expenses reasonably incurred by the
Transfer Agent in performing its duties and responsibilities under
this Agreement.
The Trust agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with the Transfer Agent. In addition, the
Trust will promptly reimburse the Transfer Agent for any other unscheduled
expenses incurred by the Transfer Agent whenever the Trust and the Transfer
Agent mutually agree that such expenses are not otherwise properly borne by the
Transfer Agent as part of its duties and obligations under the Agreement.
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<PAGE> 12
SCHEDULE C
DUTIES OF THE TRANSFER AGENT OR ITS SERVICE AGENT
1. Shareholder Information. GW Administration shall maintain a record of
the number of shares of the Trust ("Shares") held by each holder of record
("Shareholders") which shall include name, address, taxpayer identification and
which shall indicate whether such Shares are hold in certificates or
uncertificated form.
2. Shareholder Services. GW Administration will investigate all
inquiries from Shareholders relating to Shareholder accounts and will respond
to all communications from Shareholders and others relating to its duties
hereunder and such other correspondence as may from time to time be mutually
agreed upon between GW Administration and its Service Agent.
3. Shares. GW Administration shall also maintain a record of each share
issued, the number of Shares represented thereby and the holder of record.
With respect to Shares held in open accounts, GW Administration shall maintain
comparable records of the record holders thereof, including their names,
addresses and taxpayer identification.
4. Returned Checks. In the event that any checks or other order for the
payment of money is returned unpaid for any reason, GW Administration will:
(i) give prompt notice of such return; (ii) place a stop transfer order against
all Shares issued as a result of such check or order; and (iii) take such
actions as GW Administration may from time to time deem appropriate.
5. Processing. GW Administration shall process all requests to purchase,
exchange, transfer or redress Shares in accordance with the procedures set
forth in the Trust's Prospectus and maintain daily the following information
with respect to each Shareholder account as received;
- Name and Address (Zip Code)
- Taxpayer Identification Number
- Balance of Shares hold by Agent
- Beneficial owner code: i.e., male, female, joint tenant, etc.
- Dividend code (reinvestment)
6. Miscellaneous Duties of GW Administration
A. Daily Activities
- Answer written inquiries relating to Shareholder accounts
(matters relating to portfolio management, distribution of
Shares and other management policy questions will be referred
to the Trust).
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<PAGE> 13
- Upon receipt of proper instructions and all required
documentation, process requests for repurchase of Shares.
- Identify redemption requests made with respect to accounts in
which Shares have been purchased within an agreed-upon period
of time for determining whether good funds have been collected
with respect to such purchase and process.
- Examine and process all transfers of Shares, ensuring that all
transfer requirements and legal documents have been supplied.
- Issue and mail replacement checks.
- Open new accounts and maintain records of exchanges between
accounts.
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<PAGE> 1
Exhibit (9)(o)
FORM OF
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 1st day of May, 1996 between Sierra
Trust Funds, Sierra Prime Income Fund, Sierra Asset Management Portfolios, each
a Massachusetts business trust having its principal place of business at 9301
Corbin Avenue, Northridge, California 91324 and FIRST DATA INVESTOR SERVICES
GROUP, INC. ("FDISG"), a Massachusetts corporation with principal offices at
4400 Computer Drive, Westboro, Massachusetts 01581.
WITNESSETH
WHEREAS, Sierra Trust Funds and Sierra Asset Management Portfolios
(the "Series Funds") are authorized to issue Shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets;
WHEREAS, the Series Funds initially intend to offer shares in those
Portfolios identified in the attached Exhibit 1, each such Portfolio, together
with all other Portfolios subsequently established by the Series Funds shall be
subject to this Agreement in accordance with Article 14;
WHEREAS, the Funds desire to appoint FDISG as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities
and FDISG desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Funds and FDISG agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time;
(b) "Authorized Person" shall be deemed to include (i)
any authorized officer of the applicable Fund, or (ii) any person,
whether or not such person is an officer or employee of such Fund,
duly authorized to give Oral Instructions or Written Instructions on
behalf of such Fund as indicated in writing to FDISG from time to
time;
1
<PAGE> 2
(c) "Board of Directors" shall mean the Board of Directors
or Board of Trustees of each Fund, as the case may be;
(d) "Commission" shall mean the Securities and Exchange
Commission;
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement;
(f) "Funds" shall mean Sierra Trust Funds on behalf of its
Portfolios, Sierra Prime Income Fund and Sierra Asset Management
Portfolios on behalf of its Portfolios;
(g) "1934 Act" shall mean the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder, all as amended from time to
time;
(h) "1940 Act" shall mean the Investment Company Act of 1940 and
the rules and regulations promulgated thereunder, all as amended from time to
time;
(i) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by FDISG from a person reasonably
believed by FDISG to be an Authorized Person;
(j) "Portfolio" shall mean each separate series of shares offered
by the Series Funds representing interest in a separate portfolio of securities
and other assets;
(k) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any supplements
thereto if any, which has become effective under the Securities Act of 1933 and
the 1940 Act;
(l) "Series Funds" refers collectively to Sierra Trust Funds and
Sierra Asset Management Portfolios;
(m) "Shares" refers collectively to such shares of capital stock
or beneficial interest, as the case may be, or class thereof, of the Funds as
may be issued from time to time;
(n) "Shareholder" shall mean a record owner of Shares;
(o) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by FDISG to be an Authorized Person and
actually received by FDISG. Written Instructions shall include manually
executed originals and authorized electronic transmissions, including
telefacsimile of a manually executed original or other process.
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Article 2 Appointment of FDISG.
The Funds hereby appoint and constitute FDISG as transfer agent and
dividend disbursing agent for Shares and as shareholder servicing agent for the
Funds and FDISG hereby accepts such appointments and agrees to perform the
duties hereinafter set forth.
Article 3 Duties of FDISG.
3.1 FDISG shall be responsible for:
(a) Administering and/or performing the customary
services of a transfer agent; acting as service agent in connection
with dividend and distribution functions; and for performing
shareholder account and administrative agent functions in connection
with the issuance, transfer and redemption or repurchase (including
coordination with the Custodian) of Shares, as more fully described in
the written schedule of Duties of FDISG annexed hereto as Schedule A
and incorporated herein, and in accordance with the terms of the
Prospectus' of the Funds, applicable law and the procedures
established from time to time between FDISG and the Funds.
(b) Recording the issuance of Shares and maintaining
pursuant to Rule 17Ad-10(e) of the 1934 Act a record of the total
number of Shares which are authorized, based upon data provided to it
by the Funds, and issued and outstanding. FDISG shall provide the
Funds on a regular basis with the total number of Shares which are
authorized and issued and outstanding and shall have no obligation,
when recording the issuance of Shares, to monitor the issuance of such
Shares or to take cognizance of any laws relating to the issue or sale
of such Shares, which functions shall be the sole responsibility of
the Fund.
(c) Notwithstanding any of the foregoing provisions of
this Agreement, FDISG shall be under no duty or obligation to inquire
into, and shall not be liable for: (i) the legality of the issuance or
sale of any Shares or the sufficiency of the amount to be received
therefor; (ii) the legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor; (iii) the legality of the
declaration of any dividend by the Board of Directors, or the legality
of the issuance of any Shares in payment of any dividend; or (iv) the
legality of any recapitalization or readjustment of the Shares.
3.2 In addition, the Funds shall (i) identify to FDISG in writing
those transactions and assets to be treated as exempt from blue sky reporting
for each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily
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activity for each State. The responsibility of FDISG for the Funds' blue sky
State registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Funds and the reporting of
such transactions to the Funds as provided above.
3.3 In addition to the duties set forth herein, FDISG shall
perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the Funds
and FDISG.
3.4 FDISG agrees to provide the services described herein in
accordance with the Performance Standards annexed hereto as Exhibit 1 of
Schedule A and incorporated herein (the "Performance Standards"). Such
Performance Standards may be amended from time to time upon written agreement
by the parties.
Article 4 Recordkeeping and Other Information.
4.1 FDISG shall create and maintain all records required of it
pursuant to its duties hereunder and as set forth in Schedule A in accordance
with all applicable laws, rules and regulations, including records required by
Section 31(a) of the 1940 Act. Where applicable, such records shall be
maintained by FDISG for the periods and in the places required by Rule 31a-2
under the 1940 Act.
4.2 To the extent required by Section 31 of the 1940 Act, FDISG
agrees that all such records prepared or maintained by FDISG relating to the
services to be performed by FDISG hereunder are the property of each respective
Fund and will be preserved, maintained and made available in accordance with
such section, and will be surrendered promptly to such Fund on and in
accordance with such Funds' request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of a Fund, FDISG will endeavor to notify the respective Fund
of such request and secure Written Instructions as to the handling of such
request. FDISG reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to comply with such request.
Article 5 Fund Instructions.
5.1 FDISG will have no liability when acting upon Written or Oral
Instructions believed to have been executed or orally communicated by an
Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from the
Funds.
5.2 At any time, FDISG may request Written Instructions from the
Funds and may seek advice from legal counsel for the Funds, or its own legal
counsel, with respect to any matter arising
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in connection with this Agreement, and it shall not be liable for any action
taken or not taken or suffered by it in good faith in accordance with such
Written Instructions or in accordance with the opinion of counsel for the Funds
or for FDISG. Written Instructions requested by FDISG will be provided by the
Fund within a reasonable period of time.
5.3 FDISG, its officers, agents or employees, shall accept Oral
Instructions or Written Instructions given to them by any person representing
or acting on behalf of the Funds only if said representative is an Authorized
Person. The Funds agree that all Oral Instructions shall be followed within
one business day by confirming Written Instructions, and that the Funds'
failure to so confirm shall not impair in any respect FDISG's right to rely on
Oral Instructions.
Article 6 Compensation.
6.1 (a) Sierra Trust Funds has arranged for its administrator,
Sierra Fund Administration to compensate FDISG for the performance of
the services provided to the Sierra Trust Funds portfolios hereunder
in accordance with the fees set forth in the written Fee Schedule
annexed hereto as Schedule B and incorporated herein. Notwithstanding
the foregoing the parties acknowledge that the Sierra Trust Funds on
behalf of each of its Portfolios will remain responsible for the
payment of such compensation in the event Sierra Fund Administration
fails to make such payments.
(b) The Sierra Prime Income Fund will compensate FDISG
for the performance of the services provided to the Sierra Prime
Income Fund hereunder in accordance with the fees set forth in
Schedule B.
(c) The Sierra Asset Management Portfolios on behalf of
its Portfolios will compensate FDISG for the performance of the
services provided to such Portfolios hereunder in accordance with the
fees set forth in Schedule B.
6.2 (a) In the event that FDISG has failed to meet a specific
Performance Standard category, as set forth on Exhibit 1 of Schedule
A, in two of any rolling three month periods, the Funds may reduce the
total amount of fees due to FDISG under this Agreement, excluding
out-of-pocket expenses, by an amount equal to five percent (5%) of the
fees for the third month. Notwithstanding the foregoing, the Fund's
rights under this Section 6.2, shall not become effective until August
1, 1996 with respect to the Print Mail and Shareholder Services
Performance Standards and October 1, 1996 with respect to Transaction
Processing (Financials and Non-Financials) Performance Standards.
(b) For purposes of the fee reduction set forth in
Section 6.2(a) above, FDISG's obligation to meet the Performance
Standards shall be measured in the aggregate with respect to all of
the Funds.
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6.3 In addition to those fees set forth in Section 6.1 above, the
Funds agree to pay, and will be billed separately for, out-of-pocket expenses
incurred by FDISG in the performance of its duties hereunder. Out-of-pocket
expenses shall include, but shall not be limited to, the items specified in the
written schedule of out-of-pocket charges annexed hereto as Schedule C and
incorporated herein. Schedule C may be modified by written agreement between
the parties. Unspecified out-of-pocket expenses shall be limited to those
out-of-pocket expenses reasonably incurred by FDISG in the performance of its
obligations hereunder.
6.4 The Funds agree that all fees and out-of-pocket expenses shall
be paid within fifteen (15) days following the receipt of the respective
invoice.
6.5 Any compensation agreed to hereunder may be adjusted from time
to time by attaching to Schedule B, a revised Fee Schedule executed and dated
by the parties hereto.
6.6 The Funds acknowledge that the fees that FDISG charges the
Funds under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in Section 9.3 and the limitations on
liability and exclusion of remedies in Section 11.2 and Article 12. Modifying
the allocation of risk from what is stated here would affect the fees that
FDISG charges, and in consideration of those fees, the Funds agree to the
stated allocation of risk.
Article 7 Documents.
In connection with the appointment of FDISG, the Funds shall, on or
before the date this Agreement goes into effect, but in any case within a
reasonable period of time for FDISG to prepare to perform its duties hereunder,
each deliver or caused to be delivered to FDISG the documents set forth in the
written schedule of Fund Documents annexed hereto as Schedule D.
Article 8 Transfer Agent System.
8.1 FDISG shall retain title to and ownership of any and all data
bases, computer programs, screen formats, report formats, interactive design
techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by FDISG in connection with the
services provided by FDISG to the Funds herein (the "FDISG System").
8.2 FDISG hereby grants to the Funds a limited license to the
FDISG System for the sole and limited purpose of having FDISG provide the
services contemplated hereunder and nothing contained in this Agreement shall
be construed or interpreted otherwise and such license shall immediately
terminate with the termination of this Agreement.
8.3 FDISG agrees to maintain a dedicated transmission link to the
Funds' broker-dealer system in order to allow for automated entry of
transactions and new accounts initiated by Great
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Western Financial Securities into the Funds.
8.4 FDISG agrees to enhance its propriatary image system (IMPRESS)
in order to support financial transactions by December 31, 1996.
Article 9 Representations and Warranties.
9.1 FDISG represents and warrants to the Funds that:
(a) it is a corporation duly organized, existing and in
good standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its
Articles of Incorporation and By-Laws to enter into and perform this
Agreement;
(c) all requisite corporate proceedings have been taken
to authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement; and
(e) it has and will continue to have access to the
necessary facilities, equipment and personnel to perform its duties
and obligations under this Agreement.
9.2 Each Fund represents and warrants to FDISG that:
(a) it is duly organized, existing and in good standing
under the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its
Article of Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles
of Incorporation, By-Laws and applicable laws have been taken to
authorize it to enter into this Agreement;
(d) a registration statement under the Securities Act of
1933, as amended, and the 1940 Act on behalf of each of the
Portfolios, with respect to the Series Funds, is currently effective
and will remain effective, and all appropriate state securities law
filings have been made and will continue to be made, with respect to
all Shares of the Funds being offered for sale; and
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(e) all outstanding Shares are validly issued, fully paid
and non-assessable and when Shares are hereafter issued in accordance
with the terms of the Fund's Articles of Incorporation and its
Prospectus with respect to each Portfolio for the Series Funds, such
Shares shall be validly issued, fully paid and non-assessable.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN
THIS AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, MADE TO THE FUNDS OR ANY OTHER PERSON, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY, MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF ANY COURSE OF
DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS PROVIDED
INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. FDISG DISCLAIMS ANY
WARRANTY OF TITLE OR NON-INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS
AGREEMENT.
Article 10 Indemnification.
10.1 FDISG shall not be responsible for and each Fund shall
separately indemnify and hold FDISG harmless from and against any and all
claims, costs, expenses (including reasonable attorneys' fees), losses,
damages, charges, payments and liabilities of any sort or kind which may be
asserted against FDISG or for which FDISG may be held to be liable (a "Claim")
arising out of or attributable to any of the following:
(a) any actions of FDISG required to be taken pursuant to
this Agreement unless such Claim resulted from a negligent act or
omission to act or bad faith by FDISG in the performance of its duties
hereunder, with respect to such Fund;
(b) FDISG's reasonable reliance on, or reasonable use of
information, data, records and documents (including but not limited to
magnetic tapes, computer printouts, hard copies and microfilm copies)
received by FDISG from such Fund, or any authorized third party acting
on behalf of such Fund, including but not limited the prior transfer
agent for such Fund, in the performance of FDISG's duties and
obligations hereunder, with respect to such Fund;
(c) the reliance on, or the implementation of, any
Written or Oral Instructions or any other instructions or requests of
such Fund;
(d) the offer or sale of shares in violation of any
requirement under the securities laws or regulations of any state that
such shares be registered in such state or in violation of any stop
order or other determination or ruling by any state with respect to
the offer or sale of such shares in such state, with respect to such
Fund; and
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(e) such Fund's refusal or failure to comply with the
terms of this Agreement, or any Claim which arises out of such Fund's
negligence or misconduct or the breach of any representation or
warranty of such Fund made herein.
10.2 In any case in which a Fund may be asked to indemnify or hold
FDISG harmless, FDISG will notify such Fund promptly after identifying any
situation which it believes presents or appears likely to present a claim for
indemnification against such Fund although the failure to do so shall not
prevent recovery by FDISG and shall keep such Fund advised with respect to all
developments concerning such situation. The applicable Fund shall have the
option to defend FDISG against any Claim which may be the subject of this
indemnification, and, in the event that such Fund so elect, such defense shall
be conducted by counsel chosen by such Fund and satisfactory to FDISG, and
thereupon such Fund shall take over complete defense of the Claim and FDISG
shall sustain no further legal or other expenses in respect of such Claim.
FDISG will not confess any Claim or make any compromise in any case in which
such Fund will be asked to provide indemnification, except with such Fund's
prior written consent. The obligations of the parties hereto under this Article
10 shall survive the termination of this Agreement.
10.3 Any claim for indemnification under this Agreement must be
made prior to the earlier of:
(a) one year after the applicable Fund becomes aware of
the event for which indemnification is claimed; or
(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
10.4 Except for remedies that cannot be waived as a matter of law
(and injunctive or provisional relief), the provisions of this Article 10 shall
be FDISG's sole and exclusive remedy for claims or other actions or proceedings
to which the Funds' indemnification obligations pursuant to this Article 10 may
apply.
Article 11 Standard of Care.
11.1 FDISG shall at all times act in good faith and agrees to use
its best efforts within commercially reasonable limits to ensure the accuracy
of all services performed under this Agreement, but assumes no responsibility
for loss or damage to the Funds unless said errors are caused by FDISG's own
negligence, bad faith or willful misconduct or that of its employees.
11.2 Notwithstanding any provision in this Agreement to the
contrary and except for the gross negligence or willful misconduct of FDISG,
FDISG's cumulative liability (to the Funds) for all losses, claims, suits,
controversies, breaches, or damages for any cause whatsoever (including but not
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limited to those arising out of or related to this Agreement) and regardless of
the form of action or legal theory shall not exceed (i) four million dollars
($4,000,000) or (ii) the fees received by FDISG for services provided under
this Agreement during the twelve months immediately prior to the date of such
loss or damage. The Funds understand the limitation on FDISG's damages to be a
reasonable allocation of risk and the Funds expressly consent with respect to
such allocation of risk. In allocating risk under the Agreement, the parties
agree that the damage limitation set forth above shall apply to any alternative
remedy ordered by a court in the event such court determines that sole and
exclusive remedy provided for in the Agreement fails of its essential purpose.
11.3 Neither party may assert any cause of action against the other
party under this Agreement that accrued more than two (2) years prior to the
filing of the suit (or commencement of arbitration proceedings) alleging such
cause of action.
11.4 Each party shall have the duty to mitigate damages for which
the other party may become responsible.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO
EVENT SHALL FDISG, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF TORT,
CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST PROFITS,
EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES,
EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF
WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
13.1 This Agreement shall be effective on the date first written
above and shall continue for a period of five (5) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of three (3) years ("Renewal Terms")
each, unless the Funds or FDISG provide written notice to the other of its
intent not to renew. Such notice must be received not less than ninety (90)
days and not more than one-hundred eighty (180) days prior to the expiration of
the Initial Term or the then current Renewal Term.
13.3 In the event a termination notice is given by the Funds, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Funds, provided,
however, FDISG shall use its best efforts to mitigate the costs associated
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with such conversion.
13.4 If a party hereto is guilty of a material failure to perform
its duties and obligations hereunder (a "Defaulting Party") the other party
(the "Non-Defaulting Party") may give written notice thereof to the Defaulting
Party, and if such material breach shall not have been remedied within thirty
(30) days after such written notice is given, then the Non-Defaulting Party may
terminate this Agreement by giving thirty (30) days written notice of such
termination to the Defaulting Party. If FDISG is the Non-Defaulting Party, its
termination of this Agreement shall not constitute a waiver of any other rights
or remedies of FDISG with respect to services performed prior to such
termination or rights of FDISG to be reimbursed for out-of-pocket expenses. In
all cases, termination by the Non-Defaulting Party shall not constitute a
waiver by the Non-Defaulting Party of any other rights it might have under this
Agreement or otherwise against the Defaulting Party.
13.5 (a) In the event that FDISG has failed to meet a specific
performance standard category, as set forth in Exhibit 1 of Schedule
A, with respect to in four of any rolling six month periods, the Funds
may terminate this Agreement. The Funds will provide FDISG with sixty
(60) days notice in writing if the Funds intend to exercise its option
under this Section 13.5. Notwithstanding the foregoing, the Funds'
rights under this Section 13.2, shall not become effective until
August 1, 1996 with respect to the Print Mail and Shareholder Services
Performance Standards and October 1, 1996 with respect to Transaction
Processing (Financials and Non-Financials) Performance Standards.
(b) For purposes of the Funds' option to terminate this
Agreement under Section 13.5(a) above, FDISG's obligation to meet the
Performance Standards shall be measured in the aggregate with respect
to all of the Funds.
Article 14 Additional Portfolios.
In the event that either Series Fund establishes one or more
Portfolios in addition to those identified in Exhibit 1, with respect to which
the Series Fund desires to have FDISG render services as transfer agent under
the terms hereof, the Series Fund shall so notify FDISG in writing, and Exhibit
1 shall be amended to include such additional Portfolios.
Article 15 Confidentiality.
15.1 The parties agree that the Proprietary Information (defined
below) and the contents of this Agreement (collectively "Confidential
Information") are confidential information of the parties and their respective
licensors. The Funds and FDISG shall exercise at least the same degree of
care, but not less than reasonable care, to safeguard the confidentiality of
the Confidential Information of the other as it would exercise to protect it's
own confidential information of a similar nature. The Funds and FDISG may use
the Confidential Information only to exercise its rights under this
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Agreement. The Funds and FDISG shall not duplicate, sell or disclose to others
the Confidential Information of the other, in whole or in part, without the
prior written permission of the other party. The Funds and FDISG may, however,
disclose Confidential Information to its employees who have a need to know the
Confidential Information to perform work for the other, provided that each
shall use reasonable efforts to ensure that the Confidential Information is not
duplicated or disclosed by its employees in breach of this Agreement. The
Funds and FDISG may also disclose the Confidential Information to independent
contractors, auditors, and professional advisors, provided they first agree in
writing to be bound by the confidentiality obligations substantially similar to
this Section 15.1. Notwithstanding the previous sentence, in no event shall
either the Funds or FDISG disclose the Confidential Information to any
competitor of the other without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively
sensitive material, and not generally known to the public, including,
but not limited to, information about product plans, marketing
strategies, finance, operations, customer relationships, customer
profiles, sales estimates, business plans, and internal performance
results relating to the past, present or future business activities of
the Funds or FDISG, their respective subsidiaries and affiliated
companies and the customers, clients and suppliers of any of them;
(b) any scientific or technical information, design,
process, procedure, formula, or improvement that is commercially
valuable and secret in the sense that its confidentiality affords the
Funds or FDISG a competitive advantage over its competitors; and
(c) all confidential or proprietary concepts,
documentation, reports, data, specifications, computer software,
source code, object code, flow charts, databases, inventions,
know-how, show-how and trade secrets, whether or not patentable or
copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes
and models, and any other tangible manifestation of the foregoing of either
party which now exist or come into the control or possession of the other.
Article 16 Force Majeure.
No party shall be liable for any default or delay in the performance
of its obligations under this Agreement if and to the extent such default or
delay is caused, directly or indirectly, by (i) fire, flood, elements of nature
or other acts of God; (ii) any outbreak or escalation of hostilities, war,
riots or civil disorders in any country; (iii) any act or omission of the other
party or any governmental authority; (iv) any labor disputes (whether or not the
employees' demands are reasonable or within the party's power to satisfy); or
(v) nonperformance by a third party or any similar cause beyond the reasonable
control of such party, including without limitation, failures or fluctuations
in telecommunications or
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other equipment. In any such event, the non-performing party shall be excused
from any further performance and observance of the obligations so affected only
for as long as such circumstances prevail and such party continues to use
commercially reasonable efforts to recommence performance or observance as soon
as practicable.
Article 17 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that
FDISG may, in its sole discretion, assign all its right, title and interest in
this Agreement to an affiliate, parent or subsidiary, or to the purchaser of
substantially all of its business, FDISG may, in its sole discretion, engage
subcontractors to perform any of the obligations contained in this Agreement to
be performed by FDISG.
Article 18 Arbitration.
18.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by
the American Arbitration Association in Boston, Massachusetts in accordance
with its applicable rules, except that the Federal Rules of Evidence and the
Federal Rules of Civil Procedure with respect to the discovery process shall
apply.
18.2 The parties hereby agree that judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 18.
Article 19 Notice,
Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Funds or FDISG, shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Funds:
Sierra Trust Funds,
Sierra Prime Income Fund, or
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Sierra Asset Management Portfolios (as the case may be)
9301 Corbin Avenue
Northridge, California 91324
Attention:
To FDISG:
First Data Investor Services Group, Inc
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to FDISG's General Counsel
Article 20 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement
of this agreement. All actions arising from or related to this Agreement shall
be brought in the state and federal courts sitting in the City of Boston, and
FDISG and Client hereby submit themselves to the exclusive jurisdiction of
those courts.
Article 21 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 22 Captions.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 23 Publicity.
Neither FDISG nor the Funds shall release or publish news releases,
public announcements, advertising or other publicity relating to this Agreement
or to the transactions contemplated by it without the prior review and written
approval of the other party; provided, however, that either party may make
such disclosures as are required by legal, accounting or regulatory
requirements after making reasonable efforts in the circumstances to consult in
advance with the other party.
Article 24 Relationship of Parties/Non-Solicitation.
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24.1 The parties agree that they are independent contractors and
not partners or co-venturers and nothing contained herein shall be interpreted
or construed otherwise.
24.2 During the term of this Agreement and for one (1) year
afterward, the Funds shall not recruit, solicit, employ or engage, for the
Funds or others, FDISG's employees.
Article 25 Entire Agreement; Severability.
25.1 This Agreement, including Schedules, Addenda, and Exhibits
hereto, constitutes the entire Agreement between the parties with respect to the
subject matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such writing shall be
effective as against FDISG unless said writing is executed by a Senior Vice
President, Executive Vice President, or President of FDISG. A party's waiver
of a breach of any term or condition in the Agreement shall not be deemed a
waiver of any subsequent breach of the same or another term or condition.
25.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such
case, the parties shall in good faith modify or substitute such provision
consistent with the original intent of the parties. Without limiting the
generality of this paragraph, if a court determines that any remedy stated in
this Agreement has failed of its essential purpose, then all other provisions
of this Agreement, including the limitations on liability and exclusion of
damages, shall remain fully effective.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers, as of the day and year first
above written.
SIERRA TRUST FUNDS
By:
Title:
SIERRA PRIME INCOME FUND
By:
Title:
SIERRA ASSET MANAGEMENT PORTFOLIOS
By:
Title:
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
Title:
16
<PAGE> 17
Exhibit I
LIST OF PORTFOLIOS
Sierra Trust Funds
US Government Money Fund
California Money Fund
Global Money Fund
US Government Fund
California Municipal Fund
Growth and Income Fund
Corporate Income Fund
National Municipal Fund
Emerging Growth Fund
International Growth Fund
Short Term Global Government Fund
Growth Fund
Florida Insured Municipal Fund
Short Term High Quality Bond Fund
California Insured intermediate Municipal Fund
Target Maturity 2000 Fund
Sierra Asset Management Portfolios
Capital Growth Portfolio
Growth Portfolio
Balanced Portfolio
Value Portfolio
Income Portfolio
17
<PAGE> 18
Schedule A
DUTIES OF FDISG
1. Shareholder Information. FDISG shall maintain a record of the
number of Shares held by each Shareholder of record which shall include name,
address, taxpayer identification and which shall indicate whether such Shares
are held in certificates or uncertificated form.
2. Shareholder Services. FDISG shall respond as appropriate to
all inquiries and communications from Shareholders relating to Shareholder
accounts with respect to its duties hereunder and as may be from time to time
mutually agreed upon between FDISG and the Funds.
3. Mailing Communications to Shareholders; Proxy Materials.
FDISG will address and mail to Shareholders of the Funds, all reports to
Shareholders, dividend and distribution notices and proxy material for the
Funds' meetings of Shareholders. In connection with meetings of Shareholders,
FDISG will prepare Shareholder lists, mail and certify as to the mailing of
proxy materials, process and tabulate returned proxy cards, report on proxies
voted prior to meetings, act as inspector of election at meetings and certify
Shares voted at meetings.
4. Sales of Shares
(a) FDISG shall not be required to issue any Shares of
the Funds where it has received a Written Instruction from the Funds or
official notice from any appropriate authority that the sale of the Shares of
the Funds has been suspended or discontinued. The existence of such Written
Instructions or such official notice shall be conclusive evidence of the right
of FDISG to rely on such Written Instructions or official notice.
(b) In the event that any check or other order for the
payment of money is returned unpaid for any reason, FDISG will endeavor to: (i)
give prompt notice of such return to the Funds or its designee; (ii) place a
stop transfer order against all Shares issued as a result of such check or
order; and (iii) take such actions as FDISG may from time to time deem
appropriate.
5. Transfer and Repurchase
(a) FDISG shall process all requests to transfer or
redeem Shares in accordance with the transfer or repurchase procedures set
forth in the Fund's Prospectus.
(b) FDISG will transfer or repurchase Shares upon receipt
of Oral or Written Instructions or otherwise pursuant to the Prospectus and
Share certificates, if any, properly endorsed for transfer or redemption,
accompanied by such documents as FDISG reasonably may deem necessary.
18
<PAGE> 19
(c) FDISG reserves the right to refuse to transfer or
repurchase Shares until it is satisfied that the endorsement on the instructions
is valid and genuine. FDISG also reserves the right to refuse to transfer or
repurchase Shares until it is satisfied that the requested transfer or
repurchase is legally authorized, and it shall incur no liability for the
refusal, in good faith, to make transfers or repurchases which FDISG, in its
good judgement, deems improper or unauthorized, or until it is reasonably
satisfied that there is no basis to any claims adverse to such transfer or
repurchase.
(d) When Shares are redeemed, FDISG shall, upon receipt
of the instructions and documents in proper form, deliver to the Custodian and
the Fund or its designee a notification setting forth the number of Shares to
be repurchased. Such repurchased shares shall be reflected on appropriate
accounts maintained by FDISG reflecting outstanding Shares of the Funds and
Shares attributed to individual accounts.
(e) FDISG, upon receipt of the monies provided to it by
the Custodian for the repurchase of Shares, pay such monies as are received
from the Custodian, all in accordance with the procedures described in the
written instruction received by FDISG from the Funds.
(f) FDISG shall not process or effect any repurchase with
respect to Shares of the Funds after receipt by FDISG or its agent of
notification of the suspension of the determination of the net asset value of
the Funds.
6. Dividends
(a) Upon the declaration of each dividend and each capital
gains distribution by the Board of Directors of the Funds with respect to Shares
of the Funds, the Funds shall furnish or cause to be furnished to FDISG Written
Instructions setting forth the date of the declaration of such dividend or
distribution, the ex-dividend date, the date of payment thereof, the record date
as of which Shareholders entitled to payment shall be determined, the amount
payable per Share to the Shareholders of record as of that date, the total
amount payable on the payment date and whether such dividend or distribution is
to be paid in Shares at net asset value.
(b) On or before the payment date specified in such
resolution of the Board of Directors, the Funds will provide FDISG with
sufficient cash to make payment to the Shareholders of record as of such
payment date.
(c) If FDISG does not receive sufficient cash from the
Funds to make total dividend and/or distribution payments to all Shareholders
of the Funds as of the record date, FDISG will, upon notifying the Funds,
withhold payment to all Shareholders of record as of the record date until
sufficient cash is provided to FDISG.
7. In addition to and neither in lieu nor in contravention of the
services set forth above,
19
<PAGE> 20
FDISG shall perform all the customary services of a transfer agent, registrar,
dividend disbursing agent and agent of the dividend reinvestment and cash
purchase plan as described herein consistent with those requirements in effect
as at the date of this Agreement. The detailed definition, frequency,
limitations and associated costs (if any) set out in the attached fee schedule,
include but are not limited to: maintaining all Shareholder amounts, preparing
Shareholder meeting lists, mailing proxies, tabulating proxies, mailing
Shareholder reports to current Shareholders, withholding taxes on U.S. resident
and non-resident alien accounts where applicable, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms required with
respect to dividends and distributions by federal authorities for all
Shareholders.
20
<PAGE> 21
Exhibit 1 of Schedule A
Performance Standards
FDISG's obligation to meet the following Performance Standards shall be
measured in the aggregate with respect to all Funds.
First Data will report to Sierra on a monthly basis the percent of items
completed within standard as well as a quality rating. Reporting will be
detailed to the transaction type level. A pass/fail determination for
contractual penalties will however be based on the categories listed below. For
example, the accuracy of purchases, redemptions, exchanges and adjustments will
be reported to Sierra on an individual basis and as a collective group. First
Data will receive a "fail" for the month if the collective score for all
financials falls below the contractual level. Note that completion standards
are measured in business days.
<TABLE>
<CAPTION>
CATEGORY COMPONENTS (TO BE REPORTED INDIVIDUALLY)
- -------- ----------------------------------------
<S> <C>
Financials Purchases, Redemptions, Exchanges, Adjustments (both
financial and non-financial adjustments)
Minimum Acceptable Quality Score: 99%
Non-Financials Maintenance (including address changes, option
changes, ROA/LOI), Legal Transfers, New Accounts
Minimum Acceptable Quality Score: 98%
Print Mail Statements, Confirms, Checks
Minimum Acceptable Quality Score: 98%
Shareholder Service Telephones, Correspondence
Minimum Acceptable Quality Score: 98%
</TABLE>
COMPLETION STANDARDS
TRANSACTION PROCESSING
A. Complete on day of receipt:
- Purchases, redemptions, exchanges, financial adjustments, new
accounts
B. Complete within three days of receipt:
- Non-financial adjustments, legal transfers
21
<PAGE> 22
C. Complete within 5 days of receipt
- Maintenance
PRINT MAIL *
A. Mailed on day of receipt
- Shareholder Checks
B. Mailed within one day of receipt
- Confirms
C. Mailed within five business days following the end of the reporting
period
- Statements, Commission Checks
* Note that Print Mail performance standards will be in effect only
for those mailings where services are provided by FDISG.
SHAREHOLDER SERVICES
A. Telephone calls abandoned no greater than 2% of calls received
(excluding calls that abandon in less than 20 seconds)
B. Financial Correspondence mailed within two days of receipt
C. Non-financial Correspondence mailed within four days of receipt
In addition to the foregoing, the Funds and FDISG will agree to an industry
quality service ranking, such as DALBAR. In connection therewith, the Funds
and FDISG shall review the criteria and ranking on an annual basis.
22
<PAGE> 23
Schedule B
FEE SCHEDULE
Sierra Trust Funds
Sierra Prime Income Fund
Sierra Asset Management Portfolios
1) Per Account Fee $16.00 per Shareholder
account
Closed Account Fee $2.50
SAM Accounts and Portfolio Accounts:
First Shareholder Account $16.00*
* The above referenced per account fee shall be subject to the
following "Subsequent Account" sliding scale. A "Subsequent
Account" is defined as any additional account under an asset
allocation strategy, with like registration and account
number, maintained by a Shareholder in any other Sierra
Capital Management mutual fund that is serviced by FDISG as
transfer agent.
<TABLE>
<CAPTION>
Subsequent Account Sliding Scale:
<S> <C>
First 100,000 Subsequent Accounts $5.50 per Subsequent Account
Next 50,000 Subsequent Accounts $5.00 per Subsequent Account
150,001+ Subsequent Accounts $4.50 per Subsequent Account
</TABLE>
- - Each year, effective on the anniversary date of the Agreement, the per
account fee will increase by a percentage equal to an amount one
percent greater than the Consumer Price Index as reported monthly by
Bloomberg Financial Markets and Commodity News in the month preceding
the effective date of the increase. This provides FDISG with an
opportunity to manage uncontrollable expenses due to inflationary
increases.
2) Dedicated Systems Development Team:
The Funds shall jointly pay $275,000.00 annually for a
dedicated systems development team consisting of 1.5
programmers, .5 system manager and .5 BSA. In the event that
the Funds desire to discontinue this service, the Funds shall
provide FDISG 60 days written notice. In the event of such
termination, the Funds shall be response responsible for the
pro rata share of the stated annual dedicated System
Development Team fee.
23
<PAGE> 24
Incremental systems resources will be billed at a rate of
$100.00 per hour
The number of hours worked, projects and status will be
reported monthly
FEES INCLUDE:
- - Shareholder and Broker Servicing
- - Transaction Processing, Correspondence, and Research
- - Settlement and Reconciliation
- - Corporate Actions
- - Tax Reporting and Compliance
- - NSCC Support
- - Management Company and Broker/Dealer Support
- - Asset Allocation Processing for all distribution channels
- - Cost Basis Accounting [For those Shareholder Accounts defined in
the attached Exhibit 1 to this Schedule B]
ADDITIONAL FEES:
- - NSCC charges
- - Banking fees
- - Standard Out-of Pocket expenses
VALUE ADDED SERVICES
1. DAZL Pricing:
Set Up Fee: $5,000.00
Monthly Usage Fee: $1,000.00
Transmission Charge: $.03 per record (Price record transmission
cost is $.015 per record.)
2. Voice Response Unit (VRU)
$25,000 set up fee
$.29 per minute maintenance charge
The Dedicated Systems Development Team and the Value Added Services Fees set
forth above represent the total fee to be paid jointly by the Sierra Capital
Management mutual funds which have entered into similar transfer agency and
services agreements with FDISG.
24
<PAGE> 25
Exhibit 1 of Schedule B
Cost Basis Accounting - Shareholder Accounts
Cost Basis tracking will be performed for Fund accounts that do not meet the
following conditions: retirement accounts, Networking Level III, and money
market accounts. In addition, certain transactions may disqualify accounts from
cost basis tracking. These transactions include, but are not limited to,
transfers from ineligible CBA accounts, share adjustments, and LOI default
adjustments.
25
<PAGE> 26
Schedule C
OUT-OF-POCKET EXPENSES
The Funds shall reimburse FDISG monthly for applicable out-of-pocket
expenses, including, but not limited to the following items:
o Microfiche/Microfilm/Image production
o Magnetic media tapes and freight
o Printing costs, including certificates, envelopes, checks and
stationery
o Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct pass
through to the Funds
o Due diligence mailings
o Telephone and telecommunication costs, including all lease,
maintenance and line costs
o Ad hoc reports
o Proxy solicitations, mailings and tabulations
o Daily & Distribution advice mailings
o Shipping, Certified and Overnight mail and insurance
o Year-end form production and mailings
o Terminals, communication lines, printers and other equipment and any
expenses incurred in connection with such terminals and lines
o Duplicating services
o Courier services
o Incoming and outgoing wire charges
o Federal Reserve charges for check clearance
o Overtime, as approved by the Funds
o Temporary staff, as approved by the Funds
o Travel and entertainment, as approved by the Funds
o Record retention, retrieval and destruction costs, including, but not
limited to exit fees charged by third party record keeping vendors
o Third party audit reviews
o Ad hoc SQL time
o All Systems enhancements after the conversion at the rate of $100.00
per hour
o Insurance
o Such other miscellaneous expenses reasonably incurred by FDISG in
performing its duties and responsibilities under this Agreement.
26
<PAGE> 27
The Funds agree that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with FDISG. In addition, the Funds will
promptly reimburse FDISG for any other unscheduled expenses incurred by FDISG
whenever the Funds and FDISG mutually agree that such expenses are not
otherwise properly borne by FDISG as part of its duties and obligations under
the Agreement.
27
<PAGE> 28
Schedule D
Fund Documents
o Certified copy of the Articles of Incorporation of the Fund, as
amended
o Certified copy of the By-laws of the Fund, as amended
o Copy of the resolution of the Board of Directors authorizing the
execution and delivery of this Agreement
o Specimens of the certificates for Shares of the Fund, if applicable,
in the form approved by the Board of Directors of the Fund, with a
certificate of the Secretary of the Fund as to such approval
o All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by the
Fund
o Certified list of Shareholders of the Fund with the name, address and
taxpayer identification number of each Shareholder, and the number of
Shares of the Fund held by each, certificate numbers and denominations
(if any certificates have been issued), lists of any accounts against
which stop transfer orders have been placed, together with the reasons
therefore, and the number of Shares redeemed by the Fund
o All notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Articles of Incorporation or
By-laws of the Fund or as required by law and shall perform such other
specific duties as are set forth in the Articles of Incorporation
including the giving of notice of any special or annual meetings of
shareholders and any other notices required thereby.
28
<PAGE> 1
Exhibit (9)(p)
ADMINISTRATION AGREEMENT
JULY 1, 1996
Sierra Fund Administration Corporation
9301 Corbin Avenue, Suite 333
Northridge, California 91324
Ladies and Gentlemen:
The Sierra Trust Funds (the "Company"), a business trust organized
under the laws of the Commonwealth of Massachusetts, confirms its agreements
with Sierra Fund Administration Corporation ("Sierra Administration"), a
corporation organized under the laws of the State of California, regarding
administration services to be provided by Sierra Administration in connection
with each of the investment funds offered from time to time by the Company
(individually, a "Fund" and together, the "Funds"). Sierra Administration
agrees to provide services upon the following terms and conditions:
1. Investment Description; Appointment
The Company desires to employ the Company's capital by investing and
reinvesting (a) in investments of the kind and in accordance with the
limitations specified in (i) the Company's Master Trust Agreement dated
February 22, 1989, as amended from time to time (the "Trust Agreement"), and
(ii) the prospectuses (individually, a "Prospectus" and together, the
"Prospectuses") and statement of additional information (the "Statement")
relating to the Funds contained in the Company's Registration Statement on Form
N-1A filed with the Securities and Exchange Commission (the "Registration
Statement") and (b) in such manner and to such extent as may from time to time
be approved by the Company's Board of Trustees. Copies of the Prospectuses,
the Statement and the Trust Agreement have been submitted to Sierra
Administration. The Company desires to employ and hereby appoints Sierra
Administration to act as the Funds' administrator. Sierra Administration
accepts this appointment and agrees to furnish the services described herein
for the compensation set forth below.
2. Services as Administrator
Subject to the supervision and direction of the Board of Trustees of
the Company, Sierra Administration is responsible for all administrative
functions with respect to the Company and will (a) assist in supervising all
aspects of the operations of the Company except those performed by the
Company's investment adviser and sub-advisers under their respective investment
advisory and sub-advisory agreements; (b) supply the Company with office
facilities (which may be in Sierra Administration's own offices), statistical
and research data, data processing services, clerical, accounting and
bookkeeping services (including, but not limited to, the calculation of (i) the
net asset values of shares of the Company, (ii) applicable contingent deferred
sales charges and (iii)
<PAGE> 2
distribution fees), internal auditing and legal services, internal executive
and administrative services, and stationery and office supplies; (c) prepare
reports to the Company's shareholders and materials for the Board of Trustees
of the Company; (d) prepare tax returns and reports to and filings with the
Securities and Exchange Commission and state Blue Sky authorities; (e)
cooperate with the Company's transfer agent for the purpose of establishing and
implementing procedures to ensure that the Company's transfer agency and
shareholder relations functions are efficiently carried out; and (f) provide
such other similar services as the Company may reasonably request to the extent
permitted under application statutes, rules and regulations. The services to
be performed by Sierra Administration hereunder may be delegated by it, in
whole or in part, to a sub-administrator provided that any delegation of duties
to the sub-administrator shall not relieve Sierra Administration of its
responsibilities hereunder. Notwithstanding anything to the contrary in this
Agreement, Sierra Administration shall not be responsible for the performance
of any duties which are required to be performed by the Company's transfer
agent.
3. Compensation
(a) In consideration of services rendered pursuant to this
Agreement, the Company will pay Sierra Administration on the first business day
of each month a fee for the previous month at an annual rate of: (i) 0.30% of
the average daily net assets of the Company's Global Money Fund, U.S. Money
Fund and California Money Fund, and (ii) 0.35% of the average daily net assets
of the other Funds of the Company; out of which fee Sierra Administration shall
pay expenses as described in Section 5 including, without limitation, fees to
the sub-administrator, the custodian, and transfer agent. The fee for the
period from the date of this Agreement to the end of the first calendar month
of the term of this Agreement shall be prorated according to the proportion
that such period bears to the full monthly period.
(b) Upon any termination of this Agreement before the end of any
month, the fee for such part of a month shall be prorated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to Sierra Administration, the value of each Fund's net
assets shall be computed at the times and in the manner specified in the
Prospectus and/or the Statement relating to the Fund as from time to time in
effect.
4. Expenses
Sierra Administration will bear all expenses in connection with the
performance of its services under this Agreement, including, without
limitation, payment of the fee to the sub-administrator and custodian described
in Paragraph 4 above. The Company will bear certain other expenses to be
incurred in its operation, including: organizational expenses; taxes,
interest, brokerage fees and commissions, if any; fees of trustees of the
Company who are not officers, directors, or employees of Sierra Investment
Advisors Corporation, each Fund's sub-advisor or 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
2
<PAGE> 3
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 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 Company and of the officers or Board of Trustees of the Company; and any
extraordinary expenses. In addition, each Fund pays a distribution fee
pursuant to terms of a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Standard of Care
Sierra Administration shall exercise its best judgment in rendering
the services listed in Paragraph 2 above. Sierra Administration 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) a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act), or (b) 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 duties under this Agreement.
6. Term of Agreement
This Agreement shall become effective as of the date set forth above
and shall continue for an initial two-year term and shall continue
automatically from year-to-year thereafter unless terminated in accordance with
the following sentence. This Agreement is terminable at any time, without
penalty, on 60 days' written notice by the Board of Trustees of the Company, or
upon 90 days' written notice by Sierra Administration.
7. Service to Other Companies or Accounts
The Company understands that Sierra Administration may act in the
future as administrator to other investment companies or series of investment
companies, and the Company has no objection to Sierra Administration's so
acting in such capacity. The Company understands that the persons employed by
Sierra Administration to assist in the performance of Sierra Administration's
duties under this Agreement will not devote their full time to such service and
nothing contained in this Agreement shall be deemed to limit or restrict the
right of Sierra Administration or any affiliate of Sierra Administration to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
3
<PAGE> 4
8. Representations of the Company and Sierra Administration
The Company represents that (i) a copy of the Trust Agreement is on
file in the office of the Secretary of The Commonwealth of Massachusetts, (ii)
the appointment of Sierra Administration has been duly authorized and (iii) it
has acted and will continue to act in conformity with the 1940 Act and other
applicable laws. Sierra Administration represents that it is authorized to
perform the services described herein.
9. Limitation of Liability
The copy of the Trust Agreement is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this instrument
is executed on behalf of the Trustees of the Company as Trustees and not
individually and that the obligations of this instrument are not binding upon
any of the Trustees, officers or shareholders individually but are binding only
upon the assets and property of the Company.
10. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
11. Governing Law
This Agreement shall be governed in accordance with the laws of The
Commonwealth of Massachusetts.
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/ F. Brian Cerini
---------------------------------
Name: F. Brian Cerini
Title: Chairman and President
Accepted:
SIERRA FUND ADMINISTRATION
CORPORATION
By /s/ Keith B. Pipes
--------------------------------
Name: Keith B. Pipes
Title: Chief Financial Officer, Treasurer
and Secretary
4
<PAGE> 1
Exhibit (9)(q)
SERVICE AGENCY AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of September,
1993, between Sierra Fund Administration Corporation ("Sierra Administration"),
a California corporation, and The Shareholder Services Group, Inc. ("TSSG",
the "Service Agent"), a Massachusetts corporation.
WHEREAS, Sierra Administration is presently engaged in the business of
providing transfer agent and registrar services to various funds affiliated
with Sierra Trust Funds ("Sierra Funds"); and,
WHEREAS, Sierra Administration desires to appoint the Service Agent as
its agent, and the Service Agent desires to become Sierra Administration's
agent to provide certain services in connection with Sierra Administration's
transfer agency and registrar services to the Sierra Funds.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, Sierra Administration and
the Service Agent hereby agree as follows:
1. Appointment of the Service Agent. In exchange for good and
valuable consideration, Sierra Administration hereby appoints the Service Agent
to perform certain services as herein set forth and the Service Agent accepts
such appointment and agrees to perform the services herein set forth in
Schedule A. Sierra Administration shall pay the Service Agent the fees set
forth in Schedule B.
2. Duties of the Service Agent. The Service Agent shall be
responsible for acting as service agent in connection with dividend and
distribution functions; and for performing shareholder account and
administrative agent functions for the Sierra Funds. The operating standards
and procedures to be followed shall be determined from time to time by
agreement between Sierra Administration and the Service Agent and shall
initially be as described in Schedule A attached hereto.
3. Duties of TSSG.
(a) TSSG agrees to provide to Sierra Administration
remote terminal access through dedicated transmission lines to its computerized
data processing record keeping system for Fund shareholder accounting (the
"TSSG System") installed on TSSG computer hardware and using TSSG software
("TSSG Facilities") to provide and support remote terminal access to the TSSG
System and the TSSG Facilities for the maintenance of shareholder records,
processing of information and generation of information with respect thereto.
(b) TSSG agrees to provide to Sierra Administration at
its facilities located at 9301 Corbin Avenue, Northridge, California or at such
other location as may be mutually agreed upon in writing by Sierra
Administration and the Service Agent (the "Facility") remote access to
<PAGE> 2
the use of information processing capabilities of the TSSG System as it may be
modified from time to time mutually agreed upon by TSSG and Sierra
Administration in accordance to Section 4.
(c) TSSG agrees to prepare and telefax to Sierra
Administration, on a daily basis, a daily cash and share proof reconciliation
balance sheet.
(d) As instructed by Sierra Administration, TSSG agrees
to process share dividend and distributions on the TSSG System.
(e) TSSG agrees to (1) automatically process without
request from Sierra Administration, print and mail daily shareholder account
confirmation statements, (2) monthly shareholder and dealer statements (3)
monitor and maintain sufficient inventory and postage required for the mailing
of shareholder monthly statements by third party vendors.
(f) TSSG agrees to apply backup withholding on
shareholder accounts and to provide reports to Sierra Fund shareholders and to
the Internal Revenue Service, as specified by the Internal Revenue Code. TSSG
will process all tax forms as required by the IRS.
(g) TSSG further agrees to perform the duties set forth
in Schedule A and such additional duties as agreed upon between TSSG and Sierra
Administration, except in cases of unavailability of communications, utilities
facilities or other equipment failures, due to Acts of God, acts of the public
enemy, governmentally-mandated priorities in allocating its services, fires,
floods, strikes, riots or war or other causes beyond its control.
4. Charges and Modifications.
(a) During the term of this Agreement, TSSG will make
available to Sierra Administration, all modifications and improvements to the
TSSG System made in the ordinary course of business. In addition, TSSG will
use its best efforts to make reasonable changes to the TSSG System requested by
Sierra Administration, subject to payment of additional fees as mutually agreed
upon.
(b) TSSG shall have the right, at any time, and from time
to time, to alter and modify any systems, programs, procedures, or facilities
used or employed in performing its duties and obligations hereunder (a "System
Modification"), provided that no System Modification shall, without the consent
of Sierra Administration, materially adversely change or affect the operations
and procedures of Sierra Administration in using or employing the TSSG System
or the TSSG Facilities hereunder. If TSSG and Sierra Administration agree that
the effect was material on Sierra Administration's operations, TSSG agrees to
reimburse for direct expenses incurred by Sierra Administration. TSSG will
notify Sierra Administration at least two weeks prior to implementing any
System Modification.
2
<PAGE> 3
(c) TSSG agrees to make any System Modifications
necessary to meet federal, state, or local government or self-regulatory
organizations requirements in a timely fashion. TSSG agrees to advise Sierra
Administration upon notification of any changes in or receipt of any
information or advice concerning any change in the requirements of any federal,
state, or local or self-regulatory organization which might require such system
modification.
5. System Access and Training.
(a) TSSG shall provide Sierra Funds on-line access
between the hours of 6:00 a.m. and 6:00 p.m. PST Monday through Friday except
for such holidays as are observed by the New York Stock Exchange, and between
the hours of 6:00 a.m. and 3:00 p.m. PST on Saturdays. Additional access to
the TSSG System may be arranged by separate agreement of the parties.
(b) TSSG will provide training documentation of the TSSG
System. TSSG will provide trainers to Sierra Administration at either the
Sierra Administration or TSSG facility. If the training is a requirement of
system enhancements requested by Sierra Administration, the travel and out of
pocket expenses will be borne by Sierra Administration. In the event the
system changes are not a result of a request from Sierra Administration, TSSG
will provide trainers at no expense (including out of pocket) to Sierra
Administration.
6. Indemnification. TSSG shall not be responsible for and Sierra
Administration shall indemnify and hold TSSG harmless from and against any and
all claims, costs, expenses (including reasonable attorneys' fees), losses,
damages, charges, payments and liabilities of any sort or kind which may be
asserted against TSSG or for which TSSG may be held to be liable (a "Claim")
arising out of or attributable to any of the following:
(a) Any actions of TSSG required to be taken pursuant to
this Agreement unless such Claim resulted from a negligent act or omission to
act or bad faith by TSSG in the performance of its duties hereunder.
(b) Sierra Administration's failure to use and employ the
TSSG System and the TSSG Facilities in accordance with the procedures set forth
in any user manuals delivered to Sierra Administration, Sierra Administration
failure to utilize the control procedures set forth and described in the user
manual, or Sierra Administration's failure to verify in reasonable time reports
or output received through use of the TSSG System and the TSSG Facilities.
(c) Sierra Administration's other errors and mistakes in
the use of the TSSG System, TSSG Facilities and control procedures.
(d) TSSG's reasonable reliance on, or reasonable use of
information, data, records and documents received by TSSG from Sierra
Administration in the performance of TSSG's duties and obligations hereunder.
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<PAGE> 4
(e) TSSG's reliance on, or the implementation of, any
instruction or requests of Sierra Administration.
(f) The offer or sales of shares in violation of any
requirement under the securities laws or regulations of any state that such
shares be registered in such state or in violation of any stop order or other
determination or ruling by any state with respect to the offer or sale of such
shares in such state.
(g) Sierra Administration's refusal or failure to comply
with the terms of this Agreement, or any Claim which arises out of Sierra
Administration's negligence or misconduct or the breach of any representation
or warranty of Sierra Administration made herein.
7. Term and Termination.
(a) Unless otherwise agreed to by Sierra Administration
and TSSG, this Agreement shall become effective on the date first set forth
above and shall continue in effect for an initial period of three years.
Thereafter, unless notice is received at least 60 days prior to the anniversary
date of the date first above written, this Agreement shall automatically
continue in effect from year to year with such modifications or amendments as
may be mutually agreed upon in writing by the parties.
(b) If a party hereto is guilty of a material failure to
perform its duties and obligations hereunder (a "Defaulting Party") the other
party (the "Non Defaulting Party") may give written notice thereof to the
Defaulting Party, and if such material breach shall not have been remedied
within thirty (30) days after such written notice is given, the Non-Defaulting
Party may terminate this Agreement by giving thirty (30) days written notice of
such termination to the Defaulting Party. If TSSG is the Non-Defaulting Party,
its termination of this Agreement shall not constitute a waiver of any other
rights or remedies of TSSG with respect to services performed prior to such
termination or rights of TSSG to be reimbursed for out-of-pocket expenses. In
all cases, termination by the Non-Defaulting Party shall not constitute a
waiver by the Non-Defaulting Party of any other rights it might have under this
Agreement or otherwise against the Defaulting Party.
8. Amendment. This Agreement may only be amended or modified by
written agreement executed by both parties.
9. Subcontracting. TSSG may subcontract to agents the services
required to be performed pursuant to this Agreement and the Schedules hereon,
if any. The appointment of any such agent shall not relieve TSSG of its
responsibility hereunder.
10. Use of TSSG's Name. Sierra Administration shall not use
TSSG's name in any material without TSSG's prior written approval unless such
use is required by law or merely refers in accurate terms to the services
rendered hereunder. Any reference to TSSG shall include a
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<PAGE> 5
statement to the effect that it is a subsidiary of First Data Corporation.
11. Use of Sierra Administration's Name. Except as provided
herein, TSSG shall not use the name of Sierra Administration without Sierra
Administration's prior written approval unless such is required by law or
merely refers in accurate terms to the services rendered hereunder.
12. Use of Sierra Trust Fund's Name. Except as provided herein,
TSSG shall not use the name of Sierra Trust Funds without Sierra
Administration's prior written approval unless such is required by law or
merely refers in accurate terms to the services rendered hereunder.
13. Security.
(a) TSSG will provide Sierra Administration with a User
Identifier (also know as "User I.D.") and a User Password to the TSSG System.
TSSG will also assign the initial Operator Password to each of the employees
who are authorized to access the TSSG System. The Operator Passwords may be
changed at any time in the discretion of Sierra Administration without any
notice to or knowledge of TSSG by using procedures set forth by TSSG.
(b) Sierra Administration agrees that it is responsible
for selection, use and protection of the confidentiality of passwords; however,
TSSG may for security reasons at any time and from time to time, upon seven
days written notice to Sierra Administration (or immediately upon notice by
telephone, confirmed in writing, in the event of any emergency), deny access to
the TSSG System until one or more User I.D.'s is changed by Sierra
Administration.
(c) Sierra Administration acknowledges that TSSG has
proprietary rights in and to the TSSG System and any other TSSG programs, data
bases, supporting documentation or procedures ("TSSG Protected Information") of
which Sierra Administration or its employees or agents become aware as a result
of Sierra Administration's access to the TSSG System or TSSG Facilities and
that the TSSG Protected Information constitutes confidential material and trade
secrets of TSSG. Sierra Administration agrees to maintain the confidentiality
of the TSSG Protected Information. Sierra Administration acknowledges that any
unauthorized use, misuse, disclosure, or taking of TSSG Protected Information
which is confidential or which is a trade secret, whether residing or existing
internally or externally to a computer, computer system or computer network, or
the knowing and unauthorized accessing or causing to be accessed of any
computer, computer system or computer network, may be subject to civil
liabilities and criminal penalties under applicable law. Sierra Administration
will advise all of its employees and agents who have access to any TSSG
Protected Information or to any computer equipment capable of accessing TSSG
Facilities of the foregoing.
14. Miscellaneous.
(a) Notices. Any notice or other instrument authorized
or required by this
5
<PAGE> 6
Agreement to be given in writing to Sierra Administration or TSSG shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To Sierra Administration:
Sierra Fund Administration Corporation
9301 Corbin Avenue
Northridge, CA 91324
To TSSG:
The Shareholder Services Group, Inc.
Attention: Robert F. Radin, President
with a copy to:
Attention: Counsel
One Exchange Place
Boston, MA 02109
(b) Successors. This Agreement shall extend to and shall
be binding upon the parties hereto, and their respective successors upon the
parties hereto, and their respective successors and assignees; provided,
however, that this Agreement may not be assigned without the written consent of
the other party.
(c) Governing Law. This Agreement shall be governed by
the laws of the state of Massachusetts without reference to the choice of the
law provisions thereof. Each party hereto agrees that the Supreme Court of
Massachusetts sitting in Massachusetts shall have exclusive jurisdiction over
any and all disputes arising hereunder; (ii) hereby consents to the personal
jurisdiction of such court over the parties hereto, hereby waiving any defense
of lack of personal jurisdiction; and (iii) appoints the person to whom notices
hereunder are to be sent as agent for service of process.
(d) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
(e) Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but
all of which together will constitute only one instrument.
(f) Captions. The captions of this Agreement are
included for convenience of
6
<PAGE> 7
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
(g) Sole Agreement. This Agreement constitutes the
entire agreement between the parties hereto and supersedes any prior agreement
with respect to the subject matter hereof.
(h) Specific Performance. Each of the parties hereto
agrees that the other party would be irreparably damaged by breaches of this
Agreement relating to confidential or proprietary information and accordingly
each agrees that each of them is entitled, without bond or other security, to
an injunction or injunctions to prevent breaches of the provisions of this
Agreement relating to such information.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their fully authorized offices as of the day and
year first above written.
SIERRA FUND ADMINISTRATION CORPORATION
BY: /s/ KEITH B. PIPES
-------------------------------------
TITLE: Chief Financial Officer
----------------------------------
THE SHAREHOLDER SERVICES GROUP, INC.
BY: /s/ JACK P. KUTNER
-------------------------------------
TITLE: Executive Vice President &
Chief Operations Officer
----------------------------------
7
<PAGE> 8
Schedule A
Duties of TSSG
TSSG will provide Sierra Administration its transfer agent system
(RTA) to process shareholder activity. The costs associated with the provision
of the system will be billed on a per account basis. TSSG is planning a system
conversion in November, 1993.
TSSG will perform the Control, Administrative and Tax Reporting
functions detailed below. Sierra Administration will continue to address all
customer service and transaction processing responsibilities. The costs
associated with the delivery of the control, tax reporting and administration
components will be charged on an annual lump sum basis, allocated monthly.
Control
- Preparation and review of supersheets
- Daily fund balancing at placement and settlement
- Reconciliation of all demand deposit accounts
- Dividend and capital gain processing
- Establish new funds based on client instructions
Client Administration
- Printing and mailing of daily shareholder confirmations
- Production of monthly statements containing shareholder
information
- Maintenance of inventory and postage for statement mailings
Tax Reporting
- Make payments to IRS on behalf of funds
- Printing and mailing of all tax forms in compliance with IRS
- Compliance mailings (B-notice and TIN solicitation)
A. DAILY RECORDS
Retain daily the following information received by TSSG from Sierra
Administration, with respect to each shareholder account as received:
- Name and Address (Zip Code)
- State of Residence Code
- Balance of Shares held by Agent
- Social owner code; i.e., female, joint tenant, etc.
- Dividend code (reinvestment)
- Number of Shares held in certificate form
8
<PAGE> 9
B. REPORTS PROVIDED TO SIERRA ADMINISTRATION
Furnish the following reports to Sierra Administration:
- Weekly analysis of accounts by account type
- Daily financial totals
- Weekly reports of outstanding shares
- Weekly analysis of accounts by social code
- Weekly analysis of accounts by share range
- Weekly analysis of sales by state
- Weekly analysis of accounts by dealer code
- Weekly top 10 shareholder report
C. DIVIDEND ACTIVITY
- Calculate and process share dividends and distributions as
instructed by Sierra Administration.
- Compute and prepare all necessary reports to shareholders or
various authorities as requested by Sierra Administration.
D. MEETINGS OF SHAREHOLDERS
- Cause to be mailed proxy and related material for all meetings
of shareholders. Tabulate returned proxies (proxies must be
adaptable to mechanical equipment of the Agent or its agents)
and supply daily reports when sufficient proxies have been
received.
- Prepare and submit to Sierra Administration an Affidavit of
Mailing.
- At the time of the meeting, furnish a certified list of
shareholders, hard copy, microfilm or microfiche and, if
requested by Sierra Administration, Inspection of Election.
E. CLIENT MAILINGS
- Cause to be mailed reports, prospectuses, daily confirmations,
monthly statements and any other enclosures requested by
Sierra Administration (material must be adaptable to
mechanical equipment of Agent or its agents).
F. SYSTEMS
- Systems support is provided at the costs outlined above and
includes:
- access to the TSSG recordkeeping system (RTA) until
the FSR conversion
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<PAGE> 10
is completed in November,
- processing of share dividends and distributions on the TSSG
system for the funds,
- production support and maintenance.
Phases of Analysis
1. First Right of Refusal: TSSG will be given the first
opportunity to meet your technological requirements;
2. Negotiation of a Price Change: A price change for either party
may be warranted depending on the requirements; and,
3. TSSG will work with a 3rd Party: In the event TSSG cannot
accommodate Sierra Administration's requirements, TSSG will
have the right to work with a 3rd party to integrate external
functionality into the development process.
G. PERFORMANCE STANDARDS
1. SCOPE
The Service Agent agrees to meet or exceed the processing
standards set forth in this schedule by January 1, 1994, for
those items received by the Service Agent in the proper
condition, form and order to permit the Service Agent to
process the item within the requirements of this Agreement.
Sierra Administration agrees to waive the standards for the 30
days following each system conversion for Sierra
Administration by the Service Agent, or as otherwise agreed to
by Sierra Administration and the Service Agent.
The Service Agent shall track the processing of items on a
calendar month basis and shall report to Sierra Administration
the percentage of the total number of items received and the
percentage of items that were processed within the specified
Turnaround period.
The Service Agent shall also track the number of Fund
shareholders who contact the Service Agent to complain that
their transactions were not processed correctly. The Service
Agent shall report to Sierra Administration, on a monthly
basis, the total number of transactions and the total number
of shareholder complaints received by the Service Agent from
Fund shareholders, which arose solely from processing errors
by the Service Agent.
With respect to these turnaround and error standards, the
Service Agent shall be responsible for its own conduct only
and shall not be held responsible for delays and other
problems arising from the actions or omissions of Sierra
Administration,
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<PAGE> 11
other agents of Sierra Administration or third parties not
affiliated with the Service Agent. In addition, Sierra
Administration agrees that these performance standards shall
be waived for any calendar month in which the number of Fund
items received by the Service Agent for processing exceeds by
more than 20% the average monthly number of items received by
the Service Agent during the six month period prior to that
calendar month.
2. PENALTIES
If performance standards are not met for any type of transaction for a
given monthly period, the Service Agent shall report to Sierra
Administration the reason for the deficiency and the corrective action
being taken by the Service Agent.
If the Service Agent has failed to meet a specific performance
standard, and such failure continues in the same category in each of
the two consecutive calendar months after the Service Agent receives
notice of such failure, then Sierra Administration may reduce the
total amount of Fees due under this Agreement by Sierra Administration
and the funds affiliated with the Fund, by an amount equal to 5% of
the fees for each succeeding, consecutive month in which the same
standard is not met. This 5% penalty is the total penalty that shall
be applied to all failures to meet these standards in the aggregate.
Sierra Administration may terminate this Agreement if either: (i)
one-third or more of the performance standards listed in this
Agreement are not met by the Service Agent for four consecutive
months, or (ii) any one performance standard is not met by the Service
Agent for any six months during a 12 month period. Unless Sierra
Administration provides the Service Agent with notice of Sierra
Administration's intent to exercise this option within 45 days of the
occurrence, Sierra Administration shall have waived its option to
terminate under this provision.
3. QUALITY STANDARDS
The success of a long term contract is dependent on the commitment of
TSSG to meet specific quality standards agreed to by both parties. Our
contract will include specific recourse for Sierra Administration to
terminate should we fail to meet the agreed upon standards.
The proposed quality standards are:
I. Systems
A. System Availability
1. 9:00 a.m.-9:00 p.m. EST Monday-Friday 98%
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<PAGE> 12
2. 9:00 a.m.-6:00 p.m. EST Saturday 98%
B. Transmission Timeliness
1. Confirm File to Sierra Administration: 1:30 a.m. EST 98%
2. Position File to Sierra Administration: 4:00 a.m. EST 98%
3. Average Response Time of 5-seconds or less 95%
II. Administration
1. Confirm Mailings: Trade Date + 2 98%
2. Statement Mailings: Trade Date + 5 98%
3. Dividend Checks Mailed: Trade Date + 1 98%
12
<PAGE> 13
Schedule B
Fees and Expenses
A. ACCOUNT FEES
The schedule below pertains to all open and closed accounts on TSSG's
system:
<TABLE>
<CAPTION>
ACCOUNTS PER ACCOUNT FEE
-------- ---------------
<S> <C>
1-180,000 $4.50
180,001-250,000 $4.25
250,001-350,000 $4.15
350,001-700,000 $4.05
</TABLE>
B. SYSTEMS AGENDA
TSSG and Sierra Administration will agree upon a systems development
plan for 1993/1994. Upon completion and approval of the plan, TSSG
will determine the staffing requirements to complete the projects to
be paid for by Sierra Administration at the discounted rate of $75.00
per hour. Any additional requests for resources beyond the agreed
upon agenda will be charged at $95.00 per hour.
C. LUMP SUM CHARGE
An annual lump sum charge of $250,000 will be applied to Sierra
Administration for TSSG's delivery of Control, Client Administration
Services and Tax Reporting. The expense will be paid on a monthly
basis over a twelve-month period for a monthly charge of $20,833.33.
(This assumes an account base over 150,000 accounts). This charge
will increase by $25,000 with the addition of each 50,000 accounts
thereafter. This Fee Schedule will be effective January 1, 1994.
From September through December 1993, the Lump Sum will be calculated
as follows:
An annual lump sum charge of $200,000 will be applied to Sierra
Administration on a monthly basis. Once an account base of 100,000 is
reached, an additional charge of $50,000 will be imposed. This
additional charge will offset the increase in direct expenses, such as
personnel, that will be needed to accommodate the expected increase in
volume. With the addition of each 50,000 accounts thereafter, an
additional $25,000 will be added to the lump sum charge.
D. VARIABLE ANNUITY PRODUCT
TSSG will establish six new funds on the transfer agent system, set a
daily price and process dividends and distribution for these funds. A
charge of $1,000 per month will be paid by Sierra Administration for
these services. Any additional variable annuity funds will be
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<PAGE> 14
charged a per fund minimum of $500.00 per month.
14
<PAGE> 15
E. COST BASIS ACCOUNTING
Per Account Fee: $0.15 per CBA eligible account per month.
This charge includes DASD, CPU, and ongoing maintenance of the system.
This price reflects an assumption that the client would retain
responsibility for responding to shareholder inquiries.
F. CONSUMER PRICE INDEX FEE INCREASE
In addition, on the first anniversary date of this Agreement after the
expiration of the initial term and each subsequent anniversary date,
the per account fee shall be increased by a percentage amount equal to
one percent more than the percentage increase in the then current
Consumer Price Index (all urban consumers) or its successor index.
15
<PAGE> 16
OUT OF POCKET EXPENSES
Sierra Funds shall reimburse the Service Agent via Sierra
Administration monthly for applicable out-of-pocket expenses, including, but
not limited to the following:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks
stationary, confirms and statements.
- Postage and mailing services including (pre-sort, zip + 4,
barcoding, first class, etc.).
- Due diligence mailings
- Telephone and telecommunication costs, including all lease,
maintenance and line costs
- Ad hoc reports (fee proposal is forthcoming)
- Proxy solicitations, mailings and tabulations
- Daily and Distribution advise mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other equipment
and any expenses incurred in connection with such terminals
and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Overtime, as approved by the Sierra Funds
- Temporary staff, as approved by the Sierra Funds
- Record retention, retrieval and destruction costs, including,
but not limited to, exit fees charged by third party record
keeping vendors
- Conversion costs as negotiated between TSSG and Sierra
Administration
- Such other miscellaneous expenses reasonably incurred by the
Service Agent in performing its duties and responsibilities
under this Agreement.
Sierra Administration agrees that postage and mailing expenses will be
paid on the day of or prior to mailing as agreed with the Service Agent. In
addition, Sierra Administration will promptly reimburse the Service Agent for
any other unscheduled expenses incurred by the Service Agent whenever Sierra
Administration and the Service Agent mutually agree that such expenses are not
otherwise properly borne by the Service Agent as part of its duties and
obligations under Agreement. Sierra Funds reimburses the Service Agent via
Sierra Administration.
16
<PAGE> 1
EXHIBIT (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each of the Prospectuses
and the Statement of Additional Information constituting parts of this
Post-Effective Amendment No. 24 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated August 13, 1996, relating to the
financial statements and financial highlights appearing in the August 31, 1996
Annual Report to Shareholders of Sierra Trust Funds, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the
Prospectuses and under the headings "Counsel and Auditor" and "Financial
Statements" in the Statement of Additional Information.
/s/ PRICE WATERHOUSE LLP
- -------------------------------
PRICE WATERHOUSE LLP
Boston, Massachusetts
October 28, 1996
<PAGE> 1
Exhibit (15)(e)
CLASS A DISTRIBUTION PLAN
Dated July 7, 1989, as amended as of July 1, 1995
This Amended Class A Distribution Plan (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 (the "Company"), subject to
the following terms and conditions:
SECTION 1. ANNUAL FEE.
The Company will pay to or at the direction of the distributor
of its Class A shares (the "Distributor"), an annual fee or portions thereof
for services rendered or expenses incurred by the Distributor or any other
person with which the Distributor has a written agreement to provide services
as permitted by the Plan and the distribution agreement with the Distributor
(each a "Designated Provider") in connection with the offering and sale of each
series of the Company's shares (each, a "Fund," and together, the "Funds").
The annual fee or portions thereof paid to the Distributor or at the direction
of the Distributor to the Designated Providers under the Plan will be
calculated daily and paid monthly in arrears by the Company in the aggregate at
the annual rate of .25% of the average daily net assets of each of the Funds.
SECTION 2. EXPENSES COVERED BY PLAN.
(a) The annual fee paid to the Distributor or at the
direction of the Distributor to the Designated Providers under Section 1 of the
Plan may be used by the Distributor or Designated Providers to cover any
expenses primarily intended to result in the sale of the Company's Class A
shares, including, but not limited to: (i) payments made to, and expenses of,
the registered representatives and other employees of the Distributor or
Designated Providers that are registered broker-dealers and engage in the
distribution of the Company's shares; (ii) payments made to, and expenses of,
persons who provide support services in connection with the sale of the
Company's Class A 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 regarding the Company's
Class A shares, including, but not limited to, direct mail promotions and
television, radio, newspaper, magazine and other
<PAGE> 2
mass media advertising; (iv) costs of printing and distributing prospectuses,
statements of additional information and reports of the Company to prospective
Class A shareholders of the Company; (v) costs involved in preparing, printing
and distributing advertising and sales literature pertaining to the Company's
Class A shares; and (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 regarding the Company's
Class A shares.
(b) 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
Company's Class A shares. To the extent that such uses might be considered to
constitute the direct or indirect financing of activities primarily intended to
result in the sale of the Company's Class A shares, such uses are expressly
authorized under the Plan.
SECTION 3. APPROVAL BY SHAREHOLDERS.
The Plan will not take effect, and no fee will be payable in
accordance with Section 1 of the Plan, with respect to the Class A shares of a
particular Fund until the Plan has been approved by a vote of at least a
majority of the outstanding voting securities of the Class A shares of the
Fund. The Plan will be deemed to have been approved with respect to the Class
A shares of a Fund so long as a majority of the outstanding Class A shares of
the Fund votes for the approval of the Plan, notwithstanding that: (a) the
Plan has not been approved by a majority of the outstanding voting securities
of any other class of such Fund or any other Fund or (b) the Plan has not been
approved by a majority of the outstanding voting securities of the Company in
the aggregate.
SECTION 4. APPROVAL BY TRUSTEES.
Neither the Plan nor any related agreements will take effect
until approved by a majority vote of both (a) the full Board of Trustees of the
Company and (b) 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.
The 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.
- 2 -
<PAGE> 3
SECTION 6. TERMINATION.
The Plan may be terminated at any time with respect to any
Fund by a majority vote of the Qualified Trustees or by vote of a majority of
the outstanding Class A shares of the Fund. The Plan may remain in effect with
respect to the Class A shares of a particular Fund even if the Plan has been
terminated in accordance with this Section 6 with respect to the Class A shares
of one or more of the other Funds.
SECTION 7. AMENDMENTS.
The Plan may not be amended with respect to the Class A shares
of a Fund so as to increase materially the amount of the fee described in
Section 1 above with respect to the Class A shares of the Fund, unless the
amendment is approved by a vote of at least a majority of the outstanding Class
A shares of that Fund. No material amendment to the Plan may be made unless
approved by the Company's Board of Trustees in the manner described in Section
4 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.
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.
- 3 -
<PAGE> 4
As used in the Plan, the terms "interested person" and
"majority of the outstanding voting securities" 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 Class A 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 are binding only upon the assets and property 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 Class A shares of each of the Funds.
The Trust Agreement is on file with the Secretary of the Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, the Company has executed the Plan as of
July 1, 1995 on behalf of the Class A shares of each of the Funds.
SIERRA TRUST FUNDS
By:/s/ F. Brian Cerini
-------------------------
Name: F. Brian Cerini
Title: President
Adopted: July 7, 1989
Amended: January 1, 1991
December 14, 1992
July 1, 1995
- 4 -
<PAGE> 1
Exhibit (24)
SIERRA TRUST FUNDS
POWER OF ATTORNEY
F. Brian Cerini, whose signature appears below, does hereby
constitute and appoint Keith B. Pipes, Michael D. Goth and Richard W. Grant,
and each of them acting alone, his true and lawful attorney and agent, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorney and agent may deem
necessary or advisable or which may be required to enable the Sierra Trust
Funds (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all amendments thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign, in the name and on behalf of the undersigned as a trustee and officer of
the Fund, such Registration Statement and any and all such amendments filed
with the Securities and Exchange Commission under the 1933 Act and the 1940
Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney and agent
shall do or cause to be done by virtue hereof.
/s/ F. Brian Cerini
---------------------------------
F. Brian Cerini
Date: October 24, 1996
---------------------
<PAGE> 2
SIERRA TRUST FUNDS
POWER OF ATTORNEY
Arthur H. Bernstein, whose signature appears below, does
hereby constitute and appoint F. Brian Cerini, Keith B. Pipes, Michael D. Goth
and Richard W. Grant, and each of them acting alone, his true and lawful
attorney and agent, with power of substitution or resubstitution, to do any and
all acts and things and to execute any and all instruments which said attorney
and agent may deem necessary or advisable or which may be required to enable
the Sierra Trust Funds (the "Fund") to comply with the Securities Act of 1933,
as amended (the "1933 Act") and the Investment Company Act of 1940, as amended
(the "1940 Act"), and any rules, regulations or requirements of the Securities
and Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all amendments thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign, in the name and on behalf of the undersigned as a trustee of the Fund,
such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney and agent shall do or cause to be
done by virtue hereof.
/s/ Arthur H. Bernstein
---------------------------------
Arthur H. Bernstein
Date: October 24, 1996
---------------------
<PAGE> 3
SIERRA TRUST FUNDS
POWER OF ATTORNEY
David E. Anderson, whose signature appears below, does hereby
constitute and appoint F. Brian Cerini, Keith B. Pipes, Michael D. Goth and
Richard W. Grant, and each of them acting alone, his true and lawful attorney
and agent, with power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments which said attorney and agent
may deem necessary or advisable or which may be required to enable the Sierra
Trust Funds (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all amendments thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign, in the name and on behalf of the undersigned as a trustee of the Fund,
such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney and agent shall do or cause to be
done by virtue hereof.
/s/ David E. Anderson
---------------------------------
David E. Anderson
Date: October 24, 1996
---------------------
<PAGE> 4
SIERRA TRUST FUNDS
POWER OF ATTORNEY
Edmond R. Davis, whose signature appears below, does hereby
constitute and appoint F. Brian Cerini, Keith B. Pipes, Michael D. Goth and
Richard W. Grant, and each of them acting alone, his true and lawful attorney
and agent, with power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments which said attorney and agent
may deem necessary or advisable or which may be required to enable the Sierra
Trust Funds (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all amendments thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign, in the name and on behalf of the undersigned as a trustee of the Fund,
such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney and agent shall do or cause to be
done by virtue hereof.
/s/ Edmond R. Davis
--------------------------------
Edmond R. Davis
Date: October 24, 1996
---------------------
<PAGE> 5
SIERRA TRUST FUNDS
POWER OF ATTORNEY
John W. English, whose signature appears below, does hereby
constitute and appoint F. Brian Cerini, Keith B. Pipes, Michael D. Goth and
Richard W. Grant, and each of them acting alone, his true and lawful attorney
and agent, with power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments which said attorney and agent
may deem necessary or advisable or which may be required to enable the Sierra
Trust Funds (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all amendments thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign, in the name and on behalf of the undersigned as a trustee of the Fund,
such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney and agent shall do or cause to be
done by virtue hereof.
/s/ John W. English
---------------------------------
John W. English
Date: October 24, 1996
---------------------
<PAGE> 6
SIERRA TRUST FUNDS
POWER OF ATTORNEY
Alfred E. Osborne, Jr., whose signature appears below, does
hereby constitute and appoint F. Brian Cerini, Keith B. Pipes, Michael D. Goth
and Richard W. Grant, and each of them acting alone, his true and lawful
attorney and agent, with power of substitution or resubstitution, to do any and
all acts and things and to execute any and all instruments which said attorney
and agent may deem necessary or advisable or which may be required to enable
the Sierra Trust Funds (the "Fund") to comply with the Securities Act of 1933,
as amended (the "1933 Act") and the Investment Company Act of 1940, as amended
(the "1940 Act"), and any rules, regulations or requirements of the Securities
and Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all amendments thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign, in the name and on behalf of the undersigned as a trustee of the Fund,
such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney and agent shall do or cause to be
done by virtue hereof.
/s/ Alfred E. Osborne, Jr.
---------------------------------
Alfred E. Osborne, Jr.
Date: October 24, 1996
-----------------------
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> SIERRA TRUST GLOBAL MONEY CL-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 169,484,192
<INVESTMENTS-AT-VALUE> 169,484,192
<RECEIVABLES> 11,397,377
<ASSETS-OTHER> 2,268
<OTHER-ITEMS-ASSETS> 48,899
<TOTAL-ASSETS> 180,932,736
<PAYABLE-FOR-SECURITIES> 4,996,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 879,852
<TOTAL-LIABILITIES> 5,876,352
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 153,672,774
<SHARES-COMMON-STOCK> 153,677,036
<SHARES-COMMON-PRIOR> 109,981,339
<ACCUMULATED-NII-CURRENT> 8,033
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 969
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 153,785,932
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,861,890
<OTHER-INCOME> 0
<EXPENSES-NET> 1,116,943
<NET-INVESTMENT-INCOME> 7,744,947
<REALIZED-GAINS-CURRENT> 1,087
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,746,034
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,159,606)
<DISTRIBUTIONS-OF-GAINS> (15,528)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 489,604,814
<NUMBER-OF-SHARES-REDEEMED> (452,731,738)
<SHARES-REINVESTED> 6,822,621
<NET-CHANGE-IN-ASSETS> 57,405,269
<ACCUMULATED-NII-PRIOR> 26,032
<ACCUMULATED-GAINS-PRIOR> 16,962
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 622,915
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,895,640
<AVERAGE-NET-ASSETS> 141,579,902
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> SIERRA TRUST GLOBAL MONEY CL-B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 169,484,192
<INVESTMENTS-AT-VALUE> 169,484,192
<RECEIVABLES> 11,397,377
<ASSETS-OTHER> 2,268
<OTHER-ITEMS-ASSETS> 48,899
<TOTAL-ASSETS> 180,932,736
<PAYABLE-FOR-SECURITIES> 4,996,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 879,852
<TOTAL-LIABILITIES> 5,876,352
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 421,783
<SHARES-COMMON-STOCK> 421,783
<SHARES-COMMON-PRIOR> 240,444
<ACCUMULATED-NII-CURRENT> 8,033
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 969
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 422,234
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,861,890
<OTHER-INCOME> 0
<EXPENSES-NET> 1,116,943
<NET-INVESTMENT-INCOME> 7,744,947
<REALIZED-GAINS-CURRENT> 1,087
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,746,034
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,198)
<DISTRIBUTIONS-OF-GAINS> (29)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 411,746
<NUMBER-OF-SHARES-REDEEMED> (240,792)
<SHARES-REINVESTED> 10,385
<NET-CHANGE-IN-ASSETS> 57,405,269
<ACCUMULATED-NII-PRIOR> 26,032
<ACCUMULATED-GAINS-PRIOR> 16,962
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 622,915
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,895,640
<AVERAGE-NET-ASSETS> 260,944
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> SIERRA TRUST GLOBAL MONEY CL-S
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 169,484,192
<INVESTMENTS-AT-VALUE> 169,484,192
<RECEIVABLES> 11,397,377
<ASSETS-OTHER> 2,268
<OTHER-ITEMS-ASSETS> 48,899
<TOTAL-ASSETS> 180,932,736
<PAYABLE-FOR-SECURITIES> 4,996,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 879,852
<TOTAL-LIABILITIES> 5,876,352
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,952,825
<SHARES-COMMON-STOCK> 20,952,825
<SHARES-COMMON-PRIOR> 7,390,600
<ACCUMULATED-NII-CURRENT> 8,033
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 969
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 20,848,218
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,861,890
<OTHER-INCOME> 0
<EXPENSES-NET> 1,116,943
<NET-INVESTMENT-INCOME> 7,744,947
<REALIZED-GAINS-CURRENT> 1,087
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,746,034
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (592,142)
<DISTRIBUTIONS-OF-GAINS> (1,523)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,004,949
<NUMBER-OF-SHARES-REDEEMED> (12,036,378)
<SHARES-REINVESTED> 593,654
<NET-CHANGE-IN-ASSETS> 57,405,269
<ACCUMULATED-NII-PRIOR> 26,032
<ACCUMULATED-GAINS-PRIOR> 16,962
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 622,915
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,895,640
<AVERAGE-NET-ASSETS> 13,887,993
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> SIERRA TRUST US GOVT MONEY CL-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 40,884,658
<INVESTMENTS-AT-VALUE> 40,884,658
<RECEIVABLES> 2,798,909
<ASSETS-OTHER> 911
<OTHER-ITEMS-ASSETS> 74,900
<TOTAL-ASSETS> 43,759,378
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,178,053
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<SHARES-COMMON-STOCK> 39,043,239
<SHARES-COMMON-PRIOR> 47,502,688
<ACCUMULATED-NII-CURRENT> 7,444
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (15,708)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 39,030,913
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,435,414
<OTHER-INCOME> 0
<EXPENSES-NET> 375,903
<NET-INVESTMENT-INCOME> 2,059,511
<REALIZED-GAINS-CURRENT> (4,208)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,055,303
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,041,798)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 472,714,088
<NUMBER-OF-SHARES-REDEEMED> (483,120,127)
<SHARES-REINVESTED> 1,946,590
<NET-CHANGE-IN-ASSETS> (8,770,775)
<ACCUMULATED-NII-PRIOR> 5,326
<ACCUMULATED-GAINS-PRIOR> (11,500)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 175,521
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 539,836
<AVERAGE-NET-ASSETS> 43,545,479
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> SIERRA TRUST US GOVT MONEY CL-B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 40,884,658
<INVESTMENTS-AT-VALUE> 40,884,658
<RECEIVABLES> 2,798,909
<ASSETS-OTHER> 911
<OTHER-ITEMS-ASSETS> 74,900
<TOTAL-ASSETS> 43,759,378
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,178,053
<TOTAL-LIABILITIES> 4,178,053
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 111,719
<SHARES-COMMON-STOCK> 111,719
<SHARES-COMMON-PRIOR> 122,740
<ACCUMULATED-NII-CURRENT> 7,444
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (15,708)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 111,684
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,435,414
<OTHER-INCOME> 0
<EXPENSES-NET> 375,903
<NET-INVESTMENT-INCOME> 2,059,511
<REALIZED-GAINS-CURRENT> (4,208)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,055,303
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,454)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 216,238
<NUMBER-OF-SHARES-REDEEMED> (229,940)
<SHARES-REINVESTED> 2,681
<NET-CHANGE-IN-ASSETS> (8,770,775)
<ACCUMULATED-NII-PRIOR> 5,326
<ACCUMULATED-GAINS-PRIOR> (11,500)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 175,521
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 539,836
<AVERAGE-NET-ASSETS> 72,438
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> SIERRA TRUST US GOVT MONEY CL-S
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 40,884,658
<INVESTMENTS-AT-VALUE> 40,884,658
<RECEIVABLES> 2,798,909
<ASSETS-OTHER> 911
<OTHER-ITEMS-ASSETS> 74,900
<TOTAL-ASSETS> 43,759,378
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,178,053
<TOTAL-LIABILITIES> 4,178,053
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 438,893
<SHARES-COMMON-STOCK> 438,893
<SHARES-COMMON-PRIOR> 737,108
<ACCUMULATED-NII-CURRENT> 7,444
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (15,708)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 438,728
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,435,414
<OTHER-INCOME> 0
<EXPENSES-NET> 375,903
<NET-INVESTMENT-INCOME> 2,059,511
<REALIZED-GAINS-CURRENT> (4,208)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,055,303
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,141)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28,107,716
<NUMBER-OF-SHARES-REDEEMED> (28,414,129)
<SHARES-REINVESTED> 8,198
<NET-CHANGE-IN-ASSETS> (8,770,775)
<ACCUMULATED-NII-PRIOR> 5,326
<ACCUMULATED-GAINS-PRIOR> (11,500)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 175,521
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 539,836
<AVERAGE-NET-ASSETS> 262,386
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
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<NAME> SIERRA TRUST CALIFORNIA MONEY CL-A
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<NAME> SIERRA TRUST CALIFORNIA MONEY CL-S
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<NAME> SIERRA TRUST ST HIGH QUALITY BD CL-A
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<NAME> SIERRA TRUST ST HIGH QUALITY BD CL-B
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<NAME> SIERRA TRUST ST HIGH QUALITY BD CL-S
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<NAME> SIERRA TRUST SHORT TERM GLOB GOVT CL-A
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<NAME> SIERRA TRUST SHORT TERM GLOB GOVT CL-B
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<NAME> SIERRA TRUST SHORT TERM GLOB GOVT CL-S
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<NAME> SIERRA TRUST US GOVT CL-A
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<NAME> SIERRA TRUST US GOVT CL-B
<S> <C>
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<NUMBER> 043
<NAME> SIERRA TRUST US GOVT CL-S
<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 071
<NAME> SIERRA TRUST CORPORATE INCOME CL-A
<S> <C>
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<NUMBER> 072
<NAME> SIERRA TRUST CORPORATE INCOME CL-B
<S> <C>
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<NUMBER> 073
<NAME> SIERRA TRUST CORPORATE INCOME CL-S
<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 051
<NAME> SIERRA TRUST CALIFORNIA MUNI CL-A
<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<NUMBER> 052
<NAME> SIERRA TRUST CALIFORNIA MUNI CL-B
<S> <C>
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<NAME> SIERRA TRUST FLORIDA INSURED MUNI CL-A
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<NAME> SIERRA TRUST FLORIDA INSURED MUNI CL-B
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<NAME> SIERRA TRUST FLORIDA INSURED MUNI CL-S
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<NAME> SIERRA TRUST NATIONAL MUNICIPAL CL-B
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 083
<NAME> SIERRA TRUST NATIONAL MUNICIPAL CL-S
<S> <C>
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<PERIOD-END> JUN-30-1996
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<SHARES-REINVESTED> 49
<NET-CHANGE-IN-ASSETS> (33,659,476)
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (11,329,738)
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<PER-SHARE-NAV-BEGIN> 10.76
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 061
<NAME> SIERRA TRUST GROWTH & INCOME CL-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
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<DIVIDEND-INCOME> 4,529,471
<INTEREST-INCOME> 409,112
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<NET-INVESTMENT-INCOME> 1,072,309
<REALIZED-GAINS-CURRENT> 38,695,166
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<NUMBER-OF-SHARES-SOLD> 9,665,189
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<PER-SHARE-NAV-BEGIN> 12.58
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 062
<NAME> SIERRA TRUST GROWTH & INCOME CL-B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
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<SHARES-COMMON-STOCK> 1,705,017
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<NUMBER-OF-SHARES-SOLD> 1,245,754
<NUMBER-OF-SHARES-REDEEMED> (163,885)
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<NET-CHANGE-IN-ASSETS> 45,025,739
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<PER-SHARE-NAV-BEGIN> 12.55
<PER-SHARE-NII> (0.02)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 063
<NAME> SIERRA TRUST GROWTH & INCOME CL-S
<S> <C>
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
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<INTEREST-INCOME> 409,112
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<PER-SHARE-NII> (0.02)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 121
<NAME> SIERRA TRUST GROWTH CL-A
<S> <C>
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
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<TOTAL-LIABILITIES> 4,726,119
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<PAID-IN-CAPITAL-COMMON> 130,200,540
<SHARES-COMMON-STOCK> 11,451,604
<SHARES-COMMON-PRIOR> 10,910,557
<ACCUMULATED-NII-CURRENT> (165,570)
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<NET-ASSETS> 179,720,185
<DIVIDEND-INCOME> 1,411,677
<INTEREST-INCOME> 1,250,902
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<EXPENSES-NET> 4,093,750
<NET-INVESTMENT-INCOME> (1,431,171)
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<NUMBER-OF-SHARES-SOLD> 17,410,639
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<PER-SHARE-NAV-BEGIN> 14.18
<PER-SHARE-NII> (0.07)
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 122
<NAME> SIERRA TRUST GROWTH CL-B
<S> <C>
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
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<NET-INVESTMENT-INCOME> (1,431,171)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 123
<NAME> SIERRA TRUST GROWTH CL-S
<S> <C>
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 091
<NAME> SIERRA TRUST EMERGING GROWTH CL-A
<S> <C>
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<NAME> SIERRA TRUST EMERGING GROWTH CL-B
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<NUMBER> 093
<NAME> SIERRA TRUST EMERGING GROWTH CL-S
<S> <C>
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<PERIOD-END> JUN-30-1996
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</TABLE>
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<SERIES>
<NUMBER> 101
<NAME> SIERRA TRUST INT'L GROWTH CL-A
<S> <C>
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<FISCAL-YEAR-END> JUN-30-1996
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 102
<NAME> SIERRA TRUST INT'L GROWTH CL-B
<S> <C>
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 103
<NAME> SIERRA TRUST INT'L GROWTH CL-S
<S> <C>
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<FISCAL-YEAR-END> JUN-30-1996
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</TABLE>
<TABLE> <S> <C>
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<NAME> SIERRA TRUST TARGET MATURITY 2002 CL-A
<S> <C>
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